Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
OBJECTIVES
• Analyze how Internet technology has changed value propositions and business models
• Define electronic commerce and describe how it has changed consumer retailing and business-tobusiness transactions

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
OBJECTIVES (Continued)
• Compare the principal payment systems for electronic commerce
• Evaluate the role of Internet technology in facilitating management and coordination of internal and interorganizational business processes
• Assess the challenges posed by electronic business and electronic commerce and management solutions

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
Internet Technology and the Digital Firm
• Information technology infrastructure: The
Internet provides a universal and easy-to-use set of technologies and technology standards that can be adopted by all organizations.
• Direct communication between trading partners:
Disintermediation removes intermediate layers and streamlines processes.

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
Internet Technology and the Digital Firm (Continued)
• Round the clock service: Web sites available to consumers 24 hours
• Extended distribution channels: Outlets created for attracting customers who otherwise would not patronize a firm
• Reduced transaction costs: Costs of searching for buyers declines

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
New Business Models and Value Propositions
Business Model:
• Defines an enterprise
• Describes how the enterprise delivers a product or service
• Shows how the enterprise creates wealth

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
The Changing Economies of Information
• Information asymmetry: One party in a transaction has more information than the other. The Internet decreases information asymmetry.
• Increases richness: The Internet increases the depth, detail, and scope of information.
• Increases reach: The Internet increases the number of people who can be contacted efficiently.

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
The Changing Economics of Information
Figure 4-1

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
Internet Business Models
• Virtual storefront: Sells goods or services online
(Amazon.com)
• Information broker: Provides information on products or services (Edmunds.com)
• Transaction broker: Provides online transaction facility (eTrade.com, Expedia.com)
• Online marketplace: Provides a trading platform for individuals and firms (eBay.com)

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
Internet Business Models (Continued)
• Content provider: Creates revenue by providing content (WSJ.com, TheStreet.com)
• Online service provider: Provides online services, including search service. (Google.com,
Xdrive.com)
• Virtual community: Provides an online community to focused groups (Friendster.com, iVillage.com)
• Portal: Provides initial point of entry to Web, specialized content, services (Yahoo.com,
MSN.com)

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Categories of Electronic Commerce
• Business-to-customer (B2C): Retailing of products and services directly to individual customers
(Wal-Mart.com)
• Business-to-business (B2B): Sales of goods and services to other businesses (Grainger.com,
Ariba.com)
• Consumer-to-consumer (C2C): Individuals using the Web for private sales or exchange (eBay.com )

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Business-To-Consumer
Advantages of E-commerce:
• Customer-centered retailing: Closer and more personalized relationship with customers is possible
• Web sites: Provide a corporate-centered portal for the consumer to quickly find information on products, services, prices, orders

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Business-To-Consumer
Advantages of E-Commerce: (Continued)
• Disintermediation: The elimination of organizations or business process layers responsible for certain intermediary steps in a value chain, reducing costs to the consumer
• Reintermediation: The shifting of the intermediary role in a value chain to a new source, adding additional value to the consumer

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
The Benefits of Disintermediation to the Consumer
Figure 4-2

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Interactive Marketing and Personalization
Clickstream tracking tools:
• Collect data on customer activities at Web sites and store them in a log

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Web Site Visitor Tracking
Figure 4-3

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Web Personalization
• Create unique personalized Web pages for each customer
• Increased closeness to customer increases value to the customer, while reducing costs of interacting with the customer

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Web Site Personalization
Figure 4-4

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Collaborative filtering:
• Compares information gathered about a specific user’s behavior at a Web site to data about other customers with similar interests to predict what the user would like to see next. The software then makes recommendations to users based on their assumed interests .

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Customer self-service:
• The use of Web sites to provide customers with access to information and answers to questions
• Replacing human call center operators and clerks
• UPS.com: Customer tracking of packages
• Orbitz.com: Customer self-help for organizing and managing a trip
• Dell.com: “My Order Status” facility

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Business-to-Business Electronic Commerce: New
Efficiencies and Relationships
• Electronic Data Interchange (EDI): Enables the computer-to-computer exchange between two organizations of standard transactions. Currently
80% of B2B e-commerce uses this system.
• EDI is being replaced by more powerful Webbased alternatives.

