CHAPTER 6 E-Business and E-Commerce 1 Opening Case

CHAPTER 6 E-Business and E-Commerce 1 Opening Case

CHAPTER 6 E-Business and E-Commerce 1 Opening Case Can Facebook generate revenue with advertising? Facebooks ultimate goal is to build a global website where you can just type in anyones name, find that person, and communicate with him or her. Currently, Facebook has more than 500 million active users and growing at the amazing rate; In 2009 it registered growths of almost 5 million new users per week. The average Facebook user spends 169 minutes per month on the website. The Business Problem However, brand advertising on Facebook has been less than successful. This lack of advertising success is a real concern for Facebook executives. In fact, despite the sites exploding

popularity, as of mid-2009, Facebook was not yet profitable. Accordingly, Facebook wants to develop a revenue stream from advertising on its website. 2 Opening Case Discussion What type of e-commerce business model would Facebook, and social network websites in general, fit into? What challenges do social network websites face as a profitable business model?

Could electronic payment methods add value to social network websites? What are the potential ethical concerns of using social networks to conduct e-commerce? 3 Opening Case What we learned from this case? Electronic commerce offers two very important advantages to companies.

First, it increases an organizations reach, defined as the number of potential customers to whom the company can market its products. Facebook is an excellent example of increased reach, as we saw in the opening case. Second, electronic commerce removes many of the barriers that previously impeded entrepreneurs who start businesses. Facebook provides a cautionary story here. Even though the company effectively used electronic commerce to grow rapidly, its future is unclear because its revenue model has, so far, not been as effective. The important point here is that a company using electronic commerce, despite all its advantages, still must have a

viable method for generating revenue, or the company will fail. 4 Agenda 6.1 Overview of E-Business & E-Commerce 6.1.1 Definitions and concepts 6.1.2 Types of E-Commerce 6.1.3 E-Commerce business models 6.1.4 Major E-Commerce mechanisms 6.1.5 Benefits and limitations of E-Commerce 6.2 Business-to-Consumer (B2C) E-Commerce 6.2.1 Definition and characteristics 6.2.2 Electronic storefronts and malls 6.2.3 On-Line service industries 6.2.4 Issues in E-Tailing 6.2.5 Online advertising

5 Agenda 6.3 Business-to-Business (B2B) E-Commerce 6.3.1 Definition 6.3.2 Types of B2B electronic commerce 6.4 Electronic Payments 6.5 Ethical and Legal Issues in E-Business 6 CHAPTER OVERVIEW 7 LEARNING OBJECTIVES

1. Describe the different types of electronic commerce, its mechanisms, and its limitations. (6.1) 2. Describe B2C electronic commerce, e-tailing, and on-line advertising. (6.2) 3. Describe the main types of B2B electronic commerce. (6.3) 4.

Explain the main types of on-line electronic payment methods.(6.4) 5. Explain the main ethical and legal issues relating to e-commerce.(6.5) 8 6.1 Overview of E-Business & ECommerce 6.1.1 Definitions and concepts 6.1.2 Types of E-Commerce 6.1.3 E-Commerce business models 6.1.4 Major E-Commerce mechanisms 6.1.5 Benefits and limitations of ECommerce 9

6.1.1 Definitions and concepts Definitions Electronic commerce (e-commerce, EC) describes the process of buying, selling, transferring, or exchanging of products, services or information via computer networks, including the Internet. E-business is a broader definition of EC, including buying and selling of goods and services, and also servicing customers, collaborating with partners, conducting e-learning and conducting electronic transactions within an organization. 10 Concepts

Pure versus Partial Electronic Commerce The degree of digitization refers to the extent to which the commerce has been transformed from physical to digital. It can relate to: 1) the product or service being sold, 2) the process by which the product or service is produced, or 3) the delivery agent or intermediary. In other words, the product can be physical or digital, the process can be physical or digital, and the delivery agent can be physical or digital. 11

Depends on the degree of digitization involved. Brick-and-mortar organizations Click-and-mortar organizations (e.g., Virtual organizations, Pure play (e.g., 12 Pure vs. Partial EC --The product can be physical or digital. --The process can be physical or digital. --The delivery agent can be physical or digital.

