MANAGEMENT INFORMATION SYSTEMS
Chapter 12
Chapter 12: Introduction To E-Business And Fundamentals
Of E-Commerce In MIS
12.1 Learning Outcomes
After complete this lesson, you would be able to:
1. Evaluate changes in trading patterns and marketplace models enabled
by e-commerce.
2. Identify the main business models of electronic trading.
3. Describe different revenue models and transaction mechanisms
available through hosting an e-commerce site.
12.2 From E-Commerce To E-Business
 Kalakota and Whinston (1997) refer to a range of different perspective
for e-commerce:
 A communication perspective – the delivery of information,
product/services or payment by electronic means.
 A business perspective – the application of technology towards the
automation of business transactions and workflows.
 A service perspective – enabling cost cutting at the same time as
increasing the speed and quality of service delivery.
 An online perspective – the buying and selling of products and
information online.
 Zwass (1998) uses a broad definition of e-commerce: The sharing of
business information, maintaining business relationships, and
conducting business transactions by means of telecommunications
networks.
 The UK government also uses a broad definition: E-commerce is the
exchange of information across electronic networks, at any stage in the
supply chain, whether within an organization, between businesses,
between businesses and consumers, or between the public and private
sector, whether paid or unpaid.
12.3 E-Commerce
 E-commerce is not solely restricted to the actual buying and selling of
products, but also pre-sale and post-sales activities across the supply
chain.
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Supply Chain Management
 Supply chain management is the coordination of all supply activities
of an organization from its suppliers and partners to its customers.
 An e-commerce transaction can be considered from two
perspectives: buy-side and sell-side transactions.
BUY-SIDE E-commerce
 Refers to e-commerce transactions
organization and its suppliers.
between
a
purchasing
SELL-SIDE E-commerce
 Refers to e-commerce transactions between a supplier organization
and its customers.
12.4 E-business
 Is a broader term referring to how technology can benefit all internal
business processes and interactions with third parties. This includes
buy-side and sell-side e-commerce and internal value chain.
 Three (3) alternative definitions of the relationship between ecommerce and e-business:
 E-Commerce (EC) has some degree of overlap with electronic
business (EB).
 EC is broadly equivalent to EB.
 EC is a subset of EB.
12.4.1 Tangible Benefits Of E-Business
 Increased sales from new sales leads giving rise to increased revenue
from:
- New customers, new markets
- Existing customers
 Marketing cost reductions from:
- Reduced time in customer service
- Online sales
- Reduced printing and distribution costs of marketing
communications
 Supply-chain cost reduction from:
 Reduced levels of inventory
 Increased competition from suppliers
 Shorter cycle time in ordering
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 Administrative cost reductions from more efficient routine business
processes such as recruitment, invoice payment and holiday
authorization.
12.4.2 Intangible Benefits Of E-Business
 Corporate image communication
 Enhance brand
 More rapid, more responsive marketing communications including PR
 Faster product development lifecycle enabling faster response to market
needs
 Improved customer service
 Learning for the future
 Meeting customer expectations to have a website
 Identify new partners, support existing partners better
 Better management of marketing information and customer information
 Feedback from customer on products
12.5 E-Commerce Fundamentals
Management Issues:
1. What are the implications of changes in marketplace structures for how
we trade with customers and other partners?
2. Which business models and revenue models should we consider to
exploit the Internet?
3. What will be the importance of online marketplace hubs or exchanges
to our business?
12.6 The E-Commerce Environment
 Electronic communications are disruptive technologies – new
technologies that prompt businesses to reappraise their strategic
approaches
 Electronic communications have also given rise to many exciting new
business models and create potentials.
 All organizations operate within an environment that influences the way
in which they conduct business.
 Strategy development is strongly influenced by considering the
environment the business operates in.
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12.7 The E-Commerce Market Place
12.7.1 Business or Consumer Model
 B2C – commercial transactions are between an organization and
consumers
 B2B – commercial transactions are between an organization and other
organizations.
 C2C – consumers transact directly with consumers (e.g. online
auctions, community sites)
12.7.2 Marketplace Channel Structures
 Channel structures – describe the way a manufacturer or selling
organization delivers products and services to their customers.
 The relationship between a company and its channel partners can be
dramatically altered by the opportunities afforded by the Internet.
 This occurs because the Internet offers a means of bypassing some of
the channel partners.
 The process is known as disintermediation or ‘cutting out the
middleman’
 Disintermediation – The removal of intermediaries such as distributors
or brokers that formerly linked a company to its customers.
 What are the implications of re-intermediation for the e-commerce
managers?
o This implies the need to integrate, using the Internet, databases
containing information must be updated from time to time
o Strict monitoring of online information is necessary
 Countermediation – Creation of new intermediary by an established
company.
 Informediary – A business whose main source of revenue derives from
capturing consumer information and developing detailed profiles of
individual customers for use by third parties.
12.7.3 Intermediaries
 Broker
 Also referred to as Cybermediaries
 Examples:
o Directories (such as Yahoo, Excite)
o Search Engines (such as AltaVista, Infoseek)
o Forums, fan clubs, user groups
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o Evaluators (sites which act as reviewers of services)
 Virtual marketplace or virtual trading community
12.8 Focus on Portal
 Portal – A website that acts as a gateway to information and services
available on the Internet by providing search engines, directories, and
other services such as personalized news or free e-mail.
