CHAPTER 1

Objectives

 E-Commerce – Introduction to The e-Business

Model
 E-commerce: definition, benefits, and limitations.
 Describe and discuss the content and framework of
EC.
 E-commerce classification and models.
 E-Commerce Infrastructure & Topology.

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 Electronic Commerce:
Definitions and Concepts
 A Definition
 Electronic Commerce (EC) is where business
transactions take place via telecommunications
networks, especially the Internet.
 Electronic commerce describes the buying and selling of products,
services, and information via computer networks including the
Internet.
 The infrastructure for EC is a networked computing environment
in business, home, and government.
• E-business
A broader definition of EC that includes not just the buying and
selling of goods and services, but also servicing customers,
collaborating with business partners, and conducting electronic
transactions within an organization
 .
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 the relationship between the concepts of e-
.commerce and e-business

E-commerce is generally understood to be a sub-set of e-

business. E-commerce refers to financial and non-financial
transactions between organizations. These transactions are often
considered in the context of a supplier organization distributing
and selling its product to consumers.

E-business includes transactions from a buy-side and sell-side e-

commerce perspective and also the use of communications
technology to improve internal process efficiencies .
 the relationship between the concepts of e-
.commerce and e-business (cont)

This can best be explained by referring to different elements shown

in Figures 1.1 and 1.2 that is,
sell-side e-commerce: Sell-side e-commerce concerns transactions related to the sale
and distribution of goods such as a supermarket selling direct to its customers
buy-side e-commerce: Buy-side e-commerce refers to electronic transactions concerned
with the purchase and inbound logistics of goods such as a supermarket coordinating purchases from
its suppliers
internal use of electronic communications to support business
processes.
E-business is generally understood to include all three elements. E-
commerce is commonly used to refer to either the first one or first
two of these elements, but less commonly the third.
E-business is broader in scope than e-commerce.
Figure 1.1 The distinction between buy-side and sell-side e-commerce

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Figure1.2: Three definitions of the relationship between e-commerce and e-
business
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 Examples of E-Commerce

Sites Description
Amazon.com Provides access to several million books
electronically. It also sells music CDs, electronics,
software, toys, video games, prescription drugs, and
much more.
Drugstore.com Refills and sells new drugs and vitamins and other
health products online.

Apple Computer sells computers online

(apple.com).

Peapod.com sells groceries over the Web

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 E-Commerce Framework
Five support areas for EC applications
People
Public policy
Marketing and advertisement
Support services
Business partnerships
 E-Commerce Framework (cont.)

Figure 1.3: E-Commerce Framework

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 OTHER ELECTRONIC COMMERCE
CONCEPTS

– Three dimensions
• the product (service) sold [physical / digital]
• the process [physical / digital]
• the delivery agent (or intermediary) [physical / digital]
– Traditional commerce
• all dimensions are physical (Brick & Mortar)
– Pure EC
• all dimensions are digital (Virtual/online)
– Partial EC
• all other possibilities include a mix of digital and physical
dimensions (click & Mortar)

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 The Dimensions of Electronic
Commerce

Virtual product

Digital
Product Virtual process
Digital process
Physical
Product Physical process
Physical Digital Virtual delivery agent
agent agent
13 Figure 1.4:The Dimensions of Electronic Commerce
 The Dimensions of Electronic
Commerce
The core of

Virtual product
Electronic commerce electronic commerce
areas

Digital
Product Virtual process

Physical Digital process

Product Physical process
Physical Digital Virtual delivery agent
Traditional agent agent
commerce
14 Figure 1.5:The Dimensions of Electronic Commerce (cont)
 Amazon.com
Bank
payment
physical flow check

electronic flow
credit card statement

credit credit card

authorization account details

Book Amazon.com Parcel service

wholesaler order sales service delivery
inventory marketing request tracking
book IS development
server operations
editorial book

Affinity group order Customer

sales editorial
sale sale sales
editorial
link to Web site
Author
marketing

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Benefits
17 Figure 1.6 : major contribution to the Growth of EC
 The Benefits of E-Commerce
Benefits to Organizations
 Expands the marketplace to national and international
markets
 Decreases the cost of creating, processing, distributing,
storing and retrieving paper-based information
 Allows reduced inventories and overhead by facilitating
“pull” type supply chain management
 The pull type processing allows for customization of
products and services which provides competitive
advantage to its implementers

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 Benefits to Organizations (cont.)

