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Lec1 introduction to electronic commerce


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lecture 1 on E-Commerce

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Lec1 introduction to electronic commerce

  1. 2. Electronic Commerce IT 316 Lesson 1: An Introduction to Electronic Commerce
  2. 3. Session Objectives <ul><li>To provide an introduction to electronic commerce (e-commerce) by answering the following questions: </li></ul><ul><ul><li>What is e-commerce? </li></ul></ul><ul><ul><li>What are the advantages and disadvantages of e-commerce </li></ul></ul><ul><ul><li>What were the 1 st and 2 nd waves of e-commerce characterised by? </li></ul></ul><ul><ul><li>What are the categories of e-commerce ? </li></ul></ul>
  3. 4. Session Objectives Cont’d <ul><li>To discuss concepts such as: </li></ul><ul><ul><li>Markets </li></ul></ul><ul><ul><li>Value chains </li></ul></ul><ul><ul><li>Transaction cost </li></ul></ul><ul><li>To evaluate international electronic commerce issues </li></ul>
  4. 5. What is Commerce? <ul><li>Traditional commerce may be defined as: </li></ul><ul><ul><li>From Webster's Revised Unabridged Dictionary </li></ul></ul><ul><ul><li>Commerce  :  Com&quot;merce, noun. The exchange or buying and selling of commodities; esp. the exchange of merchandise, on a large scale, between different places or communities; extended trade or traffic. </li></ul></ul>
  5. 6. What is E - Commerce? <ul><li>A general term for any type of business, or commercial transaction that involves the transfer of information across the Internet. </li></ul><ul><li>This covers a range of different types of businesses from consumer-based retail sites, like, through auction and music sites like eBay or, to business exchanges trading goods or services between corporations. </li></ul>
  6. 7. What is E - Commerce Cont’d ? <ul><li>The use of electronic communication to do business. </li></ul><ul><li>E-commerce is not about technology . It is not a new business. E-commerce is a method for companies to create and operate their business in new and efficient ways. </li></ul>
  7. 8. What is E - Commerce Cont’d ? <ul><li>Most fundamentally, e-commerce represents the realization of digital, as opposed to paper-based, commercial transactions between businesses, between a business and its consumers, or between a government and its citizens or constituent business. </li></ul>
  8. 9. What is E-Commerce Cont’d? <ul><li>In summary, e-commerce is the </li></ul><ul><ul><li>use of electronic communication to do business </li></ul></ul><ul><ul><ul><li>Specifically, the transfer of information (transactions), over the Internet </li></ul></ul></ul><ul><li>Some people use the term e-business to refer to all the categories of e-commerce </li></ul><ul><ul><li>E.g. IBM defines e-business as: </li></ul></ul><ul><ul><ul><li>The transformation of key business processes through the use of Internet technologies </li></ul></ul></ul>
  9. 10. From Traditional Commerce to E-commerce Sailing ships Printing press Steam engine Telephone Opened avenues for trade between buyers and sellers. Ancient times (thousands of years ago)
  10. 11. From Traditional Commerce to E-commerce Cont’d Electronic Funds Transfer (EFTs) Electronic Data Interchange (EDI) Internet Wire transfers - used by banks Businesses transfer electronic data - data not re-keyed - high implementation cost, thus excluded small businesses On-line shopping
  11. 12. Business Processes Suited to Certain Type of Commerce <ul><li>E-commerce </li></ul><ul><ul><li>Sale/purchase of books & CDs, travel services, investments and insurance services </li></ul></ul><ul><ul><li>Online delivery of software </li></ul></ul><ul><ul><li>Online shipment tracking </li></ul></ul>
  12. 13. Business Processes Suited to Certain Type of Commerce Cont’d <ul><li>E-commerce & Traditional </li></ul><ul><ul><li>Sale/purchase of automobiles and residential real estate (e.g. do research online then buy from a dealer or real estate agent) </li></ul></ul><ul><ul><li>Online banking </li></ul></ul><ul><ul><li>Roommate matching service </li></ul></ul>
