Fundamental of eCommerce

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Nov 5, 2013 (3 years and 9 months ago)

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Fundamental of eCommerce


2

1.
Provide history, present state and future outlook


for eCommerce and the internet.

2. Survey and define the key technology drivers of


eCommerce including network, software, and hardware
components.

3. Review eCommerce infrastructures including


architecture models, security & payment systems.

4. Identify business models surrounding eCommerce including
marketing strategies.

5.
Explore international, ethical and tax issues surrounding
eCommerce.

Course Objectives

3

Course Requirements

1.
Perform assigned readings.

2.
Final exam


open book

4

Week One Topics

1.
What is eCommerce?

2.
Electronic commerce prior to the Internet

3.
Comparison to Traditional Commerce

a.
Buyers & Sellers Viewpoint

b.
Business processes

c.
Fundamental business goals

4.
Why eCommerce?

5.
Seven Unique Features of eCommerce Technology

6.
Appropriateness of eCommerce

7.
The Internet: What Was, Is and Shall Be.

5

In its broadest definition, eCommerce is digitally enabled

commercial transactions between and among organizations

and individuals.


Digitally enabled means, for the most part, transactions


that occur over the Internet and World Wide Web(“Web”)


Commercial transactions involve the exchange of value


(e.g. money) across organizational or individual



boundaries in return for products and services.


Differentiated from eBusiness which is digitally enabled

transactions and processes
within
a firm, involving

Information Systems controlled by the firm. Doesn’t involve

commercial transactions across organizational boundaries.

What is eCommerce?

6

Components of eCommerce

Major components of eCommerce:

1.
B2B


Business to Business. Largest segment with
about $700B of all total $12 Trillion in 2001(est)


Types include inter
-
business exchanges, e
-
distributors, B2B service providers,
matchmakers and infomediaries

2.
B2C


Business to Consumer. Much smaller with on
$65B in 2001(est).


Buzzwords: Internet pureplay
-
located only on
the web. Clicks and Mortar
-
both web and
physical location.

7

Components of eCommerce

Major components of eCommerce (continued):

1.
C2C


Consumer to Consumer. Individuals selling
to each other through online market maker
(eBay.com). Estimated at $5B in 2001.

2.
P2P


Peer to Peer. Allows iNet users to share files
and resources directly without having to go thru a
central web server. Napster is the most prevalent
example.

3.
M
-
Commerce


Mobile commerce. Use of wireless
digital devices (Palm Pilots, cell phones) to conduct
transactions. Just emerging but expected to grow
rapidly.

8

Banks have used electronic funds transfers (EFTs), also
called wire transfers, for decades.


Businesses have been engaging in electronic data
interchange (EDI) since the 1960’s. EDI occurs when
one business transmits computer readable data in a
standard format to another business.


Drawbacks to mass adoption by business was high cost
of implementation; expensive, proprietary software,
hardware, leased telephone lines.


EDI now adapting to the Internet at a much lower cost.
Estimates of $1 Trillion in transactions on the Internet by

2003.

Electronic Commerce Not
New

9


Business drives Technology

Technology Enables Business”


To understand how Technology enables Business, or
Commerce, we must review traditional commerce.


Once activities, or business processes in traditional
commerce are identified, we can consider how they can be
improved through technology


Technology is not a panacea! Knowing when and
when not

to apply technology to business problems is the key.

Technology and Business
(Commerce)

10

Origins of commerce predate recorded history.


Commerce is based on the specialization of skills.


Instead of performing all services and producing all
goods independently, people rely on each other for the
goods and services they need.


Example: In early times, the local shaman would cast a
spell or intercede with the gods in exchange for food
and tools. This is called barter.

Origins of commerce

11

Money has replaced bartering, but the basic mechanics

of commerce remain the same: one member of society

creates something of value that another member of

society desires.


Commerce

is a negotiated exchange of valuable objects

or services between at least two parties and includes all

activities that each of the parties undertakes the complete

the transaction.

Traditional commerce

12


Commerce can be viewed from at least two different
perspectives:

1.