 Reduces the time between the outlay of capital

and the receipt of products and services
 Supports business processes reengineering
(BPR) efforts
 Lowers telecommunications cost - the Internet
is much cheaper than value added networks
(VANs)

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 Benefits to Customers
 Enables customers to shop or do other transactions
24 hours a day, all year round from almost any
location
 Provides customers with more choices
 Provides customers with less expensive products
and services by allowing them to shop in many
places and conduct quick comparisons
 Allows quick delivery of products and services in
some cases, especially with digitized products

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 Benefits to Customers (cont.)
 Customers can receive relevant and detailed
information in seconds, rather than in days or
weeks
 Makes it possible to participate in virtual auctions
 Allows customers to interact with other customers
in electronic communities and exchange ideas as
well as compare experiences
 Electronic commerce facilitates competition,
which results in substantial discounts.

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 Benefits to Society
 Enables more individuals to work at home, and to
do less traveling for shopping, resulting in less
traffic on the roads, and lower air pollution
 Allows some merchandise to be sold at lower
prices
 Enables people in third world countries and rural
areas to enjoy products and services which
otherwise are not available to them
 Facilitates delivery of public services at a reduced
cost, increases effectiveness, and/or improves
quality

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 Review Questions
1. Define EC and E-business?
2. Distinguish between e-commerce and e-business?
3. Distinguish between pure and partial EC?
4. Define click-and-mortar and pure play organizations
5. Describe some EC benefits to organizations,
individuals, and society.
6. List the major components of the EC framework?
7. Explain what is meant by buy-side and sell-side e-
commerce.
Transactional Types of E-
Commerce
 Classification of EC by the
Nature of the Transaction
• Business-to-business (B2B) : EC model in which all
of the participants are businesses or other
organizations
• Business-to-consumer (B2C): EC model in which
businesses sell to individual shoppers
• Consumer-to-consumer (C2C) : consumers sell
directly to other consumers

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 Classification of EC by the Nature of
the Transactions Business
From
Consumer
B C

•Organization site •Auctions

HW: Visit all these Consumer
(Dell) (E-Bay)
•Consumer marketplace •Consumer Reviews
sites and study C (shopsmart.com)
To (Bizrate.com)
them. Give a
•Organization site
detailed report on Business (Dell) •Customer bids
these sites B
•Business Marketplace (Priceline.com)
(CommerceOne)

Models of Electronic Commerce:

•Business-to-customer (B2C)
•Business-to-business (B2B)
•Others: B2G, G2C, G2B, C2C
•Cyber-Services
•Intra business transactions (Intranets and Extranets)
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Summary and examples of transaction alternatives between businesses,

consumers and governmental organizations

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 Classification of EC by the
Nature of the Transaction (cont.)

• Intrabusiness (organizational) EC: EC

category that includes all internal
organizational activities that involve the
exchange of goods, services, or
information among various units and
individuals in an organization

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 Classification of EC by the
Nature of the Transaction (cont.)
• Business-to-employee (B2E): EC model in which
an organization delivers services, information, or
products to its individual employees
• Collaborative commerce (c-commerce): EC model
in which individuals or groups communicate or
collaborate online

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 Classification of EC by the
Nature of the Transaction (cont.)
• E-government: Government-to-citizens (G2C):
EC model in which a government entity buys
or provides good, services, or information to
businesses or individual citizens
• E-Learning: educational institutions-to-
students/trainees: The online delivery of
information for purposes of training or education

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 Classification of EC by the
Nature of the Transaction (cont.)
• Exchange (electronic): a public e-market with
many buyers and sellers
Used in B2B

• Exchange-to-exchange (E2E): EC model in which

electronic exchanges formally connect to one
another for the purpose of exchanging information

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 Classification of EC by the
Nature of the Transaction (cont.)
• Mobile commerce (M-commerce)—EC
transactions and activities conducted in a
wireless environment
• Location-commerce—(L-commerce)
m-commerce transactions targeted to
individuals in specific locations, at specific
times

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Electronic Commerce
Topologies
 Electronic Commerce
Topologies

Types of Networks
 A global networked environment is known as
the Internet
 A counterpart within organizations, is called an
intranet
 An extranet extends intranets so that they can
be accessed by business partners.

