Information Systems: Creating
Business Value
by
Mark Huber, Craig Piercy, and Patrick McKeown
Chapter 7:
E-Commerce for Consumers
and Organizations
What We Will Cover:
 E-Commerce: An Overview
 The E-Commerce Difference
 E-Commerce for Consumers
 E-Commerce Between Organizations
Student ROI (Return on Investment)
Your investment of time and effort in this course will result in
your being able to answer these questions:
1. What is e-commerce and how is it a part of today’s
economy?
2. How does e-commerce make a difference to
businesses and consumers?
3. How does e-commerce allow businesses to create
value for their consumers?
4. How do businesses use e-commerce to enhance the
products and services that they trade with business
partners, as well as to improve their supply chain
efficiency?
What is e-commerce?
 E-commerce is the use of information systems, technologies, and
computer networks to carry out transactions in order to create or
support the creation of business value.
 Note that we do not say “to buy and sell over the Internet” in our
definition;
 do not want to restrict ourselves to just the Internet
 want to make our definition as general as possible, so we
concentrate on transactions which we discussed in Chapter 4
and 5 and computer networks which we discussed in Chapter 2
and Field Guide C.
 E-Commerce includes all types of computer networks and all types
of transactions including electronic funds transfers and EDI over
private networks as well as retail sales and wholesale exchanges
over public networks like the Internet
E-commerce (cont.)
 Uneven penetration into areas of commerce



Travel Industry versus Retail Clothing Industry
(clothing is trending upward)
Most people think of e-commerce as electronic
shopping over the WWW or Business to
Consumer e-commerce (B2C - transactions in
hundreds of millions of dollars)
However, Business to Business e-commerce
(B2B) transactions are valued in trillions of
dollars!
Types of E-Commerce Transactions
Transaction
Description
Example Web sites
Business-to-consumer
(B2C)
Online equivalent of retail store
as well as other services
www.landsend.com,
www.overstock.com,
www.amazon.com
Business-to-business
(B2B)
Electronic exchanges between
companies
www.manheim.com,
www.boeing.com
Business-togovernment (B2G)
Online sales to government
agencies as well as online
payment of taxes
www.irs.gov,
www.fedbizopps.gov,
App.mt.gov/bustax
Consumer-togovernment (B2G)
Electronic payment of taxes as
well purchasing licenses
www.irs.gov/individuals,
express.hsmv.state.fl.us
Consumer-to-consumer
(C2G)
Use of online auctions like eBay
or Yahoo! Auctions
www.ebay.com,
auctions.yahoo.com
E-Commerce and Products: Physical
and Electronic
 Products can be divided into two primary categories: physical




and electronic.
Physical products include anything that requires an actual
shipment of a package to the buyer, eg, computer hardware.
Electronic products can be received directly over the Internet or
other computer network, eg, computer software.
E-commerce companies must have back-office elements to
handle order fulfillment and to handle returns for physical goods,
Companies experienced in order fulfillment and returns have
tended to be successful in dealing with physical goods using Ecommerce.
Types of E-Commerce Transactions and
Associated Goods
Transaction
Example Physical
Goods
Example Electronic Goods
B2C
CD, DVD
iTunes song, ring tones
B2B
Office furniture
Virus protection software,
databases
B2G
Technical manuals,
regulations, and other
printed information
Document conversion from
hardcopy to XML/Web-based
documents
C2G
Printed and mailed
income tax return or
license application
Electronically filed income tax
return or license application
C2C
Elvis PezTM, comic books
Shareware program, selfpublished e-book
Purchase of Physical Goods
Purchase of Electronic Products
The “E-Commerce Difference”
 The use of computer networks, especially the Internet, to
carry out transactions between a variety of buyers and
sellers is creating a tangible “e-commerce difference” in our
economy, especially with regard to



Technology
Competition
Strategy
 Over 1 billion potential customers around the world in the
marketspace due to increasing Internet access.
 Universal standards make it work the same way no matter
where in the world you might be.
Impact of E-commerce Technologies
on Business
E-Commerce Differences
 Innovative uses of the Internet have produced global
competition with sellers being able to reach any
potential buyer in the world.
 This is true for both the large retailers and for those
selling in niche market.
 Technology has increased information density—the
quality and quantity of information about products
and services.
 Customers can obtain product guides, reviews, and
prices from a myriad of Web sites creating business
challenges.
Mass Customization and
Personalization
 One response to information density is to create
business value based on a customization-oriented
approach to e-commerce.
 Two approaches to customization are: mass
customization and personalization.
 Mass customization is the ability to create custom
products or services on-demand, eg, Dell customers
can customize their PC.
 Personalization is a marketing message that a
business personalizes for each potential customer’s
interests based on searching, browsing, or buying
habits, eg, Amazon.com.
E-commerce and Competition
 E-commerce is having a dramatic effect on
competition between organizations in a
number of ways including:





