Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-1 Introduction to Information Technology 2

Introduction to Information Technology, 2nd EditionTurban, Rainer & Potter© 2003 John Wiley & Sons, Inc.

9-1

Introduction to Information Technology

2nd EditionTurban, Rainer & Potter

© 2003 John Wiley & Sons, Inc.

Chapter 9:Electronic Commerce

Prepared by:Roberta M. Roth, Ph.D.

University of Northern Iowa


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Chapter Preview

In this chapter, we will study:Forms and uses of business-to-

consumer electronic commerceForms and uses of business-to-business

electronic commerceNew forms of EC Technical and non-technical

requirements needed to make EC workLegal and ethical issues associated

with EC


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E-Commerce / E-Business Electronic Commerce: buying and

selling of products, services and information via computer networks, primarily the Internet

Electronic Business: a broader definition that includes buying and selling, plus servicing customers collaborating with business partners conducting electronic transactions within an

organization


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Types of E-Commerce Business-to-business EC (B2B) Collaborative commerce (c-commerce) Business-to-consumer EC (B2C) Consumer-to-businesses (C2B) Consumer-to-consumer (C2C) Intrabusiness (intraorganizational)

commerce Government-to-citizens (G2C) and

others Mobile commerce (m-commerce)


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E-Commerce History and Scope History

Began in the early 1970s (long before the Internet was open to commercial use)

Limited to large businesses initially Electronic Fund Transfer (EFT) and Electronic Data

Interchange (EDI) Scope Today Includes

advertising home banking shopping in electronic stores and malls buying stocks finding a job conducting an auction collaborating electronically with business partners

around the globe providing customer service


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EC Benefits to Organizations Increased customer base:

Broaden markets Find niche markets (e.g. www.dogtoys.com)

Reduced cost: Reach a large number of customers at little cost Procure material and services from other companies at less cost Allow lower inventories by facilitating “pull”-type supply chain

management Shorten marketing distribution channels and reduce marketing

costs Decrease the cost of creating, processing, distributing, storing,

and retrieving paper-based information Lower telecommunications costs because the Internet is much

cheaper than value-added networks (VANs) Reduced cycle time:

Procure material and services from other companies rapidly Reduce the time between the outlay of capital and the receipt of

products and services Helps small businesses compete against large companies


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EC Benefits to Customers Choice

Consumers can select from many vendors and many more products than they could locate otherwise

Consumers can get customized products, from PCs to cars, at competitive or bargain prices

Consumers can find unique products and collectors’ items through virtual auctions that might otherwise require them to travel long distances to a particular auction place at a specific time

Convenience Consumers can conduct online quick comparisons to find less

expensive products and services Customers can shop or make other transactions 24 hours a day,

year round, from almost any location Product information immediately available 24 hours a day,

year round, from almost any location Consumers can interact with other consumers in electronic

communities and can exchange ideas as well as compare experiences


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EC Benefits to Society Convenience

Enables more individuals to work at home and to do less traveling

Access Allows some merchandise to be sold at lower

prices - less affluent people can buy more and increase their standard of living

Enables people in less developed countries and rural areas to enjoy products and services that otherwise are not available to them

Facilitates delivery of public services, such as government entitlements, reducing the cost of distribution and fraud, and increasing the quality of the social services, police work, health care and education


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Technical Limitations of EC A few technical challenges remain for

organizations wishing to conduct EC: Lack of universally accepted standards for quality,

security, and reliability Insufficient telecommunications bandwidth Still-evolving software development tools Difficulties in integrating the Internet and EC software

with some existing (especially legacy) applications and databases

Need for special Web servers in addition to the network servers (added cost)

Expensive and/or inconvenient Internet accessibility for many people

All of these will diminish over time


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Non-Technical Limitations of EC Legal and economic concerns:

Many legal issues are yet unresolved Lack of national and international regulations and

standards Difficulty in measuring benefits of EC and justifying EC Insufficient number (critical mass) of sellers and

buyers exists for profitable EC operations Cultural resistance:

Distrust of the new: Many sellers and buyers are waiting for EC to stabilize before they take part

Customer resistance to the change from a physical to virtual stores

Perception that electronic commerce is expensive and unsecured, so many do not want even to try it


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Business-to-Consumer EC

Electronic Storefronts and Malls Electronic retailing can be conducted

via solo storefront or as a part of cybermall

Issues of e-tailing May cause channel conflict and conflict

with existing stores Difficult to fulfill large quantity of very

small orders Incorrect business model (advertising

revenue versus profitable sales)


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Business-to-Consumer EC (continued)

Services Online Banking (www.sfnb.com) Securities trading (Schwab Online) Job markets (Monster Board) Travel (Expedia.com) Real estate (Realtor.com)

Auctions (eBay.com)


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Personalization – ability to customize product, service, advertisement, or customer service

B2C EC enables personalization at low cost

Internet enables marketing research Questionnaires

• Usually involve some inducement Direct behavior observation

• Cookies or site tracking services


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Use of intelligent agents Help customers determine what to buy Search for and compare vendor prices Collect information and develop customer

profiles Online advertising

Banners• Keyword banners• Random banners

Direct email Pop-up windows


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Advertising Approaches and Issues Permission marketing – offer incentives to

consumers to receive advertising Viral (advocacy) marketing – online word of mouth

advertising (send this ad to a friend and get…) Customizing ads – base ads on consumers’ profile Interactive marketing – tailor ads based on stored

customer data Attracting visitors to a site

• Making the top list of a search engine• Online events, promotions, and attractions

