Chapter 5

Electronic Commerce

Electronic Commerce & Electronic Business

Electronic Commerce (EC): Commercial transactions between buyers and sellers carried out using Internet

E-Business: Buying, selling, servicing, collaborating with business partners, conducting electronic transactions within an organization, business communication

Benefits of EC

Reach: EC allows vendors to reach a large number of customers, anywhere around the globe, at a very low operating cost

Cost effective procurement: Companies can procure materials and services from other companies rapidly and less expensively

Disintermediation: Marketing distribution channels can be drastically cut or eliminated

Personalized marketing: Customer services and relationships are facilitated by interactive, one-to-one communication, at a low cost

Benefits of EC, cont’d.

Economic value for customers: EC often provides customers with less expensive products and services by allowing them to shop in many places

Expanding choice set: EC provides customers with more choices

24/7 Availability: EC enables customers to shop 24 hours a day, year round, from almost any location

Easy information access: Customers can receive relevant and detailed information and other services in seconds

Customized products: EC enables consumers to get customized products and services

Benefits of EC to Society

Facilitator: EC is a major facilitator of the digital economy

Telecommuting: EC enables more individuals to work at home, resulting in less traffic and lower air pollution

Effective price discrimination: EC allows some goods to be sold at lower prices, so less affluent people can buy them, increasing their standard of living

World wide reach: EC enables people in developing countries and rural areas to enjoy products and services previously unavailable

Public services: EC facilitates a superior delivery of public services

Limitations of EC

Technical Limitations Lack of universally

accepted standards Insufficient

bandwidth Still-evolving

software development tools

Difficulties in integrating the Internet and EC software

Non-Technical Limitations Legal issues National and

international government regulations

Difficulty of measuring EC benefits

Lack of a critical mass

Models of EC

BusinessBusiness

ConsumerConsumer

BusinessBusiness ConsumerConsumer

B2BCommerceone.com

B2CAmazon.com

C2BPriceline.com

C2CeBay.com

Models of EC

Business-to-Business (B2B) Business-to-Consumers (B2C) Consumer-to-Organizations (C2O) Consumer-to-Consumer (C2C) Government-to-Citizens (G2C) Mobile Commerce (m-commerce)

B2C e-Commerce

Business-to-consumer EC can be done in two major ways:

Companies sell direct to the customer. Such direct marketing has the advantage of

personalization and customization. Companies use an intermediary.

There are two types of online infomediaries: Pure online e-tailers “Click-and-mortar" retailers

Internet Advertising

Ads can be updated any time with a minimal cost Ads can reach large numbers of buyers all over

the world Online ads are frequently cheaper in comparison

with television, radio, newspaper, or billboard ads Web ads can efficiently use text, audio, graphics,

and animation The audience for Internet advertising is growing

rapidly Web ads can be catered to a specific target

Internet Advertising, cont’d.

Banner advertisement is the most commonly used form of advertising on the Internet

Two types of banners: Keyword banners & Random banners

A major advantage of using banners is the ability to customize, but banner advertising can be costly

URL Advertising: Any company can submit its URL to a search engine and be listed

Internet Advertising, cont’d.

Email Advertising: Email is a cost-effective marketing channel with a better and quicker response rate than other channels Problem of Spamming

Online Events and Promotions Other Forms of Internet Advertisement:

Internet communities, chat rooms, newsgroups, and kiosks

Internet Advertisement Issues

Customizing Ads Segmentation Webcasting Permission Marketing Viral Marketing Spam

Measuring the Effectiveness of e-Advertising

Ad view: the number of times users see a banner ad during a specific time period

If a customer clicks on a banner and moves to the advertiser’s Web home page

If a customer clicks on a banner, moves to the advertiser’s site, and while there seeks product leads or fills out questionnaires

The actual purchases made on the Web Affiliate Programs

Disintermediation

Disintermediation: refers to the elimination of intermediary organizations. Sales takes place directly with customers, rather than via intermediaries.

Disintermediation & Reintermediation

Disintermediation Using the Internet

manufacturers can sell directly to customers and provide customer support online

In this sense, the traditional intermediaries may be eliminated

Reintermediation The emergence of a

new breed of electronic intermediaries

These include: emails directory and

search-engine services

market makers comparison-

shopping agents

Internet Consumers

There are two types of Internet consumers: Individuals Organizations

Initially the vast majority of Internet users were 15-35 year-olds Now female/male ratio is about equal Younger and older surfers are now

abundant

Organizational Buyers

The number of organizational buyers on the Internet is much smaller than individual buyers

However, their transaction volumes are far larger and the terms of negotiations/purchase are more complex

Facilitating Customer Service

Several tools are available for facilitating online customer service.

The major tools, with their functionalities, are: Personalized Web pages Chat rooms FAQs Tracking capabilities Web-based call centers

Cyberbanking

Cyberbanking (electronic banking): The Security First Network Bank (SFNB) was

the first virtual bank International and Multiple-Currency

Banking Bill-Paying Online

Automatic payment of mortgages Paying bills from online banking account, etc.

Personal Finance Bill paying and electronic check writing Tracking bank accounts, expenditures, and

credit cards Budget management and organization, etc.

