MANAGING INFORMATION TECHNOLOGY FIFTH EDITION CHAPTER 8 E-COMMERCE APPLICATIONS E. Wainright Martin Carol V. Brown Daniel W. DeHayes Jeffrey A. Hoffer William C. Perkins E-COMMERCE TECHNOLOGIES Electronic commerce – the electronic transmission of buyer/seller transactions and related information between individuals and businesses or between two or more businesses that are trading partners © 2005 Pearson Prentice-Hall Chapter 8 - 2 Page 239 E-COMMERCE TECHNOLOGIES Will we see continued growth in e-commerce (Internet) applications? Consider Metcalfe’s Law: The value of a network to each of its members is proportional to the number of other users, expressed as (n2 – n) / 2 There are increasing returns to be gained as more organizations and people use the Web © 2005 Pearson Prentice-Hall Chapter 8 - 3 Page 240 E-COMMERCE TECHNOLOGIES Commercial History of the Internet © 2005 Pearson Prentice-Hall Chapter 8 - 4 Figure 8.1 Internet Technology Innovations for E-Commerce Page 241 E-COMMERCE TECHNOLOGIES Technologies for B2C Applications Improvements for online sales or auction bidding New channels for customer service Collection of clickstream metrics and personal data from Web site users Acceptance of Web “cookies” stored on user’s hard drive to enable customization of Web sites Web browser improvements with multimedia © 2005 Pearson Prentice-Hall Chapter 8 - 5 Page 240 E-COMMERCE TECHNOLOGIES Technologies for B2B Applications Most important technological advance for B2B applications – XML markup language Now have accepted standards Can be used for a flexible, low-entry form of EDI Electronic data interchange (EDI) – proprietary applications for communicating with trading partners based on agreedupon standards for business document transmission © 2005 Pearson Prentice-Hall Chapter 8 - 6 Page 242 E-COMMERCE TECHNOLOGIES Technologies for B2B Applications EDI Benefits: Reduced cycle times for doing business Cost savings for automated transaction handling and elimination of paper documents Improved interfirm coordination and reduced interfirm coordination costs EDI Constraints: Start-up coordination challenges (EDI standards agreement and legal issues) Start-up and ongoing IT costs © 2005 Pearson Prentice-Hall Chapter 8 - 7 Page 242-243 E-COMMERCE TECHNOLOGIES Technologies for B2B Applications Prediction: Web forms using XML and extranet applications will continue to grow! © 2005 Pearson Prentice-Hall Chapter 8 - 8 Page 242-243 E-COMMERCE TECHNOLOGIES Technologies for IT Security Potential constraint to e-commerce: lack of security for Internet transactions Issues: How to control access to a computer that is physically networked to the Internet How to ensure that security of a given communication is not violated © 2005 Pearson Prentice-Hall Chapter 8 - 9 Page 243 E-COMMERCE TECHNOLOGIES Technologies for IT Security How to control access to a computer that is physically networked to the Internet? Use of a firewall – devices that sit between the Internet and an organization’s internal network to block intrusions from unauthorized users and hackers How to ensure that security of a given communication is not violated? Encryption – based on two decoding keys and mathematical principles for factoring a product into its two prime numbers, where one key codes a message and the other decodes it © 2005 Pearson Prentice-Hall Chapter 8 - 10 Page 243-244 (Adapted from Applegate, Holsapple, et al. 1996; Kalakota and Whinston, 1996) © 2005 Pearson Prentice-Hall Chapter 8 - 11 Figure 8.2 E-Commerce Framework Page 244 LEGAL AND REGULATORY ENVIRONMENT Tax Policies Copyright Lays Antitrust Laws Privacy Issues © 2005 Pearson Prentice-Hall Chapter 8 - 12 Page 244-246 STRATEGIC OPPORTUNITIES AND THREATS Porter’s Competitive Forces Model 1. Supplier power 2. Customer power 3. Threat of new entrants 4. Threat of substitute products or services 5. Responses of competitors © 2005 Pearson Prentice-Hall Chapter 8 - 13 Page 246 STRATEGIC OPPORTUNITIES AND THREATS Opportunities due to the Internet: 1. Procurement of supplies via Internet can increase company’s power over suppliers 2. Size of potential market is expanded 3. Distribution channels between traditional company and customer can be eliminated © 2005 Pearson Prentice-Hall Chapter 8 - 14 Page 246 STRATEGIC OPPORTUNITIES AND THREATS Threats to traditional companies due to the Internet: Migration to price competition – difficult to keep offerings proprietary 2. Increased number of potential competitors 3. Internet reduces some traditional barriers (such as in-person sales force) 4. Customers increase their bargaining power – Internet reduces customer’s switching costs 1. © 2005 Pearson Prentice-Hall Chapter 8 - 15 Page 246-247 The four main areas where companies conduct business online 1. Direct marketing, selling, and services 2. Financial and information services 3. Maintenance, repair, and operations (MRO) 4. Intermediaries Maintenance, Repair, & Operations (MRO) MRO goods include – office suppliers, office equipment, furniture, computers, and replacement parts Internet transforms corporate purchasing from a labor-and paperwork-intensive process into a self-service application Intermediaries Content providers – companies that use the Internet to