Electronic Commerce
COMP3210
Session 1: An Introduction to Electronic Commerce
Dr. Paul Walcott
Department of Computer Science, Mathematics and Physics
University of the West Indies, Cave Hill Campus
Barbados
© 2007 Dr. Paul Walcott
The Department of Computer Science Mathematics and Physics, University of the West Indies, Cave Hill Campus, Barbados
Session Objectives
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Define e-commerce?
Compare and contrast the advantages and
disadvantages of e-commerce
Compare and contrast the 1st and 2nd waves
of e-commerce
Comprehend the categories of ecommerce?
Session Objectives Cont’d

Discuss the following:

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Markets
Value chains
Transaction cost
Evaluate international electronic commerce
issues
What is Commerce?

Traditional commerce may be defined as:
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From Webster's Revised Unabridged
Dictionary
Commerce : \Com"merce\, noun.
The exchange or buying and selling of commodities;
esp. the exchange of merchandise, on a large scale,
between different places or communities; extended
trade or traffic.
What is E-Commerce?
Electronic commerce (e-commerce) is a general
term for any type of business, or commercial
transaction that involves the transfer of
information across the Internet. This covers a
range of different types of businesses from
consumer-based retail sites, like Amazon.com,
through auction and music sites like eBay or
MP3.com, to business exchanges trading goods
or services between corporations.
What is E-Commerce Cont’d?
Electronic commerce is the use of
electronic communication to do business.
E-commerce is not about technology. It is
not a new business. E-commerce is a
method for companies to create and
operate their business in new and efficient
ways.1
What is E-Commerce Cont’d?
Most fundamentally, e-commerce
represents the realization of digital, as
opposed to paper-based, commercial
transactions between businesses, between a
business and its consumers, or between a
government and its citizens or constituent
business.2
What is E-Commerce Cont’d?

In summary, e-commerce is the

use of electronic communication to do business

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Specifically, the transfer of information (transactions), over
the Internet
Some people use the term e-business to refer to
all the categories of e-commerce

E.g. IBM defines e-business as:

The transformation of key business processes through the
use of Internet technologies
From Traditional Commerce to
E-commerce3
Sailing ships
Printing press
Steam engine
Telephone
Opened avenues for
trade between buyers
and sellers. Ancient
times (thousands of
years ago)
From Traditional Commerce to
E-commerce Cont’d
Electronic Funds Transfer (EFTs)
Electronic Data Interchange (EDI)
Internet
Wire transfers - used
by banks
Businesses transfer
electronic data
- data not re-keyed
- high implementation
cost, thus excluded
small businesses
On-line shopping
Business Processes Suited to
Certain Type of Commerce3

E-commerce

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Sale/purchase of books & CDs, travel
services, investments and insurance services
Online delivery of software
Online shipment tracking
Business Processes Suited to
Certain Type of Commerce Cont’d

A combination of E-commerce and
Traditional Commerce


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Sale/purchase of automobiles and residential
real estate (e.g. do research online then buy
from a dealer or real estate agent)
Online banking
Roommate matching service
Business Processes Suited to
Certain Type of Commerce Cont’d

Traditional Commerce

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Sale/purchase of impulse items for immediate
use, high fashion jewelry and antiques
(personal inspection required; prefer to touch,
smell or examine closely)
Small denomination purchases and sales
(since there is not yet a standard for
transferring small amounts of money)
What are the Advantages of Ecommerce?3

Increases sales, decreases cost

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Allows small businesses to have global customer
base
Reduced cost through electronic sales enquires, price
quotes and order taking
Provides purchasing opportunities for buyers
(businesses can identify new suppliers and
partners)
Increases the speed and accuracy of exchanged
information, thus reduces cost
What are the Advantages of Ecommerce Cont’d?
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Business can be transacted 24 hours a day
The level of detail of purchase information is
selected by user
Digital products can be delivered instantly
Tax refunds, public retirement and welfare
support costs less when distributed over the
Internet
Allows products and services to be available in
remote areas, e.g. remote learning
What are the Disadvantages of Ecommerce?3

