Electronic Commerce

Contents Part I What is e-commerce? 1 st and 2 nd waves of e-commerce e-commerce categories Part II Economic Forces Value chains International issues Part III B2C e-commerce example Part I What is e-commerce? 1 st and 2 nd waves of e-commerce e-commerce categories Part II Economic Forces Value chains International issues Part III B2C e-commerce example

Part I What is e-commerce? 1 st and 2 nd waves of e- commerce e-commerce categories What is e-commerce? 1 st and 2 nd waves of e- commerce e-commerce categories

What is Commerce? Traditional commerce may be defined as: From Webster's Revised Unabridged Dictionary Commerce : \Com"merce\, noun. The exchange or buying and selling of commodities; esp. the exchange of merchandise, on a large scale, between different places or communities; extended trade or traffic. Traditional commerce may be defined as: From Webster's Revised Unabridged Dictionary Commerce : \Com"merce\, noun. The exchange or buying and selling of commodities; esp. the exchange of merchandise, on a large scale, between different places or communities; extended trade or traffic.

What is Electronic Commerce? Electronic commerce (e-commerce) is a general term for any type of business, or commercial transaction that involves the transfer of information across the Internet. This covers a range of different types of businesses from consumer-based retail sites, like Amazon.com, through auction and music sites like eBay or MP3.com, to business exchanges trading goods or services between corporations. [WHYTE]

What is Electronic Commerce? Electronic commerce is the use of electronic communication to do business. E-commerce is not about technology. It is not a new business. E-commerce is a method for companies to create and operate their business in new and efficient ways. [NSW]

What is Electronic Commerce? Most fundamentally, e-commerce represents the realization of digital, as opposed to paper-based, commercial transactions between businesses, between a business and its consumers, or between a government and its citizens or constituent business. [FORDW]

What is Electronic Commerce? In summary, e-commerce is the use of electronic communication to do business Specifically, the transfer of information (transactions), over the Internet Some people use the term e-business to refer to all the categories of e-commerce E.g. IBM defines e-business as: The transformation of key business processes through the use of internet technologies In summary, e-commerce is the use of electronic communication to do business Specifically, the transfer of information (transactions), over the Internet Some people use the term e-business to refer to all the categories of e-commerce E.g. IBM defines e-business as: The transformation of key business processes through the use of internet technologies

From Traditional to E-commerce Sailing ships Printing press Steam engine Telephone Opened avenues for trade between buyers and sellers. Ancient times (thousands of years ago)

From Traditional to E-commerce Electronic Funds Transfer (EFTs) Electronic Data Interchange (EDI) Internet Wire transfers - used by banks Businesses transfer electronic data - data not re-keyed - high implementation cost, thus excluded small businesses On-line shopping

Business Processes Well-suited to Particular Type of Commerce E-commerce Sale/purchase of books & CDs, travel services, investments and insurance services Online delivery of software Online shipment tracking E-commerce Sale/purchase of books & CDs, travel services, investments and insurance services Online delivery of software Online shipment tracking

Business Processes Well-suited to Particular Type of Commerce E-commerce + Traditional Sale/purchase of automobiles and residential real estate (e.g. do research online then buy from a dealer or real estate agent) Online banking Roommate matching service E-commerce + Traditional Sale/purchase of automobiles and residential real estate (e.g. do research online then buy from a dealer or real estate agent) Online banking Roommate matching service

Business Processes Well-suited to Particular Type of Commerce Traditional Sale/purchase of impulse items for immediate use, high fashion jewelry and antiques (personal inspection required; prefer to touch, smell or examine closely) Small denomination purchases and sales (since there is not yet a standard for transferring small amounts of money) Traditional Sale/purchase of impulse items for immediate use, high fashion jewelry and antiques (personal inspection required; prefer to touch, smell or examine closely) Small denomination purchases and sales (since there is not yet a standard for transferring small amounts of money)

