Using Information Technology to Engage in Electronic Commerce

Source: MIS, 10th Ed, McLeod & Schell

Electronic Commerce

• Electronic Commerce (E-commerce) refers to a business transaction that uses network access, computer-based systems, and a Web browser interface.

• Business-to-consumer (B2C) refers to transactions between a business and the final consumer of the product.

E-commerce (Cont’d)

• Business-to-business (B2B) refers to transactions between businesses in which neither one is the final consumer.

• Electronic Government (E-gov) refers to transactions between a government agency and typically a citizen.

E-commerce (Cont’d)

• Main benefits to firms:– Improved customer service before, during, and

after the sale.– Improved relationships with suppliers and the

financial community.– Increased economic return on stockholder and

owner investments.

E-commerce (Cont’d)

• Main constraints to firms:– High costs.– Security concerns.– Immature or unavailable software.

Business Intelligence

• Business Intelligence (BI) is the activity of gathering information about the elements in the environment that interacts with the firm.

• External databases are commercial databases that, usually for a fee, provide information and analyses on virtually any subject.– www.leisnexis.com, www.dialog.com, www.gxs.com,

www.thomasnet.com• Firms use these databases to gather BI because it is

faster and less expensive than trying to research a wide array of information sources.

Business Intelligence (Cont’d)

• Government databases offer a wide range of topics for researchers in many fields. – www.census.gov– www.bls.gov– www.loc.gov

Business Intelligence (Cont’d)

• Search Engines are the most popular means for people to obtain information available from the Web.

• Search engine is a special computer program that asks a user for a word or group of words to be found.– www.google.com– www.yahoo.com

• Searches the content of web sites on the Internet to see if the word or words are on any Web sites.

• Makes it possible to scan large volumes of information quickly, easily, and thoroughly.

E-commerce Strategy & Interorganizational Systems

• Interorganizational system (IOS) is the strategy in which a firm is linked with transmissions of electronic data with other firms so that all of the firms work together as a coordinated unit, achieving benefits that each could not achieve alone.– Participating firms are called trading partners, business

partners, or a business alliance.

E-commerce Strategy & IOS (Cont’d)

• E-commerce is fundamental to IOSs.• Electronic data interchange (EDI) is a means

for achieving an IOS; a subset.• E-commerce and EDI are the highways of IOSs.• Extranets are another alternative.

EDI

• EDI consists of direct computer-to-computer transmissions of data in a machine-readable, structured format.

• Older technology, but majority of B2B commerce use.

• Enables data to be transmitted and received without rekeying.

EDI (Cont’d)

• Equipment (communications lines, hardware, etc.) and support services provided by telephone companies (AT&T, MCI, et. al.)

• Value-added network (VAN) is when the services that operate and manage the communications line (circuit) are provided in addition to the line itself.

EDI (Cont’d)

• EDI is the dominant implementation of an IOS.– More that 2/3rd of e-commerce is conducted

using EDI compared to other alternatives.– More costly 5,000-30,000 per year with a single

vendor or customer– More bulky than newer IOS systems

Extranet

• Extranets enable the sharing of sensitive computer-based information with other firms using information technology over the internet.

• Used in collaboration with trusted suppliers and large customers.

• Security and privacy are serious concerns, so extranets are generally secured behind a firewall and use encryption.

Extranet (Cont’d)

• Firewall permits only authorized users to access the firm’s information.

• Extranets allow for the same type of data exchange as EDI.

• Extranets incorporate the common protocols and communication networks of the Internet which results in a great cost savings (EDI is costly to use).

IOS Benefits

• Direct benefits– Reduced data entry errors– Lower costs– Increased operational efficiency

• Indirect benefits– Increased ability to compete– Improved relationships with trading partners– Better customer service

IOS Direct & Indirect Benefits

Direct Benefits

Reduced Errors

Reduced Costs

Increased Operational Efficiency

Competitors Trading Partners

Increased ability to compete

Improved relationship

Customers

Improved services

Indirect Benefits

B2C Strategies for E-commerce

• Important to understand B2C Strategies– More products and services are becoming available for

digital delivery.– More consumers are overcoming their reluctance to

purchase using the Web.– Higher communication speeds in homes has made delivery

of digital products practical.– Fear of information theft has been replaced with

acceptance.

Digital Products• Entertainment – songs, albums, movies, etc. • Computer programs & updates – virus protection

software, tax software, etc.• Services – www.lendingtree.com• Can be consumed as soon as they are downloaded• Purchasers incur a substantial cost of the transaction

in terms of computer cost, online connection fees, storage media, and so on.

Physical Products

• Must be transported to the consumer.• Shipment has to be arranged.• Traditional delivery methods are slow.• Faster delivery time options are costly.• Mail/shipping companies offers services such

as online tracking that allows more information and control over delivery.

Virtual vs. Hybrid Sales

• Virtual sales are those made by a firm that does not operate a physical storefront.– Customer can’t enter and purchase the product.

• Hybrid sales occur when firms have both a physical storefront and a Web site where customers can purchase products.– Brick-and-click operations.

Virtual Sales Challenges

• Provide necessary product information without overwhelming the customer.

• Communicating image files from the web site to the customer’s computer can take time.

• Payment over the Internet has suffered bad press – credit card fraud.

Hybrid Sales

• Most firms had storefronts before sales over the Internet were possible.

• Necessary to their business plans.• Stores act as showcases for products.• Convenience of shopping over the Web.• B2C sales means less inventory at its store;

more sales floor space.

The Next Step for E-commerce• Mobile commerce (m-commerce) is the use of cell

phones and personal digital assistants (PDAs) to engage in wireless e-commerce.

• Third generation (3G) telecommunications is data-capable wireless technologies.

• $40 billion per year global industry by 2009.

M-commerce

• Early applications included news services, financial information alert/transactions, and banking.

• Movie ticket purchases, parking payments, etc. gaining acceptance.

• Japan is 1st country to have a 3G carrier (almost all Japanese have a cell phone).

• U.S. only about 40% have cell phone.

The Next Step … (Cont’d)

• Wireless Internet Hot spots are created using a wired connection (for high communications speed) and then broadcast via a wireless access point to an area approx. 100 meters -> Starbucks.

• Business-class wireless computing would provide fast wireless communication everywhere over the same communications carrier as cell phones.

Suggestions for Successful Internet Use

• Make sure your Web site is robust.• Make sure your browser and database structure are both

flexible and intuitive.• Emphasize content.• Update often.• Look beyond customers.• Target content to specific users’ needs.• Make interface intuitive.• Be in the right Web location.• Create a sense of community.• Get help if you need it.

Future Impact of the Internet on Business

• E-commerce is growing in the U.S. and worldwide (15% annually past 5 years).

• 3G and even faster 4G phone service.• Increase use of cellular phones for purchases.