The buyer’s viewpoint

2.

The seller’s viewpoint



Both perspectives illustrate that commerce involves
a number of distinct activities, called
Business
Processes
.

Views of commerce

13


Business processes are the activities that firms
engage in as they accomplish a specific element
of commerce



Examples include:


Transferring funds


Placing orders


Sending invoices


Shipping goods to customers

Business Processes

14

From the buyer’s perspective, commerce involves

the following activities:

1.
Identify a specific need

2.
Search for products or services that will satisfy

the specific need

3.
Select a vendor

4.
Negotiate a purchase transaction including

delivery logistics, inspection, testing, and

acceptance

5.
Make payment

6.
Perform/obtain maintenance if necessary

The Buyer’s perspective

15

From the sellers’ perspective, commerce involves

the following activities:

1.
Conduct market research to identify customer

needs

2.
Create a product or service to meet those needs

3.
Advertise and promote the product or service

4.
Negotiate a sales transaction including delivery

logistics, inspection, testing, and acceptance

5.
Ship goods and invoice the customer

6.
Receive and process customer payments

7.
Provide after sales support and maintenance

The Seller’s perspective

16

Why eCommerce?

The Internet and eCommerce are new technologies to help
businesses increase profits.

So why are there no special textbooks or courses on “TV
Commerce”, “Radio Commerce”, “Railroad Commerce” or
“Highway Commerce”? These are also technologies that
have had profound impact on business in the 20
th

century
and account for more commerce than eCommerce.

Simply put, eCommerce technologies are more powerful
than any of the other technologies we have seen in the 20
th

century.

17

Unique Features of
eCommerce Technology

The features the set eCommerce Technology apart from
others used in traditional commerce are:

1.
Ubiquity


internet/web technology is available
everywhere: at work, home and elsewhere via mobile
devices.


Marketplace extended beyond traditional boundaries


“Marketspace” is created, available 24/7/365


Customer convenience increased, costs reduced.



18

Unique Features of eCommerce Technology

(continued)

2.
Global Reach


the technology reaches across national
boundaries, around the earth.


Commerce enabled across cultural and national
boundaries seamlessly.


Potential customer reach extended.


Reduces barriers to markets.



19

Unique Features of eCommerce Technology

(continued)

3.
Universal standards


there is one set of technology
standards, namely internet standards.




Promotes technology adoption


Reduces costs of adoption




20

Unique Features of eCommerce Technology

(continued)

4.
Richness


Video, Audio, graphical and text messages
are possible.



Integration to a more powerful marketing message
and customer experience

21

Unique Features of eCommerce Technology

(continued)

5.
Interactivity


the technology allows active user
involvement.


Consumers engage in dynamic dialog


Experience adjusted to the individual based on
responses.


Customer becomes co
-
participant in the process of
delivering goods to the market.


22

Unique Features of eCommerce Technology

(continued)

6.
Information Density
-

the technology reduces
information costs and increase quantity and quality.


Information processing, storage and communication
costs drop dramatically.


Accuracy and timeliness improve greatly.


Information becomes plentiful, cheap and accurate.


23

Unique Features of eCommerce Technology

(continued)

7.
Personalization/Customization


the technology reaches
allows personalized messages to be delivered to
individuals as well as groups.


Commerce enabled across cultural and national
boundaries seamlessly.


Potential customer reach extended.


Reduces barriers to markets.



24

Fundamental Business Goals

The fundamental goal of a business is to earn a profit.
Performing business processes in the most efficient way
possible furthers this goal.


Firms are increasingly interested in eCommerce because
it can help increase profits.


All the advantages of eCommerce can be summarized in
one statement:


eCommerce can Increase Sales and Decrease Costs.

25

Examples of eCommerce

Enabling Business Goals

Increase Revenues

A company is able, through publishing its catalogs online,
to reach more customers for the same costs as printing
and mailing its catalogs. (
LL Bean
)


Decrease Costs

The same company can provide more timely product
information by updating its catalog online, than by
mailing its catalog four times a year.

