Chapter 1 Overview of Electronic Commerce EC 1

Chapter 1 Overview of Electronic Commerce (EC) 1

Definitions of EC z. EC is where business transactions take place via telecommunications networks, especially the Internet. y. Electronic commerce describes the buying and selling of products, services, and information via computer networks including the Internet. y. The infrastructure for EC is a networked computing environment in business, home, and government. y. E-Business describes the broadest definition of EC. It includes customer service and intrabusiness tasks. It is frequently used interchangeably with EC. 2

Definitions of EC (cont. ) z. EC can be defined as technology-mediated exchanges between parties as well as the electronically based intra- or interorganizational activities that facilitate such exchanges. 3

History and Growth of the Internet z 1957 The Department of Defense, USA, formed the Advanced Research Projects Agency (ARPA) ; z 1967 First design paper on ARPANET was published; z 1969 First node connected to ARPANET at UCLA; z 1973 First international connections to the ARPANET were established in England Norway; Basic concepts for Internet and gateway architecture were developed; z 1974 Design of Transmission Control Program was published; 4

History and Growth of the Internet (cont. ) z 1982 Number of Internet hosts surpassed 1, 000; Domain Name System was introduced; z 1992 The Internet Society was chartered for promoting global information exchange through technology; The World Wide Web (WWW)was developed by the European particle physics laboratory in Switzerland; z 1994 Shopping malls arrived on the Internet; z 1995 Numbers of Internet hosts surpassed five million. 5

Pure Vs. Partial EC y. Three dimensions xthe product (service) sold [physical / digital]; xthe process [physical / digital] xthe delivery agent (or intermediary) [physical / digital] y. Traditional commerce xall dimensions are physical y. Pure EC xall dimensions are digital y. Partial EC xall other possibilities include a mix of digital and physical dimensions 6

Virtual product The Dimensions of EC Electronic commerce areas Digital Product Virtual process Digital process Physical Product Traditional commerce The core of electronic commerce Physical agent Digital agent Virtual delivery agent 7

The EC Field ythe EC applications are supported by infrastructures, and their implementation is dependent on four major areas people, public policy, technical standards and protocols, and other organizations. y. The EC management coordinates the applications, infrastructures, and pillars. It also includes Internet marketing and advertisement. 8

Electronic Commerce Applications • Stocks Jobs • On-line banking • Procurement and purchasing • Malls • On-line marketing and advertising • Home shopping • Auctions • Travel • On-line publishing People: Buyers, sellers, intermediaries, services, IS people, and management Public policy, legal, and privacy issues Technical standards for documents, security, and network protocols payment Organizations: Partners, competitors, associations, government services Infrastructure (1) Common business services infrastructure (security smart cards/authentication electronic payment, directories/catalogs) (2) Messaging and information distribution infrastructure (EDI, e-mail, Hyper Text Transfer Protocol) (3) (4) Multimedia content Network infrastructure and network (Telecom, cable TV publishing infrastructure wireless, Internet) (HTML, JAVA, World (VAN, WAN, LAN, Wide Web, VRML) Intranet, Extranet) (5) Interfacing infrastructure (The databases, customers, and applications) Management A Framework for Electronic Commerce 9 9

Electronic Markets y. A market is a network of interactions and relationships where information, products, services, and payments are exchanged. y. The market handles all the necessary transactions. y. An electronic market is a place where shoppers and sellers meet electronically. y. In electronic markets, sellers and buyers negotiate, submit bids, agree on an order, and finish the execution on- or off-line. 10

Shopper/Purchaser Seller/Supplier Electronic commerce network (Infrastructure) Product/service information request Purchase request Payment or payment advice Response to information request Purchase acknowledgment Shipping notice Purchase/service delivery (if online) Payment acknowledgment Electronic Market (Transaction Handler) Response to fulfillment request Shipping notice Payment remittance notice Electronic transfer of funds Payment approval Electronic transfer of funds Shopper/Purchaser’s Bank Purchase fulfillment request Purchase change request Electronic transfer of funds Transaction Handler’s Bank (Automated Clearing House) Seller/Supplier’s Bank Electronic Markets 11 11

Classification of EC by the Nature of the Transactions y. Business-to-business y. Business-to-customer y. Intra business transactions y. Others Classification of Electronic Commerce 12

Electronic Commerce is Interdisciplinary z. Marketing z. Computer sciences z. Consumer behavior and psychology z. Finance z. Economics z. Production/Logistic z. Management information systems z. Accounting and auditing z. Management z. Business law and ethics 13

