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Chapter 5

Electronic Commerce, Intranets, and Extranets

Information Systems TodayLeonard Jessup and Joseph Valacich

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Chapter 5 Objectives

Understand e-commerce and how it evolved

Understand e-commerce strategies Understand the difference between

intranets and extranets Understand consumer-focused and

business-focused e-commerce Understand key e-commerce applications

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Electronic Commerce Defined

E-Commerce – online exchange of goods, services, and money between firms, and between firms and their customers– More than just buying and selling:

• Pre-sale events and marketing• After-sale customer service

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Electronic Commerce Defined

E-Commerce– Business-to-Consumer (B2C)– Business-to-Business (B2B)– Business-to-Employee (B2E)– Consumer-to-Consumer (C2C)

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Electronic Commerce Defined

Internet and World Wide Web Capabilities– Expanding market– Wider customer base– More products– Closer relationships with customers

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Electronic Commerce Defined Internet and World Wide Web

Capabilities– Real-time access to information

• Web site linked to corporate database• Example: Alaska Air

– Mass customization• Tailoring products to a customers needs• Example: Lands’ End

– Interactive communication• Improving firm’s image through responsiveness• Example: E*Trade

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Electronic Commerce Defined Internet and World Wide Web

Capabilities– Collaboration– Reduced transaction costs– Enhanced operational efficiency– Disintermediation

• Cutting out the “middleman”• Reaching customers directly

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Electronic Commerce Defined

Electronic Commerce Business Strategies– Brick-and-mortar

• Traditional, physical companies

– Click-only (“virtual”) companies • Online only

• Example: eBay

– Click-and-mortar (or “Brick & Click”)• Both physical and virtual

– Challenge: increased IS complexity

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Business-to-Business Electronic Commerce

Electronic Data Interchange– Definition – EDI refers to the transmission of business

documents between organizations via networks

– “EDI is the forefather of B2B”– Estimated $500 billion worth of goods per year– EDI: usually over value-added networks (VANs)

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Business-to-Business Electronic Commerce

Electronic Data Interchange– Advantages

• Wide variety of business documents

• Streamlines business processes

• Reduced document handling

• Shortens time of business transaction

• Reduces errors

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Business-to-Business Electronic Commerce

Electronic Data Interchange– Disadvantages

• Costly to implement

• Costly to maintain

• Requires skilled technicians

• Often too costly for small or medium-sized companies

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Business-to-Business Electronic Commerce

The Internet Changed Everything– B2B now available to companies of all sizes– Intranet – internal, private network using Web

technologies to facilitate transmission of proprietary information within the organization

– Extranet – two or more firms using the Internet to do business together

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Business-to-Business Electronic Commerce

Intranet System Architecture– Firewalls – hardware devices with special software

that prevent unauthorized access– An intranet server is placed behind the firewall– Packets are never routed outside the firewall, but

remain within the organizations network

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Business-to-Business Electronic Commerce

Intranet Applications– Training– Application Integration

• Enterprise Resource Planning (ERP)• Customer Relationship Management (CRM)• Sales Force Automation (SFA)

– Online Entry of Information– Real-Time Access to Information– Collaboration

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Business-to-Business Electronic Commerce

Extranet System Architecture– Extranet

• Connects two or more business partners • Like an intranet• Same software, hardware, and networking• Additional component:

– Virtual Private Network (VPN)– Secure transmission of proprietary info

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Business-to-Business Electronic CommerceExtranet System Architecture

– Virtual Private Network (VPN)• Tunneling

– A technology that encapsulates, encrypts, and transmits data over the Internet

– A secure “tunnel” is created over the VPN connecting the two intranets

• Authentication– Confirms the identity of the remote user who is attempting to

access information from the Web server

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Business-to-Business Electronic Commerce

Extranet Applications– Supply Chain Management

• Example: Dell Computers

– Real-Time Access to Information • Example: CSX railroad

– Collaboration• Example: Caterpillar

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Business-to-Business Electronic Commerce

Enterprise Portals– Enterprise portals

• Extranets for business partners• Access points (or front doors) by which a business partner

accesses secured, proprietary information from an organization

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Business-to-Business Electronic Commerce

Enterprise Portals– Distribution portals

• Automate the business processes in selling products to multiple buyers

– Procurement portals• Automate the business processes that occur before, during, and

after sales have been transacted

– Trading Exchanges• Electronic marketplaces run by 3rd-party vendors

• Revenues are from commissions on transactions

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Business-to-Consumer Electronic Commerce

B2C– Internet – fastest acceptance of any

communications technology– Retail transactions between a company and

end consumers– Electronic retailing (e-tailing)

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Business-to-Consumer Electronic Commerce

Stages of B2C E-Commerce– E-Information

• Disseminate information globally

• Example: Ferrari

– E-Integration• Consumer-driven access to information

• Example: Allstate and Burlington Northern Santa Fe

– E-Transaction• Interactive communication and transaction support

• Example: eBay and Priceline.com

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Formula for Electronic Commerce Success

The Rules for Web Site Success– 1. Offer something unique

– 2. Web site must be aesthetically pleasing– 3. Easy to use and fast– 4. Motivate people to visit, stay, and return– 5. Advertise your Web presence– 6. Learn from your Web site