: E-commerce
Introduction to e-commerce
Introduction to the course
IM 251 gives a survey of the key technological elements of e-commerce and provides insight into e-commerce infrastructures. It also covers some business strategies essential to e-commerce.
A quick survey
Which of the following have you done? Used e-mail Browsed the Web Bought a product on the Web (what?) Created a web page using an authoring tool Written some HTML IM 251 will NOT teach you HTML.
Electronic commerce
To many people the term electronic commerce, often shortened to e-commerce, is equivalent to shopping on the web.
The term electronic business is sometimes used to capture the broader notion of e-commerce.
In this course, we will use e-commerce in its broadest sense. It encompasses both web shopping and other business conducted electronically.
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E-commerce is not new
Banks have used electronic funds transfers (EFTs), also called wire transfers, for decades.
Businesses have been engaging in electronic data interchange for years. EDI occurs when one business transmits computer readable data in a standard format to another business.
Electronic data interchange
In the 1960s businesses realized that many of the documents they exchanged related to the shipping of goods contained the same set of information for each transaction. By sending the information electronically in a standard format, the businesses could save money on printing, mailing, and re-entry of data. Electronic transfer of data also introduces fewer errors than manual transfer.
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Technology and commerce
In order to understand how technology can aid commerce we need to understand traditional commerce. Once we have identified what activities are involved in traditional commerce, we can consider how technology can improve them. Note that technology does not always improve commerce. Knowing when technology will NOT help is also useful.
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Origins of commerce
The origins of traditional commerce pre date recorded history. Commerce is based on the specialization of skills. Instead of performing all services and producing all goods independently, people rely on each other for the goods and services they need. Example: My mother trades food to one of her neighbours in exchange for repairs to the fences on her garden.
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Traditional commerce
Although money has replaced bartering, the basic mechanics of commerce remain the same: one member of society creates something of value that another member of society desires.
Commerce is a negotiated exchange of valuable objects or services between at least two parties and includes all activities that each of the parties undertakes to complete the transaction.
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Views of commerce
Commerce can be viewed from at least two different perspectives:
1. The buyers viewpoint 2. The sellers viewpoint Both perspectives will illustrate that commerce involves a number of distinct activities, called business processes.
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The buyers perspective
From the buyers perspective, commerce involves the following activities: 1. Identify a specific need 2. Search for products or services that will satisfy the specific need 1. Select a vendor 2. Negotiate a purchase transaction including delivery logistics, inspection, testing, and acceptance 1. Make payment 2. Perform/obtain maintenance if necessary
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The sellers perspective
From the sellers perspective, commerce involves the following activities: 1. Conduct market research to identify customer needs 2. Create a product or service to meet those needs 3. Advertise and promote the product or service 4. Negotiate a sales transaction including delivery logistics, inspection, testing, and acceptance 1. Ship goods and invoice the customer 2. Receive and process customer payments 3. Provide after sales support and maintenance
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Business processes
Business processes are the activities involved in conducting commerce.
Examples include: Transferring funds Placing orders Sending invoices Shipping goods to customers
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E-commerce
We will define e-commerce as the use of electronic data transmission to implement or enhance any business activity.
Example: A buyer sends an electronic purchase order to a seller. The seller then sends an electronic invoice back to the buyer. When used appropriately, electronic transmission can save both time and money.
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Impact of e-commerce
E-commerce is changing the way traditional commerce is conducted: Technology can help throughout the process including promotion, searching, selecting, negotiating, delivery, and support. The value chain is being reconfigured.
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Value chain analysis
A way of looking at the activities of an industry or organization. Primary activities Costs are directly allocated to a product
Support activities Costs are associated with the overall operation of the organization
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Example: Figure 1-12
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Origin of the name
An organization is a chain of activities, each providing a value: R&D develops the products Sales promotes the products Production manufactures the products Final inspection assures quality Logistics delivers the products Technical support maintains the products
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A typical company value chain
Primary Activities and Costs
Inbound Logistics
Operations
Outbound Logistics
Sales and Marketing
Service
Profit Margin
Product R&D, Technology, Systems Development Human Resources Management General Administration 19 Support Activities and Costs
Reconfiguring the value chain
1. Vertical Forward integration: Gaining ownership or increased control over distributors or retailers. Example: United Airlines buys Priceline Backward integration: Gaining ownership or increased control over suppliers. Example: Amazon buys RCA records 1. Horizontal: Seeking increased control over competitors. Example: Amazon buys BestBooksBuys.com
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Appropriateness
It is important to identify which business processes can be streamlined using e-commerce technologies.
It is equally important to realize that some processes make effective use of traditional commerce and cant be improved upon using technology.
Technology is not a panacea. Using it when it is not necessary or helpful can be a costly mistake.
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Well-suited for e-commerce
Business processes that are well-suited for electronic commerce: Sale/purchase of new books and CDs Online delivery of software Advertising and promotion of travel services Online tracking of shipments The business processes that are especially well-suited to e-commerce include commodity items, that is, a product or service that has become standardized.
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Best for traditional commerce
Business processes that are well-suited to traditional commerce: Sale/purchase of high fashion clothing (Any possible exceptions?) Sale/purchase of perishable food products Small-denomination transactions (Future?) Sale of expensive jewellery and antiques
In general, products that buyers prefer to touch, smell, or otherwise closely examine are difficult to sell using e-commerce. 23
Questionable cases
Would e-commerce or traditional commerce work best for the following activities?
Sale/purchase of rare books Browsing through new books Sale/purchase of shoes Sale/purchase of collectibles (trading cards, plates, etc.)
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Combinations of both
Some business processes can be handled well using a combination of electronic and traditional methods: Sale/purchase of auto-mobiles Online banking Room mate-matching services Sale/purchase of investment/insurance products In this course we will discuss the issue of evaluating the advantages and disadvantages of e-commerce. Lets consider a few examples now.
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Advantages of e-commerce
For the seller: Increases sales/decreases cost Makes promotion easier for smaller firms Can be used to reach narrow market segments
For the buyer: Makes it easier to obtain competitive bids Provides a wider range of choices Provides an easy way to customize the level of detail in the information obtained
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Advantages of e-commerce II
In general: Increases the speed and accuracy with which businesses can exchange information Electronic payments (tax refunds, paychecks, etc.) cost less to issue and are more secure Can make products and services available in remote areas Enables people to work from home, providing scheduling flexibility
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Disadvantages of e-commerce
Some business processes are not suited to e-commerce, even with improvements in technology Many products and services require a critical mass of potential buyers (e.g. online grocers) Costs and returns on e-commerce can be difficult to quantify and estimate Cultural impediments: People are reluctant to change in order to integrate new technology The legal environment is uncertain: Courts and legislators are trying to catch up 28