What Are the Advantages of E- commerce? Increases sales, decreases cost Allows small businesses to have global customer base Reduced cost through electronic sales enquires, price quotes and order taking Provides purchasing opportunities for buyers (businesses can identify new suppliers and partners) Increase speed and accuracy for exchanged information, thus reducing cost Increases sales, decreases cost Allows small businesses to have global customer base Reduced cost through electronic sales enquires, price quotes and order taking Provides purchasing opportunities for buyers (businesses can identify new suppliers and partners) Increase speed and accuracy for exchanged information, thus reducing cost

What Are the Advantages of E- commerce? Business can be transacted 24hrs a day The level of detail of purchase information is selected by user Digital products can be delivered instantly Tax refunds, public retirement and welfare support costs less when distributed over the Internet Allows products and services to be available in remote areas, e.g. remote learning Business can be transacted 24hrs a day The level of detail of purchase information is selected by user Digital products can be delivered instantly Tax refunds, public retirement and welfare support costs less when distributed over the Internet Allows products and services to be available in remote areas, e.g. remote learning

What Are the Disadvantages of E-commerce? Inability to sell some products (e.g. high cost jewelry and perishable foods, although supermarkets like delivers to your home) The newness and evolution of the current technology Many products require a large number of people to purchase to be viable High capital investment Inability to sell some products (e.g. high cost jewelry and perishable foods, although supermarkets like delivers to your home) The newness and evolution of the current technology Many products require a large number of people to purchase to be viable High capital investment

What Are the Disadvantages of E-commerce? Difficulty in integrating current databases and transaction processing systems into e-commerce solutions Cultural and legal obstacles Transmission of credit card details Some consumers resistant to change Laws are unclear Shipping profile: Products with a low value-to- weight ratio that can not be efficiently packed and shipped are unsuitable (use traditional commerce) Difficulty in integrating current databases and transaction processing systems into e-commerce solutions Cultural and legal obstacles Transmission of credit card details Some consumers resistant to change Laws are unclear Shipping profile: Products with a low value-to- weight ratio that can not be efficiently packed and shipped are unsuitable (use traditional commerce)

The 1 st Wave of E-commerce The 1 st wave was from the mid 1990s to 2003 Dot-com boom (over $100 billion in investment): Rapid growth from mid-1990s to 2000 Dot-com bust: in 2000 Gloom years: 2000 – 2003 (over $200 billion in investment) The 1 st wave was from the mid 1990s to 2003 Dot-com boom (over $100 billion in investment): Rapid growth from mid-1990s to 2000 Dot-com bust: in 2000 Gloom years: 2000 – 2003 (over $200 billion in investment)

Characteristics of the 1 st Wave It was primarily a U.S. phenomenon Web pages were in English Internet technologies were slow and inexpensive (e.g. dial-up lines) Bar codes and scanners used to track parts (B2B and Business processes) , tool for unstructured communication On-line advertising main revenue source It was primarily a U.S. phenomenon Web pages were in English Internet technologies were slow and inexpensive (e.g. dial-up lines) Bar codes and scanners used to track parts (B2B and Business processes) , tool for unstructured communication On-line advertising main revenue source

The 2 nd Wave of E-commerce Beginning in 2003 e- commerce has shown signs of new life Companies like Amazon.com (books), and eBay.com (auctions) who survived the downturn were beginning to show profits Continuous growth of B2C sales: 20-30% each year since 2000 Beginning in 2003 e- commerce has shown signs of new life Companies like Amazon.com (books), and eBay.com (auctions) who survived the downturn were beginning to show profits Continuous growth of B2C sales: 20-30% each year since 2000

Characteristics of the 2 nd Wave International scope where sellers do business in many countries and languages Faster, cheaper connections (x20 faster), broadband at home (although more expensive) Radio frequency ID devices and smart cards Fingerprint readers and retina scanners (biometric technologies) used for tracking , integral part of marketing International scope where sellers do business in many countries and languages Faster, cheaper connections (x20 faster), broadband at home (although more expensive) Radio frequency ID devices and smart cards Fingerprint readers and retina scanners (biometric technologies) used for tracking , integral part of marketing

