Copyright 2007 John Wiley & Sons, Inc. Information Systems: Creating Business Value John Wiley & Sons, Inc. Mark Huber, Craig Piercy, and Patrick McKeown

Copyright 2007 John Wiley & Sons, Inc. Chapter 7: E-Commerce for Consumers and Organizations

Copyright 2007 John Wiley & Sons, Inc. What We Will Cover: E-Commerce: An Overview The E-Commerce Difference E-Commerce for Consumers E-Commerce Between Organizations

Copyright 2007 John Wiley & Sons, Inc. Student ROI (Return on Investment) Your investment of time and effort in this course will result in your being able to answer these questions: 1.What is e-commerce and how is it a part of today’s economy? 2.How does e-commerce make a difference to businesses and consumers? 3.How does e-commerce allow businesses to create value for their consumers? 4.How do businesses use e-commerce to enhance the products and services that they trade with business partners, as well as to improve their supply chain efficiency?

Copyright 2007 John Wiley & Sons, Inc. What is e-commerce? E-commerce is the use of information systems, technologies, and computer networks to carry out transactions in order to create or support the creation of business value. Note that we do not say “to buy and sell over the Internet” in our definition – why? –

Copyright 2007 John Wiley & Sons, Inc. Uneven penetration into areas of commerce –Travel Industry versus Retail Clothing Industry (clothing is trending upward) –Most people think of e-commerce as electronic shopping over the WWW or Business to Consumer e-commerce (B2C - transactions in hundreds of millions of dollars) –However, Business to Business e-commerce (B2B) transactions are valued in trillions of dollars! E-commerce (cont.)

Copyright 2007 John Wiley & Sons, Inc. Types of E-Commerce Transactions TransactionDescriptionExample Web sites Business-to- consumer (B2C) Business-to-business (B2B) Business-to- government (B2G) App.mt.gov/bustax Consumer-to- government (B2G) express.hsmv.state.fl.us Consumer-to- consumer (C2G) auctions.yahoo.com

Copyright 2007 John Wiley & Sons, Inc. E-Commerce and Products: Physical and Electronic Products can be divided into two primary categories: __________and __________. Physical products include …. Electronic products …. E-commerce companies must have ________ - ________ ________ to handle order fulfillment and to handle returns for physical goods, Companies experienced in order fulfillment and returns have tended to be successful in dealing with physical goods using E-commerce. –Examples -

Copyright 2007 John Wiley & Sons, Inc. Types of E-Commerce Transactions and Associated Goods TransactionExample Physical Goods Example Electronic Goods B2C B2B B2G C2G C2C

Copyright 2007 John Wiley & Sons, Inc. Purchase of Physical Goods

Copyright 2007 John Wiley & Sons, Inc. Purchase of Electronic Products

Copyright 2007 John Wiley & Sons, Inc. The “E-Commerce Difference” The use of computer networks, especially the Internet, to carry out transactions between a variety of buyers and sellers is creating a tangible “e-commerce difference” in our economy, especially with regard to – Over 1 billion potential customers around the world in the marketspace due to increasing Internet access. Universal standards make it work the same way no matter where in the world you might be.

Copyright 2007 John Wiley & Sons, Inc. Impact of E-commerce Technologies on Business

Copyright 2007 John Wiley & Sons, Inc. E-Commerce Differences Innovative uses of the Internet have produced global competition with sellers being able to reach any potential buyer in the world. This is true for both the large retailers and for those selling in niche market. Technology has increased information density—the quality and quantity of information about products and services. Customers can obtain product guides, reviews, and prices from a myriad of Web sites creating business challenges.

Copyright 2007 John Wiley & Sons, Inc. Mass Customization and Personalization One response to information density is to create business value based on a customization-oriented approach to e-commerce. Two approaches to customization are: mass customization and personalization. Mass customization - Personalization -

Copyright 2007 John Wiley & Sons, Inc. E-commerce and Competition E-commerce is having a dramatic effect on competition between organizations in a number of ways including: –

Copyright 2007 John Wiley & Sons, Inc. Business and E-commerce Strategy E-commerce has changed business strategy. A strategy is a broad-based formula for how a business is going to compete, what its goals should be, and what plans and policies will be needed to carry out those goals. 1 1 Michael Porter “What is Strategy”, Harvard Business Review, November 1996, pp

Copyright 2007 John Wiley & Sons, Inc. E-commerce Strategy An e-commerce strategy is a … To build an e-commerce strategy requires two view of an organization’s strategy: what is wants to do (conceptual) and how it will do it (technology strategy). One strategy being used by many companies is customer relationship management which enables them to create to one-to- one marketing experience for their customers. Other e-commerce strategies include virtual showrooms, increased channel choices, wider component choice, and use of mobile technology. Mobile commerce is …

Copyright 2007 John Wiley & Sons, Inc. Benefits and Limitations of B2C E-commerce for Consumers 1 1 Some but not all of these were taken from E. Turban, et. al., Electronic Commerce: A Managerial Prospective 2002, Prentice-Hall: Upper Saddle River, NJ, pp BenefitsLimitations Lower price 24/7 Greater searchability Shorter delivery times for digital products Share info with other co sumers Improved customer service Unavailability of micropayments for small cost purchases Inability to touch Security and privacy concerns Can be slow if no high speed Delay in shipping

