1. Understanding E-Commerce

Amity School of Business

Jitendra Singh Tomar

09650512300
jitendratomar@hotmail.com
jitendratomar@rediffmail.com

Orator


• Part 1:

UndErsTanDinG E-Commerce


• Introduction to E-Commerce


• What is E-commerce?
• It is technology mediated exchange between parties
(individuals or organizations) as well as the electronically
based intra or inter organizational activities that facilitate
such exchanges.
• Commonly known as e-shopping, consist of buying, selling
or exchanging of products, services or information over
electronic systems such as the Internet and other
computer networks.
• The use of commerce conducted in this way, draw
innovations in
• EFT,
• SCM,
• Internet Marketing,
• Online Transaction Processing,
• EDI, and the like. Lets Understand


• Modern electronic commerce typically uses the World
Wide Web at least at some point in the transaction's
lifecycle, although it can encompass a wider range of
technologies such as e-mail as well.
• Mainly it is conducted with the access to premium content
on some website.
• It is the use of Internet and the web to transact business.
• Digitally enabled commercial transaction between and
among organization and individuals.

Lets Understand


• Dimensions and perspectives:
• The concept of e-commerce is spanned across various
dimensions. Different school of thought gave different
definitions with different perspectives. Some defined it
from business perspective and some defined with service
perspective. E-Commerce can be defined from various
perspectives as:
• Communications perspective
• Exchange of information over computer networks,
telephone lines or any other electronic means.
• Business perspective
• Application of technology toward the automation of
business transactions.

Lets Understand


• Service perspective
• Tool that address the desire of the firms, consumers
and management to cut service costs while improving
the quality of goods and increasing speed of service
delivery.
• Commercial (trading) perspective
• Capability of buying and selling products, services and
information on the internet and via other online
services.
• Learning perspective
• Enabler of online training and education in schools,
universities and other organizations

Lets Understand


• Collaborative perspective
• Framework of inter and intra organizational
collaboration.
• Community perspective
• Provides gathering place for community members to
learn and transact.

Lets Understand


• Difference between e-com and e-biz.
• E-biz is digital enablement of transaction and process with
in a firm or organization.
• E-biz involves information system under the control of the
firm.
• E-biz does not involve commercial transaction across
organization boundaries.
• E-biz is some times taken as a subset of e-com.

Lets Understand


• E-commerce is the use of electronic communications and
digital information processing technology in business
transactions to create, transform, and redefine
relationships for value creation between or among
organizations, and between organizations and individuals.
• In e-business, on the other hand, ICT is used to enhance
one’s business. It includes any process that a business
organization (either a for-profit, governmental or non-
profit entity) conducts over a computer-assisted network.
E-Business could be seen as: “The transformation of an
organization’s processes to deliver additional value
through the application of technologies, philosophies and
computing paradigm of the new economy.”

Lets Understand


• History


• In 1970, Baxter Healthcare started with the telephone based
business.
• 1980, French Minitel installed video system having phone & 8”
monitor to start with the video conferencing with other
houses.
• Internet base e-commerce started in 1990
• October ‘94, Volvo was one of the companies which
place advertisement on Hotwired.com.
• In 1995, first sale of banner advertisement space was
made by Netscape
• Till then,
• B2C accounts for $700 billion/year. (This is 15%-20% of total
business carried out).
• B2B accounts for $ 7 trillion/year.
E-Com History


• Phases of E-Commerce


• E-Com I (1992 – 2000)
• This period was total disaster as it has seen the failure of
dot com companies and hence failure of e-commerce.
• Main emphasis was on implementation of technology,
focus was taken away from other aspects of business
• E-com II (2001 onwards)

Time & Periods


Difference in Period I & Period II
E-Com I E-Com II
Technology Driven Business Driven
Revenue Growth emphasis Earnings & profit emphasis
Venture capital financing Traditional financing
Entrepreneurial Large traditional firms
Dis-Intermediation Strengthening intermediaries
Pure online strategies Mixed ‘Clicks & Bricks’ strategy
First mover advantage Strategic follower strength

• The failure of E-com I lead to the following themes;
• Infrastructure – Technology mix.
• Business – stick to basic concept
• Society – taming the unprivileged to remove inequality
Time & Periods