Characteristics of the 2 nd Wave E-commerce integral part of marketing and customer contact strategy Some categories of on-line advertising, e.g. employment services (job want ads) have replaced traditional advertising outlets Problems Language conversions Currency conversions E-commerce integral part of marketing and customer contact strategy Some categories of on-line advertising, e.g. employment services (job want ads) have replaced traditional advertising outlets Problems Language conversions Currency conversions

E-commerce Categories There are five general e-commerce categories:  Business to Consumer (or B2C) e-commerce  Business to Business (or B2B) e-commerce (sometimes called e-procurement)  Business processes that support buying and selling activities  Consumer-to-consumer (or C2C) e-commerce  Business-to-government (or B2G) e-commerce There are five general e-commerce categories:  Business to Consumer (or B2C) e-commerce  Business to Business (or B2B) e-commerce (sometimes called e-procurement)  Business processes that support buying and selling activities  Consumer-to-consumer (or C2C) e-commerce  Business-to-government (or B2G) e-commerce

B2C e-commerce Description Businesses sell products or services to individual customers (consumers) Example Walmart.com sells merchandise to consumers through its Web site Web site Description Businesses sell products or services to individual customers (consumers) Example Walmart.com sells merchandise to consumers through its Web site Web site

B2B E-commerce Description Businesses sell products or services to other businesses Example Grainger.com sells industrial supplies to large and small businesses through its Web site Web site Description Businesses sell products or services to other businesses Example Grainger.com sells industrial supplies to large and small businesses through its Web site Web site

Business Processes Description Businesses and other organisations maintain and use information to identify and evaluate customers, suppliers and employees (and to support buying, selling hiring, planning and other activities). More and more this information is being shared Example Dell Computer uses secure internet connections to share current sales and forecasts with suppliers who use it to plan their production, therefore they deliver the right quantities of components at the right time Description Businesses and other organisations maintain and use information to identify and evaluate customers, suppliers and employees (and to support buying, selling hiring, planning and other activities). More and more this information is being shared Example Dell Computer uses secure internet connections to share current sales and forecasts with suppliers who use it to plan their production, therefore they deliver the right quantities of components at the right time

C2C e-commerce Description Participants in an online marketplace can buy and sell goods with each other Example Consumers and businesses trade with each other on eBay.com Web site Description Participants in an online marketplace can buy and sell goods with each other Example Consumers and businesses trade with each other on eBay.com Web site

B2G e-commerce Description Business sell goods or services to governments and government agencies Example Cal-Buy portal for businesses that want to sell online to the State of California Web site Description Business sell goods or services to governments and government agencies Example Cal-Buy portal for businesses that want to sell online to the State of California Web site

E-commerce Categories Example You are a computer manufacturing company who performs the following activities on the Internet: Sells computers to individuals (B2C) Purchases parts (e.g. hard drives, power supplies etc.) from a supplier (B2B) Hires staff, manage customer accounts, advertise, etc. (Business processes) Sells computers to the Government to be used in schools (B2G) On eBay.com individuals buy and sell this brand of computers (C2C) You are a computer manufacturing company who performs the following activities on the Internet: Sells computers to individuals (B2C) Purchases parts (e.g. hard drives, power supplies etc.) from a supplier (B2B) Hires staff, manage customer accounts, advertise, etc. (Business processes) Sells computers to the Government to be used in schools (B2G) On eBay.com individuals buy and sell this brand of computers (C2C)

Business processes Relative Sizes of E-commerce Categories B2C B2B

Relative Sizes of E-commerce Categories YearB2C Sales ($ Billions) B2B Sales ($ Billions)

Part II Economic Forces Value chains International issues Economic Forces Value chains International issues

Economic Forces Economics is the study of how people allocate scare resources Resources are allocated through: Commerce (markets) Government actions (e.g. taxes) Economics is the study of how people allocate scare resources Resources are allocated through: Commerce (markets) Government actions (e.g. taxes)