What’s New in the New Economy? z Limitless access to information z Expanding global markets z Business conducted faster than ever and continually z The demand to increase top-line revenue growth is speeding the move toward globalization by MCs z The Internet is letting customers worldwide view the same information at the same time---so now they can compare products and prices and complete real-time transactions with the click of a mouse z Privatization coupled with deregulation is increasing market competition z Improvements in voice and data communications technology are both heightening customer service expectations and creating new opportunities for self-service. 14

How’s EC Different from Traditional Commerce? z Core strategic decisions are technology-based; z A real-time competitive responsiveness; z The store is always open; z A technology-based customer interface; z The customer controls the interaction; z Knowledge of customer behavior; z Network economics; z Nontraditional performance Metrics and emergent valuation models 15

The Benefits of EC z. Benefits to Organizations y. Expands the marketplace to national and international markets y. Decreases the cost of creating, processing, distributing, storing and retrieving paper-based information y. Allows reduced inventories and overhead by facilitating “pull” type supply chain management y. The pull type processing allows for customization of products and services which provides competitive advantage to its implementers 16

Benefits to Organizations (cont. ) y. Reduces the time between the outlay of capital and the receipt of products and services y. Supports business processes reengineering (BPR) efforts y. Lowers telecommunications cost - the Internet is much cheaper than value added networks (VANs) 17

Benefits to Customers y. Enables customers to shop or do other transactions 24 hours a day, all year round from almost any location y. Provides customers with more choices y. Provides customers with less expensive products and services by allowing them to shop in many places and conduct quick comparisons y. Allows quick delivery of products and services in some cases, especially with digitized products 18

Benefits to Customers (cont. ) y. Customers can receive relevant and detailed information in seconds, rather than in days or weeks y. Makes it possible to participate in virtual auctions y. Allows customers to interact with other customers in electronic communities and exchange ideas as well as compare experiences y. Electronic commerce facilitates competition, which results in substantial discounts. 19

Benefits to Society y. Enables more individuals to work at home, and to do less traveling for shopping, resulting in less traffic on the roads, and lower air pollution y. Allows some merchandise to be sold at lower prices benefiting the poor ones y. Enables people in Third World countries and rural areas to enjoy products and services which otherwise are not available to them y. Facilitates delivery of public services at a reduced cost, increases effectiveness, and/or improves quality 20

The Limitations of EC z. Technical Limitations of Electronic Commerce y. Lack of sufficient system’s security, reliability, standards, and communication protocols y. Insufficient telecommunication bandwidth y. The software development tools are still evolving and changing rapidly y. Difficulties in integrating the Internet and electronic commerce software with some existing applications and databases 21

Technical Limitations of EC (cont. ) y. The need for special Web servers and other infrastructures, in addition to the network servers (additional cost) y. Possible problems of interoperability, meaning that some EC software does not fit with some hardware, or is incompatible with some operating systems or other components 22

Non-Technical Limitations y. Cost and justification (35% of the respondents) y. Security and Privacy (17% of the respondents) y. Lack of trust and user resistance (4%) y. Other limiting factors: x. Lack of touch and feel online x. Many unresolved legal issues x. Rapidly evolving and changing EC x. Lack of support services x. Insufficiently large enough number of sellers and buyers x. Expensive and/or inconvenient accessibility to the Internet 23

The Driving Forces of EC z. The New World of Business y. Business pressures y. Organizational responses y. The role of Information Technology (including electronic commerce) 24

Major Business Pressures Market and economic pressures Strong competition Global economy Regional trade agreements (e. g. NAFTA) Extremely low labor cost in some countries Frequent and significant changes in markets Increased power of consumers Societal and environmental pressures Changing nature of workforce Government deregulation of banking and other services Shrinking government budgets subsides Increased importance of ethical and legal issues Increased social responsibility of organizations Rapid political changes Technological pressures Rapid technological obsolescence Increase innovations and new technologies Information overload Rapid decline in technology cost Vs. performance ratio 25

Organizational Responses External Environment, Social, Economic, Political, etc The Organization’s Strategy Organization Structure and the Corporate Culture Management and Business Process Information Technology Individual and Roles Framework for Organizational and Societal Impacts of Information Technology 26

Business Process Reengineering y. Reducing cycle time and time to market y. Empowerment of employees and collaborative work y. Knowledge management y. Customer-focused approach y. Business alliances — virtual corporation 27

Everything Will Be Changed z. Improving Direct Marketing y. Product promotion y. New sales channels y. Direct savings y. Time-to-market (reduced cycle time) y. Customer service y. Brand or corporate image 28