• Types of E-commerce


• B2C
• Amazon.com is general merchandiser that sells consumer
products to retail consumers.
• B2B
• Esteel.com is a steel industry exchange that creates an e-
market for steel producers and users.
• B2G
• C2C
• eBay.com, the portal where consumer can auction or sell
goods directly to other consumer.
• They are like market maker.
• P2P
• Gnutella S/W permits consumers to share music with one
another directly, without the intervention of market maker.
E-com Categories


• Driving force behind E-Commerce


• Digital Convergence
• The digital revolution has made it possible for digital
devices to communicate with one another. The internet’s
massive growth during the past decade-a creation of
market forces-will continue. Steady increase in computer
power and decreasing cost made navigation on the
internet a reality.
• Anytime, anywhere, anyone
• It is available to anyone, anywhere in the world (24x7). E-
commerce ties together the industrial sector, merchants,
the service sector, and content providers using text,
multimedia, video, and other technologies.

Drivers


• Changes in organizations
• Downsizing large organizations, outsourcing specialized
tasks, shortening product life cycles, and encouraging
cross-functional business process, all require better
communication between the departments that perform
these functions. E-commerce, which makes
communication easy, is an ideal method of making these
connections.
• Increasing pressure on operating costs and profit margins
• Global competition and the proliferation of products and
services worldwide have added unusual pressure on
operating costs and profit margins. E-commerce
addresses these concerns quickly, efficiently, and with
lower cost.

Drivers


• Demand for customized products and services
• Demand for higher quality and better performance,
including a customized way of producing, delivering, and
paying for goods and services. Mass customization puts
pressure on firms to handle customized requests on a mass
market scale. Firms that don’t move with the trend will
eventually lose out.

Drivers


• Associated Myths


The following myths that need to be addressed:
• Setting up a website is easy
• True, except it is not easy to ensure performance. There
are technology, networking infrastructure, and design
criteria to consider.
• E-commerce means no more mass marketing
• The web is the first commercial channel that enables cost-
effective, one-to-one marketing on a large scale, but a
business must still market its Web presence.
• E-Commerce means a new economy
• There is no “new” economy, but there is something new in
the real economy.

Myths


• E-commerce is revolutionary
• In as much as internet technology created a new way to
shop, most rules of retailing still apply. Merchandise is
obtained from vendors, warehoused, and shipped to
customers. Unfortunately, many internet retailers spend a
disproportionate amount on the revolutionary tasks of
Web site construction & marketing and too little on
customer support and fulfillment.
• E-commerce is a commercial fad that crashed in 2000
• No question, the dot-com companies frenzy crashed in
2000, but the internet continues to reshape businesses and
the information systems that run them. It is an infrastructure
for a new way of doing business.

Myths


• Identical business models are applicable to all products
• Internet sales should still follow different business models
depending on the product as different products have
different characteristics.
• Build it and they will come
• Web sites have to be promoted just like any other
business, customers bought with price promotions and
give away are rarely loyal customers. The moment a
competitor lowers the price, customers click over to that
site.
• The middleman is out
• Despite the direct interface between consumers and
merchants, few intermediaries continue to surface on the
web delivering products to the retailer from Myths the
manufacturer.


• Everyone is doing it
• The general concept is that Web presence is an E-
commerce. Having a website could not be rated as E-
commerce operation.
• Many organizations having websites still don’t see any
compelling business reason to shift over to E-Commerce.

Myths


• Features of E-Commerce


• Ubiquity
• Available just about every where (Universal) & all the times
(24x7).
• Liberates market from physical space – shop from the
office, home.
• Created a market space, instead a market place.
Advantage:
• Reduce cognitive energy (mental effort to complete a
task) and transaction cost (resources required to make the
transaction including commuting cost, time, etc)

Features of E-commerce


• Global Reach
• Permits transaction that are cross culture and over
national boundaries.
• Potential market size is equivalent to world’s online
population. At any point of time, the total population of
virtual customers is higher that the physical customer.
• Universal Standards
• The basic skeleton is Internet Technology – standards that
are shared by all nations around the world. (except
political and legal). In traditional business format,
standards differs from region to region.
• Reduced market entry cost and search & promotion cost.