Markets A market is a place where sellers can come into contact with buyers and a medium of exchange (e.g. currency) is available (e.g.the stock market) Some hierarchal organisations (companies) however, due to high transaction cost, choose to replace supplier markets with its own hierarchal structure for creating the product. This is called vertical integration E.g. Thomson Financial, a financial software provider, purchased the data supplier Datastream A market is a place where sellers can come into contact with buyers and a medium of exchange (e.g. currency) is available (e.g.the stock market) Some hierarchal organisations (companies) however, due to high transaction cost, choose to replace supplier markets with its own hierarchal structure for creating the product. This is called vertical integration E.g. Thomson Financial, a financial software provider, purchased the data supplier Datastream

Hierarchical Organisations (Firms)

Transaction Costs Transaction costs are the total costs that a buyer and seller incur as they gather information and negotiate a purchase/sale transaction Transaction costs are the main reason for vertical integration (Ronald Coase) Businesses can use e-commerce to reduce transaction costs (e.g. telecommuting rather than physical commuting to allow global employment opportunities) Transaction costs are the total costs that a buyer and seller incur as they gather information and negotiate a purchase/sale transaction Transaction costs are the main reason for vertical integration (Ronald Coase) Businesses can use e-commerce to reduce transaction costs (e.g. telecommuting rather than physical commuting to allow global employment opportunities)

Transaction Costs Example Transaction costs incurred by a sweater dealer when purchasing from independent sweater knitters: Cost of identifying independent knitters Cost of site visit to negotiate purchase price, arrange delivery and inspection of sweaters Costs incurred by knitters: Knitting tools and yarn purchase Transaction costs incurred by a sweater dealer when purchasing from independent sweater knitters: Cost of identifying independent knitters Cost of site visit to negotiate purchase price, arrange delivery and inspection of sweaters Costs incurred by knitters: Knitting tools and yarn purchase

Network Economic Structures Many businesses operate in an economic structure that is neither market or hierarchical These businesses form, long-term, strategic alliances with other companies who share common goals and strategies These alliances may occur over the Internet – which are called virtual companies Teams complete a project or activity then dissolve New teams are creating as required Many businesses operate in an economic structure that is neither market or hierarchical These businesses form, long-term, strategic alliances with other companies who share common goals and strategies These alliances may occur over the Internet – which are called virtual companies Teams complete a project or activity then dissolve New teams are creating as required

Value Chains A value chain is a way to organise the activities that a business undertakes to design, produce, promote, market, deliver and support the products or services it sells There are several types of value chains including: Business unit value chains Industry value chains A value chain is a way to organise the activities that a business undertakes to design, produce, promote, market, deliver and support the products or services it sells There are several types of value chains including: Business unit value chains Industry value chains

Strategic Business Unit Value Chains A strategic business unit is a particular combination of product, distribution channel and customer type (large firms often break down their business into these units) The value chain for a strategic business unit include: Primary activities (the activities that the strategic business unit undertakes Support activities (such as human resource management and purchasing) A strategic business unit is a particular combination of product, distribution channel and customer type (large firms often break down their business into these units) The value chain for a strategic business unit include: Primary activities (the activities that the strategic business unit undertakes Support activities (such as human resource management and purchasing)

Manufacturer Value Chain Finance & admin Finance & admin HR Technology development Technology development Support activities Design Identify customers Identify customers Manufacture product or create service Manufacture product or create service deliver After sales service & support After sales service & support Market & sell Purchase materials and supplies Purchase materials and supplies Primary activities

Primary Activities Identify new customers, and sell new services to existing customers (research & surveys) Design – from concept to manufacturing Purchase materials and supplies – includes contracts, vendor selection, monitoring quality and delivery timeliness Manufacture product or create service –transform materials and labour into finished products Identify new customers, and sell new services to existing customers (research & surveys) Design – from concept to manufacturing Purchase materials and supplies – includes contracts, vendor selection, monitoring quality and delivery timeliness Manufacture product or create service –transform materials and labour into finished products

Primary Activities Market and sell – advertising, promoting, managing sales staff, pricing and monitoring sales Deliver – store, deliver distribute and ship final product – warehousing, consolidating freight, selecting shippers and monitoring delivery timeliness Provide after-sale service and support – promote relationship with customer, e.g. installing, maintaining, testing, repairing, and warranties Market and sell – advertising, promoting, managing sales staff, pricing and monitoring sales Deliver – store, deliver distribute and ship final product – warehousing, consolidating freight, selecting shippers and monitoring delivery timeliness Provide after-sale service and support – promote relationship with customer, e.g. installing, maintaining, testing, repairing, and warranties

