Introduction to Electronic Commerce and Trade

What is commerce?

…activities that seek to create arm’s-length transactions between firms and individuals and involve the exchange of money, goods, or obligations.

What is E-Commerce?

“an interactive concept, designed to draw together a wide range of business support services, which includes inter-organisational e-mail, directories, trading support systems for commodities, products, customised products, and custom-built goods and services: different types of support and reporting systems, including management, logistical and statistical reporting/information systems.” Clarke

A Simplified Approach

Electronic commerce “is the communication of any object of

commercial interchange by electronic means” Gardner

“is the integration of e-mail, electronic funds transfer, EDI and similar techniques into a comprehensive electronic-based system of business functions” Nath et al

Electronic Trade and Commerce

Electronic Business

Electronic commerceDimensions: Mass, retail and consumer marketsSystems: Extra organisational systems

Electronic TradeDimensions: Business to businessSystems: Inter organisational systems Electronic trading systems

ElectronicBusiness

E-Commerce History and Scope History

Began in the early 1970s (long before the Internet was open to commercial use)

Limited to large businesses initially Electronic Fund Transfer (EFT) and Electronic Data

Interchange (EDI) Scope Today Includes

advertising home banking shopping in electronic stores and malls buying stocks finding a job conducting an auction collaborating electronically with business partners around

the globe providing customer service

Advantages of Electronic Commerce

Global reachReduced administration costsImproved customer serviceGreater product choiceFlexibility of product / physical locationEase of useIncreased marketing capabilityDevelop new relationships

E-Commerce Framework

Electronic Commerce Activities

Electronic Data Interchange (EDI)Electronic Funds Transfer (EFT)Electronic payments (E-cash - Credit cards)Automatic Teller Machine (ATM)Video conferencing and E-mailSales/MarketingLoan and insurance facilitiesTravel reservations

Electronic Commerce Platforms

Television / Set top boxesComputer NetworksMicrocomputersPDAsISPs

EC Benefits to Organizations Increased customer base:

Broaden markets Find niche markets (e.g. www.dogtoys.com)

Reduced cost: Reach a large number of customers at little cost Procure material and services from other companies at less cost Allow lower inventories by facilitating “pull”-type supply chain management Shorten marketing distribution channels and reduce marketing costs Decrease the cost of creating, processing, distributing, storing, and

retrieving paper-based information Lower telecommunications costs because the Internet is much cheaper

than value-added networks (VANs) Reduced cycle time:

Procure material and services from other companies rapidly Reduce the time between the outlay of capital and the receipt of products

and services Helps small businesses compete against large companies

EC Benefits to Customers Choice

Consumers can select from many vendors and many more products than they could locate otherwise

Consumers can get customized products, from PCs to cars, at competitive or bargain prices

Consumers can find unique products and collectors’ items through virtual auctions that might otherwise require them to travel long distances to a particular auction place at a specific time

Convenience Consumers can conduct online quick comparisons to find less expensive

products and services Customers can shop or make other transactions 24 hours a day, year

round, from almost any location Product information immediately available 24 hours a day, year round,

from almost any location Consumers can interact with other consumers in electronic communities

and can exchange ideas as well as compare experiences

EC Benefits to Society Convenience

Enables more individuals to work at home and to do less traveling

Access Allows some merchandise to be sold at lower prices - less

affluent people can buy more and increase their standard of living

Enables people in less developed countries and rural areas to enjoy products and services that otherwise are not available to them

Facilitates delivery of public services, such as government entitlements, reducing the cost of distribution and fraud, and increasing the quality of the social services, police work, health care and education

Technical Limitations of EC A few technical challenges remain for organizations

wishing to conduct EC: Lack of universally accepted standards for quality, security,

and reliability Insufficient telecommunications bandwidth Still-evolving software development tools Difficulties in integrating the Internet and EC software with

some existing (especially legacy) applications and databases Need for special Web servers in addition to the network

servers (added cost) Expensive and/or inconvenient Internet accessibility for many

people

All of these will diminish over time

Non-Technical Limitations of EC Legal and economic concerns:

Many legal issues are yet unresolved Lack of national and international regulations and standards Difficulty in measuring benefits of EC and justifying EC Insufficient number (critical mass) of sellers and buyers

exists for profitable EC operations Cultural resistance:

Distrust of the new: Many sellers and buyers are waiting for EC to stabilize before they take part

Customer resistance to the change from a physical to virtual stores

Perception that electronic commerce is expensive and unsecured, so many do not want even to try it

Internet Population

Source: www.etforecasts.com

Internet Population

Current Global internet population 165 - 170 million users - 1999 1.17 billion users – 2005 US online population 80 million – 1999 US online population 230 million – 2005

Trend is moving to world wide population. it is projected that by 2005 the US will only

represent 15% of internet users

Worldwide e-Commerce Growth (2004)

51%

25%

23%1%

North America

Asia/Pacific

Europe

Latin America

Forrester Research Inc.