Online Stock Trading

In 2001, about 30 million people in the US alone were using computers to trade stocks, bonds, and other financial instruments

Investment information available online includes: Stock screening/evaluation Financial news Free advice from investment gurus

Other EC Services

Job Market Online Participants include:

Job seekers Employers Recruitment firms Newsgroups

Travel and Tourism Real Estate Non-Internet Applications

Smart cards

B2B Models

Sell-side model

One company sells to many electronically

(one-to-many)

Buy-side model

An organization (usually large) buys from many vendors

(many-to-one)

Exchanges

Marketplaces in which many buyers and sellers meet.

(many-to-many)

B2B Model Types

Sell-Side Model

Sell-side marketplace

Forward auctions

Buy-side modelReverse auctions

Buyer’s Internal Marketplace

Group Purchasing

Exchanges

Vertical Distributors Vertical Exchanges

Horizontal DistributorsFunctional Exchanges

Forward and Reverse Auctions

Forward Auction: items are placed for sale and the bidders increase their bids sequentially until no one else raises the bid. Traditional auction.

Reverse Auction: bidders decrease their bids sequentially until no one else lowers the bid. Used by the government (T-bills) and companies to acquire suppliers.

B2B Auctions

Corporations use auctions mainly as a B2B tool, but an increasing number use them also as a direct marketing channel

The Major Benefits of such auctions are: Generating revenue: As a new sales channel,

auctions support existing online sales Increasing page views: Auctions give sites

“stickiness” Acquiring and retaining members: All bidding

transactions result in additional registered members, which increases the value of companies

Types of B2B Auctions

Independent Auctions Companies use a 3rd-party auctioneer to create the

site and to sell the goods Commodity Auctions

Many buyers and sellers come together to a third-party Web site to buy and sell commodities

Private Auctions Several companies bypass the intermediaries and

auction their products by themselves directly to buyers

Auctions at the Company Web Site Companies build an auction capability on their own

Web site

B2C and C2C Auctions

Specialized auction sites eBay

Auctioning cars Art auctions Airlines

C2C EC Activities

Classifieds classifieds2000.com

Personal services These range from tutoring and

astrology to the “oldest profession on earth”

Peer-to-peer (P2P) and bartering Electronic bartering = the exchange of

goods and/or services without a monetary transaction

C2C Models

Commercial Transaction Posted price commercial transaction (Ebay) Auction price commercial transaction

(Half.com) Transaction Facilitators

C2C Payment Gateways (Paypal), Escrow services

P2P Exchanges: Information products- Kaaza

Information exchanges: Virtual communities (DVDTALK), Reputation

feedback mechanisms(epinions, reseller rating)

Other EC Activities

Intrabusiness and Business to Employees (B2E) Buying, selling and collaborative EC can be

conducted within the company, usually using the Intranet and corporate portal

E-government (FedForms) Government-to-citizens (G2C)

Electronic benefits transfer (EBT) - governments transfer Social Security, pensions, and other benefits directly to recipients’ bank accounts or smart cards.

Government-to-business (G2B) Government-to-government (G2G)

EC Failures

The major wave of EC failures started in 2000, as secondary funding that was needed by Internet-based EC began to dry up

Here are some examples: PointCast, a pioneer in the personalized Web-

casting, folded in 1998 due to an incorrect business model

An Internet mall, operated by Open Market, was closed in 1996 due to an insufficient number of buyers

E-toys, a virtual toy retailer that impacted the entire toy industry folded in 2001 due to inability to generate profit

U.K. Advertising company Advertexpress.com failed due to lack of second-round funding

Electronic Payment Systems

Security Requirements Authentication, Privacy, Integrity, Non-

repudiation, Safety Single-Key (Symmetric) Encryption Public-Key Infrastructure

Public and Private Keys Digital Signatures Electronic Certificates

Protocols Secure Socket Layer (SSL) Secure Electronic Transaction Protocol (SET)

Electronic Payment Systems, cont’d.

Electronic Credit Cards Electronic Checks (e-Checks) Purchasing Cards Electronic Payment From Cellular Phones Electronic funds transfer (EFT) Electronic cash (e-cash) E-Cash for Micropayments

Stored-Value Cards Enhanced Smart Cards Person-to-Person (P2P) Payment Electronic Wallets

Fraud on the Internet

Internet Stock Fraud Fraud in Electronic Auctions Other Financial Fraud

Selling bogus investments Federal Trade Commission

Provides a list of 12 scams most likely to arrive on the net

Bulk mail solicitors, chain letters, Work-at-home schemes

Buyer Protection is critical to the success of any commerce, and especially EC, where buyers do not see the sellers

Seller Protection safeguards vendors against consumers who refuse to pay or who pay with bad checks

EC-related Legal Issues

Domain Name Problems arise when several companies compete

over a domain name. (Cyber squatting) Cyber Squatting: The term derives from

'squatting' and refers to the act of reserving a particular Internet domain name for the purpose of selling it at a higher price later or taking advantage by misdirecting visitors

Taxes and Other Fees Federal, state, and local authorities are scrambling

to figure out how to get a piece of the revenue created electronically

Copyright Protecting software and other intangible creations is

difficult over the Web

Ethical Issues

Customer: Privacy and Web tracking Privacy issues are related to both

customers and employees Employees: The human element.

The implementation of EC may lead to personnel dissatisfaction and loss of salespeople’s income

Organizations: Disintermediation. Industry: Piracy