• Richness & Information density
• The information available online is rich in content.
• The total amount and good quality information is
available to all market participants, customers and
merchants.
• The information is multimedia in nature, comprising of text,
pictures, audio & Video.
• Reduce information collection, storage and processing,
further reducing the communication cost.
• Increase accuracy and timelines of information.
• Interactivity
• The two way communication could easily be established.
Also, the space could be shared among different
customers to exchange the feedback about a product or
a service. Features of E-commerce


• Personalization and Customization
• Specific messages could be targeted to specific
individuals.
• Changing the delivered services based on user’s
preference.



• E-Commerce Advantages


• The 2000 burst of the e-bubble certainly tarnished once
glamorous dot-com economy. Today’s journalists and many
investors cringe at the thought of more e-inspired goods and
services. Yet the pros in large companies like Wal-Mart and
Ford see opportunity and hope in a better tomorrow for e-
commerce.
• In 2004 when Google.com went public, the initial offer of $85
per share surged to over $200 in less than three months.
• Three in five customers make online purchases on a regular
basis which is double the numbers of four year back.
Comparison of prices, booking tickets, downloading books
and music, home grocery deliveries and the likes are the most
common online transactions performed by the customer in
today’s date.

Advantages


E-Commerce provide several advantages:
• Lower cost to the E-Merchant.
• E-Presence on the internet is cost effective. It reduces
logistical problems and give small business equal visibility
with giant business houses.
• Economy
• Unlike the mortar environment, there is no rental of
physical store space, insurance, or infrastructure
investment. What's needed is an idea, a unique product,
and a well designed Web storefront to reach your cyber-
customers, and a partner to make the delivery.

Advantages


• Higher Margins
• Lower investment and operational costs means higher
margins. Also business can gain more control and flexibility
and save time when manual transactions are converted
into electronic transactions.
• Better Service Control
• Instead of customers calling a company on the phone,
holding for 10 minutes, then connecting to a clerk to tap
into customer’s account, they are benefited with direct
access to their accounts over the Web.
• Quick Comparison Shopping
• It helps the customers to comparison shop. Automated
online shopping assistants called hop-bots scour Net stores
and find deals on anything. Advantages


• Productivity Gains
• Weaving the Web throughout an organization means
improved productivity. Interconnectivity in such a manner
would give rise to effective ERP and agile organization.
• Teamwork
• E-commerce means working together. E-mail is one such
example. It has changed the mannerism of how people
collaborate to exchange information and world on
solutions. It has transformed the way organizations interact
with suppliers, vendors, business partners, and customers.
More interactive and collaborative-rich the Web site is,
the higher the payoff.

Advantages


• Information Sharing, Convenience, and Control
• E-Com improves information sharing between merchants
and customers and promote quick, just-in-time deliveries.
Customer and merchants save money because of 24x7
availability, no traffic jams, no crowds and no carrying of
heavy shopping bags.
• Growth in Knowledge Market
• It has helped created knowledge market. Information,
views, ideas and experiences are shared by different
users.
• Customization
• Digital Catalogs are highly customizable. They are easy to
recognize, revise, or edit as per the consumer’s taste,
preference and individual needs. Advantages


Few More Advantages:
• 24 x 7 x 365:
• E-Com systems can operate all day every day. The physical
storefront does not need to be open in order for customers and
suppliers to do business with the organization.
• Launching of New Products and Sales Promotion:
• It is easier to launch a new product through the Internet.
Complete information about the product can be provided over
the Internet. Emails about the launch of the new product can be
sent to the dealers and customers.
• Lower cost of staff :
• There is paperless exchange of information. This saves resources
like time, money and energy in receiving orders compared to
executing the same under the traditional mode of Commerce.
Less Human-clerical involvement result in reduction of labor cost
of the business.
Advantages


• Speedy Payments:
• Payments between business firms and customer can be made
online without any loss of time. In E-Commerce, EFT has given a
great boost to Trade & Commerce and has eliminated the
complexity of cheque payment and issues with PoD.
• Flexibility:
• The convenience of posting the information with ease gives
flexibility to the business houses to mend and update the
catalogs as and when required.
• Wider Reach:
• E-Commerce has given rise to the concept of Market Space. The
business houses potential customer base is the online population
logged in to the web at that point of time.

