CHAPTER 7: Electronic Commerce Systems

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CHAPTER 7 Electronic Commerce Systems
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Learning Objectives

• Identify the major categories of e-commerce
  applications.
• Identify the essential processes of an e-commerce
  system, and give examples of how they are
  implemented in e-commerce applications.
• Identify several key factors and Web store
  requirements needed to succeed in e-commerce.
• Identify the business value of several types of
  e-commerce marketplaces.

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E-Commerce

• Exchange or buying and selling of products and
  services by electronic means.
• E-commerce systems rely on the resources of the
  Internet, intranets, extranets, and other
  technologies.
• Projections show that by 2006, total e-commerce
  spending by consumers and businesses could
  surpass 5 trillion.
• There are many applications of EC, such as home
  banking, shopping, buying stocks, finding a job,
  travel, online publishing, or conducting an
  auction.

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History and Scope

• E-commerce applications began in early 1970s with
  such innovations as electronic transfer of funds.
• However, the applications were limited to large
  corporations and a few daring businesses.
• Then came EDI, which added other kinds of
  transaction processing and extended participation
  to all industries.
• With the introduction of the Web in the early
  1990s, EC applications have rapidly expanded.

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A Framework for E-commerce

• Electronic Commerce Applications
• Shopping ? Online Banking ? Auctions ? Travel ?
  Customer Services
• Buying and selling stocks ? Job search

People Buyers, sellers, IS people, and
management
Public policy Taxes, legal, Privacy issues,
regulations
Marketing and Advertising Market
research, Promotions.
Supply chain Business partners

• Infrastructure
• EDI ?E-mail ?HTTP ?HTML ?Java ?VAN ?WAN ?LAN
  ?Intranet ?Extranet
• Electronic payments ?Electronic catalogs
  ?Wireless ?Internet ? WWW

MANAGEMENT
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E-Business Transaction Medium
Most e-commerce is done over the Internet. But EC
can also be conducted on private networks, such
as value-added networks (VANs, networks that add
communication services to existing common
carriers), on local area networks (LANs) or wide
area networks (WANs)
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The Infrastructure of E-commerce

• Succeeding e-commerce applications is not a
  simple task.
• The large number of issues must be considered and
  the large number of companies and government
  agencies may be involved.
• Major issues in e-commerce Infrastructure, and
  electronic payment issues.

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E-commerce Infrastructure

• An infrastructure must be in place.
• E-commerce infrastructure requires a variety of
  hardware, software, and networks.
• The key infrastructures that are needed to
  support EC applications are networks, Web
  servers, Web server support and software,
  electronic catalogs, Web page design, and
  Internet access components.

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Web Store Requirements

• An organization's first venture into EC is the
  development of a Web site and the creation of a
  presence on the Internet.
• E-commerce transactions must be executable
  worldwide, without any delay or mistake.
• On a very basic website , an organization
  provides information about itself, its products
  and its services.
• A more developed Web site will allow some
  interactions, such as sending an e-mail to
  request for the information or schedule an
  appointment, or ordering.

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Web Store Requirements

• The design of Website requires expertise.
• Good designs such can be very rewarding.
• Outsourcing Web page designs should be carefully
  evaluated because of the high cost.
• Once the company builds its web site, it should
  include web pages and e-mail ads, and promotions
  for customers and Web visitors. It should be
  attractive and friendly.
• The company can register its Web site within a
  domain name as well as registering it with the
  major Web search engines.
• A good web site must have a fast catalog search
  engine, special discounts, credit card and other
  payments, and shipping alternatives so that it
  can attract new customers.
• It must offer customer support via help menus,
  tutorials, and list of FAQs.

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Electronic Payments

• Payments are an integral part of doing business,
  whether in the traditional way or online.
• In most cases, traditional payment systems are
  not effective for EC (using cash, writing a
  check, sending a money order have several
  limitations in EC) .
• Usually in e-commerce, payments between buyers
  and sellers can take place electronically.
• Special electronic payments have been developed
  to handle ways of paying for goods electronically
  on the Internet.
• These include EFT (Electronic Fund Transfer),
  electronic checks, electronic credit cards,
  electronic wallets.

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Electronic checks

• E-checks are similar to regular checks, and they
  are used mostly in business-to-business (B2B)
  e-commerce applications.
• There are several companies which offer e-check
  payment solutions to online and traditional
  merchants.

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Encryption

• It is a process of making messages indecipherable
  .
• Only those recipients with an authorized key to
  the coding can retrieve the data.
• For example, the letter A might be coded as
• ABQ8iF 1 73 Rjbj / 83 ds 1 22 m 3 3 SP 5 Qqm2z.
• Every letter and every number in the encrypted
  data would have similarly complex coding, which
  may include as many as 128 characters for each
  letter or number for security.

