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Information Systems Today: Managing in the Digital World 5-1

5Chapter

Enabling Commerce Using the Internet

“There is no physical analog for what Amazon.com is becoming.”

Jeff BezosCofounder and long-time CEO of Amazon.com

Learning Objectives

Electronic Commerce• Online exchange of goods, services and money• Second quarter of 2006

o 2.7% of total retail revenueo $24.8 billion in revenue

Most Common Types of E-Commerce• Business-to-consumer (B2C)

o A person buys a book from Amazon.com

• Business-to-business (B2B)o Retailer like Wal-Mart ordering from distributors

• Business-to-employee (B2E)o Employee uses the Web to change employee

benefits

• Consumer-to-consumer (C2C)o One person purchases from another on eBay

Other Types of E-Commerce• Government-to-citizen (G2C)

oA person filing income taxes online

• Government-to-business (G2B)oGovernment purchases supplies using

Internet-enabled procurement system

• Government-to-government (G2G)oForeign government accessing U.S. federal

regulations

Key Capabilities of the Web

E-Commerce Business Strategies

• Differentiated based on levels of physical/virtual presence

Brick-and-Mortar Business Strategy• Physical locations only• Traditional stores• Cons: Limited geographical reach

Click-Only Business Strategy• Business conducted in cyberspace - no physical location• Virtual companies• Cons: Customers uncomfortable with online transactions

No face-to-face interaction with customers

Click-and-Mortar Business Strategy• Bricks-and-clicks business strategy• Hybrid strategy• Cons: Added complexity combining 2 different environments

Example: Click-and-Mortar Company

Common Revenue Models for EC• Most important ingredient of business model

• How will the firm earn revenue?

Learning Objectives

Business-to-Business E-Commerce

• ExtranetoEnables firms to do business together (B2B)oOne of best ways for organizations to gain

return on technology-based investmentsoBoeing

•1,000 authorized business partners

oNearly all Fortune 1,000 companies deploy some type of B2B applications

Electronic Data Interchange (EDI)• Used prior to the introduction of the Internet

• EDI used for B2B systems

• Digital or electronic transmission of business documents between organizationso Value-added networks

(VAN)o Dedicated circuit

between companies

Advantages and Disadvantages of EDI• Advantages

oStreamlining business processesoReduction of error rates

• DisadvantagesoCostlyoMid-size and small companies disadvantaged

Extranets• New, more affordable alternative to EDI

• Advantageso Improved timelines and accuracy of

informationoCentral management of documentsoCross-platform natureoLow cost of adoptionoNo specific user training required

Intranets• Business-to-employee (B2E) electronic

commerce• Internet based private network using

Web technologies• Boeing

oMore than 1 million pageso200,000 employees

Intranet: Training

• Boeing Companyo 200,000 employees

get trainedo Quality eTraining

program• Catalogue of courses• Online course content• Standardized courses

o Business improvements

o Cost reduction• Eliminated travel cost

Learning Objectives

Use of Internet Technologies• Characteristics of the Internet, intranet and

extranet

• B2B, B2E rely on extranet and intranet• Internet provides an opportunity for B2C

commerce

Stages of B2C E-Commerce• Websites range from passive to active

E-Tailing• Selling goods and services online• Click-and-mortar

oWalmart.com

• Click only oAmazon.com

• Virtual companyoPriceline.com

•Reverse pricing vs. menu-driven pricing

E-Tailing Benefits• Product benefits

o Unlimited number and variety of productso Easier comparison shopping

• E.g., AllBookstores, BizRate, or SideStep

• Place benefitso Anywhere, anytimeo Purchasing on global scale

• Price benefitso Higher inventory turnover rateo No expenditures for physical retail space

The Long Tail

• Traditional storeso Focus on

mainstream needso Target the average

customero E.g., Blockbuster

• E-Tailerso Can focus on niche

marketso E.g., Netflix

E-Tailing Drawbacks• Product delivery drawbacks

oDelay between product order and delivery•Except for products that can be downloaded

• Direct product experience drawbacksoLack of sensory information

•Smell, taste, feel

oLack of the social element•Cannot replace going to the mall with friends

Attracting and Retaining Online Customers• Basic rule of commerce

o Offer valuable products/services at fair prices

• Additional e-commerce rules1. The Web site should offer something unique2. The Web site must be aesthetically pleasing3. The Web site must be easy to use and fast4. The Web site must motivate people to visit, stay

and return5. You must advertise your presence on the Web6. You should learn from your Web site

Web Site Rules: Rule 1

• Offer something uniqueo Offer hard-to-

find goods• Global audience

• Reasonable prices

Web Site Rules: Rule 2• Website must be aesthetically pleasing

oUse of color schemes, backgrounds, high quality images

oClear, concise and consistent layout • Increases chances of return

•Can separate a Web site from the competition

Web Site Rules: Rule 3• Website must be easy to use and fast

oEasy navigationoFast download speed

•Average user will wait only a couple of seconds for a website to download

oPresent brief summary information with hyperlinks•Allows users to “drill down”

Web Site Rules: Rule 4

• Web site must motivate people to visit stay and returnoCreate a community

•GardenWebo Users share tipso Buy from each other

Web Site Rules: Rule 5• Advertise your presence on the Web

oPull marketing•A passive method of attracting to a specific site

• Include the Web site address on all promotional materials

•Advertise your Web site on other sites

Web Site Rules: Rule 5• Advertise your presence on the Web (II)

oPay-per-click•Only pay for advertising when user clicks on it

•Affiliate marketing – Web site owners post ads on their site

•Problem: click fraud – artificially clicking on ads to create revenue

o Network click fraudo Competitive click fraud

Web Site Rules: Rule 6• Learn from your Web site

oWho are your customers?oWhat are they doing?