$6.8 Trillion

Electronic Commerce as a Strategy ToolE-commerce should be more than a way

of sending documents electronicallyProcess re-engineering of the organisation

may be requiredRethink the way that you do business

New Possibilities

A Connemara based salmon fish farm managed to sell £50,000 worth of stock in the first three months selling on the web

Marlborough offers clients remote access to videoed interviews of potential employees, which allows filtering of suitable candidates at an early stage thus saving time and money

In the world’s developed economies, tangible good account for 20% of GDP, down from 50% after WWII

Electronic Commerce Focus

Business to Business physical business transactions outnumber

consumer sales by ten to oneConsumer to Business Forrester Research estimates that by

2003, consumers will spend $108 billion buying goods online, while businesses will spend $1.3 trillion

Business to Business V’s Business to Consumer

$43 $8

$1,331

$108

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Billions

'99 '03

Business to BusinessBusiness to consumer

Industry sector Business to Business (B2B)

$0

$50

$100

$150

$200

$250

$300

$350

$400

Billions

'99 '03

Computing,electronicsMotor Vehicles

Petrechemicals

Utilities

Other

Fortune 500 Firms (Survey in 1999)

Nearly all have web sitesLess than 10% have transaction-based

web sites70% of these were setup for reasons

relating to public relations, customer service and technical support

Internet Retailing

5% of unique visitors to sites ultimately become customers

1.6% of visits result in purchases Portal sites directly drive less than 30% of on-line

retailing revenues Computer goods, entertainment, travel and discount

brokerage sales account for more then 80% of the online market

Two-thirds of shoppers who put items in a virtual shopping cart abandon the process before checking out

Business-to-Consumer EC (continued) Personalization – ability to customize

product, service, advertisement, or customer service

B2C EC enables personalization at low cost Internet enables marketing research

Questionnaires Usually involve some inducement

Direct behavior observation Cookies or site tracking services

Business-to-Consumer EC (continued) Use of intelligent agents

Help customers determine what to buy Search for and compare vendor prices Collect information and develop customer profiles

Online advertising Banners

Keyword banners Random banners

Direct email Pop-up windows

Business-to-Business EC Composes the majority of EC volume Enables organizations to form electronic

relationships Covers all activities along the supply chain Business Models:

Sell-Side Marketplace Organizations sell products to other organizations

electronically. Buy-Side Marketplace

Buyers post needs; sellers submit bids Electronic Exchanges

Electronic marketplaces link many buyers and many sellers

Business-to-Business EC (continued)

Collaborative Commerce – non-buying/selling activities between businesses Planning and scheduling Design New product information Product content management Order management Sourcing and procurement

New business models

E -procurementSupply chain automationCustomer serviceIntentions Value Network

E- procurement

Large companies have been purchasing materials using EDI and VANs for some time

These tended to be expensive to operate and difficult to use. They also required an existing relationship to be in place between the parties.

Internet-based E-Procurement

The internet allows virtually everything that a company needs to be purchased online

Predefined relations are not requiredHewlett-Packard announced plans to sell

everything from desks to paper clips over the web.

Supply Chain Automation

The Holy Grail of business to business electronic commerce

This type of system would link internal ERP systems, like SAP / Oracle, with external marketplaces

Allows employees to source products in the marketplace and have the ERP deal with ordering delivery payment and so forth.

Customer Service

Most companies lose half their customers every five years. Cost of acquiring a new customer is 4-6 times as much as retaining one If a company can reduce that by 10-15%, it has

the potential to improve profitability by 50%

Creating a closer relationship with customers through ubiquitous contact

Intentions Value Network

Use provider alliances to integrate a broad array of services into a customised intention solution

Bundling different/related products and services within the same industry to create solutions

Intentions Value Network

Shift the mind set from seller and product driven to a buyer/service driven business model

The focus is not on individual products or services but on the integration of a wide variety of information, products and services to satisfy the specific intentions or needs of a community of buyers

Intentions Value Network

An Integrator oversees a network of approved suppliers providing products and services

The critical role of the Integrator is to understand the customer’s values, needs, behaviour and preferences related to the overall intention

Business Models (Rappa,2000)

Brokerage Advertising Infomediary Merchant Manufacturer

Affiliate Community Subscription Utility

Timmers (1999)

Pitfalls for Electronic Commerce

Content Convenience Confidence

Security Cost Legal uncertainty Lack of qualified staff Acceptance of service

by suppliers/customers Lack of industry

standards Technical problems

Trust

Trust is central to any commercial transaction, and it foundation is identity authentication

Trust requires trading partners to be confident their communications proceed privately, unaltered, and cannot be later refuted

Security

Privacy The message only viewed by the intended recipient

Authentication Vital to ensure users can be recognised and verified

(passwords) Integrity

Ensure message is not tampered with during the transmit Scalability

Can the system continue to give the same level of security with increased users

Legal Issues

Business transactions/contractsJurisdictionDomain Name IssuesLinking/Framing IssuesContent LiabilityOnline DisclaimersIntellectual Property

E-commerce Security

EncryptionDigital Signatures

Conclusions

Altered business modelsNew business modelsIf this is a new economic revolution, those

who do not conform will not surviveA lot of money could be spent gambling

Readings

“Business Models on the Web” – Rappa (2000) http://digitalenterprise.com/models/models_text.htm

“The e-Business ®Evolution” – Amor (1999) – Chapter 4 (Avoiding Legal Issues)