Chapter 1 Introduction to Electronic Commerce 1

Chapter 1 Introduction to Electronic Commerce 1

Learning Objectives In this chapter, you will learn about: • The basic elements of electronic commerce • Differences between electronic commerce and traditional commerce • Advantages and disadvantages of using electronic commerce • The international nature of electronic commerce 2

Learning Objectives • The Internet and the World Wide Web have stimulated the emergence of electronic commerce. • Economic forces that have created a business environment to foster electronic commerce • The ways by which businesses use value chains to identify electronic commerce opportunities 3

Defining Electronic Commerce • Electronic commerce refers to business activities conducted using electronic data transmission via the Internet and the World Wide Web. • Three main elements of e-commerce: – Business-to-consumer – Business-to-business – The transactions and business processes that support selling and purchasing activities on the Web Click to see Figure 1 -1 4

Forms of Electronic Commerce • Web-based e-commerce • Electronic funds transfers (EFTs) • Electronic data interchange (EDI) – General Electric – Wal-Mart 5

Value Added Network (VAN) • A value added network is an independent firm that offers connection and EDI transaction forwarding services to buyers and sellers engaged in EDI. • VANs are responsible for ensuring the security of data transmitted. • VANs charged a fixed monthly fee plus a per-transaction charge to subscribers. 6

Elements of Traditional Commerce: the Buyer’s Side • Identify specific need • Search for products or services that will satisfy the specific need • Select a vendor • Negotiate a purchase transaction • Make payment • Perform regular maintenance and make warranty claims Click to see Figure 1 -2 7

Elements of Traditional Commerce: the Seller’s Side • Conduct market research to identify customer needs • Create product or service that will meet customers’ needs • Advertise and promote product or service • Negotiate a sale transaction 8

Elements of Traditional Commerce: the Seller’s Side • Ship goods and invoice customer • Receive and process customer payments • Provide after-sale support, maintenance, and warranty services Click to see Figure 1 -3 9

Activities as Business Processes • Business Processes refer to activities in which businesses engage as they accomplish a specific element of commerce, including: – Transfer funds – Placing orders – Sending invoices – Shipping goods to customers 10

Electronic Commerce Processes • • Electronic fund transfer (EFT) Electronic data interchange (EDI) Internet commerce Electronic business (IBM style) 11

Electronic Commerce Processes • Examples of business processes: – Well suited to electronic commerce – Well suited to traditional commerce – A combination of both strategies Click to see figure 1 -4 Click to see figure 1 -5 12

Well-suited E-commerce Business Processes • Sale/purchase of books and CDs and other commodities • Online delivery of software • Promotion and delivery of travel services • Online shipment tracking 13

Well-suited Traditional Business Processes • Sales/purchase of high-fashion clothing • Sale/purchase of perishable food products • Processing of small-denomination transactions • Sale of high-value jewelry and antiques 14

Business Processes Suited to Both Commerce Strategies • • Sale/purchase of automobiles Online banking Roommate-matching services Sale/purchase of investment and insurance products 15

Advantages of Electronic Commerce • Electronic commerce can increase sales and decrease costs. • Web advertising reaches to potential customers in the world. • Web creates virtual communities for specific products or services. 16

Advantages of Electronic Commerce • A business can reduce the costs by using electronic commerce in its sales support and order-taking processes. • Electronic commerce increases sale opportunities for the seller. • Electronic commerce increases purchasing opportunities for the buyer. 17

General Welfare of Society • Electronic commerce benefits the general welfare of society because: – Electronic payments of tax refunds and welfare cost less to issue and arrive securely. – Electronic payments can be audited easily. – Electronic commerce enables people to work from home. – Electronic commerce makes products and services available in remote areas. 18

Disadvantages of Electronic Commerce • Some business processes are difficult to be implemented through electronic commerce. • Return-on-investment is difficult to apply to electronic commerce. • Businesses face cultural and legal obstacles to conducting electronic commerce. 19