26

It is important to identify which business processes

can be streamlined using eCommerce technologies.


It is equally important to realize that some processes

make effective use of traditional commerce and can’t

be improved upon using technology.


Technology is not a panacea. Using it when it is

not necessary or helpful can be a costly mistake
.

Appropriateness

27

Business processes that are well
-
suited for electronic

commerce:


Sale/purchase of new books and CDs


Online delivery of software


Advertising and promotion of travel services


Online tracking of shipments


The business processes that are especially well
-
suited

to eCommerce include
Commodity

items.


A
Commodity

is a product or service that has

become so standardized and well
-
known that buyers

cannot detect a difference in the offerings of various

sellers and decide to buy based on price.


Well
-
suited for eCommerce

28

Business processes that are well
-
suited to traditional

commerce:



Sale/purchase of high fashion clothing


Sale/purchase of perishable food products


Small
-
denomination transactions


Sale of expensive jewelry and antiques





Exceptions?


In general, products that buyers prefer to touch, smell,

or otherwise closely examine are difficult to sell using

eCommerce.

Best for Traditional Commerce

29

Would eCommerce or traditional commerce work

best for the following activities?



Sale/purchase of rare books


Browsing through new books


Sale/purchase of shoes


Sale/purchase of collectibles (trading cards,

plates, etc.)

Questionable cases

30

Some business processes can be handled well using

a combination of electronic and traditional methods:



Sale/purchase of automobiles


Online banking


Roommate
-
matching services


Sale/purchase of investment/insurance products


Consumers can research products online and make final

transactions in person.


In any business problem it is good practice to weigh the

advantages and disadvantages of a particular approach.

Evaluating the application of eCommerce technology is no

Different.

Combinations of both

31

For the seller:


Increases sales/decreases cost.


Makes promotion easier for smaller firms.


Can be used to reach narrow market segments.


For the buyer:


Makes it easier to obtain competitive bids


Provides a wider range of choices


Provides an easy way to customize the level of

detail in the information obtained


Allows anonymity and less pressure to buy.

Advantages of eCommerce

32

In general:



Increases the speed and accuracy with which


businesses can exchange information.



Electronic payments (tax refunds, paychecks, etc.)
cost less to issue and are more secure.



Can make products and services available in

remote areas.



Enables people to work from home, providing

scheduling flexibility.

Advantages of eCommerce II

33


Some business processes are not suited to
eCommerce, even with improvements in


technology.



Many products and services require a critical

mass of potential buyers (e.g. online grocers).



Costs and returns on eCommerce can be

difficult to quantify and estimate.



Cultural impediments: People are reluctant to

change in order to integrate new technology.



The legal environment is unclear and full of

conflicting laws; regulation has not kept up.

Disadvantages of
eCommerce

34

The Internet

What Was….

What Is….

And What Shall Be…….


But First…………..

35

The Internet is defined as a loosely configured global

wide area network. A network is the means of
connecting computers together.


The Internet includes more than 31,000 different
networks in over 100 different countries. It
currently has about 115 million hosts.


Since each host can include multiple computers, it’s
difficult to estimate total number of computers
connected to the internet.

What is the Internet?

36

The Internet Evolution

The Innovation Phase 1961


1974

Milestones

Early 1960’s
-

Given the rise of both the nuclear age and
communism (cold war), the Department of Defense became
concerned that a nuclear attack could destroy computer
systems required to run their weapons systems.


1961


Leonard Kleinrock (MIT) publishes paper on “
packet
switching
” networks. The enabling technology for the
internet is conceived.


1962 to 1963


J.C.R. Licklider (MIT) writes memos calling
for a “Galactic Network” of computers. He becomes head of
Advanced Research Project Agency Network Development
for Department of Defense. The vision of a global network
is born.



37

The Internet Evolution

The Innovation Phase 1961
-

1974

Milestones

1972
-

eMail invented. First “killer app” of internet born.

1973
-

Ethernet and Local Area Networks are invented.

Client
-
server computing is invented.

