A major revolution in business has occurred due to the convergence of computers and telecommunications enabling the internet. The internet has spawned many business innovations between organizations and individuals. There are various applications of e-commerce including retail stores, auctions, banks, travel, and education. Key concepts behind the internet include packet switching, TCP/IP protocol, domain names, and client-server computing. There are three main business strategies - cost leadership through low-cost production, differentiation by being unique in the industry to charge premium prices, and focus on a niche market segment.

1. CHAPTER THREE
BUILDING BLOCKSOF E-COMMERCE
• A major revolution has taken place during the last five years in the
way business is done.
• This revolution is primarily due to the convergence(union) of
computers and telecommunication technologies and the emergence of
a number of Internet Service Providers (ISPs) who facilitate the
connection of computers to the internet–the world wide network of
computers.
• Internet has spawned (produced) a number of innovations in business
between commercial organizations, between individuals and
commercial organizations, and between individuals and individuals.
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2. Cont’’’
 The telecommunication system may be a public network (as used in internet) or
a secure privatenetwork.
• There are a varietyof e-commerceapplications.
• Some of theseare as listedbelow.
• Retail stores suchas those selling books, music, toys etc.
 Auctionsites using which an individual buyer/seller can buy/sell goods.
 Cooperating businesses connected using their own private telecommunication
network carrying out transactions in a semi-automatedway.
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3. Cont’’’
 Banks connected to their customers providing services such as deposits, payments, and
providing informationon status of an account.
 Railways/airlines/cinema theatres permitting booking of tickets on-line and paying for them
on-line usingcredit cards or electronic cash.
• Electronicpublishing to promote marketing, advertising, sales and customersupport.
• Web-basededucational material which allowstudentsto learn anytime and anywhere.
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4. Cont’’’
Typical applications of e-commerce by businesses are listed
below.
(1) Publishing on-line catalogues (collection) and price lists on their
website.
(2) Placing caring requests on their websites.
(3) Followingsupply chains to minimize delays.
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5. Cont’’’
• E-Commerce has a lot of advantages among which are the following.
(1) Businesses using the world wide web have an international presence
and can operate .24 7/ at low cost.
(2) In several cases, middle men can be eliminated with direct business-
to-business contact.
(3) All transactions are very fast as electronic communication is almost
instantaneous.
(4) Delay in fund transfer is minimal. Slide 3-5

6. Key e-commerce TechnologyConcepts behind the internet
 Different important concepts that are basis for understandingtheInternet:
Packet switching
TCP/IP communicationsprotocol
Domain Names and URLs
Client/servercomputing
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7. Packet Switching
• A method of dividing digital messages into packets, sending the
packets along different communication paths as they become
available, and then reassembling the packets once they arrive at their
destination
• It uses routers: special purpose computers that interconnect the
computer networks that make up the Internet and route packets to
their ultimate destination
• Routers use computer programs called routing algorithms to ensure
packets take the best available path toward their destination
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8. TCP/IP (Transmission Control Protocol/Internet Protocol)
• Protocol: a set of rules for formatting, ordering, compressing and
error-checking messages
• TCP: Establishes the connections among sending and receiving
Web computers, handles the assembly of packets at the point of
transmission, and then reassemblyat the receiving end.
• IP: Provides the Internet’s addressing scheme
• TCP/IP is divided into 4 separate layers:
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9. Cont’’’
• Network Interface Layer
• Internet Layer
• Transport Layer
• Application Layer
Slide 3-9

10. Cont’’’
Slide 3-10

11. Client/Server Computing
• Model of computing in which very powerful personal computers (clients) are connected in a
network with one or more server computers that perform common functions for the clients,
such as
• storing files,
• software applications, etc.
Slide 3-11

12. The Internet Backbone
• Consists of high-bandwidth fiber-optic cable owned by a variety of Network
Service Providers (NSPs)
• Term bandwidth refers to how much data can be transferred over the
communications media within a fixed period of time.
• May be expressed bits per second (bps), kilobits per second (Kbps), megabits
per second (Mbps) or gigabitsper second(Gbps)
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13. INTRANETS AND EXTRANETS
• Intranet: TCP/IP network located within a single organization
for purposes of communication and information processing
• Extranet: Formed when firms permit outsiders to access their
internal TCP/IP networks
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14. Who Governs the Internet?
• A number of different organizations that influence Internet and
monitor its operations including:
Internet Architecture Board (IAB)
Internet Corporation for Assigned Names and Numbers
(ICANN)
Internet Engineering Steering Group (IESG)
Internet Engineering Task Force (IETF)
Internet Society (ISOC)
World Wide Web Consortium (W3C)
Slide 3-14

15. Business Strategy
 Business Strategy is a plan for achieving superior long-term returns on the capital invested
in a businessfirm.
• A strategyof a business can be reducedto one of threegeneric strategies.
• The generic strategiesare: -
 Cost: -Cost Leadership is a strategy where "a firm set out to become the low-cost producer in
its industry."
A firm with this strategy sets as a goal to produce or provide a service for a lower operating cost
than the competitors.
Slide 3-15

16. Cont….
• This enables the firm to sell goods or services at the same
selling price as the competitors and make a larger profit.
• Also, the firm could lower the selling price to under bid the
competitors and still make a profit.
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17. Cont’’’
Differentiation: -The second generic business strategy is
differentiation: being different than every other firm.
• Grant states this is an "emphasis on branding advertising, design,
service, quality, and new product development."
• The firm adopting this strategy seeks to be unique in the industry.
This uniqueness must be a feature for which customers will pay a
premium price.
Slide 3-17

18. Cont’’’
 Differentiation can lead to profitability.
• As Porter states, differentiation creates a perception of exclusivity which is incompatible
witha highmarket share.
• Thus, a firm with a differentiation strategy can focus on customer loyalty instead of
attempting to createa large market share.
• It can be as simple as the best customer service in the industry.
• Differentiation can also be speedin filling orders.
• The point of differentiation only has to be something that customers will be willing to pay
a larger selling price than that of the cost leader.
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19. Cont’’’
Focus: -The focus strategy ignores most of a product or service
market and focuses upon a particular niche (place).
• The niche could be "a particular buyer group, segment of the
product line, or geographic market."
• For example, in the automobile industry there are companies that
specialize in selling vehicles for disabled people.
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20. Cont..
• These firms do not compete with the dealerships (agreements)
because these firms have a special vehicle the dealerships do
not carry in inventory.
• The focus is to serve a very special groupof customers.
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21. Cont’’’
• As with the differentiation strategy, this also implies market
share will be limited.
• Porter states, "Focus necessarily involves a trade-off between
profitability and sales volume."
• However, if a firm adopts the focus strategy, the firm must ensure
the market segment that is being served is absolutely different
than the main market.
• If the segment is not different, then the focus strategy will not
succeed.
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