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Electronic Commerce and E-Business

Slide 2© 2008 Prentice-Hall, Inc.

Describe the phases a company goes through using the Internet for business.

Describe the forms of electronic commerce. Describe the purpose, characteristics, and uses of intranets

and extranets. Describe the design and use of public Web sites for

supporting business-customer transactions. Describe some of the technical requirements of electronic

commerce. Describe some of the ethical issues of electronic

commerce.

Slide 3© 2006Prentice-Hall, Inc.

Jeff Bezos created a business model that leveraged the Internet’s unique ability to deliver huge amounts of information rapidly and efficiently.

He founded Amazon.com, Inc. with high ambitions in 1994.

Amazon opened its virtual doors in July 1995 with a mission to use the Internet to transform book-buying into the fastest, easiest, and most enjoyable shopping experience possible.


Amazon’s growth seemed phenomenal—20 million customers in more than 160 countries bought $2.8 billion worth of merchandise in 2000.

Bezos is proud of Amazon’s performance, which is better than the performance of any other start-up company in history.

Unfortunately, Amazon also lost $1.4 billion in the process. In 2005, Amazon had a net income of about $500 million.

Currently Amazon’s annual revenues are roughly comparable to what Wal-Mart takes in every 10 days.


Electronic commerce (e-commerce): sharing business information, maintaining business relationships, and conducting business transactions through the use of telecommunications networks

Much more than a set of Internet technologies Sometimes used interchangeably with the term

e-business


Since the development of the World Wide Web and the beginning of the commercial use of the Internet in the early 1990s, e-commerce has become Internet based.


The dot-com bust of 2000-2001 has led some people to question the future of e-commerce.

One principal cause of the bust was excessive speculation. When these start-up companies closed their doors, half a million

people lost their jobs. Despite this e-commerce remains a legitimate way for

businesses to make money and to save money. The term e-business is sometimes interchanged with the term

e-commerce to refer to a broader concept, where companies

are able to reorganize internal business processes, foster business alliances, and create new consumer-oriented products and services.


How E-Commerce is Transforming Business

Recent surveys indicate that there are several thousand Internet-based companies—dot coms—that make up only 10 to 15 percent of Internet economy revenue and jobs.

E-commerce in the United States and Europe is particularly strong—in the trillions in U.S. dollars.


“E-commerce is all about cycle time, speed, globalization, enhanced

productivity,reaching new customers and

sharing knowledge across institutions

for competitive advantage.—Lou Gerstner, IBM’s CEO

E-commerce currently accounts for about 5 percent of the total U.S. economy.

Internet-related revenue growth is about 20 times the growth rate of the overall U.S economy.

Compared with U.S. business overall, a company selling goods and services over the Internet is:

3 times more likely to see expense reductions; 2.5 times more likely to see productivity gains; and more than 2.5 times more likely to see market share

growth and penetration of new markets.


A new aspect of e-commerce is mobile commerce (m-commerce).

The use of wireless technologies to connect users to the Internet


E-Commerce Models Business-to-business (B2B)

B2B is an interorganizational information system in which a company handles transactions within its own value chain or with other businesses and organizations.

B2B is sometimes referred to as business-to-employee (B2E), when the focus is primarily on handling the activities that take place within an organization.


Business-to-consumer (B2C)Retailing transactions between a company and individual customers are

B2C transactions.B2C is the most visible aspect of e-commerce from a consumer’s point

of view.


Consumer-to-consumer (C2C)Individuals selling and buying directly with each other

via a Web site are using C2C.The best known example of C2C is eBay.


Characteristics of a B2E Intranet

Intranet: an internal information system based on Internet client/server activities between individuals and departments within an organization


Made up of physical technology and information content The physical elements of an intranet are:

A network (can be a LAN or WAN ) At least one computer with server software installed (including TCP/IP) Additional computers with client software installed (including TCP/IP

and Web browsers)


The communication software for an intranet includes middleware and TCP/IP.

Middleware handles the actual physical communications connections between the computers, scanners, printers, and other devices on a network.

TCP/IP handles the intranet communication protocols for messages transferred between the server and client computers.


An intranet also includes firewall software for security. A firewall protects an intranet from unauthorized access by users on a

network external to the organization. User identification and authentication software, data encryption

software, and virus protection software are also used to protect an intranet.