International Electronic Commerce • About 60 percent of all electronic commerce sites are in English, languages barrier needs to be overcome. • The political structures of the world presents some challenges. • Legal, tax, and privacy are concerns of the international electronic commerce. 20

The Internet and World Wide Web • The Internet is a large system of interconnected computer networks that spans the globe. • The Internet supports e-mail, online newspapers and publications, discussion group, game, and free software. • The World Wide Web includes an easy-to-use standard interface for Internet resources accesses. 21

Origins of the Internet • In the early 1960 s, the U. S. Department of Defense started research on networking computers. • Its researchers developed a multiple channels network. • In 1969, the Defense Department used this network model to connect four mainframe computers at different locations. 22

New Uses for the Internet • In 1972, a researcher wrote a program that could send and receive messages over the network. • E-mail was born and became widely used. • The network software include: – File Transfer Protocol (FTP) – User’s News Network (Usenet) 23

Commercial Use of the Internet • Companies used PC to construct their networks in 1980 s. • National Science Foundation (NSF) funded the network services in 1980 s. • In 1989, NSF permitted two commercial email services. • As the 1990 s began, the Internet started to serve the global resource accesses. 24

Growth of the Internet • In 1991, the NSF further eased its restriction on Internet commercial activity. • The privatization of the Internet was substantially completed in 1995. • The new structure of the Internet was based on four network access points (NAPs). • Internet service providers (ISPs) sell Internet access rights directly to customers. Click to see Figure 1 -6 25

Development of Hypertext • In the 1960 s, Ted Nelson described his page -linking system hypertext. • In 1987, Nelson published a book about a global system for online hypertext publishing and commerce. • In 1991, Berners-Lee of CERN developed the code for a hypertext server program and made it available on the Internet. 26

HTML • A hypertext server is a computer that stores files written in the hypertext markup language (HTML). • HTML is a language that includes a set of codes (or tags) attached to text. • A hypertext link points to another location in the same or another HTML document. 27

Web Browser and Markup Languages • A web browser is a software interface that lets users browse HTML documents. • HTML is based on Standard Generalized Markup Language (SGML). • e. Xtensible Markup Language (XML) allows users to define new meanings for its commands in web page. Click to see Figure 1 -7 28

Graphical User Interface • A graphical user interface (GUI) is a way of presenting program control functions and program output to users. • Web browsers include: – Mosaic – Netscape Navigator – Microsoft Internet Explorer Click to see Figure 1 -8 29

Economic Forces of Electronic Commerce • Transaction costs were the main motivation for moving economic activity from markets to hierarchically structured firms. • Transaction costs are the total of all costs that a buyer and a seller incur for business. • Types of economic organization: – Market form – Hierarchically-structured form Click to see Figure 1 -9 Click to see Figure 1 -10 30

The Role of Electronic Commerce • Businesses and individuals can use electronic commerce to reduce transaction cost. • Electronic commerce can make network economic structure, which rely on information sharing, much easier to construct and maintain. Click to see Figure 1 -11 31

Value Chains • A strategic business unit is one particular combination of product, distribution channel, and customer type. • A value chain is a way of organizing the activities that each strategic business unit undertakes to design, produce, promote, market, deliver, and support the products or services it sells. 32

Strategic Business Unit Value Chains • For each business unit, the primary activities are: – – – – Identify customers Design Purchase materials and supplies Manufacture Market and sell Deliver Provide after-sale service and support 33

Strategic Business Unit Value Chains • The support activities of value chain for a strategic business unit include: – Finance and administration – Human resources – Technology development Click to see Figure 1 -12 34

Industry Value Chains • Value system describes the larger stream of activities into which a particular business unit’s value chain is embedded. • Industry value chain refers to value systems. • Using the value chain reinforces the idea that electronic commerce should be a business solution. Click to see Figure 1 -13 35