Electronic catalogs / customized catalogs

Coupons online


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Providing Customer Service Help customer determine needs Help customer acquire product or

service Support customer during ownership

of product or service Help customer dispose of product or

service


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Business-to-Business EC Composes the majority of EC volume Enables organizations to form electronic

relationships Covers all activities along the supply chain Business Models:

Sell-Side Marketplace• Organizations sell products to other organizations

electronically. Buy-Side Marketplace

• Buyers post needs; sellers submit bids Electronic Exchanges

• Electronic marketplaces link many buyers and many sellers


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Electronic Commerce Innovations E-Government – deliver information

and public services to citizens and members of the public sector

M-Commerce – use of wireless devices to deliver mobile e-commerce

Consumer-to-consumer EC – direct interaction facilitated by auctions, classifieds, and bartering


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Electronic Commerce Requirements

Infrastructure – hardware, software, and networks needed to conduct transactions, communicate, and collaborate

Electronic Payment Mechanisms Electronic checks

• Customer opens account with a bank• the customer e-mails an encrypted electronic

check signed with a digital signature• the merchant deposits the check in his or her

account; money is debited in the buyer’s account and credited to the seller’s account


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Electronic Payment Mechanisms (continued) Electronic credit cards

• Unencrypted payments - the buyer e-mails her or his credit card number to the seller on the Internet

• Encrypted payments - credit card details encrypted for security

Electronic cash in PC• bank provides special software to consumer• customer buys “electronic money” from the bank

through software• the bank sends electronic money note to this customer,

endorsing it with a digital signature• the money is stored on the buyer’s PC and can be spent

in any electronic store that accepts e-cash• the software is also used to transfer the e-cash from

the buyer’s computer to the seller’s computer• the seller either deposits the e-cash in a bank or uses

the e-cash to make purchases elsewhere


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Electronic Payment Mechanisms (continued) Electronic payment cards with e-cash

• Credit cards using magnetic strips• Card holds information about prepaid cash which

can be used to make payments Smart cards

• Cards with microprocessors can hold much more information

Person-to-person payment systems• Transfer of funds between individuals (PayPal)

EFT Electronic wallets Purchasing cards


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Security Authentication - assurance regarding the identity of

the parties who are involved in the deal Integrity - assurance that data and information

(orders, reply to queries, and payment authorization) are not accidentally or maliciously altered or destroyed during transmission

Non-repudiation - Protection against the customer’s unjustifiable denial of placing an order; buyer needs protection against the vendor denial of shipment, or sending wrong order

Privacy - many customers want their identity to be undisclosed

Safety - assurance that it is safe to provide a credit card number on the Internet


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Security (continued) Encryption - a process of making messages

indecipherable except by those who have an authorized decryption key

• Single-key encryption• Public/private key encryption• Public key infrastructure

Electronic Certificates Secure Socket Layer (SSL) Secure Electronic Transaction

Protocol (SET)


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Order Fulfillment Find, assemble, and pack product Ship product to customer Collect customer payment Arrange for returns if needed Provide on-going support (e.g.,

animated assembly instructions) EC is a ‘pull’ operation – hard to

forecast demand and prepare to fulfill orders


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Electronic Commerce Issues Buyer Protection

look for reliable brand names at sites like Wal-Mart Online, Disney Online, and Amazon.com

search any unfamiliar selling site for company’s address and phone and fax number

check out the seller with the local Chamber of Commerce and/or Better Business Bureau

investigate how secure the seller’s site is by reading the posted privacy notice, and evaluate how well the site is organized

examine the money-back guarantees, warranties, and service agreements

compare prices to those in regular stores (suspect the too cheap sites)

ask friends what they know about the vendor find out what your rights are in case of a dispute consult the National Fraud Information Center check www.consumerworld.org for a listing of useful resources


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Electronic Commerce Issues Seller Protection

Need protection against consumers who refuse to pay or pay with bad checks and buyers’ claims that the merchandise did not arrive

Need protection against the use of their name by others as well as use of their unique words and phrases, slogans and Web address

Need legal recourse against customers who download copyrighted software and/or knowledge and sell it to others


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Electronic Commerce Issues Ethics

Privacy• most electronic payment systems know

who the buyers are; therefore, it may be necessary to protect the buyers’ identity

Web Tracking• by using sophisticated software it is

possible to track individual movements on the internet

Disintermediation• the use of EC may result in the

elimination of some of a company’s employees as well as brokers and agents


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Electronic Commerce Issues Legal Concerns

Domain Names• several companies that have similar or same

names (in different countries) compete over a domain name that is not a registered trademark

Taxes and Other Fees• Federal, state, and local taxing authorities

are trying to figure out how to impose taxes on Internet sales

Copyright• intellectual property is protected by

copyright laws and cannot be used freely


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Chapter Summary

B2C EC encompasses e-tailing, auctions, and online services

B2C EC provides numerous marketing and advertising opportunities and challenges

B2B EC has the highest volume, and provides several business models

Payment mechanisms and security are critical EC issues

EC introduces many legal and ethical concerns


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Copyright © 2003 John Wiley & Sons, Inc. All rights reserved. Reproductionor translation of this work beyond that permitted in Section 117 of the 1976United Stated Copyright Act without the express written permission of thecopyright owner is unlawful. Request for further information should beaddressed to the Permissions Department, John Wiley & Sons, Inc. Thepurchaser may make back-up copies for his/her own use only and not fordistribution or resale. The Publisher assumes no responsibility for errors,omissions, or damages, caused by the use of these programs or from the use of the information herein.

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Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-1 Introduction to Information Technology 2