Information Technology Foundations-BIT 112
CHAPTER 6
E-Business and E-Commerce
Information Technology Foundations-BIT 112
Chapter Outline
• 6.1 Overview of E-Business & E-Commerce
• 6.2 Business-to-Consumer (B2C) E-Commerce
• 6.3 Business-to-Business (B2B) E-Commerce
• 6.4 Electronic Payments
• 6.5 Ethical and Legal Issues in E-Business
2
Information Technology Foundations-BIT 112
Learning Objectives
• Describe electronic commerce, including its scope,
benefits, limitations, and types.
• Distinguish between pure and partial electronic commerce.
• Understand the basics of how online auctions work.
• Differentiate among business-to-consumer, business-tobusiness, consumer-to-consumer, business-to-employee
and government-to-citizen electronic commerce.
• Describe the major e-commerce support services,
specifically payments and logistics.
• Discuss some ethical and legal issues relating to ecommerce.
3
Information Technology Foundations-BIT 112
Chapter Opening Case
Storefront in NYC
P. 166
J&R Web site
4
Information Technology Foundations-BIT 112
6.1 Overview
• Electronic commerce (e-commerce, EC)
– Describes the buying, selling, transferring or exchanging of
products, services or information via computer networks,
including the Internet.
• E-business
– A broader definition of EC, including buying and selling of
goods and services, and also servicing customers,
collaborating with partners, conducting e-learning and
conducting electronic transactions within an organization.
5
Information Technology Foundations-BIT 112
Overview (continued)
• The product, process, and delivery agent can be physical
or digital.
– In traditional commerce the three factors are all physical. Also
known as Brick-and-mortar organizations (i.e., organizations are
purely physical organizations).
• Pure versus Partial Electronic Commerce depends on the
degree of digitization involved.
– The extent to which the commerce has been transformed from
physical or digital.
• Virtual organizations
– companies that are engaged only in EC. (Also called pure play)
• Click-and-mortar organizations
– organizations are those that conduct some e-commerce activities,
yet their business is primarily done in the physical world. i.e.
partial EC.
6
Information Technology Foundations-BIT 112
FreshDirect (IT’s About Business 6.1)
P169
• The following slides give you a look at FreshDirect,
which is a partial EC, or clicks-and-mortar company.
7
Information Technology Foundations-BIT 112
8
Information Technology Foundations-BIT 112
9
Information Technology Foundations-BIT 112
10
Information Technology Foundations-BIT 112
11
Information Technology Foundations-BIT 112
12
Information Technology Foundations-BIT 112
13
Information Technology Foundations-BIT 112
Types of E-Commerce
• Business-to-consumer (B2C)
– Sellers are organizations and the buyers are individuals.
• Business-to-business (B2B)
– Both sellers and buyers are business organizations.
– B2B represents the vast majority of e-commerce.
• Consumer-to-consumer (C2C)
– Individual sells products or services to other individuals.
• Business-to-employee (B2E)
– Organization uses e-commerce internally to provide information and services to its
employees.
– Companies allow employees to manage their benefits, take training classes
electronically; buy discounted insurance, travel packages, and event tickets.
• E-Government
– The use of Internet Technology in general and e-commerce in particular to deliver
information about public services to citizens (called Government-to-citizen [G2C
EC]), business partners and suppliers (called government-to-business [G2B EC]).
• Mobile Commerce (m-commerce)
– Refers to e-commerce that is conducted in a wireless environment.
– For example, using cell phone to shop over the Internet.
14
Information Technology Foundations-BIT 112
B2B and B2C Electronic Commerce
• Drawing illustrates the difference between the two
types of EC.
15
Information Technology Foundations-BIT 112
E-Commerce Business Models
Table 6.1 P 171
16
Information Technology Foundations-BIT 112
E-Commerce Business Models
• Online direct marketing
– Manufacturers or retailers sell directly to customers.
• Electronic tendering system
– Businesses (or governments) request quotes from suppliers; uses
B2B (or G2B) with reverse auctions. Image above is the Hong
Kong Government’s electronic tending system homepage.