distribute copyrighted content, including news, music, games, books, movies, and many other types of information Online brokers – intermediaries between buyers and sellers of goods and services Market makers –intermediaries that aggregate three services for market participants A place to trade Rules to govern trading An infrastructure to support trading Types of Intermediaries E-BUSINESS MODELS B2C Applications © 2005 Pearson Prentice-Hall Chapter 8 - 20 Figure 8.4 Potential Benefits to Sellers and Buyers Page 249 B2B Applications If Buyers and Sellers are Fragmented, Independent Intermediaries are likely to be successful. If Sellers are Concentrated, Sellers are likely to dominate. If Buyers are Concentrated, Buyers are likely to dominate. © 2005 Pearson Prentice-Hall Chapter 8 - 21 Figure 8.5 Opportunities for B2B Marketplace Page 250 E-BUSINESS MODELS Atomic Business Models Weill and Vitale proposition: The value propositions of eight business models differ according to the degree to which the following ebusiness assets are captured online: Customer transaction – to capture revenue Customer data – to capture data about customer’s purchasing needs Customer relationship – ability to influence customer’s behaviors © 2005 Pearson Prentice-Hall Chapter 8 - 22 Page 251 E-BUSINESS MODELS Atomic Business Models (Based on Weill and Vitale 2001, Straub 2004) © 2005 Pearson Prentice-Hall Chapter 8 - 23 Figure 8.6 Business Models and Their E-Business Assets Page 251 E-BUSINESS MODELS Atomic Business Models (Based on Weill and Vitale 2001, Straub 2004) © 2005 Pearson Prentice-Hall Chapter 8 - 24 Figure 8.6 Business Models and Their E-Business Assets Page 251 DIRECT-TO-CUSTOMER EXAMPLES Amazon.com Dot-com pioneer in online retailing of third-party products Began as bookseller competitor Now a multi-store, online mall First profitable year 2003 Provides excellent online shopping experiences for millions of customers © 2005 Pearson Prentice-Hall Chapter 8 - 25 Page 252 (© 2004 Amazon.com, Inc. All right reserved.) © 2005 Pearson Prentice-Hall Chapter 8 - 26 Figure 8.7 Amazon.com Home Page Page 253 DIRECT-TO-CUSTOMER EXAMPLES Dell.com Traditional direct seller and market leader of made-to-order microcomputers Developed custom software to support “mass customization” strategy Took advantage of early penetration of Internet market © 2005 Pearson Prentice-Hall Chapter 8 - 27 Page 254 (Used with permission of Dell Corporation.) © 2005 Pearson Prentice-Hall Chapter 8 - 28 Figure 8.8 Dell.com Home Page Page 254 DIRECT-TO-CUSTOMER EXAMPLES Landsend.com Traditional catalog company that developed capability to give online tools to customers so they could make orders for new custom clothing via its Web site © 2005 Pearson Prentice-Hall Chapter 8 - 29 Page 255 (© 2004 Lands’ End, Inc. Used with permission.) © 2005 Pearson Prentice-Hall Chapter 8 - 30 Figure 8.9 Landsend.com Home Page Page 256 DIRECT-TO-CUSTOMER EXAMPLES Successful Online Models Amazon.com Dell Lands’ End © 2005 Pearson Prentice-Hall Chapter 8 - 31 All developed B2C Web sites that use advanced technologies to support customized interactions with customers Page 256 DIRECT-TO-CUSTOMER EXAMPLES Successful Online Models Source: Pew Internet & American Life Project Surveys, 2002 © 2005 Pearson Prentice-Hall Chapter 8 - 32 Figure 8.10 Common Online Activities by U.S. Consumers Page 257 INTERMEDIARY EXAMPLES (Based on Weill and Vitale, 2001) © 2005 Pearson Prentice-Hall Chapter 8 - 33 Figure 8.11 Key Characteristics of Six Types of Intermediaries Page 257 INTERMEDIARY EXAMPLES eBay A dot-com pioneer in electronic auctions One of first to achieve profitability Now is a C2C, B2B, and B2C intermediary © 2005 Pearson Prentice-Hall Chapter 8 - 34 Page 258 These materials have been reproduced with the permission of eBay, Inc. Copyright © eBay, Inc. All rights reserved. © 2005 Pearson Prentice-Hall Chapter 8 - 35 Figure 8.12 eBay.com Home Page Page 259 INTERMEDIARY EXAMPLES Yahoo! Early dot-com intermediary Has recently leveraged IT innovations and business acquisitions to become a leading portal As a portal, site owns only the customer relationship Primary source of revenue is advertisements Through acquisition, now offers online job searches © 2005 Pearson Prentice-Hall Chapter 8 - 36 Page 259-260 (Reproduced with permission of Yahoo! Inc. Copyright © 2004 by Yahoo! Inc. YAHOO! And the YAHOO! Logo are trademarks of Yahoo! Inc.) © 2005 Pearson Prentice-Hall Chapter 8 - 37 Figure 8.13 Yahoo.com Home Page Page 260 INTERMEDIARY EXAMPLES Manheim Traditional B2B intermediary for sale of used cars Has leveraged the Internet to reduce purchasing and sales costs Provides remote, real-time bidding during physical auctions © 2005 Pearson Prentice-Hall Chapter 8 - 38 Page 260-261 (Used with permission of Manheim.) © 2005 Pearson Prentice-Hall Chapter 8 - 39 Figure 8.14 Manheim.com Home Page Page 261 Types of Intermediaries SPECIAL ISSUE: WHAT MAKES A GOOD WEB SITE? Why is Web page design important? For e-commerce applications, the company’s Web site is the company © 2005 Pearson Prentice-Hall Chapter 8 - 41 Page 262 (Based on Rayport and Jaworski, 2004) © 2005 Pearson Prentice-Hall Chapter 8 - 42 Figure 8.15 7Cs Framework for Web Site Design Page 262