Brick-and-mortar organizations are purely physical organizations. Virtual organizations are companies that are engaged only in EC. (Also called pure play) Click-and-mortar organizations are those that conduct some e-commerce activities, yet their business is primarily done in the physical world. i.e. partial EC. 13 6.1.2 Types of E-Commerce

Business-to-Consumer (B2C) Business-to-Business (B2B) Consumer-to-Consumer (C2C) Business-to-Employee (B2E) E-Government Mobile Commerce (m-commerce) 14 Business-to-consumer (B2C): the sellers are

organizations and the buyers are individuals. Business-to-business (B2B): both the sellers and buyers are business organizations. B2B represents the vast majority of e-commerce. Consumer-to-consumer (C2C): an individual sells products or services to other individuals. Business-to-employee (B2E): An organization uses e-commerce internally to provide information and services to its employees. Companies allow employees to manage their benefits, take training classes electronically; buy discounted insurance, travel packages, and event tickets. 15 E-Government: the use of Internet Technology in

general and e-commerce in particular to deliver information about public services to citizens (called Government-to-citizen [G2C EC]), business partners and suppliers (called government-to-business [G2B EC]) Mobile Commerce (m-commerce) refers to ecommerce that is conducted in a wireless environment. For example, using a cell phone to shop over the Internet. 16 6.1.3 E-Commerce business models

Online direct marketing Name-your-own-price Find-the-best-price Viral marketing Group purchasing

Online auctions 17 Affiliate marketing Product customization Deep discounters

Membership Electronic tendering system 18 Online direct marketing: manufacturers or retailers sell directly to customers. Name-your-own-price: customers decide how much

they want to pay. Find-the-best-price: customers specify a need and an intermediary compares providers and shows the lowest price. Viral marketing: receivers send information about your product to their friends. Bartering on-line: Intermediary administers on-line exchange of surplus products and/or company receives points for its contribution, and the points

19 can be used to purchase other needed items Online auctions: companies run auctions of various types on the Internet. Affiliate marketing: Vendors ask partners to place logos or banners on partners site. If customers click on logo, go to vendors site, and buy, then vendor pays commission to partners. Product customization: customers use the Internet

to self-configure products or services. Sellers then price them and fulfill them quickly. Deep discounters: company offers deep price discounts. 20 Group purchasing: small buyers aggregate demand to get a large volume; then the group conducts tendering or negotiates a lower price. Membership: only members can use the services

provided. Electronic tendering system: businesses (or governments) request quotes from suppliers; uses B2B (or G2B) with reverse auctions. Image above is the Hong Kong Governments electronic tending system homepage. Electric marketplaces and exchanges: transactions are conducted efficiently (more information to buyers and sellers, lower transaction costs) in electronic marketplaces (private or public) 21

6.1.4 Major E-Commerce mechanisms Auction Forward auctions Reverse auctions Electronic marketplace ( e-marketplace is discussed in section 6.3) 22 An auction is a competitive process in which either a seller solicits consecutive bids from buyers or a buyer

solicits consecutive bids from sellers. Sellers use a forward auction as a channel to many potential buyers. Note that Sothebys uses forward auctions. In reverse auctions, one buyer, usually an organization, wants to buy a product or a service. The buyer posts a request for quotation (RFQ) on its Web site or on a third-party Web site. The RFQ contains detailed information on the desired purchase. Suppliers study the RFQ and submit bids, and the lowest bid wins the auction.

