CHAPTER 7: Electronic
Commerce Systems
Learning Objectives
• Identify the major categories of e-commerce
applications.
• Identify the essential processes of an ecommerce 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 ecommerce.
• 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 ecommerce 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.
A Framework for E-commerce
Electronic Commerce Applications
Shopping  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
MANAGEMENT
E-Business – Transaction
Medium
Most 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 Ecommerce
• 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-tobusiness (B2B) e-commerce applications.
• There are several companies which offer echeck 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 ecommerce 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 ecommerce (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 ecommerce (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 Organizations
Expands 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 costs
Helps 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-todate; 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 WalMart.
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 fullservice 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 Advertising
Advertisement 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 eprocurement, 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 Ecommerce (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.