Week 3:
Electronic Commerce
MIS 2101: Management Information Systems
Based on material from Information Systems Today: Managing in the Digital World,
Leonard Jessup and Joseph Valacich, Pearson Prentice Hall, 2007
Also includes material by David Schuff, Paul Weinberg, and Cindy Joy Marselis.
“There is no physical analog for what
Amazon.com is becoming.”
Jeff Bezos
Cofounder and long-time CEO of Amazon.com
2
5-2
Learning Objectives
Define electronic commerce. Discuss how it has evolved,
and the strategies that companies use to compete in
cyberspace
Explain the differences between:
The Internet
Extranets
Intranets
Describe emerging trends in electronic commerce
Discuss regulatory issues
3
Learning Objectives
Define electronic commerce. Discuss how it has evolved,
and the strategies that companies use to compete in
cyberspace
Explain the differences between:
The Internet
Extranets
Intranets
Describe emerging trends in electronic commerce
Discuss regulatory issues
4
Electronic Commerce


5
Online exchange of goods, services and money
Second quarter of 2006
 2.7% of total retail revenue
 $24.8 billion in revenue
Electronic Commerce





Online exchange of goods, services and money
2011
 7% of total retail revenue
 $202 billion in revenue
2012
 $226 billion
 7% of total retail revenue
Why the dramatic increase from 2006?
2016
http://www.internetretailer.com/2012/02/27/e-retail-spending-increase-45-2016
6
Most Common Types of ECommerce

Business-to-consumer (B2C)


Business-to-business (B2B)


Employee uses the Web to change
employee benefits
Consumer-to-consumer (C2C)

7
Retailer like Wal-Mart ordering from
distributors
Business-to-employee (B2E)


A person buys a book from Amazon.com
One person purchases from another on
eBay
Key Capabilities:
Information Dissemination
Firms across the world have access to
customers
 Economical medium for marketing
products and services
 Increased geographical reach

8
5-8
Key Capabilities:
Integration
Integration of information via Web
sites and other mechanisms
 Integration of processes among
multiple companies
 Real-time access to personalized
information
 “Efficient Markets”

9
Example: Integration
Airline reservations




Make the reservation through any almost any
airline, travel agency, or online
The reservation can involve multiple airlines
Use a cell phone, voice, browser
Change the reservation through almost any
airline, travel agency, or online
10
Other examples of
integration
ATMs
 Amazon --- purchase products from
other companies through Amazon

11
Key Capabilities:
Mass Customization


Meeting particular
customers’ needs on a
large scale
Timbuk2.com
 Custom Messenger
Bag Builder
• Customers create a
virtual bag
• Preference-tracking
helps Timbuk2 in
marketing efforts
12
Key Capabilities:
Interactive Communication

Immediate feedback
between company and
customers



E-mail notifications
Customer service
online chat
Best Buy


Geek Squad
24-hour computer
support
13
Key Capabilities:
Collaboration

Virgin Entertainment
Group



Microsoft SharePoint
Managers: spend
more time selling
products
Head office: more
time for strategic
planning
14
Key Capabilities:
Transaction Support

Internet and the Web:



Dell – automated
transaction support


Reduced transaction
costs
Enhanced
operational efficiency
Cost savings per
sale
Disintermediation
15
E-Commerce Business
Strategies

Differentiated based on levels of
physical/virtual presence
16
Information Systems Today: Managing in the Digital World
5-16
Learning Objectives
Define electronic commerce. Discuss how it has evolved,
and the strategies that companies use to compete in
cyberspace
Explain the differences between:
The Internet
Extranets
Intranets
Describe emerging trends in electronic commerce
Discuss regulatory issues
17
Information Systems Today: Managing in the Digital World
5-17
The Internet . . . A network
of networks





18
Computers and other devices capable of
communicating
The infrastructure that connects them (fiber
optics, copper, modems, routers,
microwave, etc.)
The software tools and protocols that make
communication possible
A set of standards
It is more than the World Wide Web
As a result of the standards
You can retrieve material using a
browser from any Web Server
regardless of technology or location
 You can send email to any email
account regardless of technology or
location
 Dissimilar computers at multiple
locations can function together to
complete a process

19
Business-to-Business
E-Commerce


Extranets are applications which use
Internet technology to conduct business
involving multiple firms (B2B)
Boeing