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Net Marketplaces
Four different types of Net Marketplaces:
• Distributors: B2B online catalogs provide buyers with access to thousands of parts and other goods
(Grainger.com)
• Procurement platforms: Platforms for purchasing goods and materials and also sourcing, negotiating with suppliers, paying for goods, and making delivery arrangements (Ariba.com)

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Net Marketplaces
Four different types of Net Marketplaces: (Continued)
• Independent exchanges: Third-party Net marketplace that is primarily transaction-oriented and that connects many buyers and suppliers for spot purchasing
(Freemarkets.com, GEPolymerland.com)
• Industry consortia: Industry-owned Net marketplaces used primarily for long-term sourcing of direct inputs to production (ChemConnect.com)

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Electronic Data Interchange (EDI)
Figure 4-5

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Private Industrial Networks
• The largest Web-based form of B2B commerce
• Private B2B extranets that focus on continuous business process coordination between a small group of companies for collaboration and supply chain management. Wal-Mart uses its own private network to coordinate more than 15,000 suppliers to its stores.

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
A Private Industrial Network
Figure 4-6

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
A Net Marketplace
Figure 4-7

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Credit cards
Electronic Commerce Payment Systems
The most common form of payment. $50 Limited customer liability.
Digital wallets Electronic storage of I.D. and digital cash. Not widely used.
Accumulated balance Used for micro payments. Similar to monthly telephone bills.
Stored value
Smart Cards
Digital cash
Peer-to-Peer payment
Digital checking
Electronic billing presentment and payment
Used for micro payments. Pre-payment of funds, debited on use.
I.D. and credit information stored on a chip attached to a card. Used in Europe.
Electronic currency that can be transferred over the Web.
Interpersonal transfer of funds such as PayPal.
Electronic checks with digital signatures, used most often in B2B commerce.
Used by consumers to pay bills online, provided by many banks.

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
How Intranets Support Electronic Business
• Benefits
• Functional applications
• Good examples: CARE and Mitre Corporation

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Benefits of Intranets
• Connectivity: Accessible from most computing platforms
• Can be tied to internal corporate systems and core transaction databases
• Platforms for interactive applications
• Scalable to larger or smaller computing platforms

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Benefits of Intranets (Continued)
• Easy to use, universal standard Web interface
• Low start-up costs
• Richer, more responsive information environment than corporate manuals
• Reduced information distribution costs

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Functional Applications of Intranets
• Finance and accounting
• Human resources
• Sales and marketing
• Manufacturing and production

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Functional Applications of Intranets
Figure 4-8

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Finance & Accounting
• General ledger reporting
• Project costing
• Annual reports
• Budgeting

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Human Resources
Company:
• Online publishing of corporate policy
• Job postings and internal job transfers
• Company telephone directories, training

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Human Resources (Continued)
Employees:
• Healthcare
• Employee savings
• Competency tests

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Sales and Marketing
• Competitor analysis
• Price updates
• Promotional campaigns
• Sales presentations
• Sales contracts

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Manufacturing and Production
• Quality measurements
• Maintenance schedules
• Design specifications
• Machine outputs
• Order tracking

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Business Process Integration
The Internet and collaborative commerce:
• Collaborative commerce: When firms use the
Internet to cooperate closely in the development, production, and distribution of products and services
• GE Plastics maintains an Intranet where its customers (selected fabricators) can find information on product design and new developments.

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Collaborative Commerce
Figure 4-9

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS
Management Opportunities:
The Internet provides firms with extraordinary opportunities to develop new products and services, new distribution channels, new avenues for marketing and sales, and even entirely new business models.

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS
Management Challenges:
• Finding a successful Internet business model
• Organizational change challenges
• Trust, Security, and Privacy

Management Information Systems
Lecture 4
Electronic Business and Electronic Commerce
MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS
Solution Guidelines:
• Determining how Internet technology can provide value for the business
• Managing business process changes
• Safeguarding security and privacy