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Electronic credit cards

• Electronic credit cards make it possible to
  charge online payments to ones credit card
  account.
• It is easy and simple for a buyer to e-mail
  (submit) her or his credit number to the seller.
• The risk here is that hackers will be able to
  read the credit card number.
• For security, only cards with encrypted
  information should be used.
• For example, when you buy a book from Amazon.com,
  your credit card information and purchase amount
  are encrypted in your browser. When this
  information arrives at Amazon.com, it will be
  transferred automatically (encrypted) to VISA,
  MasterCard for authorization.

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Electronic Funds Transfer (EFT)

• Electronic transfer of money to and from
  financial institutions using telecommunications
  networks.
• EFT is widely used among banks and between banks
  and customers.
• Ex Payment of mortgages, utility bills or car
  payments through monthly bank account deductions.
  Direct deposit of salaries in employees
  accounts.
• EFT is fast it reduces delays associated with
  sending hardcopy documents, and it eliminates
  returned checks.
• It has become the only practical way to handle
  the large volume of financial transactions
  generated daily in the banking industry.
• EFT-based ATMs are available in shopping centers
  and business areas, allowing individuals to make
  deposit, withdrawals, and money transfers 24
  hours a day.

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Electronic Wallets

• Repeatedly filling out the purchase information,
  while at the same time eliminating the need to
  store the information on a merchants server
  might be annoying.
• An e-wallet is a software that is downloaded to a
  users PC and in which the user stores credit
  card numbers and other personal information.
• When the user shops at a merchant who accepts the
  e-wallet, the user can perform one-click
  shopping, with the e-wallet automatically filling
  in the necessary information.
• Credit card companies like Visa and Master card
  offer e-wallet services, as do Yahoo!, America
  Online (called Quick Checkout) and Microsoft
  (Passport).
• Of these Yahoo! has the largest number of
  merchant participants over 12,000.

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E-Business Transaction Types
E-commerce transactions can be done between
various parties.

• Business-to-business (B2B) Both the sellers and
  the buyers are business organizations.
• Consumer-to-consumer (C2C) Individuals sell
  products or services to other individuals.
• Mobile commerce (m-commerce) When e-commerce is
  done in a wireless environment.
• Business-to-consumers (B2C) The sellers are
  organizations, and the buyers are individuals.

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Business-to-consumer e-commerce (B2C)

• It involves retailing products and services to
  individual shoppers.
• Ex BarnesNoble.com, which sell books, software
  and music to individual consumers, is an example
  of B2C e-commerce.

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Business-to-business e-commerce (B2B)

• Involves sales of goods and services among
  businesses.
• Ex Milpro.com, Milacrons Web site for selling
  cutting tools, grinding wheels, and metal working
  fluids to more than 100,000 small machining
  businesses, is an example of B2B.

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Consumer-to-consumer e-commerce (C2C)

• Involves consumers selling directly to consumers.
• Ex eBay, the giant Web auction site, allows
  people to sell their goods to other consumers by
  auctioning the merchandise off to the highest
  bidder.

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M-commerce

• Until recently, almost all e-commerce
  transactions took place over wired networks.
• Now cell phones and other wireless handheld
  digital appliances are Internet enabled so that
  they can be used to send e-mail or access Web
  site.
• The use of handheld wireless devices for
  purchasing goods and services has been termed
  mobile commerce or m-commerce.
• Conduct of e-commerce via wireless devices.

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Benefits of E-commerce

• To Organizations
• Expands a companys marketplace to national and
  international markets.
• Enables companies to procure material and
  services from other companies, rapidly and at
  less cost.
• Lower telecommunications costs
• Helps small businesses compete against large
  companies.
• Allows lower inventories.

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Benefits of E-commerce

• To Customers
• Provides less expensive products and services by
  allowing the consumers to conduct quick online
  comparisons.
• Give consumers more choices than they could
  easily locate otherwise.
• Enables customers to shop or make other
  transactions 24 hours a day, from almost any
  location.
• Delivers relevant and detailed information in
  seconds.
• Enables consumers to get customized products,
  from PCs to cars, at competitive prices.
• Makes possible electronic auctions.

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Limitations and Failures of E-Commerce

• EC has some limitations, both technical and
  non-technical, which have slowed its growth and
  acceptance.
• Technical Limitations
• Insufficient telecommunications bandwidth.
• Need for special Web servers in addition to the
  network servers.
• Expensive and/or inconvenient Internet
  accessibility for many would-be users.