• Web analyticsoAnalyze behavior of visitors

•Path the visitors take•Length of the visit•Number of pages viewed•Page from which they exit

Search Engine Marketing• Paid inclusion

oFee paid to the search engine to appear in the results

oCannot influence order, thus companies may use:•Search engine advertising

•Search engine optimization

Search Engine Advertising

• Sponsored searcho Pay to ensure a

spot on top of search results page

o Company in control of ad positioning

o Pay-per-clicko Can get costly

Search Engine Optimization

• Position within search results based on complex formula

• Site owner has no control over the position of the ad

• Optimization based ono Web site updateso Use of key termso Unethical “tricks”

Securing Payments in the Digital World• 90 % of users have changed online

behavior because of fear of identity theft

• 1/3 of online purchasers cut back on the volume of purchasing

• More than 1/2 of shopping carts are abandoned

• Need for secure forms of online payment

Credit and Debit Cards• Customer Verification Value (CVV)

o Three-digit code on the back of a cardo Added to combat fraud in online purchaseso Not included in the

magnetic strip

informationo Code used for

authorization by bank

Conducting Safe Transactions Online1. Use a secure browser with the latest encryption

capabilities2. Check the site’s privacy policy3. Read and understand refund and shipping policies4. Keep personal information private5. Give payment information only to those you know

and trust6. Keep records of online transaction7. Review your monthly credit card and bank

statements

Payment Services• Online transactions without sharing

private information with actual selleroPayPal (owned by eBay)

•Can send and receive money if you have an e-mail account

oGoogle Checkout•Linked with Google search•Users can see if merchants offer this option

oE-Gold•Service backed by real gold

Managing Financial Transactions in the Digital World• Financial institutions now offer:

oOnline banking•Management of credit card, checking and

savings accounts

oElectronic bill pay •Bill payment online

oOnline investing•Growing in popularity

Learning Objectives

Types of C2C E-Commerce

• C2C commerce has always been present

• 17% of American adults have sold online

• C2C relationships characterized byo Number of buyerso Number of sellers

Opportunities and Threats of C2C E-Commerce

E-Auctions• Forward auction

o Sellers post goods or services for saleo Buyers bid on these itemso Highest bid wins

• Reverse auctiono Buyers post a request for quote (RFQ)o Seller proposes a bido Lowest seller bid winso Used frequently in B2B e-commerce

E-Auctions (II)• eBay

o Transaction fee-based revenue systemo 2006 revenue - $6 billiono Mostly forward auctions

E-Auction Fraud• E-auctions marred with more fraud than any

other Internet activityo 42% of all Internet-fraud related complaintso Average loss: $1,155

• Types of e-Auction fraudo Bid luringo Reproductionso Bid shieldingo Shipping fraudo Payment failureo Nonshipment

Social Online Communities• MySpace.com

o 4.5% of all Internet site visits in mid 2006o Over 100 million userso About 230,000 new users a dayo Original purpose – social network based on music

interestso 2005 – purchased by NewsCorp for $580 milliono Income from targeted ads

• $2.17 per user per year

Cyworld

• Successful social online community

• Asian market• South Korea –

Cyworld’s per capita penetration greater than MySpace in the US

• Sale of virtual itemso $7 per user per year

Self-Publishing• Consumers can voice their opinions with

no editorial review

• Original material by the author

• Traditional B2B becoming C2C

• Publishing from homeoPrint-On-DemandoBlogging

Printing-On-Demand

• Customized printing• Small batches• Attractive for first time

authors• Select providers

o Luluo Blurbo BookSurge

• Amazon• End-to-end service

Blogging• Weblogging

oOnline text diaryoChronological

entriesoPower of

bloggers• “Rathergate”

• VloggingoVideo blogging

M-Commerce• Electronic transactions using wireless

mobile devices• Mobile networks

oWirelessoSwitched public network

• Smart phonesoHigh-speed data transfero “Always-on” connectivity

Popular Technologies for M-Commerce

Location-Based M-Commerce• Highly personalized mobile services

• Based on locationo GPS functionalityo Bluetooth

• Pull-based – consumers seeking information

• Push-based – companies sending (unrequested) information to the consumer

Location-Based Services

• Next thing: cell phone social networking

Key Drivers of M-Commerce

• General interest in adoption of the Internet and e-commerce

• Real-time transfer of data over 3G and 4G cellular networkso “Always-on” connectivity

• Growth in mobile telephony

• 2007 M-commerce market: $250 billion

Online Entertainment Industry• Digital rights management (DRM)

oTechnological solution for control of digital media•Restrictions

o Devices which will play ito How many times it can play

oPrevention of illegal copying and distribution•Watermark – illegal copy can be traced to original

purchaser

Slingbox• Acts as a personal media server

• “Placeshifts” television content to any Internet-enabled deviceo Television signal received at the user’s houseo Relayed over the Internet to be accessed from anywhere

Learning Objectives

E-Government

• Providing information about public serviceso To citizenso To organizationso To other

governmental agencies

• 1998 – Government Paperwork Elimination Act

Government-to-Citizens

• Interactions between the government and its constituentso IRS – e-filingo Grants.govo e-voting initiatives

Government-to-Business

• Relationships between businesses and the governmento E-procuremento Forward auctions

• Businesses buy surplus government equipment

• Auctionrp.como Online application for

export licenses

Government-to-Government

• Interactions between countrieso Regulations.govo Export.gov

• Interactions between different levels of government

Threats to E-Commerce• The USA PATRIOT Act

• Taxation

• Net Neutrality

• Censorship

End of Chapter Content

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