Copyright 2007 John Wiley & Sons, Inc. Benefits and Limitations of B2C E-commerce for Businesses 1 BenefitsLimitations Expansion of marketplace to global proportions Chaper electronic transactions Greater customer loyatlty Expansion of niche opp Direct comm with customers through website Increased competition due to global marketplace Ease of comparison between competing prodiucts drives prices down Customers want specific chocies not subs Customers control flow of info instead of companies

Copyright 2007 John Wiley & Sons, Inc. E-commerce Business Models A business model defines how a company will meet the needs of its customers while making a profit. An e-commerce business model is a business model appropriate for conducting business via electronic networks. The next three slides list and give examples of e-commerce business models (Source: adapted from Michael Rappa,

Copyright 2007 John Wiley & Sons, Inc. E-commerce Business Models (cont.) 1 1 Adapted from Micheal Rappa, Business Model DescriptionExamplesComments BrokerageBrokers bring buyers and sellers together for a fee. Ebay,pricline, paypalThere are many types of brokerage models in all types of e-commerce. AdvertisingAn extension of the traditional media broadcasting model in which ads appear on Web sites. Yahoo, netscape, cnn.com, google There are many different types of advertising, but all depend on a large volume of viewer traffic. MerchantSell products, both physical and electronic, to consumers Amazon.com, landsend.com, walmart.com, itunes Commonly referred to as e-tailers, merchants can use pure e-commerce or a combination (click and mortar).

Copyright 2007 John Wiley & Sons, Inc. 1 Adapted from Micheal Rappa, E-commerce Business Models (cont.) 1 Business Model DescriptionExamplesComments Manufacturer Direct Make and sell products directly to customer Dell, ibm, microsofct, mcafee Products can be purchased (PCs), leased (servers), or licensed (software). AffiliateAffiliate Web sites are paid a fee when purchases come through them. Amazon.com fees to affiliate web sites Can also include banner ad exchange between affiliated sites as well as revenue- sharing. CommunityBased on user loyalty because of high investment of time and emotion. Apple computers, red hat software Revenue is generated through sale of ancillary products or voluntary contributions

Copyright 2007 John Wiley & Sons, Inc. E-commerce Business Models (cont.) 1 1 Adapted from Micheal Rappa, Business Model DescriptionExamplesComments SubscriptionUsers are charged fee to subscribe to service to service or information source Classmates, highbeam, netsacpe, aol Subscription may be for premium services; advertising model may be combined with this model InfomediaryProvides data on consumers and consumption habits Doubleclick, netratings, edmunds Usually aimed at helping businesses rather than consumers CoopetitiveEnable competitors to cooperate on a Web site Autotrader.com, VRBO.com Usually aimed at individuals or small businesses that cannot attract customers to their own Web site.

Copyright 2007 John Wiley & Sons, Inc. E-commerce Web site Purpose The purpose of an e-commerce website is another way to understand businesses’ e-commerce business models. No matter how good the business model, it will not generate a profit if not associated with a Web site that brings in customers or at least visitors. There are eight commonly accepted types of Web sites: portal, search engine, Browse or search and buy, sales support, information service, auction, travel, and special interest or services. A number of these match up with multiple business models.

Copyright 2007 John Wiley & Sons, Inc. Web Sites Classified By Purpose Web Site TypePurposeExampleBusiness Model PortalA gateway to many other Web sites Netscape.co m, msn Advertising, Affiliate Search Engine Finds Web sites that contain a word or phrase Google, yahoo, msn, dogpile Advertising, Affiliate, Infomediary Browse or search and buy Sell goods and services Delll, landsend, itunes Merchant, Infomediary, Manufacturer Direct, Coopetitive Sales SupportTo provide information on a product before or after the sale Microsoft, bmw, mcafee, cingular Community, Infomediary

Copyright 2007 John Wiley & Sons, Inc. Web Sites Classified By Purpose (Cont.) Web Site TypePurposeExampleBusiness Model Information Service To provide news, information, commentary, and so on. Usatoday, rivals, edmunds Subscription, Community, Affiliate AuctionFacilitate sales between third parties Ebay Brokerage TravelSell travel tickets and tours Delta, hotwaire Merchant, Brokerage, Coopetitive Special Interest or Services Provide information, product sales and support, and contacts between visitors Dogvent, micosoft support groups, Community, Merchant, Affiliate, Infomediary, Advertising BlogsSimilar infoSubs, ads, community Social Networking Contact with friendsMyspace, friendster, facebook

Copyright 2007 John Wiley & Sons, Inc. B2B e-commerce: E-Commerce Between Organizations Doing business with other organizations (B2B) is by far larger than with consumers (B2C). It is also quite different in terms of the scope of the purchases and the complexity involved in them— especially in the decision making required to make a purchase. For example, while you buy one PC, a company may buy thousands. What are Interorganizational systems (IOS)? are the info systems that handle the info flow between trading partners

