McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved

CHAPTER 3

EBUSINESS

Business Driven Information Systems 2eBusiness Driven Information Systems 2e

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Chapter Three Overview

• SECTION 3.1 - BUSINESS AND THE INTERNET– Disruptive Technology– Evolution of the Internet– Accessing Internet Information– Providing Internet Information

• SECTION 3.2 - EBUSINESS– Ebusiness Basics– Ebusiness Models– Organizational Strategies for Ebusiness– Measuring ebusiness Success– Ebusiness Benefits and Challenges– New Trends in Ebusiness: Egovernment and Mcommerce

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved

BUSINESS AND THE BUSINESS AND THE INTERNETINTERNET

SECTION 3.1

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LEARNING OUTCOMES

1. Compare disruptive and sustaining technologies

2. Explain how the Internet caused disruption among businesses

3. Define the relationship between the Internet and the World Wide Web

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LEARNING OUTCOMES

4. Describe the different methods an organization can use to access information

5. Compare the three different types of service providers

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DISRUPTIVE TECHNOLOGY

• How can a company like Polaroid go bankrupt?

• Digital Darwinism – implies that organizations which cannot adapt to the new demands placed on them for surviving in the information age are doomed to extinction

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Disruptive versus Sustaining Technology

• What do steamboats, transistor radios, and Intel’s 8088 processor all have in common? – Disruptive technology – a new way of doing

things that initially does not meet the needs of existing customers

– Sustaining technology – produces an improved product customers are eager to buy

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Disruptive versus Sustaining Technology

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Disruptive versus Sustaining Technology

• Innovator’s Dilemma - discusses how established companies can take advantage of disruptive technologies without hindering existing relationships with customers, partners, and stakeholders

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Disruptive versus Sustaining Technology

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The Internet – Business Disruption

• One of the biggest forces changing business is the Internet

• Organizations must be able to transform as markets, economic environments, and technologies change

• Focusing on the unexpected allows an organization to capitalize on the opportunity for new business growth from a disruptive technology

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The Internet – Business Disruption

Estimates predict more than 3 billion Internet users by 2010

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The Internet – Business Disruption

Estimates predict more than 3 billion Internet users by 2010

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The Internet – Business Disruption

• The Internet has had an impact on almost every industry including:– Travel– Entertainment– Electronics– Financial services– Retail– Automobiles– Education and training

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EVOLUTION OF THE INTERNET

• The Internet began as an emergency military communications system operated by the Department of Defense

• Gradually the Internet moved from a military pipeline to a communication tool for scientists to businesses– Internet – Protocol

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Evolution of the World Wide Web

• World Wide Web (WWW) – a global hypertext system that uses the Internet as its transport mechanism

• Hypertext transport protocol (HTTP) – the Internet standard that supports the exchange of information on the WWW

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Evolution of the World Wide Web

• Reasons for growth of the WWW– Microcomputer revolution– Advancements in networking– Easy browser software– Speed, convenience, and low cost of email– Web pages easy to create and flexible

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Evolution of the World Wide Web

• The Internet’s impact on information– Easy to compile

– Increased richness

– Increased reach – Improved content

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Evolution of the World Wide Web

• File formats offered over the WWW

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Evolution of the World Wide Web

• The Internet makes it possible to perform business in ways not previously imaginable

• It can also cause a digital divide– Digital divide – when those with access to

technology have great advantages over those without access to technology

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WEB 2.0

• Web 2.0 - a set of economic, social, and technology trends that collectively form the basis for the next generation of the Internet

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WEB 2.0

Timeline of Web 1.0

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Mashups

• Web mashup - a website or web application that uses content from more than one source to create a completely new service– Application programming interface

(API) - a set of routines, protocols, and tools for building software applications

– Mashup editor - WSYIWYGs (What You See Is What You Get) for mashups

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THE FUTURE – WEB 3.0

• Semantic web encompasses the following:1. Transforming the web into a database

2. An evolutionary path to artificial intelligence

3. The realization of semantic web and SOA

4. Evolution toward 3D

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ACCESSING INTERNET INFORMATION

• Four tools for accessing Internet information1. Intranet – internalized portion of the

Internet, protected from outside access, for employees

2. Extranet – an intranet that is available to strategic allies

3. Portal – website that offers a broad array of resources and services

4. Kiosk – publicly accessible computer system that allows interactive information browsing

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PROVIDING INTERNET INFORMATION

• Three common forms of service providers1. Internet service provider (ISP) –provides

individuals and other companies access to the Internet

2. Online service provider (OSP) – offers an extensive array of unique Web services

3. Application service provider (ASP) – offers access over the Internet to systems and related services that would otherwise have to be located in organizational computers

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PROVIDING INTERNET INFORMATION

