Tutorial 9:
Electronic Commerce
Objectives
• Session 9.1
– Understand the basics of e-commerce
– Explore Web sites that conduct e-commerce
– Learn how companies generate revenues online by selling
products, subscriptions, and services
– Determine how companies generate revenues online
through advertising and marketing
– Learn how consumers pay for e-commerce purchases
– Learn about consumer concerns about transaction security
and privacy
– Understand international and legal concerns related to ecommerce
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Session 9.1 Overview
Ecommerce Categories
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Buying and Selling over the Web
• The business processes that a company uses to find
new customers, make sales, and deliver the goods or
services that it sells are collectively referred to as the
company’s revenue model
• The most common revenue model is direct sales or
products and services
• In the U.S., there has been a dramatic rise in ecommerce retail sales from 1998 to 2010
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Buying and Selling over the Web
• Buying and Selling Goods
– The most common form of e-commerce is online retail,
which refers to selling physical products on the Web
– In the online retail model, a company replaces or
supplements its printed catalogs and/or brick-and-mortar
store with a Web site
– Web-only businesses are sometimes called dot-com or
pure dot-com companies
– Adding a Web site to reach potential customers creates an
additional sales channel
– Companies that use both a physical store and the Web to
sell their products and services are sometimes referred to
as bricks and clicks
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Buying and Selling over the Web
• Buying and Selling Subscriptions
– A subscription is an amount that users pay in order to
access the site’s content
– Entertainment sites that feature online games, music,
movies, and books are often subscription based
– Many gaming sites offer free online games to attract
visitors as well as premium games that visitors must
pay to play either by buying and downloading
software to install on their computers, or by paying a
subscription fee to enter the premium games area on
the site
– It’s common to see sites that charge a subscription fee
as well as include advertising
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Buying and Selling over the Web
• Buying and Selling Services
– Professional services sites charge fees for their
services
– Broker and intermediary services are sold on the Web
• An intermediary is a person or an organization that
acts as a mediator or an agent between two parties
to effect a transaction or an agreement
• A liquidation broker is an intermediary who
matches sellers of obsolete inventory with
purchasers who are looking for bargains
• Some auction sites offer mediation or escrow
services that hold the buyer’s payment until he or
she is satisfied that the item matches the seller’s
description
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Buying and Selling over the Web
• Buying and Selling
Services (continued)
– Disintermediation is
when an intermediary
from an industry is no
longer needed for the
consumer to obtain
the goods and services
from the industry
– The introduction of a
new intermediary into
an industry is called
reintermediation
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Advertising and Marketing
on the Internet
• Businesses use the Internet to establish an online
marketplace and reach potential customers
• The Internet provides businesses the opportunity to
promote their goods and services effectively and
efficiently through advertising and marketing
• Advertising
– Advertising is a paid announcement that attracts
attention to a product, service, business, person, or
idea
– The most successful advertising is directed at very
specific audiences
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Advertising and Marketing
on the Internet
• Advertising (continued)
– Some of the more common types of ads include:
• Banner ads (at the top of a Web page)
• Pop-up ads (open in a new window or within a Web page)
• Text ads (text links that appear within a Web page)
• Contextual ads (change based on the viewed content)
• Sponsorship ads (often a logo or simple statement)
• Video ads (ads in video format prior to online videos)
• Interstitial ads (appear as visitors browse between pages)
• Advertorials (paid editorial ads that contain opinions)
• Classified ads (descriptions of items for sale or something
being looked for)
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Advertising and Marketing
on the Internet
• Affiliate Marketing
– Affiliate marketing is an arrangement in which
one company performs some business processes
for another company in exchange for money or
the sharing of expertise or access to customers
– Affiliate marketing can also be called a strategic
alliance (or a strategic partnership)
– Examples include:
• Amazon has a variety of affiliate programs
• PriceGrabber
• Upromise by Sallie Mae
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Advertising and Marketing
on the Internet
• Social media
marketing is the
process of using
social media
Web sites such
as Facebook,
Twitter, and
YouTube to
attract attention
to an idea,
product, Web
site, store, and
so forth
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Paying for E-Commerce Purchases
• Most e-commerce sites accept credit card payments;
other forms of payment are available
