CHAPTER 7: Electronic Commerce Systems

Learning Objectives

• Identify the major categories of e-commerce applications.

• Identify the essential processes of an e-commerce system, and give examples of how they are implemented in e-commerce applications.

• Identify several key factors and Web store requirements needed to succeed in e-commerce.

• Identify the business value of several types of e-commerce marketplaces.

E-Commerce

• Exchange or buying and selling of products and services by electronic means.

• E-commerce systems rely on the resources of the Internet, intranets, extranets, and other technologies.

• Projections show that by 2006, total e-commerce spending by consumers and businesses could surpass $ 5 trillion.

• There are many applications of EC, such as home banking, shopping, buying stocks, finding a job, travel, online publishing, or conducting an auction.

History and Scope

• E-commerce applications began in early 1970s with such innovations as electronic transfer of funds.

• However, the applications were limited to large corporations and a few daring businesses.

• Then came EDI, which added other kinds of transaction processing and extended participation to all industries.

• With the introduction of the Web in the early 1990s, EC applications have rapidly expanded.

Electronic Commerce ApplicationsShopping Online Banking Auctions Travel Customer Services

Buying and selling stocks Job search

People:Buyers, sellers,

IS people, and management

Public policy:Taxes, legal,

Privacy issues, regulations

Marketing and Advertising:

Market research,Promotions.

Supply chain:Business partners

Infrastructure

EDI E-mail HTTP HTML Java VAN WAN LAN Intranet Extranet Electronic payments Electronic catalogs Wireless Internet WWW

A Framework for E-commerce

MANAGEMENT

E-Business – Transaction MediumMost e-commerce is done over the Internet. But EC can also be conducted on private networks, such as value-added networks (VANs, networks that add communication services to existing common carriers), on local area networks (LANs) or wide area networks (WANs)

The Infrastructure of E-commerce

• Succeeding e-commerce applications is not a simple task.

• The large number of issues must be considered and the large number of companies and government agencies may be involved.

• Major issues in e-commerce: Infrastructure, and electronic payment issues.

E-commerce Infrastructure

• An infrastructure must be in place.• E-commerce infrastructure requires a

variety of hardware, software, and networks.

• The key infrastructures that are needed to support EC applications are networks, Web servers, Web server support and software, electronic catalogs, Web page design, and Internet access components.

Web Store Requirements

• An organization's first venture into EC is the development of a Web site and the creation of a presence on the Internet.

• E-commerce transactions must be executable worldwide, without any delay or mistake.

• On a very basic website , an organization provides information about itself, its products and its services.

• A more developed Web site will allow some interactions, such as sending an e-mail to request for the information or schedule an appointment, or ordering.

Web Store Requirements

• The design of Website requires expertise.• Good designs such can be very rewarding.• Outsourcing Web page designs should be carefully

evaluated because of the high cost.• Once the company builds its web site, it should include

web pages and e-mail ads, and promotions for customers and Web visitors. It should be attractive and friendly.

• The company can register its Web site within a domain name as well as registering it with the major Web search engines.

• A good web site must have a fast catalog search engine, special discounts, credit card and other payments, and shipping alternatives so that it can attract new customers.

• It must offer customer support via help menus, tutorials, and list of FAQs.

Electronic Payments• Payments are an integral part of doing business,

whether in the traditional way or online.• In most cases, traditional payment systems are not

effective for EC (using cash, writing a check, sending a money order have several limitations in EC) .

• Usually in e-commerce, payments between buyers and sellers can take place electronically.

• Special electronic payments have been developed to handle ways of paying for goods electronically on the Internet.

• These include EFT (Electronic Fund Transfer), electronic checks, electronic credit cards, electronic wallets.

Electronic checks

• E-checks are similar to regular checks, and they are used mostly in business-to-business (B2B) e-commerce applications.

• There are several companies which offer e-check payment solutions to online and traditional merchants.

Encryption• It is a process of making messages

indecipherable .• Only those recipients with an authorized

key to the coding can retrieve the data.• For example, the letter “A” might be coded

as:• ABQ8iF 1 73 Rjbj / 83 ds 1 22 m 3 3 SP 5

Qqm2z.• Every letter and every number in the

encrypted data would have similarly complex coding, which may include as many as 128 characters for each letter or number for security.