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Inability to sell certain products (e.g. high cost jewelry
and perishable foods; although supermarkets such as
www.Tesco.com deliver perishable food items to your
home)
The newness and evolution of the current technology
Many products require large sales volumes in order to be
viable

This is a challenge for small island economies; in the Caribbean
the CARICOM Single Market and Economy (CSME) might
provide opportunities since it comprises some 14 million people
(if Haiti is included – only 6 million if it is not)

http://www.ab.gov.ag/gov_v2/government/docs/csme/aboutcsme/ba
ckground_info.html
What are the Disadvantages of Ecommerce Cont’d?

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A large capital investment is required to startup and run e-commerce
initiatives
Difficulty in integrating current databases and transaction processing
systems (legacy systems) into e-commerce solutions
Cultural and legal obstacles

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Transmission of credit card information
Some consumers’ resistance to change
E-commerce legislation is not well developed and is often unclear
Shipping profile

Products with a low value-to-weight ratio that can not be efficiently
packed and shipped are unsuitable for e-commerce (use traditional
commerce)
The 1st Wave of E-commerce3
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The 1st wave was from the mid
1990s to 2003
During the dot-com boom over
$100 billion was invested and
a rapid growth of e-commerce
was seen (mid-1990s – 2000)
The dot-com bust occurred in
2000
This was followed by the
gloom years, 2000 – 2003
(however, during this time
over $200 billion was invested
in e-commerce)
Characteristics of the 1st Wave
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It was primarily a U.S. phenomenon
Web pages were in English
Internet technologies were slow and inexpensive
(e.g. dial-up lines)
Bar codes and scanners used to track parts (B2B
and Business processes)
Email, tool for unstructured communication
On-line advertising main revenue source
The 2nd Wave of E-commerce

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Beginning in 2003 ecommerce showed new
signs of life
Companies like
Amazon.com (books),
and eBay.com (auctions)
who survived the
downturn were beginning
to show profits
Continuous growth of
B2C sales: 20-30% each
year since 2000
Characteristics of the 2nd Wave
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International scope - sellers do business in many
countries and languages
Faster connections (x20 faster), broadband at
home (although more expensive)
Radio frequency ID devices (are used to track
packages) and smart cards
Fingerprint readers and retina scanners (biometric
technologies) used for tracking (physical
security)
Email is now an integral part of marketing
Characteristics of the 2nd Wave
Cont’d
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E-commerce is an integral part of
marketing and customer contact strategy
Some categories of on-line advertising, e.g.
employment services (job want ads) have
replaced traditional advertising outlets
Some problems however include:
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Language conversions
Currency conversions
E-commerce Categories3
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There are five general e-commerce categories:
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Business to Consumer (or B2C) e-commerce
Business to Business (or B2B) e-commerce
(sometimes called e-procurement)
Business processes that support buying and selling
activities
Consumer-to-consumer (or C2C) e-commerce
Business-to-government (or B2G) e-commerce
B2C e-commerce

Description

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Example
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Businesses sell products or services to
individual customers (consumers)
Walmart.com sells merchandise to consumers
through its Web site
Web site

www.walmart.com
B2B e-commerce

Description

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Example
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Businesses sell products or services to other
businesses
Grainger.com sells industrial supplies to large
and small businesses through its Web site
Web site

www.grainger.com
Business Processes that Support
Buy/Sell Activities
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Description
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Businesses and other organisations maintain and use
information to identify and evaluate customers,
suppliers and employees (and to support buying,
selling hiring, planning and other activities). More
and more of this information is being shared
Example

Dell Computer uses secure internet connections to
share current sales and forecasts information with
suppliers who use it to plan their production.