Reducing barriers to entry
No one firm or person “owns” the entire market
Enhanced collaboration/alliances
Market niches multiply
Changed marketplace drivers (forces that make
things happen in the market, e.g., consumer
preferences, number of suppliers a business can
choose from)
Business and E-commerce Strategy
E-commerce has changed business strategy.
A strategy is a broad-based formula for how a
business is going to compete, what its goals
should be, and what plans and policies will be
needed to carry out those goals.1
1Michael
Porter “What is Strategy”, Harvard Business Review, November 1996, pp. 69-84.
E-commerce Strategy
 An e-commerce strategy is a general formula for how a business is




going to use computer networks and information systems to
compete in a global marketplace.
To build an e-commerce strategy requires two views of an
organization’s strategy: what is wants to do (conceptual) and how it
will do it (technology strategy).
One strategy being used by many companies is customer
relationship management which enables them to create one-to-one
marketing experiences for their customers.
Other e-commerce strategies include virtual showrooms, increased
channel choices, wider component choice, and use of mobile
technology.
Mobile commerce is the use of laptops, mobile telephones, and
personal digital assistants to connect to the Internet and Web to
conduct many of the activities associated with e-commerce.
Benefits and Limitations of B2C E-commerce for
Consumers1
Benefits
Limitations
Lower prices
Delay in receiving physical products, plus
Shop 24/7
shipping
Greater searchability
In areas without high-speed Internet service,
Shorter delivery times for digital
slow download speeds.
products
Sharing of information with other
consumers
Improved customer service
Security and privacy concerns, especially
with rise of phishing.
Inability to touch, feel, or even smell products
prior to the purchase.
Unavailability of micropayments for purchase
of small-cost products.
1Some
but not all of these were taken from E. Turban, et. al., Electronic Commerce: A Managerial Prospective 2002,
Prentice-Hall: Upper Saddle River, NJ, pp. 26-28.
Benefits and Limitations of B2C E-commerce for
Businesses1
Benefits
Limitations
Expansion of marketplace to global
 Increased competition due to global
proportions.
Cheaper electronic transactions.
Greater customer loyalty through
customized Web pages and 1-to-1
marketing.
Expansion of niche marketing
opportunities.
Direct communications with
customers through Web site,
resulting in better customer service.
marketplace.
Ease of comparison between competing
products drives prices down.
Customers want specific choices and will
not accept substitutes.
Customers control flow of information
instead of companies.
E-commerce Business Models
 A business model defines how a company will meet
the needs of its customers while making a profit.
 An e-commerce business model is a business model
appropriate for conducting business via electronic
networks.
 The next three slides list and give examples of ecommerce business models (Source: adapted from
Michael Rappa,
http://digitalenterprise.org/models/models.html.
E-commerce Business Models (cont.)1
Business Model
Description
Examples
Comments
Brokerage
Brokers bring buyers
and sellers together for
a fee.
eBay, Priceline, PayPal
There are many types of
brokerage models in all types
of e-commerce.
Advertising
An extension of the
traditional media
broadcasting model in
which ads appear on
Web sites.
Yahoo!, Netscape,
CNN.com, Google
There are many different
types of advertising, but all
depend on a large volume of
viewer traffic.
Merchant
Sell products, both
physical and electronic,
to consumers
Amazon.com,
LandsEnd.com,
Walmart.com, iTunes,
and many others
Commonly referred to as etailers, merchants can use
pure e-commerce or a
combination (click and
mortar).
1Adapted
from Micheal Rappa, http://digitalenterprise.org/models/models.html.
E-commerce Business Models (cont.)1
Business Model
Description
Examples
Comments
Manufacturer
Direct
Make and sell
products directly to
customer
Dell, IBM,
Microsoft, McAfee
(anti-virus
products)
Products can be
purchased (PCs), leased
(servers), or licensed
(software).
Affiliate
Affiliate Web sites
are paid a fee when
purchases come
through them.
Amazon.com fees
to affiliate Web
sites
Can also include banner
ad exchange between
affiliated sites as well as
revenue-sharing.
Community
Based on user loyalty
because of high
investment of time and