Primary Activities If a strategic business unit provides a service then the value chain will include a “Provide service” activity instead of “Manufacture activity”

Support Activities Each business unit must also undertake support activities that provide the infrastructure for the primary activities: Finance and administration – accounting, paying bills, borrowing, compliance with laws Human resources – recruiting, hiring, training, compensation and benefits Technology development – improves the product or service, including basic and applied research and development, process improvement and field tests of maintenance procedures Each business unit must also undertake support activities that provide the infrastructure for the primary activities: Finance and administration – accounting, paying bills, borrowing, compliance with laws Human resources – recruiting, hiring, training, compensation and benefits Technology development – improves the product or service, including basic and applied research and development, process improvement and field tests of maintenance procedures

Industry Value Chains Industry value chains describes the larger stream of activities into which a particular business unit’s value chain is embedded When a business unit delivers a product to a customer the customer might use the product as purchased materials in its value chain By examining how other business units in the industry value chain conduct their business cost reduction and product improvement may result Industry value chains describes the larger stream of activities into which a particular business unit’s value chain is embedded When a business unit delivers a product to a customer the customer might use the product as purchased materials in its value chain By examining how other business units in the industry value chain conduct their business cost reduction and product improvement may result

Industry Value Chain Example A value chain for a wooden chair Logger cuts down tree Sawmill converts logs to lumber Lumberyard provides selection of lumber Chair manufacture assembles chair Furniture retailer markets and sells chair Consumer purchases and uses chair Landfill or recycler disposes of chair A value chain for a wooden chair Logger cuts down tree Sawmill converts logs to lumber Lumberyard provides selection of lumber Chair manufacture assembles chair Furniture retailer markets and sells chair Consumer purchases and uses chair Landfill or recycler disposes of chair

International Issues Trust issues Language issues Culture issues Infrastructure issues Trust issues Language issues Culture issues Infrastructure issues

Trust Issues Anyone can create a site on the Web These individuals or businesses can easily remain anonymous Without an established brand consumers find it difficult to trusts on-line businesses: especially with personal information and credit card numbers The key is developing methods which allow legitimate businesses to establish trusts relationships quickly with consumers Anyone can create a site on the Web These individuals or businesses can easily remain anonymous Without an established brand consumers find it difficult to trusts on-line businesses: especially with personal information and credit card numbers The key is developing methods which allow legitimate businesses to establish trusts relationships quickly with consumers

Language Issues (localisation) Global impact requires local language Web sites customers prefer to buy from sites in native language 60% of web content today is in English; but more than 50% of the current users do not read English Multiple translations may be required for different dialects, e.g. Spanish- Mexico and Spain Translating entire Web sites is expensive cents per word for human translators ( words per hour) Automated software translation (machine translation) is cheaper (400,000 word per hour) - less accurate Global impact requires local language Web sites customers prefer to buy from sites in native language 60% of web content today is in English; but more than 50% of the current users do not read English Multiple translations may be required for different dialects, e.g. Spanish- Mexico and Spain Translating entire Web sites is expensive cents per word for human translators ( words per hour) Automated software translation (machine translation) is cheaper (400,000 word per hour) - less accurate

Culture Issues Culture – the combination of language and customs Culture varies across national boundaries and in many cases regions within nations Example: General Motors Chevrolet Nova automobile amused people in Latin America since no va means “it will not go” Culture – the combination of language and customs Culture varies across national boundaries and in many cases regions within nations Example: General Motors Chevrolet Nova automobile amused people in Latin America since no va means “it will not go”

Culture Issues Choice of icons on Web pages becomes problematic on international Web sites: In the US a shopping cart is useful, in the UK a shopping basket is more appropriate, Australians call shopping carts, shopping trolleys In many places other than Brazil the thumbs up gesture means okay, in Brazil it is an obscene gesture Choice of icons on Web pages becomes problematic on international Web sites: In the US a shopping cart is useful, in the UK a shopping basket is more appropriate, Australians call shopping carts, shopping trolleys In many places other than Brazil the thumbs up gesture means okay, in Brazil it is an obscene gesture