Advantages


• Direct contact with customers:
• E-Commerce helps the business firms to establish direct contact
with the customers through the internet. It allows the firm to focus
on specific types of customers and their needs. The electronic
data collected on electronic medium could lead to faster
researches which could help the business houses for better
planning.
• Better Customer Service:
• E-commerce allows quick response to the queries of customers
about price, product features, quality and the like. It also
increases customer satisfaction through quick order booking,
delivery of goods and redress of customer complains, if any. The
customer need not physically visit the business store for the same.

Advantages


• Limitations and Constraints


Constrains in E-Commerce:
• The Cost Factor
• The sudden & high upfront cost is required for setting up
the infrastructure. For developing a sophisticated
interactive Web site, network servers, terminals, software,
staffing and training is require. Transaction costs is another
aspect. Presence of mediators and certification authorities
add to transaction cost.
• Security
• With spamming, spying, file corruption and malicious
misuse, no company can afford to do online business
without proper protection. The goal of a company is to
assure customers secure lines and secure sites that will
protect their privacy and the transactions.

Constraints


• System and Data Integrity
• Delegation to the users to see what is meant for them is
much crucial but checks and rules are to be applied so
that data remains in the database as per its fixed
structures. Unnecessary delays giving rise to Denial of
Service should be avoided. File backups and storage
checkup are the regular requirement of E-com system.
• System Scalability
• Web site performance is bound to experience
degradation, slowdown and eventually loss of customers.
To do away with this problem, a Web site must be
scalable or upgradable on a regular basis.

Constraints


• E-Commerce is not free
• Brand loyalty is related to this issue. Brands are expected
to lower search costs, build trust, and communicate
quality. Users remain suspicious of search engines for
locating product information; instead, they rely on
recognized dot-com brands for purchases.
• Fulfillment and Customer Relations Problems
• Shipping delays, merchandise mix-ups, and Web site
crashing under pressure continue to be problems in e-
tailing. Customers suspect the ability of E-commerce to
deliver during heavy shopping seasons. Even happy
customers say the experience could be improved and
hence CRM is taking on high priority.

Constraints


• Products People Resist Buying Online
• Companies have to focus on specific business models that
process standardized items with strong brand identity and
require no inspection or comparative analysis. In today’s
date , the trend is to look more for value than price and
hence the online product catalogs are to be chosen
wisely.
• Cultural, Language and Trust Issues
• In addition to these generic problems and drawbacks,
there are global issues as well. When E-commerce and the
Internet went global, there was an obvious pressure to
adapt e-marketing, e-products, and interfaces to cultural
expectations and constraints.

Constraints


• Corporate Vulnerability
• The availability of product details, catalogs, and other
information about a business through its Web site makes it
vulnerable to access by the competition. The idea of
extracting business intelligence from the competition’s
web pages is called WEB FARMING.
• Lack of Blueprint for Handling E-Commerce
• There is a constant shortage of e-literate people at the
workplace. Also companies have tough time attracting
customers to operate on their online facilities.

Constraints


Constrains in E-Commerce (Few More):
• Social inequality is one of the major hazard for efficient
practice of e-commerce.
• Home penetration of PC.
• Sophisticated skill set required.
• Persistent culture attraction of physical markets.
• Omission of social shopping experience. (socializing
degrades).
• Persistent Global inequality – The nature of products, markets,
customer and service provider are of different profiles through
out the Globe.

Constraints


• E-Com Issues


• E-Commerce systems are based on Internet Technologies,
which provide open and easy communications on a global
basis. However, since Internet is unregulated, unmanaged
and uncontrolled, it introduces a wide range of risks and
threats to the systems operating on it. The following are the
security issues related to e-com:
• Integrity:
• Ability to ensure that information being displayed on a
web site or transmitted/received over the internet has
not been altered in any way by an unauthorized party.
• Customer perspective – has information I transmitted
or received been altered?
• Merchant’s perspective – has data on the site been
altered without authorization? Is the data being
received from customer valid?