emotion.
Apple computers,
Red Hat software
Revenue is generated
through sale of ancillary
products or voluntary
contributions
1Adapted
from Micheal Rappa, http://digitalenterprise.org/models/models.html.
E-commerce Business Models (cont.)1
Business
Model
Description
Examples
Comments
Subscription
Users are charged
fee to subscribe to
service to service or
information source
Classmates,
Highbeam
(articles), Netscape
Radio, AOL
Subscription may be for
premium services;
advertising model may be
combined with this model
Infomediary
Provides data on
consumers and
consumption habits
DoubleClick,
NetRatings,
Edmunds
Usually aimed at helping
businesses rather than
consumers
Coopetitive
Enable competitors
to cooperate on a
Web site
AutoTrader.com,
VRBO.com
Usually aimed at
individuals or small
businesses that cannot
attract customers to their
own Web site.
1Adapted
from Micheal Rappa, http://digitalenterprise.org/models/models.html.
E-commerce Web site Purpose
The purpose of an e-commerce website is another way to
understand businesses’ e-commerce business models.
No matter how good the business model, it will not generate
a profit if not associated with a Web site that brings in
customers or at least visitors.
There are eight commonly accepted types of Web sites:
portal, search engine, Browse or search and buy, sales
support, information service, auction, travel, and special
interest or services.
A number of these match up with multiple business models.
Web Sites Classified By Purpose
Web Site Type
Purpose
Example
Business Model
Portal
A gateway to many
other Web sites
Netscape.com,
Yahoo!, MSN
Advertising,
Affiliate
Search Engine
Finds Web sites that
contain a word or
phrase
Google, Yahoo,
MSN, DogPile
Advertising,
Affiliate,
Infomediary
Browse or search
and buy
Sell goods and
services
Dell, LandsEnd,
iTunes
Merchant,
Infomediary,
Manufacturer
Direct, Coopetitive
Sales Support
To provide
Microsoft, BMW,
information on a
McAfee, Cingular
product before or after
the sale
Community,
Infomediary
Web Sites Classified By Purpose (Cont.)
Web Site Type
Purpose
Example
Business Model
Information
Service
To provide news,
information, commentary,
and so on.
USAToday,
Highbeam, Rivals,
Edmunds
Subscription,
Community,
Affiliate
Auction
Facilitate sales between
third parties
eBay, Priceline,
PayPal
Brokerage
Travel
Sell travel tickets and tours Delta, Travelocity,
Orbitz, HotWire
Special Interest
or Services
Provide information,
product sales and support,
and contacts between
visitors
Merchant,
Brokerage,
Coopetitive
DogVent, Microsoft Community,
support groups,
Merchant,
Google Groups
Affiliate,
Infomediary,
Advertising
B2B e-commerce: E-Commerce
Between Organizations
 Doing business with other organizations (B2B) is by
far larger than with consumers (B2C).
 It is also quite different in terms of the scope of the
purchases and the complexity involved in them—
especially in the decision making required to make a
purchase.
 For example, while you buy one PC, a company may
buy thousands.
 Interorganizational systems (IOS) are the information
systems that handle the information flow between
trading partners.
Comparing B2C to B2B
Process
Individual
Business Organization
Decision to
purchase
Made based on own needs
Made based on the organization’s needs which
are a combination of many different departmental
and individual needs
Decision where
to buy
Made after own research into
market
Made through a systematic process that involves
considering what each vendor can provide the
organization in terms of setup, networking, and
so on.
Number of
Items
One
Many
Actual
Purchase
Buy computer online or in
person with personal credit
card
Buy computers only after significant negotiations
over price and terms with vendor
Payment
Pay credit card bill with
personal check
Pay by company check only after assuring that all
computers have been delivered and setup by
vendor
B2B Transactions
 B2B transactions can be divided into two types: spot




buying and strategic sourcing.
In spot buying, purchases are made at market
prices from an unknown seller.
Companies often use spot buying to purchase
commodities, i.e., uniform in quality differing only in
price like gasoline, paper, and cleaning supplies.
In strategic sourcing, prices are set through
negotiation in a long-term relationship with a
company known to the buyer.
A company’s large-scale computer purchases often
result from strategic sourcing.
B2B Business Models
 Strategic sourcing is often carried out through a one-to-one




