Chapter 1:

Introduction to Electronic Commerce

 Electronic Commerce
– Traditional Commerce
– E-commerce is a method for companies to create
and operate their business in new and efficient
ways through Internet.

• Electronic business (E-business)

– Term used interchangeably with e-commerce

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 Categories of Electronic
Commerce
• Five general E-Commerce categories:
– Business-to-consumer
– Business-to-business
– Business processes
– Consumer-to-consumer
– Business-to-government

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The Development and Growth of
Electronic Commerce
• Electronic funds transfers (EFTs)
– Also called wire transfers
– Electronic transmissions of account exchange
information over private communications networks

• Electronic data interchange (EDI)

– Transmitting computer-readable data in a standard format to
another business using same information that businesses
have always included in their standard paper invoices,
purchase orders, and shipping documents

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 The Development and Growth of
Electronic Commerce (continued)

• Trading partners
– Businesses that engage in EDI with each other.

• Value-added network (VAN)

– Independent firm that offers connection and
transaction-forwarding services to buyers and
sellers engaged in EDI

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 The First Wave of Electronic
Commerce
• The First Wave of Electronic Commerce, 1995–
2003
• More than 5000 of these Internet start-up firms
came into business or were acquired in the
downturn that began in 2000.
• The media coverage of the “dot-com bust” from
2000 to 2003 was extensive.
• Moreover, during that time, more than $200 billion
was spent on starting completely new online
ventures.

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 The Second Wave of Electronic
Commerce (2004-2009)
• Defining characteristics of the first wave:
– Dominant influence of U.S. businesses
– Extensive use of the English language
– Many new companies started with investors’
money
– Unstructured use of E-mail
– Over-reliance on advertising as a revenue source

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 The Third Wave of Electronic
Commerce
• The Third Wave of Electronic Commerce, 2010–
Present
• In 2010, a number of factors came together which
caused the third wave.
• New International Players
• Mobile Commerce & Social Media
• English is not a dominant language
• High Bandwidth
• Massive Advertising

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Revenue Model, Business Model,
and Business Processes

• Revenue model
– A set of processes that combine to yield a profit
• Business model
– A specific collection of business processes used
to:
• Identify customers
• Market to those customers
• Generate sales to those customers

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 Role of Merchandising
• Merchandising
– Combination of store design, layout, and product
display knowledge
• companies must be able to transfer their
merchandising skills to the Web for their Web sites to
be successful.
• Some products are easier to sell on the Internet than
others

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 Product/Process Suitability to
Electronic Commerce
• Some products, such as books, video games or movies
(and some services) are good candidates for electronic
commerce because customers do not need to
experience the physical characteristics of the particular
item before they buy it, but some are not.

• Commodity item
– Hard to distinguish from the same products or
services provided by other sellers
– Features have become standardized and well known

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 Product/Process Suitability to
Electronic Commerce (continued)
• Shipping profile
– Collection of attributes that affect how easily a
product can be packaged and delivered

• High value-to-weight ratio

– Can make overall shipping cost a small fraction of
the selling price i.e. Laptop/Cell, Books, Jewelry,
Cosmetics, software, electronics

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 What Are the Advantages of E-
commerce?
Increases sales, decreases cost
 Allows small businesses to have global customer
base
 Reduced cost through electronic sales enquires, price
quotes and order taking
Provides purchasing opportunities for buyers
(businesses can identify new suppliers and partners)
Increase speed and accuracy for exchanged
information, thus reducing cost
What Are the Advantages of E-
commerce Cont’d?
Business can be transacted 24hrs a day
The level of detail of purchase information is
selected by user
Digital products can be delivered instantly
Tax refunds, public retirement and welfare
support costs less when distributed over the
Internet
Allows products and services to be available in
remote areas, e.g. virtual learning
What Are the Disadvantages of
E-commerce?
Difficulty in integrating current databases and
transaction processing systems into e-commerce
solutions
Cultural and legal obstacles
 Transmission of credit card details
 Some consumers resistant to change
 Laws are unclear
Shipping profile: Products with a low value-to-
weight ratio that can not be efficiently packed and
shipped are unsuitable (use traditional commerce)
Inability to sell some products (e.g. high cost
jewelry and perishable foods
Markets
 A market is a place where sellers can come into
contact with buyers and a medium of exchange
(e.g. currency) is available
 Some hierarchal companies however, due to
high transaction cost, choose to replace supplier
markets with its own hierarchal structure for
creating the product. This is called vertical
integration
 E.g. Mitchells, Total
Value Chains
 A value chain is a way to organise the
activities that a business undertakes to
design, produce, promote, market, deliver
and support the products or services it
sells
 Manufacturer Value Chain
Primary activities
Manufacture After sales
Design product or deliver
service & support
create service

Identify Purchase materials

Market & and supplies
customers
sell

Finance Technology Support activities

& HR
development
Primary Activities
 Identify new customers, and sell new services to
existing customers (research & surveys)
 Design – from concept to manufacturing
 Purchase materials and supplies – includes
contracts, vendor selection, monitoring quality
and delivery timeliness
 Manufacture product or create service –transform
materials and labour into finished products
Primary Activities Cont’d
 Market and sell – advertising, promoting,
managing sales staff, pricing and monitoring
sales
 Deliver – store, deliver distribute and ship final
product – warehousing, consolidating freight,
selecting shippers and monitoring delivery
timeliness
 Provide after-sale service and support – promote
relationship with customer, e.g. installing,
maintaining, testing, repairing, and warranties
Support Activities
 Each business unit must also undertake support
activities that provide the infrastructure for the
primary activities:
 Finance and administration – accounting, paying
bills, borrowing, compliance with laws
 Human resources – recruiting, hiring, training,
compensation and benefits
 Technology development – improves the product or
service, including basic and applied research and
development, process improvement and field tests of
maintenance procedures
International Issues
 Trust issues
 Language issues
 Culture issues
 Infrastructure issues
Trust Issues
Anyone can create a site on the Web

 These individuals or businesses can easily
remain anonymous
 Without an established brand consumers find it
difficult to trusts online businesses:
 especially with personal information and credit card
numbers
 The key is developing methods which allow
legitimate businesses to establish trusts
relationships quickly with consumers
Language Issues (localisation)
 Global impact requires local language Web sites
 customers prefer to buy from sites in native language
 60% of web content today is in English; but more
than 50% of the current users do not read
English
 Multiple translations may be required for
different languages, e.g. Spanish- Mexican-
French-Chinese
Culture Issues
Culture is the combination of language
and customs
 Culture varies across national boundaries
and in many cases regions within nations
 McDonalds in India
 General Motors Chevrolet Nova automobile
amused people in Latin America since no va
in Spanish means “it will not go”
 Pepsi in China
 Culture in Middle East
Culture Issues Cont’d
 Choice of icons on Web pages becomes
problematic on international Web sites:
 In the US a shopping cart is useful, in the UK
a shopping basket is more appropriate,
Australians call it shopping trolleys
 In many places other than Brazil the thumbs
up gesture means okay, in Brazil it is an
offending gesture
Infrastructure Issues
 Limited telecommunication infra-structure
may lead to unreliable Internet access
 Internet connection cost might be high
 Reduces time businesses might spend surfing
for new suppliers or products
 Flat-rate access to the Internet required

 Technological Infrastructure
 Clutter
 Spam