As a result they deliver the right quantities of components at
the right time
C2C e-commerce
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Description

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Example
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Participants in an online marketplace can buy and sell
goods from each other
Consumers and businesses trade with each other on
eBay.com
Web site
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www.ebay.com
B2G e-commerce
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Description
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Example
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Business sell goods or services to
governments and government agencies
Cal-Buy portal for businesses that want to sell
online to the State of California
Web site
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www.pd.dgs.ca.gov/calbuy/default.htm
E-commerce Categories Example
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You are a computer manufacturing company who
performs the following activities on the Internet:
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Sells computers to individuals (B2C)
Purchases parts (e.g. hard drives, power supplies etc.)
from a supplier (B2B)
Hires staff, manage customer accounts, advertise, etc.
(Business processes)
Sells computers to the Government to be used in
schools (B2G)
On eBay.com individuals buy and sell this brand of
computers (C2C)
Relative Sizes of E-commerce
Categories3
Business processes
that support buy/sell
activities
B2C e-commerce
B2B e-commerce
Relative Sizes of E-commerce
Categories Cont’d
Year
B2C Sales
B2B Sales
($Billions) in the US ($Billions) in the US
2007
240 (estimate)
6800 (estimate)
2006
190 (estimate)
5300 (estimate)
2005
150
4100
2004
130
2800
2003
100
1600
2000
50
60
Relative Sizes of E-commerce
Categories Cont’d
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
At the end of 2006 actual B2C sales revenue in
the US was US$219 billion4
However, in the same period the B2C sales
revenue in Europe was US$133 billion5

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E-Commerce in Europe is currently dominated by the
UK, Germany and France (72% total online sales)
Annual growth of 25% is expected over the next 4
years5
Economic Forces
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Economics is the
study of how people
allocate scare
resources
Resources are
allocated through:


Commerce
(markets)
Government actions
(e.g. taxes)
Markets
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A market is a place where sellers can come into
contact with buyers and a medium of exchange
(e.g. currency) is available (e.g. the stock market)
Some hierarchal organisations (companies)
however, due to high transaction cost, choose to
replace supplier markets with its own hierarchal
structure for creating the product. This is called
vertical integration

E.g. Thomson Financial, a financial software
provider, purchased the financial data supplier
Datastream ICV
Hierarchical Organisations
(Firms)
Firms participate in markets to purchase raw
materials and sell finish products.
Chief Operating Officer
Executive1
Executive2
Executive3
ManagerA
ManagerB
ManagerE
ManagerF
ManagerJ
ManagerK
WorkerA
WorkerB
WorkerE
WorkerF
WorkerJ
WorkerK
Transaction Costs
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Transaction costs are the total costs that a buyer
and seller incur as they gather information and
negotiate a purchase/sale transaction
Transaction costs are the main reason for vertical
integration (Ronald Coase)
Businesses can use e-commerce to reduce
transaction costs (e.g. telecommuting rather than
physical commuting to allow global employment
opportunities)
Transaction Costs Example
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Transaction costs incurred by a sweater
dealer when purchasing from independent
sweater knitters:
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Cost of identifying independent knitters
Cost of site visit to negotiate purchase price,
arrange delivery and inspection of sweaters
Costs incurred by knitters:
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Knitting tools and yarn purchase
Network Economic Structures
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Many businesses operate in an economic
structure that is neither market or hierarchical
These businesses form, long-term, strategic
alliances with other companies who share
common goals and strategies
These alliances may occur over the Internet –
which are called virtual companies

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Teams complete a project or activity then dissolve
New teams are creating as required
Value Chains

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A value chain is a way to organise the
activities that a business undertakes to
design, produce, promote, market, deliver
and support the products or services it sells
There are several types of value chains
including:
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Business unit value chains
Industry value chains
Strategic Business Unit Value
Chains