In general, forward auctions result in higher prices over 23 Bid price Bid pric e Time Forward Auction Time

Reverse Auction 24 6.1.5 Benefits and limitations of E-Commerce Benefits Benefits to organizations Makes national and international markets more accessible Lowering costs of processing, distributing, and retrieving information Benefits to customers Access a vast number of products and services around the clock (24/7/365)

Benefits to society Ability to easily and conveniently deliver information, services and products to people in 25 Limitations Technological limitations Lack of universally accepted security standards Insufficient telecommunications bandwidth Expensive accessibility Non-technological limitations Perception that EC is unsecure

Unresolved legal issues Lacks a critical mass of sellers and buyers 26 6.2 Business-to-Consumer (B2C) E-Commerce 6.2.1 6.2.2 6.2.3 6.2.4 6.2.5 Definition and characteristics Electronic storefronts and malls On-Line service industries Issues in E-Tailing Online advertising

27 6.2.1 Definition and characteristics Business-to-consumer (B2C): the sellers are organizations and the buyers are individuals. B2C electronic commerce is also known as e-tailing. B2B is much larger than B2C by volume. B2C is more complex. B2C involves a large number of buyers making millions of diverse transaction per day with a relatively small number of sellers. 28

6.2.2 Electronic storefronts and malls Electronic retailing (e-tailing) is the direct sale of products and services through electronic storefronts or electronic malls, usually designed around an electronic catalogue format and/or auctions. An electronic storefront is a Web site that represents a single store. Electronic malls are collections of

individual shops under a single Internet address. 29 6.2.3 On-Line service industries In addition to purchasing products, customers can also access needed services via the Web. A key issue is disintermediation in online service industries. Intermediaries or middlemen provide information and/or provide value-added services. When the function(s) of these intermediaries can be automated or eliminated, this process is called disintermediation.

30 Cyberbanking involves conducting banking activities from home, a place of business, or on the road instead of at a physical bank location. Virtual banks are dedicated only to Internet transactions. On-Line Securities Trading use computers to trade stocks, bonds, and other financial instruments. The On-Line Job Market: the Internet offers a promising new environment for job seekers and for companies searching for hard-to-find employees.

Travel Services: the Internet is an ideal place to plan, explore, and arrange almost any trip economically. 31 6.2.4 Issues in E-Tailing Channel Order conflict

fulfillment ??? 32 Channel conflict occurs when manufacturers disintermediate their channel partners,such as distributors, retailers, dealers, and sales representatives, by selling their products directly to consumers, usually over the Internet through electronic commerce. Multichanneling is a process in which a company integrates its offline and online channels.

Order fulfillment involves finding the product to be shipped; packaging the product; arrange for speedy delivery to the customer; and handle the return of unwanted or defective products. 33 6.2.5 Online advertising Advertising is an attempt to disseminate information in order to influence a buyerseller transaction. The most common on-line advertising methods are: Banners Pop-up ad Pop-under ad

Permission marketing (e.g. AirCanada, WestJet) Viral marketing 34 Banners are simply electronic billboards. Pop-up ad appears in front of the current browser window. Pop-under ad appears underneath the active window.

Permission marketing asks consumers to give their permission to voluntarily accept online advertising and e-mail. Viral marketing refers to online word-of-mouth marketing. 35 6.3 Business-to-Business (B2B) E-Commerce 6.3.1 Definition 6.3.2 Types of B2B electronic commerce

36 6.3.1 Definition In B2B e-commerce, the buyers and sellers are organizations. B2B makes up about 85 percent of EC volume. It covers a broad spectrum of applications that enable an enterprise to form electronic relationships with its distributors, resellers, suppliers, customers, and other partners. 37

6.3.2 Types of B2B electronic commerce Sell-side marketplaces Buy-side marketplaces Electronic exchanges 38 In the sell-side marketplace, organizations sell their products or services to other organizations Electronically from their own Web site and/or from a third-party Web site. This model is similar to the B2C model in which the buyer comes to the sellers site, views catalogs, and places an order. In the B2B sellside marketplace, the buyers are organizations.