How Organizations Use B2E Intranets

Information access for employees Many large companies have massive amounts of information stored in

databases on their intranets. Any employee with a connection to an intranet can access information

using a Web browser.


Collaboration and teamwork in the United States Collaboration and teamwork are becoming the expected ways for

people to do work in many organizations. Intranets make possible the easy access and distribution of

information in an organization, no matter where employees are located geographically.


Internal business transactions Employees in many organizations can use Web browsers to conduct

actual internal business transactions on an intranet. Having employees work electronically on an intranet increases

efficiency, reduces paperwork costs, and increases the speed of updating information.


Extranet: a private interorganizational information systemConnects the intranets of two or more companies in a business allianceAlso known as an extended intranetAlliances sometimes referred to as e-marketplaces

Plays an important role in the global business strategy of many companies

Enables them to build alliances with vendors, suppliers, and other organizations internationally


Characteristics of a B2B Extranet

Organizations can set up an extranet in one of three ways:Secure private network

A secure private network physically attaches intranets with private leased telephone lines.


Public network A public network uses a public communications network, such as a public

utility telecommunication network or the Internet.


Virtual private network (VPN) A virtual private network (VPN) uses a public network with special

protocols that provide a secure, private “tunnel” across the network between business partners’ intranets.

An extranet is called an Internet VPN when the public network used is the Internet.


How Business Alliances Use B2B Extranets

Benefits of using an extranet Increases the speed of business-to-business transactions Reduces errors in intercompany transactions Reduces costs of telecommunications Increases the volume of business with partners Allows exchange of business-to-business documents Streamlines checking on inventory and order status from suppliers Enables collaborating with business partners on joint projects


A company can use an extranet successfully through proper planning and collaboration with its business partners.


Customer-Centered Web Design Characteristics of effective B2C Internet sites:

Speed of transactionsLarge, up-to-date product selectionEase of useSecure transactionsAfter-sale features

Three interactive features are often included on public Web sites: email, discussion groups, and chat rooms.


© 2008 Prentice-Hall, Inc.

Apple’s iTunes music store allows consumers to buy downloadable songs, which can be burned to CDs, played on a Mac or PC,

and/or moved to an iPod portable music player.

Customer Relationship ManagementCustomer relationship management, or CRM,

can be the difference between success and failure. This is especially true in e-business, where

customers rarely, if ever, see or speak to company representatives.

CRM usually refers to methodologies, software, and Internet capabilities for managing customer relationships in an organized way.


Web server requirements: A company that engages in e-commerce must maintain a stable,

secure, environmentally-sound computer room for its Web site servers and other equipment.


E-commerce software requirements:Catalog display—for finding and delivering business informationOn-demand customer service—for shopping cart capability that keeps

track of the items a customer has selected to purchase Transaction processing—for doing typical calculations for a

transaction, including computing taxes and shipping costs


An organization’s code of ethics should include:A clear, explicit statement of the organization’s privacy policyA policy statement addressing situations in which a person’s

permission must be secured before his/her ID, photo, ideas, or communications are used or transmitted

A clear policy stating how the company will inform customers of the intended uses of personal information gathered during an online transaction and how the company will secure permission from customers for those uses

A statement that addresses issues of ownership with respect to network postings and communications

A policy of how the company monitors, or tracks, user behavior on Web sites


• E‑commerce is sharing business information, maintaining business relationships, and conducting business transactions through the use of telecommunications networks, especially the Internet.

• E-commerce is also about reorganizing internal business processes, fostering external business alliances, and creating new consumer-oriented products.

• There are three main e-commerce configurations using the Internet: intranets, extranets, and public Web sites.


• An intranet is an internal information system based on Internet technology, including TCP/IP protocols and Web tools, that supports value chain activities between individuals and departments within an organization.

• An intranet comprises physical technology and information content.

• An extranet is a private interorganizational information system connecting the intranets of two or more companies in a business alliance.


• An extranet extends the cross-functional activities between trusted business partners and facilitates their working relationships.

• E-commerce also means conducting business transactions with customers.

• Although e-commerce has many technical requirements, Web server and e-commerce software requirements are particularly important.

• A company conducting business on the Internet should develop an information code of ethics that ensures that users of the Web site will be aware of the company’s e-commerce policies.


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