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Electronic Commerce Topologies

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Figure 1.4 The relationship between intranets, extranets and the Internet

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 Summary : Internet, Intranet, and Extranet
Network Typical Type of
Type Users Access Information
Any
General, public
Internet individual Unlimited,
and
with dial-up public; no
advertisement
access or restrictions
Intranet LAN
Authorized Private and Specific,
employees restricted corporate and
ONLY proprietary
Extranet Authorized Private and Shared in
groups from outside authorized
collaborating authorized collaborating
companies partners group
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 Internet

Computer Organization
Server
Legend
Internet backbone
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 Intranet

Firewall

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 The Intranets
An intranet is a corporate LAN and/or Wide Area
Network (WAN) that is secured behind company’s
firewalls and it uses Internet technologies.
• Intranets are developed using the same TCP/IP protocol
as the Internet
• They operate as private networks with limited access.
Only employees who are issued passwords and access
codes are able to use them.
• So, intranets are limited to information pertinent to the
company and contain exclusive and often proprietary and
sensitive information.
• Firewalls protect intranets from unauthorized outside
40access.
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 Extranet

Firewall

Firewall

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 The Extranet

An extranet implies an “extended intranet”,

which uses TCP/IP protocol networks (like the
Internet) to link intranets in different locations.
Extranet transmissions are conducted over the
Internet to save money.
Extranets provide secured connectivity between
a corporation’s intranets and intranets of its
business partners, material suppliers, financial
services, and customers.

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 The Limitations of Electronic Commerce
Non-Technical Limitations of Electronic Commerce

– Cost and justification:

• The cost of developing an EC in house can be
very high, and mistakes due to lack of
experience, may result in delays. There are
many opportunities for outsourcing, but
where and how to do it is not a simple issue.
Furthermore, to justify the system one needs
to deal with some intangible benefits which
are difficult to quantify.

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 Non-Technical Limitations (cont.)

– Security and Privacy:

• These issues are especially important in the B2C area, and security
concerns are not truly so serious from a technical standpoint.
Privacy measures are constantly improving too. Yet, the customers
perceive these issues as very important and therefore the EC
industry has a very long and difficult task of convincing customers
that online transactions and privacy are, in fact, fairly secure.
– Lack of trust and user resistance:
• Customers do not trust an unknown faceless seller, paperless
transactions, and electronic money. So switching from a physical
to a virtual store may be difficult.

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 Non-Technical Limitations (cont.)

– Other non-technical limiting factors are:

• Lack of touch and feel online
• Many unresolved legal issues
• Rapidly evolving and changing EC Technology
• Insufficiently large enough number of sellers and
buyers
• Breakdown of human relationships
• Expensive and/or inconvenient accessibility to the
internet

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 The Limitations of Electronic
Commerce

Technical Limitations of Electronic Commerce

 Lack of sufficient system’s security, reliability,

standards, and communication protocols
 Insufficient telecommunication bandwidth
 The software development tools are still evolving
and changing rapidly
 Difficulties in integrating the internet and electronic
commerce software with some existing applications
and databases
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 Technical Limitations of Electronic
Commerce (cont.)

 The need for special Web servers and other

infrastructures, in addition to the network servers
(additional cost)
 Possible problems of interoperability, meaning
that some EC software does not fit with some
hardware, or is incompatible with some operating
systems or other components

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 Review Questions
1. List the major transactional types of EC?
2. . List the major technical and nontechnical limitations of EC
(three each)?
3. List the major Topologies of EC ?
4. Why is B2B e-commerce so essential?
5. What are the main differences between business-to-business and
business-to-consumer e-commerce?
 E-business opportunities

E-business has introduced new opportunities for

small and large organizations to compete in the
global marketplace. Many commentators have
noted that one of the biggest changes introduced
by electronic communications is how approaches
to transmitting and transforming information can
be used for competitive advantage

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 E-business opportunities
The Internet also provides significant •
opportunities for many businesses to build
closer relationships with their existing
customers and suppliers online to help
achieve customer retention. Encouraging use
of online, e-business services by customers
and suppliers can significantly reduce costs
while providing a new, convenient channel for
purchase and customer service
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 Business adoption of digital technologies for e-
commerce and e-business

Drivers of business Internet adoption •

Business adoption of e-commerce and e- •
business is driven by benefits to different parts
of their organization. First and foremost, they
are concerned how the benefits of e-business
will impact on profitability or generating value
to an organization. The two main ways in
which this can be achieved are

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Business adoption of digital technologies for e-
commerce and e-business
Potential for increased revenue arising from * •
increased reach to a larger customer base and
encouraging loyalty and repeat purchases
.among existing customers
Cost reduction achieved through delivering * •
services electronically. Reductions include staff
costs, transport costs and costs of materials
.such as paper