20
1,000 authorized business partners
Nearly all Fortune 1,000 companies deploy
some type of B2B applications
Electronic Data Interchange (EDI) and Web
Services are two technologies used for
Extranets.
Electronic Data Interchange
(EDI)
Used for business to business applications
prior to the introduction of Web Services
•
Digital or electronic
transmission of
business documents
between organizations
o Value-added networks
(VAN)
o Proprietary message
formats
21
Web Services





A set of standards also used for business to
business applications.
Developed by the World Wide Web Consortium
Different from EDI because the message formats
are an international open standard.
Messages sent in (encrypted) text, making them
easy to send and receive
Any business can communicate with any other
business
22
Simple Web Services
Example
The Gap
Stock DB
BigStore.com
ProductLookup
Application
Client
Shopping Application
GiantBank
The BigStore.com application can check
whether a product is in stock at The Gap, or the
verify a customer’s credit card at GiantBank.
BigStore.com doesn’t have to know the
technology in23use at the Gap or at GiantBank.
Credit verification
application
Account
DB
Web Services






Can they be used inside, or external to an
organization?
Will industries and other groups agree on standard
data definitions?
Why do you think Microsoft, IBM, and others are
adopting Web Services standards
Will Web Services succeed even though Electronic
Data Interchange (EDI) didn’t? Why?
Which industries are most likely to adopt this
technology?
Which are not?
24
Intranets
Business-to-employee (B2E)
electronic commerce
 Internet based private network using
Web technologies
 Boeing

More than 1 million pages
 200,000 employees

25
Intranet Applications:
Training

Boeing Company


200,000 employees
get trained
Quality eTraining
program
• Catalogue of courses
• Online course content
• Standardized courses


Business
improvements
Cost reduction
• Eliminated travel cost
26
Intranet Application: Online
Entry of Information


Use of Web browsers to enter information online
E.g., Microsoft MSExpense

Prior to MSExpense
• 136 different report templates
• Outdated versions

With MSExpense
•
•
•
•
•
Online submission of expense records
Easy and centralized updates to templates
Savings of $4.3 million a year
Shortened period for reimbursement from 3 weeks to 3 days
Etc.
27
Intranet Application:
Real-Time Access to Information

Manage, update, distribute, and access
corporate information

Boeing
• News releases uploaded to the Intranet
• Previously sent to all corporate offices as video
tapes
• Reduced distribution costs


28
Efficient information sharing
Company-wide access
Intranet Application:
Collaboration

Boeing
Information shared between
employees across the world
 Reduced product development cycles
 Ability to stay current on projects
 Ability to stay current with the
changing market conditions

29
Learning Objectives
Define electronic commerce. Discuss how it has evolved,
and the strategies that companies use to compete in
cyberspace
Explain the differences between:
The Internet
Extranets
Intranets
Describe emerging trends in electronic commerce
Discuss regulatory issues
30
Types of Consumer to
Consumer (C2C) E-Commerce



17% of American adults have
sold online
Forward auction
 Sellers post goods or
services for sale
 Buyers bid on these items
Reverse auction
 Buyers post a request for
quote (RFQ)
 Seller proposes a bid
31
E-Auction Fraud

E-auctions marred with more fraud than any other
Internet activity



42% of all Internet-fraud related complaints
Average loss: $1,155
Types of e-Auction fraud






Bid luring
Reproductions
Bid shielding
Shipping fraud
Payment failure
Nonshipment
32
Social Online Communities

Facebook

Twitter

Becoming increasingly powerful tools
used by businesses to target customers
and brand their products & services
33
Self-Publishing
Consumers can voice their opinions
with no editorial review
 Original material by the author
 Traditional B2B becoming C2C
 Publishing from home

Print-On-Demand
 Blogging

34
Printing-On-Demand




Customized printing
Small batches
Attractive for first time
authors
Select providers



Lulu
Blurb
BookSurge
• Amazon
• End-to-end service
35
Blogging

Weblogging
Online text diary
 Chronological
entries
 Power of
bloggers


Vlogging

Video blogging
36
M-Commerce
Electronic transactions using wireless
mobile devices
 Mobile networks