• Name-your-own-price
– Customers decide how much they want to pay.
• Find-the-best-price
– Customers specify a need and an intermediary compares
providers and shows the lowest price.
17
Information Technology Foundations-BIT 112
E-Commerce Business Models - Affiliate
Marketing
• Vendors ask partners to place logos or banners on
partner’s site. If customers click on logo, go to vendor’s
site, and buy, then vendor pays commission to partners.
Note the Sony
logo at the top
of this Web
page
www.howstuffworks.com
18
Information Technology Foundations-BIT 112
Other E-Commerce Business Models
• Viral marketing
– Receivers send information
about a product to their friends.
• Group purchasing (e-coops)
– Small buyers aggregate demand
to get a large volume; then the
group conducts tendering or
negotiates a lower price.
• Online auctions
– Companies run auctions of
various types on the Internet.
19
Information Technology Foundations-BIT 112
Still More E-Commerce Business Models
• Product customization
– Customers use the
Internet to self-configure
products or services.
– Sellers then price them
and fulfill them quickly.
• Deep discounters
– Company offers deep
price discounts.
• Membership
– Only members can use
the services provided.
20
Information Technology Foundations-BIT 112
And More E-Commerce Business Models
• Bartering online
– Intermediary
administers online
exchange of surplus
products, and/or
company receives
“points” for its
contribution, and the
points can be used to
purchase other
needed items.
21
Information Technology Foundations-BIT 112
A Little More Focus on E-Commerce
Auctions
• A competitive process in which either a seller solicits
consecutive bids from buyers or a buyer solicits
consecutive bids from sellers.
• Two Types
– Forward Auctions
• sellers place items, buyers
bid continuously.
– Reverse Auctions
• buyer posts request (RFQ),
sellers submit bid.
– In general, forward auctions
result in higher prices over time,
where reverse auctions result
in lower prices over time.
22
Information Technology Foundations-BIT 112
Forward and Reverse Auctions
Bid
price
Bid
price
Time
Forward Auction
Time
Reverse Auction
•
Sellers use a forward auction as a channel to many potential buyers.
Sotheby’s, for example, uses forward auctions.
•
In reverse auctions, one buyer, usually an organization, wants to buy a
product or a service. The buyer posts a request for quotation (RFQ) on its
Web site or on a third-party Web site. The RFQ contains detailed
information on the desired purchase. Suppliers study the RFQ and submit
bids, and the lowest bid wins the auction.
23
Information Technology Foundations-BIT 112
Benefits of E-Commerce
• Benefits to organizations
– Makes national and international markets more accessible.
– Lowering costs of processing, distributing, and retrieving
information.
• Benefits to customers
– Access a vast number of products and services around the
clock (24/7/365).
• Benefits to Society
– Ability to easily and conveniently deliver information,
services and products to people in cities, rural areas and
developing countries.
24
Information Technology Foundations-BIT 112
Limitations of E-Commerce
• Technological Limitations
– Lack of universally accepted security standards.
– Insufficient telecommunications bandwidth.
– Expensive accessibility.
• Non-technological Limitations
– Perception that EC is unsecure.
– Unresolved legal issues.
– Lacks a critical mass of sellers and buyers.
25
Information Technology Foundations-BIT 112
6.2 Business-to-Consumer (B2C)
Electronic Commerce
• B2B EC is much larger in $ volume than B2C EC, but
B2C EC is more complex because it involves a larger
number of buyers.
• Electronic storefronts
– represents a single store.
• Electronic malls
– collections of individual shops under a single Internet
address.
26
Information Technology Foundations-BIT 112
Online Service Industries
• In addition to purchasing products, customers can also
access needed services via the web. e.g., buying airline
tickets, stocks, …
• A key issue is disintermediation (middlepersons).
– Intermediaries:
• Provide information.
• Perform value-added services such as consulting.
•
27
Information Technology Foundations-BIT 112
Disintermediation Example
• Online diamond broker - disintermediates the
diamond supply chain.