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Business adoption of digital technologies
for e-commerce and e-business
Cost/efficiency drivers •
Increasing speed with which supplies can be 1 •
.obtained
Increasing speed with which goods can be 2 •
dispatched
Reduced sales and purchasing costs 3 •
.Reduced operating costs 4 •

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Business adoption of digital technologies
for e-commerce and e-business
Competitiveness drivers •
Customer demand 5 •
Improving the range and quality of services 6 •
offered
Avoiding losing market share to businesses 7 •
already using e-commerce

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 Tangible and intangible benefits from e-
commerce and e-business
Tangible benefits •

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 E-business risks and barriers to business adoption

Opportunities have to be balanced against the risks of introducing e- •

business services which vary from strategic risks to practical risks. One of
the main strategic risks is making the wrong decision about e-business
investments. In every business sector, some companies have taken
advantage of e-business and gained a competitive advantage. But others
have invested in e-business without achieving the hoped-for returns,
either because the execution of the plan was flawed, or simply because
the planned approaches used for their market were inappropriate. The
impact of the Internet and technology varies by industry. As Andy Grove,
Chairman of Intel, one of the early adopters of e-business has noted,
every organization needs to ask whether, for them: The Internet is a
typhoon force, a ten times force, or is it a bit of wind? Or is it a force that
fundamentally alters our business? (Grove, 1996)

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 E-business risks and barriers to business
adoption

As well as the strategic risks, there are also many practical •

risks to manage which, if ignored, can lead to bad customer
experiences and bad news stories which lead to damage to
.the reputation of the company
Web sites that fail because of a spike in visitor traffic after a* •
.peak-hour TV advertising campaign
Hackers penetrating the security of the system and stealing * •
.credit card details
A company e-mails customers without receiving their* •
permission, so annoying customers and potentially breaking
privacy and data protection laws

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 E-business risks and barriers to business
adoption
Problems with fulfilment of goods ordered * •
online, meaning customer orders go missing
or are delayed and the customer never
.returns
E-mail customer-service enquiries from the * •
web site don’t reach the right person and are
.ignored

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 Evaluating an organization’s e-business
capabilities

nline technologies

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 Evaluating an organization’s e-business
capabilities

Difficulty of changing processes •

No benefits •
Lack of skills (supplier/customer) •
Security/protection concerns •
Poor reliability •
Reluctance of suppliers •
Insufficient government guidance •
Current bandwidth restrictions •

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Drivers of consumer Internet adoption

Typical benefits of online services are summarized by the‘Six Cs’,a simple . •

mnemonic to show different types of customer value: 1 Content – In the
mid-1990s it was often said that ‘content is king’. Well, relevant rich
content is still king. This means more detailed, in-depth information to
support the buying process for transactional or relationship-building sites
or branded experiences to encourage product usage for FMCG brands. 2
Customization–In this case mass customization of
content,whetherreceivedaswebsitepages such as‘Amazon recommends’or
e-mail alerts,and commonly known as‘personalization’. 3 Community – The
Internet liberates consumers to discuss anything they wish through forums,
chat-rooms and blog comments. We will explore these techniques more in
Chapters 2 and 3. 4 Convenience – This is the ability to select, purchase and
in some cases use products from your desktop at any time: the classic 24 ×
7 × 365 availability of a service

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 Drivers of consumer Internet
adoption
Choice–The web gives a wider choice of products •
andsuppliersthanviaconventionaldistribution channels. The success of online
intermediaries such as Kelkoo (www.kelkoo.com) and Screentrade
(www.screentrade.com) is evidence of this. Similarly, Tesco.com provides Tesco with a
platform to give consumers a wider choice of products (financial, travel, white goods)
with more detailed information than are physically available in-store. 6 Cost reduction
– The Internet is widely perceived as a relatively low-cost place of purchase. Often
customers expect to get a good deal online as they realize that online traders have a
lower cost-base as they have lower staff and distribution costs than a retailer that runs
a network of high-street stores. A simple price differential is a key approach to
encouraging usage of online services. In the late 1990s, low-cost airline easyJet
encouraged the limited change behaviour required from phone booking to online
booking by offering a £2.50 discount on online flight bookings. Note that the 7 Cs of
Rayport and Jaworski (2003) provide a similar framework of Context,
.Content,Community,Customization,Communication,Connection and Commerce

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Characteristics of E-commerce
Ubiquity 2. Global Reach 3. Universal .1
Standard. 4. Richness 5.Interactivity 6.
Information Density 7.
Personalization/customization 8. Social
Technologies
Web 2.0/3.0 technology .2

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