• A digital wallet (also called an electronic wallet or ewallet) is an electronic device with software (or
software that runs on a computer or phone) that
enables the user to make a purchase online
– Originally, they were stored only on the user’s
computer
– Now mobile phones and other wireless devices
are used as digital wallets and stored on a server
owned by a digital wallet vendor or an ISP
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Paying for E-Commerce Purchases
• A digital wallet that an organization creates and
maintains on its servers for consumers is sometimes
called a thin wallet
• Using a digital wallet enables a merchant to collect data
about you and your shopping habits
• Examples of digital wallets include:
– PayPal
– Google Wallet
– V.me
– Discover Money Messenger
– Sprint Mobile Wallet
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Paying for E-Commerce Purchases
• Near field communication (NFC) is a standardsbased, short-range wireless technology that allows
electronic devices to interact over a couple of inches
• NFC-enabled smartphones include chips that can
store all the information from:
– A physical bank
– Credit cards
– Identification cards
• NFC-enabled smartphones transmit the payment or
ID data wirelessly over a short distance when the
phone is close to a compatible receiver
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Paying for E-Commerce Purchases
• Although many companies accept PayPal to complete
transactions, most companies also accept credit cards for
payments
• The value-to-weight ratio is the price of the item divided
by its weight
– Large, heavy products that have a low price are
difficult to sell online because the shipping costs
exceed the profit on the item
– Items that are small, light, and relatively expensive
can be shipped at low cost and often generate enough
profit to cover even next-day shipping costs
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Consumer Concerns
• E-commerce leads to two major concerns: transaction
security and privacy
• Transaction Security Concerns
– Online consumers often do not know who is operating
a Web site and might:
• Wonder whether the firm is a real company that
will deliver the merchandise ordered
• Want to know if the company will replace defective
merchandise or refund the purchase price
– Online customers want assurance that the payments
they make are secure
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Consumer Concerns
• Privacy Concerns
– Web sites can collect a great deal of information
about customers’ preferences, even before they place
an order
– By recording a user’s clickstream (a record of the links
clicked by a user while visiting a Web site), the Web
server can gather extensive knowledge about that
visitor and use it for marketing purposes or share it
with other companies
– A greater concern for many consumers is how ecommerce Web sites store their personal information
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Consumer Concerns
• To ensure that the transactions conducted on their sites are
secure, legitimate e-commerce Web sites use the SSL protocol
to protect sensitive information
• Several assurance providers have started offering various
kinds of certifications for Web site transaction security and
privacy policies
• The Children’s Online Privacy Protection Act of 1998 (often
referred to as COPPA) makes it illegal for Web sites to collect
identifiable information from children under the age of 13
without first obtaining their parents’ consent
• The Electronic Communications Privacy Act (ECPA) of 1986,
which was enacted before most people were using the
Internet, does not include rules specifically designed to
protect the privacy of persons using Web sites to conduct
transactions
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International E-Commerce Issues
• When using a Web site to purchase products,
subscriptions, or services, customers might be doing
business with companies located anywhere around the
globe
• Cultural and Language Issues
– Cultural conventions differ from country to country
– The predominant language on the Web is English, but
sites in other languages and in multiple languages are
becoming more common
– Translation that takes into account the culture and
customs of the country is called localization
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International E-Commerce Issues
• Cultural and
Language Issues
(continued)
– Well-designed
Web sites are
accessible and
effective for
users no matter
what country
they are located
in and what
language they
speak
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International E-Commerce Issues
• Legal Issues
– Many of the international issues that arise relate to legal, tax,
and privacy concerns
– Each country has the right to pass laws and levy taxes on
businesses that operate within their jurisdictions
– Complying with all of these laws and regulations can be difficult
for small businesses; many restrict the countries to which they
will deliver merchandise or in which they will provide services
– These Web sites can place terms of service (TOS) statements on
their sites to protect themselves from laws and regulations of
which they might be unaware; these can
• Include rules for site visitors and a statement of copyright
interest in the site design and content
• Restrict the types of business that a visitor can conduct with
the site
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International E-Commerce Issues
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