Issues


• Non-repudiation:
• The ability to ensure that e-com participant do not
deny their online actions
• Customer – can a party in an action with me later
deny taking that action?
• Merchant – can a customer deny ordered products?
• Authenticity:
• The ability to identify the identity of a person or entity
with whom one is dealing.
• Customer – who am I dealing with? How do I be
assured that the person or entity is who they claim to
be?
• Merchant – what is the real identity of the customer?

Issues


• Confidentiality:
• The ability to ensure that message and data are
available to only those who are authorized to view it.
• Customer – can someone other that the intended
recipient read my message?
• Merchant – are message or confidential data
accessible to anyone other than those authorized to
view it?
• Privacy:
• The ability to control the use of information about
oneself.
• Customer – can I see that only information relevant to
context is provided?
• Merchant – is the personal information of customers
used in some unwilling & unauthorized manner?

Issues


• Availability:
• The ability to ensure that an e-com site continues to
function as intended.
• Customer – can I get access to the site as per my
convenience?
• Merchant – is the site operational or it is creating the
case of DoS?

Issues


• E-Commerce Strategies


• Value proposition
• Why should the customer buy from you?
• What is unique about you that other don’t have?
• Market opportunity
• Refers to the company’s intended market space and the
overall potential financial opportunities available to the
firm in that market space.
• Competitive environment
• Refers to the other companies operating in the same
market space selling similar products.
• Competitive advantage
• Achieved by firm when it can offer a superior
product/service at a lower price than its competitors.
Strategies


• Market strategy
• It’s a plan, the organization put together that details
exactly how it intend to enter a new market and attract
new customers.
• Organization development plan
• Describes how the company will organize the work that
needs to be accomplished.
• Management Team
• Right people, at right place with right decision making
capabilities. Should be responsible for making the business
model work.
• Revenue Model
• How the firm will generate the revenue, produce profits
and superior return on invested capital.
Strategies


• E-Commerce Business Models


Floating Web sites is not free. It involves money to develop and
maintain. The potential revenue constitute a revenue model. It is
a way of doing business to sustain a business – generate
revenue.
There are different business models in e-commerce. Each model
has its own unique features and offerings.
•Storefront Model
• This is a true e-commerce site that offers products or
goods for a price. The business provides a Web site with
product information, a shopping cart, and an online
ordering mechanism. The product price is usually fixed.
The merchant makes money the same way as traditional
brick and mortar shops through the profit margin in the
product price.
• The merchant reaches customers directly and sells without
retailers or intermediaries. Business Models


• Click and Mortar Model
• This is a true e-commerce site that offers products or
goods for a price. The business provides a Web site with
product information, a shopping cart, and an online
ordering mechanism. The product price is usually fixed.
The merchant makes money the same way as traditional
brick and mortar shops through the profit margin in the
product price.
• Built to Order Merchant Model
• A manufacturer such as a computer vendor can use this
model by offering goods or services and the ability to
order customized versions. The customized product is then
assembled individually and shipped to the customer.
• This provides added value to consumers and allows the
manufacturer to create only those products that will be
sold. Business Models


• Subscription base Access Model
• Many service operators provide subscription based access
to their service. A visitor pays a fixed fee per unit time in
return for unlimited access to the service.
• Broker Model
• Brokers are market makers. As intermediaries, they bring
buyers and sellers together and facilitate transactions
between them. A broker makes money by charging a fee
for every facilitated transaction or a percentage of the
price of the transactions.
• Advertiser Model
• A Site offers free access to something and shows
advertisements of the accessed page. The advertiser pays
the site operator for showing the advertisement (eyeballs).
Business Models


• Portal Site Model
• A portal offers one-stop access to specific content and
services like new, stock information, message boards, or
chat. Allowing the visitor to personalize the interface and
content makes it easier for visitor to identify with the
portal.
• Virtual Mall Model
• A virtual mall is a hosted site for many merchants, service
providers, brokers, and other business. The virtual mal
operator charges a fee for setting up and maintaining the
merchant’s booth and for including the merchant in the
site wide catalog.
• The operator charges a fee for every transaction the
merchant performs.