28
Information Technology Foundations-BIT 112
Web Enabled Decision Support System
Allows One To Specify Diamond Desired
29
Information Technology Foundations-BIT 112
Other Online Service Industries
• Cyberbanking
• Online securities
trading
• Online job market
• Travel services
30
Information Technology Foundations-BIT 112
The Long Tail
• Online services carry far more inventory than
traditional retailers.
31
Information Technology Foundations-BIT 112
Issues in Electronic Retailing (E-Tailing)
• Channel conflict
– Occurs when manufacturers disintermediate their channel
partners, such as distributors, retailers, dealers, and sales
representatives, by selling their products directly to
consumers, usually over the Internet through electronic
commerce.
• Multichanneling
– A process in which a company integrates its offline and
online channels. (e.g., returns of online items)
• Order fulfillment
– Involves finding the product to be shipped; packaging the
product; arrange for speedy delivery to the customer; and
handle the return of unwanted or defective products.
32
Information Technology Foundations-BIT 112
Channel Conflict
P. 177
???
33
Information Technology Foundations-BIT 112
Online Advertising
• Advertising is an attempt to disseminate information
in order to influence a buyer-seller transaction.
• Online Advertising methods
–
–
–
–
Banners: simply electronic billboards.
Pop-up ads: appear in front of the current browser window.
Pop-under ads: appear underneath the active window.
Permission marketing: asks consumers to give their
permission to voluntarily accept online advertising and email.
– Viral marketing: refers to online “word-of-mouth”
marketing.
34
Information Technology Foundations-BIT 112
A closer look at Online Advertising
• “We must accept the fact that there is no ‘mass’ in
‘mass media’ anymore.” Jim Stengel, Global
Marketing, Proctor & Gamble.
• “TV networks face upheaval because of everincreasing incursions from digital media like Internet
sites.” Jeff Zucker, chief executive of the NBC
Universal Television Group.
• “We never know where the consumer is going to be at
any point in time, so we have to find a way to be
everywhere. Ubiquity is the new exclusivity.” Linda
Kaplan Thuler, Chief Executive at the Kaplan Thaler
Group, a New York ad agency.
35
Information Technology Foundations-BIT 112
Drivers of today’s online advertising
• The emergence of “communitainment.”
• The increasing popularity of Usites (Web sites with
primarily user generated content).
• Mainstreaming of the Internet.
• Declining usage of traditional media (TV,
Newspapers).
• Fragmentation of content consumption.
• Consumers are multitasking and they do not like ads.
Source: PiperJaffrey
36
Information Technology Foundations-BIT 112
Communitainment
• PiperJaffray, an investment bank, defines
communitainment as the blending of community,
communication, and entertainment into a new form of
online activity driven by consumers.
• The bank predicts that consumers will shift more than
50% of their content consumption over the next
decade to communitainment formats (e.g., social
networking, video, and photo sharing sites),
displacing traditional forms of media content like TV,
magazines, and large Internet sites.
• This trend presents a major challenge for advertisers.
37
Information Technology Foundations-BIT 112
Fragmentation of Content Consumption
Source: PiperJaffray
38
Information Technology Foundations-BIT 112
And…consumers are multitasking
Source: PiperJaffray
39
Information Technology Foundations-BIT 112
And…consumers don’t like ADS
Source: PiperJaffray
40
Information Technology Foundations-BIT 112
Eight Types of Web sites for Advertising
• 1 - Portals:
most popular; best for
reach but not targeting
• 2 - Search:
second largest reach;
high advertising value
Source: PiperJaffray
41
Information Technology Foundations-BIT 112
Eight Types of Web sites for Advertising
• 3 - Commerce:
high reach; not
conducive to advertising
Mall of Hawai’i
• 4 - Entertainment:
large reach; strong
targetability
42
Information Technology Foundations-BIT 112
Eight Types of Web sites for Advertising
• 5 - Community:
emphasize being a part
of something; good for
specific advertising
• 6 - Communications:
not good for branding;
low targetability
43
Information Technology Foundations-BIT 112
Eight types of sites (continued)
• 7-News/weather/sports:
poor targetability
• 8 - Games:
good for very specific
types of advertising
44
Information Technology Foundations-BIT 112
What the eight categories mean for
advertisers
• Portals and Search have the greatest reach.