  13. 14. Business Processes Suited to Certain Type of Commerce Cont’d <ul><li>Traditional </li></ul><ul><ul><li>Sale/purchase of impulse items for immediate use, high fashion jewelry and antiques (personal inspection required; prefer to touch, smell or examine closely) </li></ul></ul><ul><ul><li>Small denomination purchases and sales (since there is not yet a standard for transferring small amounts of money) </li></ul></ul>
  14. 15. What Are the Advantages of E-commerce? <ul><li>Increases sales, decreases cost </li></ul><ul><ul><li>Allows small businesses to have global customer base </li></ul></ul><ul><ul><li>Reduced cost through electronic sales inquiries, price quotes and order taking </li></ul></ul><ul><li>Provides purchasing opportunities for buyers (businesses can identify new suppliers and partners) </li></ul><ul><li>Increase speed and accuracy for exchanged information, thus reducing cost (Telecommuting) </li></ul><ul><li>Virtual Community </li></ul>
  15. 16. What Are the Advantages of E-commerce Cont’d? <ul><li>Business can be transacted 24hrs a day </li></ul><ul><li>The level of detail of purchase information is selected by user </li></ul><ul><li>Digital products can be delivered instantly </li></ul><ul><li>Tax refunds, public retirement and welfare support costs less when distributed over the Internet </li></ul><ul><li>Allows products and services to be available in remote areas, e.g. remote learning </li></ul>
  16. 17. What Are the Disadvantages of E-commerce? <ul><li>Inability to sell some products (e.g. high cost jewelry and perishable foods, although supermarkets like delivers to your home) </li></ul><ul><li>The newness and evolution of the current technology </li></ul><ul><li>Many products require a large number of people to purchase to be viable </li></ul><ul><li>High capital investment </li></ul><ul><li>There are a myriad of privacy issues </li></ul>
  17. 18. What Are the Disadvantages of E-commerce Cont’d? <ul><li>Difficulty in integrating current databases and transaction processing systems into e-commerce solutions </li></ul><ul><li>Cultural and legal obstacles </li></ul><ul><ul><li>Transmission of credit card details </li></ul></ul><ul><ul><li>Some consumers resistant to change </li></ul></ul><ul><ul><li>Laws are unclear </li></ul></ul><ul><li>Shipping profile: Products with a low value-to-weight ratio that can not be efficiently packed and shipped are unsuitable (use traditional commerce) </li></ul>
  18. 19. The 1 st Wave of E-commerce <ul><li>The 1 st wave was from the mid 1990s to 2003 </li></ul><ul><li>Dot-com boom (over $100 billion in investment): Rapid growth from mid-1990s to 2000 </li></ul><ul><li>Dot-com bust: in 2000 </li></ul><ul><li>Gloom years: 2000 –2003 (over $200 billion in investment) </li></ul>
  19. 20. Characteristics of the 1 st Wave <ul><li>It was primarily a U.S. phenomenon </li></ul><ul><li>Web pages were in English </li></ul><ul><li>Internet technologies were slow and inexpensive (e.g. dial-up lines) </li></ul><ul><li>Bar codes and scanners used to track parts (B2B and Business processes) </li></ul><ul><li>Email, tool for unstructured communication </li></ul><ul><li>On-line advertising main revenue source </li></ul>
  20. 21. The 2 nd Wave of E-commerce <ul><li>Beginning in 2003 e-commerce has shown signs of new life </li></ul><ul><li>Companies like (books), and (auctions) who survived the downturn were beginning to show profits </li></ul><ul><li>Continuous growth of B2C sales: 20-30% each year since 2000 </li></ul>
  21. 22. Characteristics of the 2 nd Wave <ul><li>International scope where sellers do business in many countries and languages </li></ul><ul><li>Faster, cheaper connections (x20 faster), broadband at home (although more expensive) </li></ul><ul><li>Radio frequency ID devices and smart cards </li></ul><ul><li>Fingerprint readers and retina scanners (biometric technologies) used for tracking </li></ul><ul><li>Email, integral part of marketing </li></ul>
  22. 23. Characteristics of the 2 nd Wave Cont’d <ul><li>E-commerce integral part of marketing and customer contact strategy </li></ul><ul><li>Some categories of on-line advertising, e.g. employment services (job want ads) have replaced traditional advertising outlets </li></ul><ul><li>Problems </li></ul><ul><ul><li>Language conversions </li></ul></ul><ul><ul><li>Currency conversions </li></ul></ul>