The buy-side marketplace is a model in which organizations buy needed products and services from other organizations electronically. Public exchanges have many buyers and many sellers. Private exchanges have one buyer and many sellers. There are three basic types of public exchanges: vertical, horizontal, and functional. 39 B2B Sell-Side Marketplace Key mechanisms:

electronic catalogs and forward auctions 40 B2B Buy-Side Marketplace Key mechanism: reverse auctions 41 Electronic Exchanges 42 6.4 Electronic Payments Electronic

payment systems enable you to pay for goods and services electronically. Electronic checks (e-checks) Electronic credit cards Purchasing cards Electronic cash Stored-value money cards Smart cards Person-to-person payments 43

44 Electronic checks (e-checks) are similar to paper checks and are used mostly in B2B. Electronic credit cards (Debt Cards, e-Credit, or eDebt) allow customers to charge online payments to their credit card account. Purchasing cards are the B2B equivalent of electronic credit cards and are typically used for unplanned B2B purchases.

45 Electronic cash Stored-value money cards allow you to store a fixed amount of prepaid money and then spend it as necessary. Smart cards contain a chip called a microprocessor that can store a considerable amount of information and are multipurpose can be used as a debit card, credit card or a storedvalue money card. Person-to-person payments are a form of e-cash that enables two individuals or an individual and a business to transfer funds without using a credit card. Digital Wallets are software mechanisms that provide security measures, combined with

convenience, to EC purchasing. The wallet stores 46 6.5 Ethical and Legal Issues in EBusiness Ethical Issues Privacy Disintermediation 47 Privacy: e-commerce provides opportunities for businesses and employers to track individual activities on the WWW using cookies or special spyware. This allows private/personal information to

be tracked, compiled, and stored as an individual profile. This profile can be used or sold to other businesses for target marketing or by employees to aide in personnel management decisions (i.e., promotions, raises, layoffs). Disintermediation: middlemen or intermediaries (1) provide information, and (2) perform value-added services such as consulting. The first function can be fully automated, and the second can be partially automated through e-marketplaces and portals for free thereby causing job loss among intermediaries. 48 Legal

Issues Specific to E-Commerce Fraud on the Internet Domain Names Cybersquatting Taxes and Other Fees Copyright 49 Fraud on the Internet has grown faster than the internet itself. Stock promoters falsely spread positive rumours about the prospects of stocks that boost the stock price for a quick profit.

Domain Names are assigned by a central non-profit organization that checks for conflicts and possible infringement of trademarks Cybersquatting refers to the practice of registering or using domain names for the purpose of profiting from the goodwill or trademark belonging to someone else. Copyright is a grant that provides the creator of intellectual property with the 50 Closing Case Sales growth at the heart of Sears Canadas new e-commerce website The Business Problem Sears Canada, one of the largest retail store

chains in the country, has been trying to get customers back into shopping. Without closing any of its stores, sales decreased by 6.3 percent in a recent year, totalling $5.7 billion in annual revenue. On-line sales have also slowed down to single-digit growth and now represent 10 percent of total sales. 51 Closing Case Discussion Why was Sears Canada so focused on improving the customer experience in its new e-commerce website?

What role do new social media tools play in on-line stores such as What are the benefits? What are the disadvantages? How could Sears Canada make its website more appealing to the market segment for younger shoppers? Identify any other on-line business models that Sears Canada could benefit from. 52 Closing Case The Results

The new e-commerce website has provided Sears with the flexibility to respond to customers questions in an interactive way. When a customer asked how a treadmill for sale could be folded, an e-commerce team member videotaped himself doing it and posted the video on YouTube and on the website. Sears also saves on inventory costs since suppliers carry the merchandise and ship it directly to customers. But one of the greatest benefits of the new website is the almost endless range of products that it carries: about 350,000 items are available on the website, more than twice the number in one of its typical department stores, and the number is planned to increase. 53 Copyright

Copyright 2011 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (the Canadian copyright licensing agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these files or programs or from the use of the information contained herein. 54

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