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A strategic business unit is a particular
combination of product, distribution channel and
customer type (large firms often break down their
business into these units)
The value chain for a strategic business unit
includes:
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Primary activities (the activities that the strategic
business unit undertakes
Support activities (such as human resource
management and purchasing)
Manufacturer Value Chain
Primary activities
Design
Identify
customers
Finance
& admin
Manufacture
product or create
service
deliver
Market & sell
HR
Technology
development
After sales
service & support
Purchase materials
and supplies
Support activities
Primary Activities
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Identify new customers, and sell new services to
existing customers (research & surveys)
Design – from concept to manufacturing
Purchase materials and supplies – includes
contracts, vendor selection, monitoring quality
and delivery timeliness
Manufacture product or create service –transform
materials and labour into finished products
Primary Activities Cont’d
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Market and sell – advertising, promoting,
managing sales staff, pricing and monitoring sales
Deliver – store, deliver distribute and ship final
product – warehousing, consolidating freight,
selecting shippers and monitoring delivery
timeliness
Provide after-sale service and support – promote
relationship with customer, e.g. installing,
maintaining, testing, repairing, and warranties
Primary Activities Cont’d

If a strategic business unit provides a
service then the value chain will include a
“Provide service” activity instead of
“Manufacture activity”
Support Activities
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Each business unit must also undertake support
activities that provide the infrastructure for the
primary activities:
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Finance and administration – accounting, paying
bills, borrowing, compliance with laws
Human resources – recruiting, hiring, training,
compensation and benefits
Technology development – improves the product or
service, including basic and applied research and
development, process improvement and field tests of
maintenance procedures
Industry Value Chains
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Industry value chains describes the larger stream
of activities into which a particular business unit’s
value chain is embedded
When a business unit delivers a product to a
customer the customer might use the product as
purchased materials in its value chain
By examining how other business units in the
industry value chain conduct their business, cost
reduction and product improvement may result
Industry Value Chain Example
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A value chain for a wooden chair:
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Logger cuts down tree
Sawmill converts logs to lumber
Lumberyard provides selection of lumber
Chair manufacture assembles chair
Furniture retailer markets and sells chair
Consumer purchases and uses chair
Landfill or recycler disposes of chair
SWOT Analysis3
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SWOT analysis is used to analyse and
evaluate business opportunities
SWOT is an acronym for:
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Strengths
Weaknesses
Opportunities
Threats
SWOT Analysis Cont’d

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An analyst examines the business unit to
determine strengths and weaknesses
Then examines the business environment to
identify opportunities and threats
SWOT Analysis Cont’d
Questions asked during SWOT analysis:
 Strengths
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What does the company do well?
Is the company strong in its market?
Does the company have a strong sense of purpose
and the culture to support it?
Weaknesses:
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What does the company do poorly?
What problems could be avoided?
Does the company have serious financial liabilities?
SWOT Analysis Cont’d
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Opportunities:
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Are industry trends moving upwards?
Do new markets exist for the company’s products/services?
Are there new technologies that the company can exploit?
Threats:
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What are the competitors doing well?
What obstacles does the company face?
Are there troubling changes in the company’s business
environment (technologies, law and regulations)?
SWOT Analysis Cont’d
In the mid-1990s DELL Computer did the
following SWOT analysis:
 Strengths:
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Sell directly to consumers
Keep costs below competitors
Weaknesses:

No strong relationships with computer
retailers
SWOT Analysis Cont’d
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Opportunities:
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Consumers desire for one-stop shopping
Consumers know what they want to buy
Internet could be a powerful marketing tool
Threats:
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Competitors have stronger brand names
Competitors have strong relationships with
computer retailers
International Issues3
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Trust issues
Language issues
Culture issues
Infrastructure issues
Trust Issues
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Anyone can create a website
These individuals or businesses can easily remain
anonymous
Without an established brand, consumers find it
difficult to trusts on-line businesses:
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especially with personal information and credit card
numbers
The key is to develop methods which would
allow legitimate businesses to establish trust
relationships quickly with consumers
Language Issues (localisation)

Global impact requires local language Web sites
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customers prefer to buy from sites in native language
60% of web content today is in English; but more
than 50% of the current users do not read English
Multiple translations may be required for
different dialects, e.g. Spanish- Mexico and Spain
Language Issues (localisation)