business model, but company-centric and exchange models are
also used.
In the one-to-one business model, two companies form a
trading relationship with neither company dominating the
relationship.
In the company-centric business model, a company is either
a seller to many companies (one-to-many) or a buyer from many
companies (many-to-one).
The single company dominates the market and controls the
information systems that supports the transactions. Electronic
data interchange (EDI) or an extranet is often used to link
trading partners.
E-procurement is often the name for B2B e-commerce in the
many-to-one business model.
Company Centric Business Model
Exchange Model
 In the exchange business model, many
companies use an exchange to buy and sell
from each other through spot-buying
transactions.
Types of Exchanges
 Exchanges can be cooperative ventures among the
companies or it can be run by a larger company that
profits from the transactions.
 Exchanges can be classified as vertical or horizontal
with vertical exchanges meeting the needs of a single
industry.
 Horizontal exchanges deal with products and
services that all companies need.
 From an e-commerce point-of-view, exchanges are
often Web sites that buyers and sellers post their
needs and offerings.
Services in B2B E-Commerce
 Just as services are an important part of B2C e-commerce, they are also an
important part of B2B e-commerce.
Service or Electronic
Product
Comments
Software
The ability to buy a site license online and then download
one copy, which they then burn on CDs, reduces
organizations’ cost and time in procuring software.
Leasing
Companies can use e-commerce to negotiate the original
lease price and to dispose of them at the end of the lease.
Travel
Travel is a big item with companies that have more than one
office or distant customers, so using e-commerce to provide
less expensive travel can save money
Services in B2B E-Commerce (cont.)
Service or Electronic
Product
Comments
Insurance
Companies must insure their buildings, people, vehicles,
and so on, and using e-commerce to find better insurance
coverage can mean lower costs for the company.
Banking
As with consumers, businesses must pay their bills. They
must also accept payments from customers. Moving
banking online reduces the cost of writing and depositing
checks as well as making the transfer of funds much
easier.
Stock trading
As a part of their overall financing process, businesses will
often buy and sell other stock as well as their own. Online
trading makes this possible for much lower transaction
fees.
Financing
Businesses often need to raise capital through debt and a
number of services now make it possible to do this online
for lower transaction fees.
Using B2B e-commerce and IOS to Improve
Supply Chain Efficiency
 A supply chain is a network of facilities and distribution
options that performs the functions of procurement of
materials, transformation of these materials into
intermediate and finished products, and the distribution
of these finished products to customers.1
 Procurement is a big part of the supply chain and using
e-commerce for e-procurement has resulted in money
savings.
 To see why, we first need to understand the traditional
procurement process.
1 “An
Introduction to Supply Chain Management”, Ram Ganeshan Terry P. Harrison,
http://lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html
Traditional Procurement Process

In the traditional procurement process, there are five
steps involving three elements—purchase order,
invoice, and receipt of goods:
1.
2.
3.
4.
5.
Purchase order (PO) to vendor
Goods to buyer along with bill of lading (BOL)
Upon receipt of goods and BOL, signed copy of BOL
returned to vendor and receipt of goods is filed
Vendor sends invoice to buyer
Buyer’s accounting department compares PO to receipt of
goods and invoice. If there is a match, buyer pays the
vendor.
Traditional Procurement Process
Interorganizational Systems (IOS)
 An interorganizational system (IOS) is a
networked information system used by two or
more separate organizations to perform a
joint business function.1
 EDI
 Extranets
1Cash,
J. I. Jr., F. W. McFarlan, J. L. McKenney, and L. M. Applegate. 1994.
Corporate information systems management: text and cases. 4th ed. Homewood, IL: Irwin, p. 339.
Using E-commerce to Improve the
Procurement Process
 An interorganizational system (IOS) is a networked




information system used by two or more separate organizations
to perform a joint business function.1
EDI: uses private networks to allow the exchange of structured
information between two computer applications with a minimum
of human involvement.
Even though often overshadowed by newer technology, EDI
remains the engine behind the majority of e-commerce
transactions worldwide. It is, however, too expensive for most
small businesses.
Extranets: collaborative networks that use Internet technology to
link businesses with their customers. Security measures keep
data secure and XML is used to transfer the data.
An extranet can be thought of as two connected intranets.
Extranets
Comparing EDI and Extranets
EDI
Extranet
Security
More secure due to use
of private network
Less secure then EDI
due to use of Internet
Cost
More costly due to use of
proprietary software and
private networks
Less costly because it
uses existing networks
and Internet apps
Flexibility
Less flexible—proprietary
software limits use
More flexible because
based on Internet;
greater customization
Trend
Gradually being replaced
by extranet-based apps
Gaining wider
acceptance due to
lower costs
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