  23. 24. International Nature of e-Commerce : <ul><li>Trust .  Shoppers may not perceive foreign businesses as trustworthy as businesses from their homelands </li></ul><ul><li>Language . 50% of Internet users do not read English and 75% of users are outside the United States. </li></ul><ul><li>Culture .  An example would be Asian cultures not valuing private property in the same way as Europeans and North American cultures.  </li></ul>
  24. 25. International Nature of e-Commerce Cont’d : <ul><li>Government .  Some country’s governments are much more restrictive in what is allowed on the Internet than others </li></ul><ul><li>Infrastructure .  Infrastructure includes the computer and software connected to the Internet.  The level of infrastructure varies in different parts of the world </li></ul>
  25. 26. E-commerce Categories <ul><li>There are five general e-commerce categories: </li></ul><ul><ul><li>Business to Consumer (or B2C ) e-commerce </li></ul></ul><ul><ul><li>Business to Business (or B2B ) e-commerce (sometimes called e-procurement) </li></ul></ul><ul><ul><li>Business processes that support buying and selling activities </li></ul></ul><ul><ul><li>Consumer-to-consumer (or C2C ) e-commerce </li></ul></ul><ul><ul><li>Business-to-government (or B2G ) e-commerce </li></ul></ul>Definitions of Procurement : Dealing with the legal problems that arise from large contracts for the supply of goods or services, especially for businesses or government organisations.
  26. 27. B2 C e-commerce <ul><li>Description </li></ul><ul><ul><li>Businesses sell products or services to individual customers (consumers) </li></ul></ul><ul><li>Example </li></ul><ul><ul><li> sells merchandise to consumers through its Web site </li></ul></ul><ul><li>Web site </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li> </li></ul></ul>
  27. 28. B2B E-commerce <ul><li>Description </li></ul><ul><ul><li>Businesses sell products or services to other businesses </li></ul></ul><ul><li>Example </li></ul><ul><ul><li> sells industrial supplies to large and small businesses through its Web site </li></ul></ul><ul><li>Web site </li></ul><ul><ul><li> </li></ul></ul>
  28. 29. Business Processes that Support Buy/Sell Activities <ul><li>Description </li></ul><ul><ul><li>Businesses and other organisations maintain and use information to identify and evaluate customers, suppliers and employees (and to support buying, selling hiring, planning and other activities). More and more this information is being shared </li></ul></ul><ul><li>Example </li></ul><ul><ul><li>Dell Computer uses secure internet connections to share current sales and forecasts with suppliers who use it to plan their production, therefore they deliver the right quantities of components at the right time </li></ul></ul>
  29. 30. C 2 C e-commerce <ul><li>Description </li></ul><ul><ul><li>Participants in an online marketplace can buy and sell goods with each other </li></ul></ul><ul><li>Example </li></ul><ul><ul><li>Consumers and businesses trade with each other on </li></ul></ul><ul><li>Web site </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li> </li></ul></ul>
  30. 31. B2 G e-commerce <ul><li>Description </li></ul><ul><ul><li>Business sell goods or services to governments and government agencies </li></ul></ul><ul><li>Example </li></ul><ul><ul><li>Cal-Buy portal for businesses that want to sell online to the State of California </li></ul></ul><ul><li>Web site </li></ul><ul><ul><li> </li></ul></ul>
  31. 32. E-commerce Categories Example <ul><li>You are a computer manufacturing company who performs the following activities on the Internet: </li></ul><ul><ul><li>Sells computers to individuals ( B2C ) </li></ul></ul><ul><ul><li>Purchases parts (e.g. hard drives, power supplies etc.) from a supplier ( B2B ) </li></ul></ul><ul><ul><li>Hires staff, manage customer accounts, advertise, etc. ( Business processes ) </li></ul></ul><ul><ul><li>Sells computers to the Government to be used in schools ( B2G ) </li></ul></ul><ul><ul><li>On individuals buy and sell this brand of computers ( C2C ) </li></ul></ul>