Electronic credit cards• Electronic credit cards make it possible to charge

online payments to one’s credit card account.• It is easy and simple for a buyer to e-mail (submit)

her or his credit number to the seller. • The risk here is that hackers will be able to read

the credit card number.• For security, only cards with encrypted information

should be used.• For example, when you buy a book from

Amazon.com, your credit card information and purchase amount are encrypted in your browser. When this information arrives at Amazon.com, it will be transferred automatically (encrypted) to VISA, MasterCard for authorization.

Electronic Funds Transfer (EFT)

• Electronic transfer of money to and from financial institutions using telecommunications networks.

• EFT is widely used among banks and between banks and customers.

• Ex: Payment of mortgages, utility bills or car payments through monthly bank account deductions. Direct deposit of salaries in employees’ accounts.

• EFT is fast; it reduces delays associated with sending hardcopy documents, and it eliminates returned checks.

• It has become the only practical way to handle the large volume of financial transactions generated daily in the banking industry.

• EFT-based ATMs are available in shopping centers and business areas, allowing individuals to make deposit, withdrawals, and money transfers 24 hours a day.

Electronic Wallets

• Repeatedly filling out the purchase information, while at the same time eliminating the need to store the information on a merchant’s server might be annoying.

• An e-wallet is a software that is downloaded to a user’s PC and in which the user stores credit card numbers and other personal information.

• When the user shops at a merchant who accepts the e-wallet, the user can perform one-click shopping, with the e-wallet automatically filling in the necessary information.

• Credit card companies like Visa and Master card offer e-wallet services, as do Yahoo!, America Online (called Quick Checkout) and Microsoft (Passport).

• Of these Yahoo! has the largest number of merchant participants over 12,000.

E-Business – Transaction Types

E-commerce transactions can be done between various parties.

• Business-to-business (B2B): Both the sellers and the buyers are business organizations.

• Consumer-to-consumer (C2C): Individuals sell products or services to other individuals.

• Mobile commerce (m-commerce): When e-commerce is done in a wireless environment.

• Business-to-consumers (B2C): The sellers are organizations, and the buyers are individuals.

Business-to-consumer e-commerce (B2C)

• It involves retailing products and services to individual shoppers.

• Ex: Barnes&Noble.com, which sell books, software and music to individual consumers, is an example of B2C e-commerce.

Business-to-business e-commerce (B2B)

• Involves sales of goods and services among businesses.

• Ex: Milpro.com, Milacron’s Web site for selling cutting tools, grinding wheels, and metal working fluids to more than 100,000 small machining businesses, is an example of B2B.

Consumer-to-consumer e-commerce (C2C)

• Involves consumers selling directly to consumers.

• Ex: eBay, the giant Web auction site, allows people to sell their goods to other consumers by auctioning the merchandise off to the highest bidder.

M-commerce• Until recently, almost all e-commerce

transactions took place over wired networks. • Now cell phones and other wireless handheld

digital appliances are Internet enabled so that they can be used to send e-mail or access Web site.

• The use of handheld wireless devices for purchasing goods and services has been termed mobile commerce or m-commerce.

• Conduct of e-commerce via wireless devices.

Benefits of E-commerce

• To OrganizationsExpands a company’s marketplace to

national and international markets.Enables companies to procure material

and services from other companies, rapidly and at less cost.

Lower telecommunications costsHelps small businesses compete against

large companies.Allows lower inventories.

Benefits of E-commerce• To Customers: Provides less expensive products and services by

allowing the consumers to conduct quick online comparisons.

Give consumers more choices than they could easily locate otherwise.

Enables customers to shop or make other transactions 24 hours a day, from almost any location.

Delivers relevant and detailed information in seconds. Enables consumers to get customized products, from

PCs to cars, at competitive prices. Makes possible electronic auctions.

Limitations and Failures of E-Commerce• EC has some limitations, both technical

and non-technical, which have slowed its growth and acceptance.

• Technical Limitations: Insufficient telecommunications

bandwidth.Need for special Web servers in addition to

the network servers.Expensive and/or inconvenient Internet

accessibility for many would-be users.