Copyright 2007 John Wiley & Sons, Inc. Comparing B2C to B2B ProcessIndividualBusiness Organization Decision to purchase Made based on own needs Made based on the organization’s needs which are a combination of many different departmental and individual needs Decision where to buy Made after own research into market Made through a systematic process that involves considering what each vendor can provide the organization in terms of setup, networking, and so on. Number of Items OneMany Actual Purchase Buy computer online or in person with personal credit card Buy computers only after significant negotiations over price and terms with vendor PaymentPay credit card bill with personal check Pay by company check only after assuring that all computers have been delivered and setup by vendor

Copyright 2007 John Wiley & Sons, Inc. B2B Transactions B2B transactions can be divided into two types: spot buying and strategic sourcing. What is spot buying? Companies often use spot buying to purchase commodities, i.e., uniform in quality differing only in price like gasoline, paper, and cleaning supplies. What is strategic sourcing? A company’s large-scale computer purchases often result from strategic sourcing.

Copyright 2007 John Wiley & Sons, Inc. B2B Business Models Strategic sourcing is often carried out through a one-to-one business model, but company-centric and exchange models are also used. In the one-to-one business model … Two companies forma trading relationship In the company-centric business model … a buyer from many or a seller to many companies The single company dominates the market and controls the information systems that supports the transactions. Electronic data interchange (EDI) or an extranet is often used to link trading partners. E-procurement is often the name for B2B e-commerce in the many-to-one business model. Upsteam trying to buy things from suppliers. A reverse auction suppliers bid for it. GXS was a sytem for GE. Aggregating catelogs Group purchasing Downstrem similar allows customization, specific, dell, cisco

Copyright 2007 John Wiley & Sons, Inc. Company Centric Business Model

Copyright 2007 John Wiley & Sons, Inc. Exchange Model In the exchange business model, many companies use an exchange to buy and sell from each other through spot-buying transactions. (brokerage fees). Easier to find u, and customers

Copyright 2007 John Wiley & Sons, Inc. Types of Exchanges Exchanges can be cooperative ventures among the companies or it can be run by a larger company that profits from the transactions. What is a vertical exchange? Meeting needs of a single industry What is an horizontal exchange?number of exchange deal with products and services that all companies need. From an e-commerce point-of-view, exchanges are often Web sites that buyers and sellers post their needs and offerings. MyBoeingFleet, Elance by/for small businesses and individuals – catalog, rev auction

Copyright 2007 John Wiley & Sons, Inc. Services in B2B E-Commerce Service or Electronic Product Comments Software Leasing Travel Just as services are an important part of B2C e-commerce, they are also an important part of B2B e-commerce.

Copyright 2007 John Wiley & Sons, Inc. Service or Electronic Product Comments Insurance Banking Stock trading Financing Services in B2B E-Commerce (cont.)

Copyright 2007 John Wiley & Sons, Inc. Using B2B e-commerce and IOS to Improve Supply Chain Efficiency What is a supply chain? 1 is a network of facilities and distribution options that performs the functions of procurement of materials, transformation, of these material into intermediate and finished products, and the distribution of these finished products to customers. Procurement is a big part of the supply chain and using e-commerce for e-procurement has resulted in money savings. To see why, we first need to understand the traditional procurement process. 1 “An Introduction to Supply Chain Management”, Ram Ganeshan Terry P. Harrison,

Copyright 2007 John Wiley & Sons, Inc. Traditional Procurement Process In the traditional procurement process, there are five steps involving three elements—purchase order, invoice, and receipt of goods: 1.Purchase order (PO) to vendor 2.Goods to buyer along with bill of lading (BOL) 3.Upon receipt of goods and BOL, signed copy of BOL returned to vendor and receipt of goods is filed 4.Vendor sends invoice to buyer 5.Buyer’s accounting department compares PO to receipt of goods and invoice. If there is a match, buyer pays the vendor.

Copyright 2007 John Wiley & Sons, Inc. Traditional Procurement Process

Copyright 2007 John Wiley & Sons, Inc. Interorganizational Systems (IOS) An interorganizational system (IOS) is a networked information system used by two or more separate organizations to perform a joint business function. 1 Electronic Data Interchange (EDI) Extranets 1 Cash, J. I. Jr., F. W. McFarlan, J. L. McKenney, and L. M. Applegate Corporate information systems management: text and cases. 4th ed. Homewood, IL: Irwin, p. 339.

Copyright 2007 John Wiley & Sons, Inc. Using E-commerce to Improve the Procurement Process What is Electronic Data Interchange (EDI)? Even though often overshadowed by newer technology, EDI remains the engine behind the majority of e-commerce transactions worldwide. It is, however, too expensive for most small businesses. What are extranets? An extranet can be thought of as two connected intranets.

Copyright 2007 John Wiley & Sons, Inc. Extranets

Copyright 2007 John Wiley & Sons, Inc. Comparing EDI and Extranets EDIExtranet Security Cost Flexibility Trend