1974


“Open Architecture” networking and
Transmission

Control Protocol/Internet Protocol (TCP/IP)


concepts are presented. TCP/IP enabled a single

“open” protocol to potentially connect any of

thousands of disparate local area networks with a

common addressing scheme to send and deliver

data.


38

The Internet Evolution

The Institutional Phase 1980
-

1993

Milestones

1980


DOD adopts TCP/IP as standard protocols. The

single largest computing organization in the world

adopts and legitimizes TCP/IP and packet switching

networks

1980


Personal computers invented. PCs represent

enabling technology for millions of people to connect

to the internet.

1983


DOD creates separate military network (MILNET).

ARPANET contains only civilian university traffic.

Idea of “Civilian” internet is born.

39

The Internet Evolution

The Institutional Phase 1980
-

1993

Milestones

1983


Telnet and File Transfer Protocol (FTP) deployed on

internet as new “killer apps”.

1989


A world wide network of hyperlinked documents is

proposed based on a common language called Hyper

Text Markup Language (HTML). The concepts of an

internet supported service called the World Wide

Web is born.

1993


First graphical Web Browser (Mosaic) is invented.

Mosaic made it easy for ordinary users to connect to

HTML documents anywhere on the Web.

40

The Internet Evolution

The Commercialization Phase 1994
-

Present

Milestones

1994


National Science Foundation (NSF) report plans

development of an “Information Superhighway”

supporting research, education, commercial and

private interests.

1995


NSF privatizes internet backbone and turns control

over to major carriers ATT, Sprint, GTE and UUNet

as primary Network Access Providers (NAP). The

fully commercial civilian internet is born.

1995


Jeff Bezos starts Amazon.com. First major early

entry onto WWW as an “internet pure play”.

41

The Internet Evolution

The Commercialization Phase 1994
-

Present

Milestones

1996 to 2000


Amount of venture capital backing Internet

start
-
up companies grows from $3.1 to $72.4 Billion.

Huge run up of stock market based on demand for

new internet stocks going public in Initial Public

Offerings (IPOs). Countless internet entrepreneurs

become (paper) millionaires from stock options.

2001 to Present


Reality sets in as dot com companies

mount huge losses. Demonstration of faulty

business models. VC money dries up, many internet

companies go broke, stock market slides.

42

The Internet has grown, and (most probably) will

continue to grow, at high rate:



Year


Internet Hosts

1969




4

1979


188

1989


159,000

1993


2,056,000

1996


21,819,000

1999


56,218,000

2000

93,047,785

2001
(est) 115,000,000+



The Growth of the Internet

43

Some of the
Main factors

that led to the surge in
popularity of the Internet:





The web
-
like ability to link from site to site enabled

through HTML and HTTP.





The ease of use provided by the browsers’ graphical

user interface.





The growth of personal computers and local area

networks that could be connected to the Internet.




The TCP/IP standard and packet switching.

Factors behind growth

44

Evolution of Web Programming

45

A Different Perspective

46

E
-
Commerce I: 1995
-
2000


Characteristics:


Technology driven


Revenue growth emphasis


Venture capital financing


Ungoverned


Entrepreneurial


Disintermediation


Perfect markets


Pure online strategies


First mover advantages


47

E
-
Commerce II: 2001
-
2006


Characteristics:


Business driven


Earnings/Profit emphasis


Traditional financing


Stronger Regulation


Large traditional firms


Strengthening intermediaries


Imperfect markets, brands, network effects(p.26)


Mixed “clicks and bricks” strategies


Strategic follower strength


48

And What Shall Be…………

Pundits and experts have a variety of opinions. Some

areas, however, that will continue to grow, albeit at a slower

pace(and as much venture capital!?!)



mCommerce: Mobile computing


Broadband: higher speed lines for both business and
individuals as infrastructure matures.


B2B: Integration of web “front ends” to back office
“mission critical” systems to allow more access by
customers.


TCP/IP v6.0 and the X
-
Internet: The Xtended internet, a
wider variety of devices hooked up to the internet;
televisions, appliances, etc.