• Common ISP services include:– Web hosting– Hard-disk storage space– Availability– Support

• Service level agreements (SLA) - define the specific responsibilities of the service provider and sets customer expectations

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PROVIDING INTERNET INFORMATION

Wireless Internet service provider (WISP)

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OPENING CASE QUESTIONSAmazon

1. How has Amazon used technology to revamp the bookselling industry?

2. Is Amazon using disruptive or sustaining technology to run its business?

3. How is Amazon using intranets and extranets to run its business?

4. How could Amazon use kiosks to improve its business?

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved

EBUSINESS

SECTION 3.2

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LEARNING OUTCOMES

6. Compare the four types of ebusiness models

7. Describe how an organization’s marketing, sales, accounting, and customer service departments can use ebusiness to increase revenues or reduce costs

8. Explain why an organization would use metrics to determine a website’s success

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LEARNING OUTCOMES

9. Describe ebusiness along with its benefits and challenges

10.Define mcommerce and explain how an egovernment could use it to increase its efficiency and effectiveness

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EBUSINESS BASICS

• How do ecommerce and ebusiness differ?– Ecommerce – the buying and selling of

goods and services over the Internet – Ebusiness – the conducting of business on

the Internet including, not only buying and selling, but also serving customers and collaborating with business partners

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EBUSINESS BASICS

Industries Using Ebusiness

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EBUSINESS MODELS

• Ebusiness model – an approach to conducting electronic business on the Internet

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EBUSINESS MODELS

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EBUSINESS MODELS

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Business-to-Business (B2B)

• Electronic marketplace (emarketplace) – interactive business communities providing a central market where multiple buyers and sellers can engage in ebusiness activities

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Business-to-Consumer (B2C)

• Common B2C ebusiness models include:– Eshop – a version of a retail– Emall – consists of a number of eshops

• Business types include:– Brick-and-mortar business– Pure-play business– Click-and-mortar business

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Consumer-to-Business (C2B)

• Priceline.com is an example of a C2B ebusiness model

• The demand for C2B ebusiness will increase over the next few years due to customer’s desire for greater convenience and lower prices

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Consumer-to-Consumer (C2C)

• Online auctions– Electronic auction (eauction) - sellers and

buyers solicit bids and prices are determined dynamically

– Forward auction - a selling channel to many buyers and the highest bid wins

– Reverse auction - buyers use to purchase a product or service, selecting the seller with the lowest bid

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Consumer-to-Consumer (C2C)

• C2C Communities– Communities of interest - People interact with each

other on specific topics, such as golfing and stamp collecting

– Communities of relations - People come together to share certain life experiences, such as cancer patients, senior citizens, and car enthusiasts

– Communities of fantasy - People participate in imaginary environments, such as fantasy football teams and playing one-on-one with Michael Jordan

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ORGANIZATIONAL STRATEGIES FOR EBUSINESS

• Primary business areas taking advantage of ebusiness include:– Marketing/sales– Financial services– Procurement– Customer service – Intermediaries

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Marketing/Sales

• Generating revenue on the Internet – Online ad (banner ad) - box running across a web

page that contains advertisements– Pop-up ad - a small web page containing an

advertisement – Associate program (affiliate program) - businesses

generate commissions or royalties – Viral marketing - a technique that induces websites

or users to pass on a marketing message – Mass customization - gives customers the

opportunity to tailor products or services

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Marketing/Sales

• Generating revenue on the Internet (cont.)– Personalization - occurs when a website can fashion

offers that are more likely to appeal to that person– Blog - website in which items are posted on a regular

basis and displayed in reverse chronological order– Real simple syndications (RSS) - a web feed format

used for web syndication of content– Podcasting - the distribution of audio or video files,

such as radio programs or music videos, over the Internet to play on mobile devices

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Marketing/Sales

• Generating revenue on the Internet (cont.)– Search engine optimization (SEO) - a set of

methods aimed at improving the ranking of a website in search engine listings

– Spamdexing - uses a variety of deceptive techniques in an attempt to manipulate search engine rankings, whereas legitimate SEO focuses on building better sites and using honest methods of promotion

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Financial Services

• Online business payments include:–Electronic data interchange (EDI)

• Value-added network (VAN)

–Financial EDI (financial electronic data interchange)

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Financial Services

• Electronic trading network

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Procurement

• Maintenance, repair, and operations (MRO) materials (also called indirect materials) – materials necessary for running an organization but do not relate to the company’s primary business activities– Eprocurement - the B2B purchase and sale of

supplies and services over the Internet– Electronic catalog - presents customers with

information about goods and services offered for sale, bid, or auction on the Internet

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Customer Service

• Customer service is the business process where the most human contact occurs between a buyer and a seller