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Limitations and Failures of E-Commerce

• Non-technical limitations
• Unsolved legal issues
• Lack of national and international government
  regulations and industry standards
• Customer resistance to changing from a real to a
  virtual store.
• Perception that EC is expensive and unsecured.
• An insufficient number of sellers and buyers
  exists for profitable EC operations.

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Business- to- Consumer (B2C)

• For generations home shopping from catalogs has
  flourished, and television shopping channels have
  attracted millions of shoppers. However, these
  methods have drawbacks Both methods can be
  expensive paper catalogs are sometimes not
  up-to-date and television shopping is limited to
  what is shown on the screen at any given time.
• Shopping online offers an alternative to catalog
  and TV shopping that appeals to many customers.
• Forrester Research Institute and others predict
  that online B2C will be in the range of 300 to
  800 billion in 2004.
• Major categories of B2C applications are
  electronic retailing, electronic storefronts, and
  electronic malls.

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Electronic retailing

• E-commerce enables you to buy from home, 24 hours
  a day, 7 days a week.
• Electronic retailing (e-tailing) is the direct
  sale of products through electronic storefronts
  or electronic malls.
• The major portion of B2C focuses on electronic
  retailing which provides many advantages over
  traditional retailing in terms of product, place
  and price.
• Web sites can offer a virtually unlimited number
  and variety of products since e-tailing is not
  limited by physical space requirements. For
  example, in 1999 Amazon.com offered over
  4,000,000 book titles on the Web compared with
  the book retailer Barnes Noble which could
  offer 200,000 items due to restricted space of
  their physical stores.
• Traditional retailing can be accessed only at
  physical store locations during open hours,
  e-tailers can conduct business anywhere at any
  time.
• E-tailers also can compete on price effectively
  since they can turn their inventory.

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Electronic Storefronts

• Hundreds of thousands of solo storefronts can be
  found on the Internet, each with its own name and
  Web site.
• Electronic storefronts can be an extension of
  physical stores such as Home Depot, and Wal-Mart.

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Electronic Malls

• An electronic mall, also known as a cybermall or
  e-mall, is a collection of individual shops under
  one internet address.
• The basic idea of an electronic mall is the same
  as that of a regular shopping mall-to provide a
  one-stop shopping place that offers many products
  and services.
• Representative cybermalls are Downtown Anywhere,
  HandCrafters Mall, Americas Choice Mall and
  Shopping 2000.

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E-commerce in Service

• Delivery of services, such as buying stocks or
  insurance online, can be done electronically.
• Delivery of services online is growing very
  rapidly.
• The major online services are banking, trading of
  securities (stocks, bonds), job matching, travel,
  and real estate.

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Cyberbanking

• Electronic banking, also known as cyberbanking,
  virtual banking, home banking, and online banking
  includes various banking activities conducted
  from home, a business, or on the road instead of
  at a physical bank location.
• Electronic banking has capabilities ranging from
  paying bills to securing a loan.
• It saves time and is convenient for customers.
• For banks, it offers an inexpensive alternative
  to branch banking (For example, 2 cents cost per
  transaction versus 1.07 at a physical branch).
• Electronic banking offers several benefits such
  as expanding the customer base and saving the
  cost of paper transactions.
• Ex Wells Fargo offers online banking.

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Online securities trading

• Buying stocks, bonds can be done electronically.
• By the year 2004, about 35 million people in US
  will be using computers to trade stocks, bonds,
  and other financial instruments.
• An online trade typically costs between 3 and
  30, compared to an average fee of 100 from a
  full-service broker and 35 from a discount
  broker.
• There is no waiting on busy telephone lines.
• The chance of making mistakes is small because
  there is no oral communication with a broker in a
  very noisy physical environment.
• Orders can be placed for anywhere, anytime.

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The online job market

• The Internet offers a perfect environment for job
  seekers and for companies searching for
  hard-to-find employees.
• The online job market is especially effective for
  technology-oriented jobs.
• There are thousands of companies and government
  agencies that advertise available positions in
  all types of jobs, accept resumes and take the
  applications via the Internet.
• Low cost, wide exposure, the speed of recruiting
  process, the ease of transmitting information and
  documents (resumes and job descriptions).

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Travel

• The Internet is an ideal place to plan, and
  economically arrange almost any trip.
• Potential savings are available through special
  sales, comparisons, use of auctions, and the
  elimination of travel agents.
• Expedia.com, Travelocity.com and Travelweb.com
  are the examples of comprehensive travel online
  services.
• Services are also provided online by all major
  airline vacation services, car rental agencies,
  hotels, and tour companies.