Wireless
 Switched public network


Smart phones
High-speed data transfer
 “Always-on” connectivity

37
M-Commerce Applications
38
M-Commerce Statistics
• 64% of smartphone owners use their devices to shop online
• 73% of consumers have used their mobile devices in a store
• Mobile coupons are most popular at grocery stores
• 74% of sp owners use their devices to get directions and other locationrelated information
• Nearly 116 million Americans will use a smartphone at least monthly by the
end of 2012. By 2013, half of mobile users will have a smartphone and by
2016 nearly 3 in 5 users will have a smartphone
• 85% of merchants will focus on m-commerce in 2012, up from 68% in 2011
• 66% of shoppers use their smartphones to aid in shopping
39
http://www.digby.com/mobile-industry-resources/mobile-industry-statistics/
Online Entertainment
Industry

Digital rights management (DRM)

Technological solution for control of digital
media
• Restrictions
• Devices which will play it
• How many times it can play

Prevention of illegal copying and distribution
• Watermark – illegal copy can be traced to
original purchaser
40
Learning Objectives
Define electronic commerce. Discuss how it has evolved,
and the strategies that companies use to compete in
cyberspace
Explain the differences between:
The Internet
Extranets
Intranets
Describe emerging trends in electronic commerce
Discuss regulatory issues
41
E-Government

The use of information systems to
provide citizens, organizations and
other governmental agencies with
information about public services and
to allow for interaction with the
government
G2C
 G2B
 G2G

42
Threats to E-Commerce

The USA PATRIOT Act
Introduced after 9/11 terrorist attacks
in 2001
 More power given to governmental
agencies to protect Americans
 Critics – Civil Liberties Union

• Reduced checks and balances on
surveillance
• Lack of focus on terrorism
• Surveillance on Americans
43
Internet Taxation
• The Internet Tax Freedom Act – 1998
o Created as an incentive for EC businesses
o Internet sales treated as mail-order sales
• No sales taxes paid in states where the company has no
presence
•Internet Tax Freedom Amendment Act of 2007
• Problem
• Loss of tax incomes
• Unfair advantage for e-tailers
44
Internet Taxation
• Solutions:
• Use tax
o Consumers required to pay their state’s sales tax
o Part of some income tax returns
• Streamlined Sales Tax Project
o Simplification of tax codes
o Collection of taxes by out-of-state sellers
45
Arguments For and Against Internet
Taxation
46
Net Neutrality
Data sent over the Internet is handled
in a neutral manner
 All traffic treated the same way
 ISPs and telephone companies argue
for prioritization

Traditional Internet traffic suffers (email) due to high bandwidth
applications
 Example: YouTube.com not paying
their fair share, should be deprioritized

47
Approaches to Net Neutrality
48
Censorship

Governmental attempts to control
Internet traffic
Limiting citizens from viewing content
 E.g., China, North Korea

• Strict guidelines on what can be viewed
• Key words and topics blocked

United States
• Child Online Protection Act (COPA)
• Age verification for certain content
49
Cases
50
eBay Under Attack

Phishing
 Scam artists pretending to
be eBay
 Ask for credit card
information and passwords
 eBay would never send
such an email
 2006 – London
• £200,000 stolen


eBay feedback scores
eBay buyer insurance
51
Monitoring Productive Employees



“You have zero privacy, get over it” (Scott McNeely)
Use of company provided Internet connection can be
legally monitored
American Management Association survey (2005)







75% of employers monitor employee’s Internet use
65% use software to block access to certain Web sites
30% monitor key strokes
50% review and retain employee e-mails
8% of the companies disclose the practices to the employees
26% fired employees for Internet misuse
25% fired employees for e-mail abuse
52
Employees Using Company
Networks Can Affect Liability


Illegal downloading of music and movies using
company’s computer and Internet access
Star Wars Episode III: Revenge of the Sith


September 2005
“Screener” version stolen and distributed
• Forensic marker revealed the identity of the thief
• 3 years in prison

7 employees copied the movie
• 1 year in prison and $100,000 in fines
• Company not held liable
53
IM at Work

Disadvantages of using public IM




IM protocols for organization’s own IM network






Security cannot be assumed
Data resides on the provider’s server
Access to the network cannot be blocked
Secure message transfer
Ability to handle thousands of employee accounts
Platform compatibility
Access from outside of the WAN
Proper access rights
IM hosting service – third alternative

Data still resides on provider’s server – privacy concerns
54