• Ebusiness strategists are finding that customer service via the Web is one of the most challenging and potentially lucrative areas of ebusiness

• The primary issue facing customer service departments using ebusiness is consumer protection

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Consumer Protection

• Issues for consumer protection– Unsolicited goods and communications– Illegal or harmful goods, services, and

content– Insufficient information about goods– Invasion of privacy– Cyberfraud and cybercrime

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Consumer Protection

• Ebusiness security – Encryption– Secure socket layer (SSL)– Secure electronic transaction (SET)

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Intermediaries

• Intermediaries – agents, software, or businesses that bring buyers and sellers together that provide a trading infrastructure to enhance ebusiness

• Reintermediation – using the Internet to reassemble buyers, sellers, and other partners in a traditional supply chain in new ways

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MEASURING EBUSINESS SUCCESS

• Most companies measure the traffic on a website as the primary determinant of the website’s success

• However, a large amount of website traffic does not necessarily equate to large sales

• Many organizations with high website traffic have low sales volumes

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MEASURING EBUSINESS SUCCESS

• Website traffic analysis can include:– Cookie – Click-through– Banner ad – Interactivity

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Website Metrics

• Clickstream data tracks the exact pattern of a consumer’s navigation through a website

• Clickstream data can reveal:– Number of pageviews– Pattern of websites visited– Length of stay on a website– Date and time visited– Number of customers with shopping carts– Number of abandoned shopping carts

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Website Metrics

• Website metrics include:– Visitor metrics– Exposure metrics– Visit metrics– Hit metrics

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EBUSINESS BENEFITS AND CHALLENGES

• Ebusiness benefits include:– Highly accessible – Increased customer loyalty– Improved information content – Increased convenience– Increased global reach – Decreased cost

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EBUSINESS BENEFITS AND CHALLENGES

• Ebusiness challenges include:– Protecting consumers– Leveraging existing systems– Increasing liability– Providing security– Adhering to taxation rules

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EBUSINESS BENEFITS AND CHALLENGES

• There are numerous advantages and limitations in ebusiness revenue models including: – Transaction fees– License fees– Subscription fees– Value-added fees– Advertising fees

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NEW TRENDS IN EBUSINESS: EGOVERNMENT AND MCOMMERCE

• Egovernment - involves the use of strategies and technologies to transform government(s) by improving the delivery of services and enhancing the quality of interaction between the citizen-consumer within all branches of government

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NEW TRENDS IN EBUSINESS: EGOVERNMENT AND MCOMMERCE

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NEW TRENDS IN EBUSINESS: EGOVERNMENT AND MCOMMERCE

• Mobile commerce - the ability to purchase goods and services through a wireless Internet-enabled device

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OPENING CASE QUESTIONSAmazon

5. What is Amazon’s ebusiness model?

6. How can Amazon use mcommerce to influence its business?

7. Which metrics could Amazon use to assess the efficiency and effectiveness of Amazon’s website?

8. What are some of the business challenges facing Amazon?

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CLOSING CASE ONEeBay – The Ultimate ebusiness

1. eBay is one of the only major Internet “pure plays” to consistently make a profit from its inception. What is eBay’s ebusiness model and why has it been so successful?

2. Other major websites, like Amazon.com and Yahoo!, have entered the emarketplace with far less success than eBay. How has eBay been able to maintain its dominant position

3. eBay has long been an emarketplace for used goods and collectibles. Today, it is increasingly a place where major businesses come to auction their wares. Why would a brand name vendor set up shop on eBay?

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CLOSING CASE ONEeBay – The Ultimate ebusiness

4. What are the three different types of online auctions and which one is eBay using?

5. What are the different forms of online payment methods for consumers and business? How might eBay’s customers benefit from the different payment methods?

6. Which metrics would you use if you were hired to assess the efficiency and effectiveness of eBay’s website?

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CLOSING CASE TWOEBIZ

1. What other ways could you use the Internet to raise money?

2. What types of businesses could benefit from trading on the Internet?

3. Can you think of any other disruptive or non-traditional ways that you could use the Internet?

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CLOSING CASE THREEHow Do You Value Friendster?

1. How could you use ebusiness metrics to place a value on Friendster?

2. Why would a venture capital company value Friendster at $53 million when the company has yet to generate any revenue?

3. Why would Google be interested in buying Friendster for $30 million when the company has yet to generate any revenue

4. Identify Friendster’s ebusiness model and explain how the company can generate revenue

5. Explain the ebusiness benefits and challenges facing Friendster

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BUSINESS DRIVEN BEST SELLERS

• The Innovator’s Solution, by Clayton Christensen and Michael Raynor

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BUSINESS DRIVEN BEST SELLERS

• Purple Cow, by Seth Godin