  32. 33. Relative Sizes of E-commerce Categories Business processes B2C B2B
  33. 34. Relative Sizes of E-commerce Categories Cont’d Year B2C Sales ($ Billions) B2B Sales ($ Billions) 2005 150 4100 2004 130 2800 2003 100 1600 2000 50 60
  34. 35. Economic Forces <ul><li>Economics is the study of how people allocate scarce resources </li></ul><ul><li>Resources are allocated through: </li></ul><ul><ul><li>Commerce (markets) </li></ul></ul><ul><ul><li>Government actions (e.g. taxes) </li></ul></ul>
  35. 36. Markets <ul><li>A market is a place where sellers can come into contact with buyers and a medium of exchange (e.g. currency) is available (e.g.the stock market) </li></ul><ul><li>Some hierarchical organisations (companies) however, due to high transaction cost , choose to replace supplier markets with its own hierarchical structure for creating the product. This is called vertical integration </li></ul><ul><ul><li>E.g. Thomson Financial, a financial software provider, purchased the data supplier Datastream </li></ul></ul>
  36. 37. Hierarchical Organisations (Firms)
  37. 38. Transaction Costs <ul><li>Transaction costs are the total costs that a buyer and seller incur as they gather information and negotiate a purchase/sale transaction </li></ul><ul><li>Transaction costs are the main reason for vertical integration (Ronald Coase) </li></ul><ul><li>Businesses can use e-commerce to reduce transaction costs (e.g. telecommuting rather than physical commuting to allow global employment opportunities) </li></ul>
  38. 39. Transaction Costs Example <ul><li>Transaction costs incurred by a sweater dealer when purchasing from independent sweater knitters: </li></ul><ul><ul><li>Cost of identifying independent knitters </li></ul></ul><ul><ul><li>Cost of site visit to negotiate purchase price, arrange delivery and inspection of sweaters </li></ul></ul><ul><ul><li>Costs incurred by knitters: </li></ul></ul><ul><ul><ul><li>Knitting tools and yarn purchase </li></ul></ul></ul>
  39. 40. Network Economic Structures <ul><li>Many businesses operate in an economic structure that is neither market or hierarchical </li></ul><ul><li>These businesses form, long-term, strategic alliances with other companies who share common goals and strategies </li></ul><ul><li>These alliances may occur over the Internet – which are called virtual companies </li></ul><ul><ul><li>Teams complete a project or activity then dissolve </li></ul></ul><ul><ul><li>New teams are creating as required </li></ul></ul>
  40. 41. Value Chains <ul><li>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 </li></ul><ul><li>There are several types of value chains including: </li></ul><ul><ul><li>Business unit value chains </li></ul></ul><ul><ul><li>Industry value chains </li></ul></ul>
  41. 42. Strategic Business Unit Value Chains <ul><li>A strategic business unit is a particular combination of product, distribution channel and customer type (large firms often break down their business into these units) </li></ul><ul><li>The value chain for a strategic business unit include: </li></ul><ul><ul><li>Primary activities (the activities that the strategic business unit undertakes </li></ul></ul><ul><ul><li>Support activities (such as human resource management and purchasing) </li></ul></ul>
  42. 43. Manufacturer Value Chain Finance & admin HR Technology development Support activities Design Identify customers Manufacture product or create service deliver After sales service & support Market & sell Purchase materials and supplies Primary activities
  43. 44. International Issues <ul><li>Trust issues </li></ul><ul><li>Language issues </li></ul><ul><li>Culture issues </li></ul><ul><li>Infrastructure issues </li></ul>
  44. 45. Trust Issues <ul><li>Anyone can create a site on the Web </li></ul><ul><li>These individuals or businesses can easily remain anonymous </li></ul><ul><li>Without an established brand consumers find it difficult to trusts on-line businesses: </li></ul><ul><ul><li>especially with personal information and credit card numbers </li></ul></ul><ul><li>The key is developing methods which allow legitimate businesses to establish trusts relationships quickly with consumers </li></ul>