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Real estate

• Real estate transactions are an ideal area for
  e-commerce.
• You can view many properties on the screen,
  saving time for you and the broker.
• You can sort and organize properties according to
  your criteria, shortening the search process.
• You can find detailed information about the
  properties and frequently get even more detail
  than brokers will provide.
• For example, Realtor.com allows you to search a
  database of over one million homes across the US.
  

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Auctions

• An auction is a mechanism by which sellers place
  offers and buyers make sequential bids.
• Auctions are characterized by the competitive
  nature by which final prices is reached.
• The Internet provides an infrastructure for
  executing auctions at lower cost, and with many
  more involved sellers and buyers.
• Individual customers and corporations alike can
  participate in this rapidly growing form of
  e-commerce.
• Ex e-Bay.

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Market Research B2C

• To successfully conduct electronic commerce,
  especially B2C, it is important to find out who
  the actual and potential customers are and what
  motivates them to buy. Finding out what specific
  groups of consumers want is done via
  segmentation, dividing customers into specific
  segments, like age or gender.

• Market researchers have tried to understand
  consumer behavior, and develop models to help
  sellers understand how a consumer makes a
  purchasing decision. If the process is
  understood, a seller may be able to influence the
  buyers decision, through advertising or special
  promotions.

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Online Advertising
Advertisement is an attempt to disseminate
information in order to influence a buyerseller
transaction. Unlike traditional advertising on TV
or newspapers which is impersonal, one-way mass
communications, Internet advertising is
media-rich, dynamic, and interactive. The most
common advertising methods online are banners,
pop-ups, and e-mails.

• Banners are electronic billboards and is the most
  commonly used form of advertising on the Internet
• Keyword banners appear when a predetermined word
  is queried from a search engine.
• Random banners appear randomly
• Pop-Up Ads.
• A pop-up ad appears in front of the current
  browser window.
• Electronic Catalogs and Brochures.
• E-Mail Advertising.

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Business-to Business (B2B) Applications

• In B2B applications, the buyers, sellers, and
  transactions involve only organizations.
• B2B comprises the majority of EC volume.
• Companies can sell to other business using their
  own Web sites or net marketplaces.
• It covers a broad spectrum of applications that
  enable an enterprise to form electronic
  relationships with its distributors, resellers,
  suppliers, customers, and other partners.

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B2B Applications

• There are several business models for B2B
  applications.
• The major ones are sell-side marketplaces,
  buy-side marketplaces, and electronic exchanges.

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Sell-side marketplace

• The sell-side marketplace is a model in which
  there are many buyers but one seller.
• In the sell-side marketplace model, organizations
  attempt to sell their products or services to
  other organizations electronically.
• This model is similar to the B2C model in which
  the buyer is expected to come to the sellers
  site, view catalogs, and place an order.
• In this case, however, the buyer is an
  organization that may be a regular customer of
  the seller.
• The sell-side model is used by thousands of
  companies.
• Examples are major computer companies such as
  Cisco, IBM, and Intel.
• The seller in this model can be either a
  manufacturer, a distributor, or a retailer.

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Buy-side Marketplace

• The buy-side marketplace is a model in which
  there are many sellers but one buyer.
• The buy-side marketplace, also known as
  e-procurement, is a model in which EC technology
  is used to streamline the purchasing process in
  order to reduce the cost of items purchased.
• A major method of e-procurement is a reverse
  auction.
• In reverse auctions there is one buyer, who wants
  to buy a product or service. Suppliers are
  invited to submit bids. The supplier that submits
  the lowest bid wins.
• Such auctions attract larger pools of willing
  suppliers.

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Electronic Exchanges

• The electronic exchanges refer a model in which
  there are many sellers and many buyers.
• They are open to all, and frequently are owned
  and operated by a third party.
• Ex plasticsnet.com, chemconnect.com.

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Consumer-to-Consumer E-commerce (C2C)

• An increasing number of individuals are using the
  Internet to conduct business or to collaborate
  with others.
• Auctions are by far the most popular C2C
  e-commerce activities.
• Some other C2C activities are classifieds,
  personal services, and peer-to-peer (P2P) and
  file exchanges.

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Classifieds

• Individuals used to sell items by advertising in
  the classified section of the newspaper.
• Today, they are using the Internet for this
  purpose.
• Some classified services are provided free. Ex
  classifieds2000.com.

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Personal services

• A variety of personal services are offered on the
  Internet, ranging from tutoring and astrology to
  legal and medical advice.
• Personal services are advertised in the
  classifieds areas, in personal Web pages, on
  Internet communities bulletin boards, and more.

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Peer-to-peer and file exchanges

• An increasing number of individuals are using the
  P2P services of companies such as Napster.com.
• Individuals can exchange online digital products,
  such as music and games.