Infrastructure Issues Limited telecommunication infra-structure may lead to unreliable Internet access Internet connection cost might be high Reduces time businesses might spend surfing for new suppliers or products Flat-rate access to the Internet required Limited telecommunication infra-structure may lead to unreliable Internet access Internet connection cost might be high Reduces time businesses might spend surfing for new suppliers or products Flat-rate access to the Internet required

Part III B2C e-commerce example

B2C E-commerce Example The task Purchase “Design Patterns”, “Software Engineering” and “Cryptography Decrypted” from a bookstore Options Go to a bookstore in person and purchase books Use an online bookstore, e.g. Amazon.co.uk and have the books delivered to your door The task Purchase “Design Patterns”, “Software Engineering” and “Cryptography Decrypted” from a bookstore Options Go to a bookstore in person and purchase books Use an online bookstore, e.g. Amazon.co.uk and have the books delivered to your door

Step 1: Log on to Amazon.Co.uk

Step 2: Click the Books tab

Step 3: Type “Software Engineering” Then Click Go

Definitions A commodity item is a product or service that is hard to distinguish from the same products or services provided by other sellers (e.g. gasoline, office suppliers, soap and computers) A transaction is an exchange of value, such as a purchase or sale, or the conversion of raw materials into finished products (a transaction has one or more associated activity) A business process is the set of logically related and sequential activities and transactions in which businesses engage A commodity item is a product or service that is hard to distinguish from the same products or services provided by other sellers (e.g. gasoline, office suppliers, soap and computers) A transaction is an exchange of value, such as a purchase or sale, or the conversion of raw materials into finished products (a transaction has one or more associated activity) A business process is the set of logically related and sequential activities and transactions in which businesses engage

Definitions Merchandising is a combination of store design, layout and product display knowledge A shipping profile is the collection of attributes that affect how easily that product can be packaged and delivered (e.g. airline tickets have a high value-to- weight ratio) Merchandising is a combination of store design, layout and product display knowledge A shipping profile is the collection of attributes that affect how easily that product can be packaged and delivered (e.g. airline tickets have a high value-to- weight ratio)

Definitions The definition of a market satisfies two conditions: Potential seller of a good (product0 comes into contact with buyers A medium of exchange is available (e.g. currency or barter (to exchange goods or services directly without the use of money)) The definition of a market satisfies two conditions: Potential seller of a good (product0 comes into contact with buyers A medium of exchange is available (e.g. currency or barter (to exchange goods or services directly without the use of money))

Definitions Transaction costs are the total costs that a buyer and seller incur as they gather information and negotiate a purchase/sale transaction. This includes: Brokerage fees and sales commissions Cost of information search and acquistion Seller’s investment in equipment or hire of skilled employees Transaction costs are the total costs that a buyer and seller incur as they gather information and negotiate a purchase/sale transaction. This includes: Brokerage fees and sales commissions Cost of information search and acquistion Seller’s investment in equipment or hire of skilled employees

References [NSW] NSW Department of State and Regional Development, “Brief on Electronic Commerce”, nology/brief/index.html [FordW] Ford, Warwick, “Secure Electronic Commerce: Building the Infrastructure for Digital Signatures and Encryption (2 nd Edition), pp. 1, 2000 [Sch2004] Schneider, Gary, P., “Electronic Commerce: The second wave”, Thomson Course Technology, Fifth Annual Edition, 2004 [NSW] NSW Department of State and Regional Development, “Brief on Electronic Commerce”, nology/brief/index.html [FordW] Ford, Warwick, “Secure Electronic Commerce: Building the Infrastructure for Digital Signatures and Encryption (2 nd Edition), pp. 1, 2000 [Sch2004] Schneider, Gary, P., “Electronic Commerce: The second wave”, Thomson Course Technology, Fifth Annual Edition, 2004