• Community and Games have the highest level of engagement.
• Search and News/Weather/Sports have the highest
monetization.
45
Information Technology Foundations-BIT 112
6.3 Business-to-Business (B2B)
Electronic Commerce
• Organizations sell or buy their products or services to
other organizations electronically from their own Web site
and/or from a third-party Web site.
– Sell-side marketplace, Buy-side marketplace, & Electronic
Exchanges.
Sell-side Marketplace
Key mechanisms: electronic catalogs
and forward auctions
Buy-side Marketplace
Key mechanism: reverse auctions
46
Information Technology Foundations-BIT 112
Ariba (Sell-side Marketplace)
47
Information Technology Foundations-BIT 112
Other Sell-side Marketplaces
48
Information Technology Foundations-BIT 112
United Sourcing Alliance
• An example of a buy-side marketplace.
49
Information Technology Foundations-BIT 112
Electronic Exchanges
• Exchanges have many buyers and many sellers.
50
Information Technology Foundations-BIT 112
Boeing PART
• Boeing PART is an example of an electronic
exchange.
51
Information Technology Foundations-BIT 112
Vertical Exchange – A type of Electronic
Exchange within a specific industry.
• Example: PlasticsNet - Search Jobs, Find Companies, Post Your Resume
52
Information Technology Foundations-BIT 112
The Paper Site (Vertical Exchange)
53
Information Technology Foundations-BIT 112
Horizontal Exchange – A type of
Electronic Exchange
• Horizontal exchanges connect buyers and sellers
across many industries and are used mainly for
Maintainance
Repair
Operations
(MRO)
materials.
54
Information Technology Foundations-BIT 112
Functional Exchange – A type of
Electronic Exchange
• Functional exchanges, needed services such as
temporary help or extra office space are traded on an
“as-needed”
basis.
55
Information Technology Foundations-BIT 112
6.4 Electronic Payments
• Electronic checks (e-checks) are similar to paper checks
and are used mostly in B2B.
• Electronic credit cards allow customers to charge online
payments to their credit card account.
• Purchasing cards are the B2B equivalent of electronic
credit cards and are typically used for unplanned B2B
purchases.
• Electronic cash
– Stored-value money cards allow you to store a fixed amount of
prepaid money and then spend it as necessary.
– Smart cards contain a chip called a microprocessor that can store
a considerable amount of information and are multipurpose – can
be used as a debit card, credit card or a stored-value money card.
– Person-to-person payments are a form of e-cash that enables two
individuals or an individual and a business to transfer funds
without using a credit card.
56
Information Technology Foundations-BIT 112
6.5 Ethical and Legal Issues
• Ethical Issues
– Privacy: ecommerce provides opportunities for businesses
and employers to track individual activities on the WWW
using cookies or special spyware. This allows
private/personal information to be tracked, compiled, and
stored as an individual profile. This profile can be used or
sold to other businesses for target marketing or by
employees to aide in personnel management decisions (i.e.,
promotions, raises, layoffs).
– Disintermediation: causing job loss among intermediaries.
57
Information Technology Foundations-BIT 112
Legal Issues Specific to E-Commerce
• Fraud on the Internet
– i.e. stocks, investments, business opportunities, auctions.
• Domain Names
– problems with competition over a name.
• Cybersquatting
– refers to the practice of registering domain names solely for the purpose
of selling them later at a higher price.
– Domain Tasting
• a practice of registrants using the five-day "grace period" at the
beginning of a domain registration to profit from pay-per-click
advertising.
• Taxes and other Fees
– when and where (and in some cases whether) electronic sellers should
pay business license taxes, franchise fees, gross-receipts taxes, excise
taxes, …etc.
• Copyright
– protecting intellectual property in e-commerce and enforcing copyright
laws is extremely difficult.
58
Information Technology Foundations-BIT 112
Chapter Closing Case
P. 195
59