Translating entire websites is expensive

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25-90 cents per word for human translators (400-600
words per hour)
Automated software translation (machine translation)
is cheaper (400,000 word per hour) but less accurate
The home page should be translated to all
supported languages, as well as marketing and
product pages
Culture Issues


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Culture is the combination of language and
customs
Culture varies across national boundaries
and in many cases regions within nations
Example:

General Motors Chevrolet Nova automobile
amused people in Latin America since no va
means “it will not go”
Culture Issues Cont’d

Choice of icons on Web pages becomes
problematic on international Web sites:


In the US a shopping cart is useful, in the UK
a shopping basket is more appropriate,
Australians call shopping carts, shopping
trolleys
In many places the hand gesture where the
index finger touches the thumb means okay;
while in Brazil it is an obscene gesture
Culture Issues Cont’d

In some cases unrestricted access to the
Internet is not permitted, for example in the
Middle East and North Africa


This limits the growth of e-commerce
In France any advertisement for a product
or service must in in French – by law

This means that French companies must
provide websites in at least two languages if
they want to sell goods outside of France
Infrastructure Issues
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Limited telecommunication infrastructure
may lead to unreliable Internet access
Internet connection cost might be high


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Reduces time businesses might spend surfing
for new suppliers or products
Flat-rate access to the Internet is required
These are major issue in developing
countries, including Barbados
Conclusion

In this session:




It was made clear that e-commerce was not a new
business, rather a new way of doing business
The advantages and disadvantages of e-commerce
were discussed
The characteristics of the first and second waves
were compared and contrast
The five e-commerce categories were presented
Conclusion Cont’d



The importance of reducing transaction costs
was considered
The importance of SWOT analysis was
demonstrated through a useful example
Issues involved in international commerce
were also considered
Definitions

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
A commodity item is a product or service that is hard to
distinguish from the same products or services provided
by other sellers (e.g. gasoline, office suppliers, soap and
computers)
A transaction is an exchange of value, such as a purchase
or sale, or the conversion of raw materials into finished
products (a transaction has one or more associated
activity)
A business process is the set of logically related and
sequential activities and transactions in which businesses
engage
Definitions Cont’d


Merchandising is a combination of store
design, layout and product display
knowledge
A shipping profile is the collection of
attributes that affect how easily that
product can be packaged and delivered
(e.g. airline tickets have a high value-toweight ratio)
Definitions Cont’d

The definition of a market satisfies two
conditions:


Potential seller of a good (product) comes
into contact with buyers
A medium of exchange is available (e.g.
currency or barter (to exchange goods or
services directly without the use
of money))
Definitions Cont’d

Transaction costs are the total costs that a
buyer and seller incur as they gather
information and negotiate a purchase/sale
transaction. These costs include:



Brokerage fees and sales commissions
Cost of information search and acquisition
Seller’s investment in equipment or hire of
skilled employees
References
[1] NSW Department of State and Regional Development, “Brief on Electronic Commerce”,
http://www.smallbiz.nsw.gov.au/textonly/issues/technology/brief/index.html
[2] Ford, Warwick, “Secure Electronic Commerce: Building the Infrastructure for Digital Signatures and
Encryption (2nd Edition), pp. 1, 2000
[3] Schneider, Gary, P., “Electronic Commerce”, Thomson Course Technology, Seventh Annual Edition,
2007
[4] Gourmet Retailer, “Online Sales of Food/Beverage/Grocery Down”, May 2007. Available online at
http://www.gourmetretailer.com/gourmetretailer/headlines/article_display.jsp?vnu_content_id=1003
585259
[5] Cheap Web Hosting Directory, “E-Commerce Report, Details $133 Billion Online B2C Sales”, August
21, 2007. Available online at http://www.cheaphostingdirectory.com/news-e-commerce-reportdetails-133-billion-online-b2c-sales-3304.html