Limitations and Failures of E-Commerce• Non-technical limitations: Unsolved legal issues Lack of national and international government

regulations and industry standards Customer resistance to changing from a real to

a virtual store. Perception that EC is expensive and

unsecured. An insufficient number of sellers and buyers

exists for profitable EC operations.

Business- to- Consumer (B2C)• For generations home shopping from catalogs has

flourished, and television shopping channels have attracted millions of shoppers. However, these methods have drawbacks: Both methods can be expensive; paper catalogs are sometimes not up-to-date; and television shopping is limited to what is shown on the screen at any given time.

• Shopping online offers an alternative to catalog and TV shopping that appeals to many customers.

• Forrester Research Institute and others predict that online B2C will be in the range of $300 to $800 billion in 2004.

• Major categories of B2C applications are electronic retailing, electronic storefronts, and electronic malls.

Electronic retailing

• E-commerce enables you to buy from home, 24 hours a day, 7 days a week.

• Electronic retailing (e-tailing) is the direct sale of products through electronic storefronts or electronic malls.

• The major portion of B2C focuses on electronic retailing which provides many advantages over traditional retailing in terms of product, place and price.

• Web sites can offer a virtually unlimited number and variety of products since e-tailing is not limited by physical space requirements. For example, in 1999 Amazon.com offered over 4,000,000 book titles on the Web compared with the book retailer Barnes & Noble which could offer 200,000 items due to restricted space of their physical stores.

• Traditional retailing can be accessed only at physical store locations during open hours, e-tailers can conduct business anywhere at any time.

• E-tailers also can compete on price effectively since they can turn their inventory.

Electronic Storefronts

• Hundreds of thousands of solo storefronts can be found on the Internet, each with its own name and Web site.

• Electronic storefronts can be an extension of physical stores such as Home Depot, and Wal-Mart.

Electronic Malls

• An electronic mall, also known as a cybermall or e-mall, is a collection of individual shops under one internet address.

• The basic idea of an electronic mall is the same as that of a regular shopping mall-to provide a one-stop shopping place that offers many products and services.

• Representative cybermalls are Downtown Anywhere, HandCrafters Mall, America’s Choice Mall and Shopping 2000.

E-commerce in Service

• Delivery of services, such as buying stocks or insurance online, can be done electronically.

• Delivery of services online is growing very rapidly.

• The major online services are banking, trading of securities (stocks, bonds), job matching, travel, and real estate.

Cyberbanking• Electronic banking, also known as cyberbanking, virtual

banking, home banking, and online banking includes various banking activities conducted from home, a business, or on the road instead of at a physical bank location.

• Electronic banking has capabilities ranging from paying bills to securing a loan.

• It saves time and is convenient for customers.• For banks, it offers an inexpensive alternative to branch

banking (For example, 2 cents cost per transaction versus $1.07 at a physical branch).

• Electronic banking offers several benefits such as expanding the customer base and saving the cost of paper transactions.

• Ex: Wells Fargo offers online banking.

Online securities trading• Buying stocks, bonds can be done electronically. • By the year 2004, about 35 million people in US will be

using computers to trade stocks, bonds, and other financial instruments.

• An online trade typically costs between $3 and $30, compared to an average fee of $100 from a full-service broker and $35 from a discount broker.

• There is no waiting on busy telephone lines.• The chance of making mistakes is small because there

is no oral communication with a broker in a very noisy physical environment.

• Orders can be placed for anywhere, anytime.

The online job market

• The Internet offers a perfect environment for job seekers and for companies searching for hard-to-find employees.

• The online job market is especially effective for technology-oriented jobs.

• There are thousands of companies and government agencies that advertise available positions in all types of jobs, accept resumes and take the applications via the Internet.

• Low cost, wide exposure, the speed of recruiting process, the ease of transmitting information and documents (resumes and job descriptions).

Travel

• The Internet is an ideal place to plan, and economically arrange almost any trip.

• Potential savings are available through special sales, comparisons, use of auctions, and the elimination of travel agents.

• Expedia.com, Travelocity.com and Travelweb.com are the examples of comprehensive travel online services.

• Services are also provided online by all major airline vacation services, car rental agencies, hotels, and tour companies.

Real estate

• Real estate transactions are an ideal area for e-commerce.

• You can view many properties on the screen, saving time for you and the broker.