 Search engines, spiders and robots – Automatic tools known as spiders
or robot index registered sites. User search this by typing keywords and
are presented with a list of pages
 Directories or catalogues – Structured listing of registered sites in
different categories.
 The concept of PORTAL has evolved to reflect the range of services
offered by some cybermediaries.
 It originated with reference to sites that were the default homepages of
users.
 Example:
www.msn.com
www.microsoft.com
www.yahoo.com
www.lycos.com
 Portals are important to companies looking to use banner advertising or
sponsorship to promote their products.
12.9 Types Of Marketplace Identified
Sell-Side (Seller controlled)
 Vendor sites I.e. home site of company with e-commerce facilities.
 Intermediaries controlled by sellers.
Buy-Side (buyer Controlled)
 Intermediaries controlled by buyers.
 Website procurement posting e.g. www.zygonet.com,
www.respond.com , purchasing agents e.g. www.powerbuy.com
Marketplace (Neutral)
 Intermediaries not controlled by buyers.
 Industry (www.industry.net)
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12.10 Commercial Arrangements For Transactions
Commercial mechanism
Online transaction mechanism
Negotiated deal
Negotiation – bargaining between single seller
(www.commerceone.net) and buyer
Brokered deal
Achieved thru online intermediaries offering
(www.screentrade.co.uk) auction and pure markets online
Auction
(www.ebay.com)
Seller auction – buyer’s bids determine final
price of sellers’ offerings
Buyer auction – buyers request prices from
multiple sellers
Reverse – buyers post desired price for seller
acceptance
Fixed price sale
Example: e-tailers
Static call – online catalogue with fixed prices
Dynamic call – online catalogue with
continuously updated prices and features
Pure markets
Spot – buyers’ and sellers’ bids clear instantly
(electronic share dealing)
Barter
(www.bartertrust.com)
Barter – buyers and sellers exchange goods
12.11 Business Models For E-Commerce
Business model
 An architecture for product, service and information flows, including a
description of the various business actors and their roles, and a
description of the potential benefits for the various business actors, and
a description of the sources of revenue.
 Timmers (1999) identified 11 different types of business model that can
be facilitated by the web:
1.
E-shop
2.
Third-party marketplaces
3.
E-procurement
4.
Value chain integrators
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6.
7.
8.
9.
10.
11.
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E-malls
Value chain service providers
E-auctions
Information brokerage
Virtual communities
Trust and other services
Collaboration platforms
12.12 Internet Start-Up Companies – The ‘Dot.Coms’
 The dot.coms was launched in response to the availability of new
business and revenue models.
 The emphasis of e-business and e-commerce management is
deliberately placed on how e-communications will impact on existing
organizations.
 Dot.coms – Businesses whose main trading presence is on the Internet.
 Example: Amazon.com
 Amazon.com offline operations are very important to delivering
customer satisfaction.
 Bricks and mortar – A traditional organization with limited online
presence.
 Clicks and mortar – A business combining an online and offline
presence.
 Clicks only or internet pure play – An organization principally with an
online presence.
12.12.1 Valuing Dot.Coms
 Critical factors to model when considering the future success of a
company:
1. The cost of acquiring a customer through marketing
2. The contribution margin per customer (before acquisition cost)
3. The average annual revenues per year from customers and other
revenues such as banner advertising and affiliate revenues.
4. The total number of customers.
5. The customer churn rate (The proportion of customers (typically
subscribers) that no longer purchase a company’s products in a
time period).
 Six assessment criteria (Gwyther, 1999) to identify successful UK
internet companies:
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1. Concept
 This describes the strength of business model. It includes:
 Potential to generate revenue ;
 Superior customer value – value proposition
 First mover advantage
2. Innovation
 The extent to which the business model merely imitates realworld or online models. Companies that continue to innovate
will clearly gain competitive advantage and this is also assessed.
3. Execution
 Aspects of execution that can be seen to have failed for some
companies are promotion, performance, availability, security &
fulfillment.
4. Traffic
 This is measured in terms of page impressions and online
revenues.
5. Financing
 This describes the ability of the company to attract venture
capital or other funding to help execute the idea.
6. Profile
 This is the ability of the company to generate favorable publicity
and to create awareness within its target market.
12.12.2 The Impact Of The Dot.Com Phenomenon On Traditional
Organizations
 There is no merit in becoming a dot.com business. Within five years
successful businesses will have embraced and deployed at real-scale
across the whole enterprise the processes and technologies that we now
know as dot.com.
 Guidelines for managers developing e-commerce strategy :
1. Explore new business and revenue models.
2. Perform continuous scanning of the marketplace and respond
rapidly.
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3.
4.
5.
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Set up partner networks to leverage the expertise and reputation of
specialists.
The real world is still important for product promotion and
fulfillment.
Examine the payback and return on investment of new approaches
carefully.
Review Questions
1.
What is E-Commerce?
2.
Identify the main business models of electronic trading.
3.
Describe different revenue models and transaction mechanisms
available through hosting an e-commerce site.
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