Business Models


• Virtual Community Portal
• Also known as vanity site, a virtual community is a Web site
that attracts a group of users with a common interest who
work together on the site.
• Pre-paid Access Model
• This Model services like telephony offer payment by the
unit-time and are handled via a subscription, where users
pay a certain amount for access to the service for a
certain time period. It is similar to paying for a prepaid
telephone card, which can be renewed for the same
charge. The available credit on the smart card is reduced
during usage of the service. Prepaid schemes give users
greater control over how much to spend on the service.

Business Models


• Info-mediary Model
• The info-mediary collects, evaluates and sells information
on consumers and their buying behavior to other parties
who want to reach those consumers.

Business Models


• Terminology


• Portal
• Offers an integrated package of services and content
such as search, news, chat, e-mail, calendars
• Eg:- yahoo.com
• Generate revenues form ads and subscription.
• E-Tailer
• Online version of a retail store, where customer can shop
at any hour, day or night without leaving office or home.
• Eg:- Amazon.com
• Generate revenues from sales of goods.

Terminology


• Content Provider
• Information and entertainment providers such as
newspapers, sports sites and other online sources that
offers customers up to date news, special interest, tips,
sales information and the like.
• Eg;- cnn.com
• Advertising, subscription, affiliate are the major methods
of getting the revenue.
• Transaction Broker
• Processors of online sales transaction such as stock
brokers, travel agents, etc, that help the customers to get
things done quickly and efficiently.
• E-Trade.com
• Revenue through Transaction Fees
Terminology


• Market Creator
• Web based business that create market to bring buyers
and sellers together as in case of auction
• E-Bay.com, priceline.com
• Revenue generated through transaction fees.
• Community provider
• Sites where individual with particular interest, hobbies and
experiences can come together
• About.com, Facebook.com
• Revenue yield through advertising, subscription, affiliate
revenue model.

Terminology


• Value Chain in E-Commerce


Understanding Value Chain
•It is a way of organizing the activities of a business so that each
activity adds value or productivity to the total operation of the
business.
•It is a strategic tool for identifying how the critical components
of a business tie together to deliver value for the business across
the value-chain process.
•Organizations are a chain of value creating activities that assure
competitive advantages by the way they deliver value to the
customer. A communication process that extends from a firm
backward to suppliers and forward to customers ties all sorts of
activities together – therefore, the value chain.

Value Chain


Value Chain Activities:
•Primary activities – involved in the physical creation of a product
or service and its sale, transfer to buyer and after sale assistance.
These may include:
• Inbound logistics.
• Operations.
• Outbound logistics.
• Marketing and sales.
• Service.
•Support activities – support primary activities and each other.
• Corporate infrastructure.
• Human resources.
• Technology development.

Value Chain


Value Chain Activities - Analysis:
There are several questions to consider when analyzing value
chain activities
•What is the nature of activity? Does it add value and ensure
quality of other activities?
•How does the activity add value to the customer?
•Could the activity be reconfigured in some other manner?
•What inputs are used? Is the expected output obtained?
•Is the activity vital? Could it be outsourced, deleted completely
or combined with other activity?
•How does information flow in and out of the activity?
•Is the activity a source of competitive advantage?
•Does the activity fit the overall goals of the organization?

Value Chain


Where does E-Commerce fit in?
E-Commerce can play a key role in;
•Reducing costs,
•Improving product quality and integrity,
•Promoting a loyal customer base, and
•Creating a quick & efficient way of selling products & services.
The trend in E-Commerce is to integrate the entire transaction
life cycle, from the time the consumer purchases the product on
the Web site to the time the product is actually received. This life
cycle centers around three major e-commerce applications:
•Business to Consumer – done on the internet,
•Business to Business – done on the internet and extranets,
•Business within business – done on intranet.

Value Chain


• E-Commerce: The Managerial Perspective


When it comes to implementation of E-Commerce, what makes
most towards the success of E-Commerce is Managerial
acceptance and understanding of it. The management should
be able to:
•Innate ability to handle the speed of change.
•Focus on building a productive organizational culture.
•Manage change and results.
•Build intellectual capital.
•Manage organizational learning.
•Push for growth and innovation.
•Understand that real asset is information and not money.
•Motivate employees in improving their skill sets and add value.
•Gather & analyze data collected through 360 consumer views.
•Assign appropriate business model.

Managerial Perspective

1. Understanding E-Commerce

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