• You can sort and organize properties according to your criteria, shortening the search process.

• You can find detailed information about the properties and frequently get even more detail than brokers will provide.

• For example, Realtor.com allows you to search a database of over one million homes across the US.

Auctions

• An auction is a mechanism by which sellers place offers and buyers make sequential bids.

• Auctions are characterized by the competitive nature by which final prices is reached.

• The Internet provides an infrastructure for executing auctions at lower cost, and with many more involved sellers and buyers.

• Individual customers and corporations alike can participate in this rapidly growing form of e-commerce.

• Ex: e-Bay.

Market Research – B2C •To successfully conduct electronic commerce, especially B2C, it is important to find out who the actual and potential customers are and what motivates them to buy. Finding out what specific groups of consumers want is done via segmentation, dividing customers into specific segments, like age or gender.

•Market researchers have tried to understand consumer behavior, and develop models to help sellers understand how a consumer makes a purchasing decision. If the process is understood, a seller may be able to influence the buyer’s decision, through advertising or special promotions.

Online AdvertisingAdvertisement is an attempt to disseminate information in order to influence a buyer–seller transaction. Unlike traditional advertising on TV or newspapers which is impersonal, one-way mass communications, Internet advertising is media-rich, dynamic, and interactive. The most common advertising methods online are banners, pop-ups, and e-mails.

• Banners are electronic billboards and is the most commonly used form of advertising on the Internet

• Keyword banners appear when a predetermined word is queried from a search engine.

• Random banners appear randomly

• Pop-Up Ads.• A pop-up ad appears in front of the current browser window.

• Electronic Catalogs and Brochures.

• E-Mail Advertising.

Business-to Business (B2B) Applications

• In B2B applications, the buyers, sellers, and transactions involve only organizations.

• B2B comprises the majority of EC volume.• Companies can sell to other business using

their own Web sites or net marketplaces.• It covers a broad spectrum of applications that

enable an enterprise to form electronic relationships with its distributors, resellers, suppliers, customers, and other partners.

B2B Applications

• There are several business models for B2B applications.

• The major ones are sell-side marketplaces, buy-side marketplaces, and electronic exchanges.

Sell-side marketplace• The sell-side marketplace is a model in which there are

many buyers but one seller.• In the sell-side marketplace model, organizations attempt

to sell their products or services to other organizations electronically.

• This model is similar to the B2C model in which the buyer is expected to come to the seller’s site, view catalogs, and place an order.

• In this case, however, the buyer is an organization that may be a regular customer of the seller.

• The sell-side model is used by thousands of companies.• Examples are major computer companies such as Cisco,

IBM, and Intel. • The seller in this model can be either a manufacturer, a

distributor, or a retailer.

Buy-side Marketplace

• The buy-side marketplace is a model in which there are many sellers but one buyer.

• The buy-side marketplace, also known as e-procurement, is a model in which EC technology is used to streamline the purchasing process in order to reduce the cost of items purchased.

• A major method of e-procurement is a reverse auction.• In reverse auctions there is one buyer, who wants to

buy a product or service. Suppliers are invited to submit bids. The supplier that submits the lowest bid wins.

• Such auctions attract larger pools of willing suppliers.

Electronic Exchanges

• The electronic exchanges refer a model in which there are many sellers and many buyers.

• They are open to all, and frequently are owned and operated by a third party.

• Ex: plasticsnet.com, chemconnect.com.

Consumer-to-Consumer E-commerce (C2C)

• An increasing number of individuals are using the Internet to conduct business or to collaborate with others.

• Auctions are by far the most popular C2C e-commerce activities.

• Some other C2C activities are classifieds, personal services, and peer-to-peer (P2P) and file exchanges.

Classifieds

• Individuals used to sell items by advertising in the classified section of the newspaper.

• Today, they are using the Internet for this purpose.

• Some classified services are provided free. Ex: classifieds2000.com.

Personal services

• A variety of personal services are offered on the Internet, ranging from tutoring and astrology to legal and medical advice.

• Personal services are advertised in the classifieds areas, in personal Web pages, on Internet communities’ bulletin boards, and more.

Peer-to-peer and file exchanges

• An increasing number of individuals are using the P2P services of companies such as Napster.com.

• Individuals can exchange online digital products, such as music and games.