  45. 46. Language Issues (localisation) <ul><li>Global impact requires local language Web sites </li></ul><ul><ul><li>customers prefer to buy from sites in native language </li></ul></ul><ul><li>60% of web content today is in English; but more than 50% of the current users do not read English </li></ul><ul><li>Multiple translations may be required for different dialects, e.g. Spanish- Mexico and Spain </li></ul><ul><li>Translating entire Web sites is expensive </li></ul><ul><ul><li>25-90 cents per word for human translators (400-600 words per hour) </li></ul></ul><ul><ul><li>Automated software translation (machine translation) is cheaper (400,000 word per hour) - less accurate </li></ul></ul>
  46. 47. Culture Issues <ul><li>Culture is the combination of language and customs </li></ul><ul><li>Culture varies across national boundaries and in many cases regions within nations </li></ul><ul><li>Example: </li></ul><ul><ul><li>General Motors Chevrolet Nova automobile amused people in Latin America since no va means “it will not go” </li></ul></ul>
  47. 48. Culture Issues Cont’d <ul><li>Choice of icons on Web pages becomes problematic on international Web sites: </li></ul><ul><ul><li>In the US a shopping cart is useful, in the UK a shopping basket is more appropriate, Australians call shopping carts, shopping trolleys </li></ul></ul><ul><ul><li>In many places other than Brazil the thumbs up gesture means okay, in Brazil it is an obscene gesture </li></ul></ul>
  48. 49. Infrastructure Issues <ul><li>Limited telecommunication infra-structure may lead to unreliable Internet access </li></ul><ul><li>Internet connection cost might be high </li></ul><ul><ul><li>Reduces time businesses might spend surfing for new suppliers or products </li></ul></ul><ul><ul><li>Flat-rate access to the Internet required </li></ul></ul>
  49. 50. Definitions <ul><li>A commodity item is a product or service that is hard to distinguish from the same products or services provided by other sellers (e.g. gasoline, office suppliers, soap and computers) </li></ul><ul><li>A transaction is an exchange of value, such as a purchase or sale, or the conversion of raw materials into finished products (a transaction has one or more associated activity) </li></ul><ul><li>A business process is the set of logically related and sequential activities and transactions in which businesses engage </li></ul>
  50. 51. Definitions Cont’d <ul><li>Merchandising is a combination of store design, layout and product display knowledge </li></ul><ul><li>A shipping profile is the collection of attributes that affect how easily that product can be packaged and delivered (e.g. airline tickets have a high value-to-weight ratio) </li></ul>
  51. 52. Definitions Cont’d <ul><li>The definition of a market satisfies two conditions: </li></ul><ul><ul><li>Potential seller of a good (product) comes into contact with buyers </li></ul></ul><ul><ul><li>A medium of exchange is available (e.g. currency or barter ( t o exchange goods or services directly without the use of money )) </li></ul></ul>
  52. 53. Definitions Cont’d <ul><li>Transaction costs are the total costs that a buyer and seller incur as they gather information and negotiate a purchase/sale transaction. This includes: </li></ul><ul><ul><li>Brokerage fees and sales commissions </li></ul></ul><ul><ul><li>Cost of information search and acquisition </li></ul></ul><ul><ul><li>Seller’s investment in equipment or hire of skilled employees </li></ul></ul>
  53. 54. Definitions Cont’d <ul><li>Procurement :Dealing with the legal problems that arise from large contracts for the supply of goods or services, especially for businesses or government organisations. </li></ul><ul><li>Hierarchical business organizations are firms that include multiple levels with varying responsibilities starting with a president at the top and moving downward to vice presidents, middle managers, and eventually low-level employees such as clerks. </li></ul>
  54. 55. Definitions Cont’d <ul><li>Vertical Integration :Style of management control </li></ul>