E-commerceE-commerce

University of WollongongUniversity of Wollongong

IACT303 – INTI 2005 IACT303 – INTI 2005 World Wide NetworkingWorld Wide Networking

What is E-Commerce About?

• Changing transaction costs• Changing market structures• Changing boundaries of firms• New products, processes and

services• Greater speed

How?• Through the application of Internet

Technologies

The Structure of E-Commerce

• TechnologyLawEconomicsSocial Relations

– Write down one example of each of these

Extract the key terms from these definitions

“E-Commerce is the exchange of information across electronic networks at any stage in the supply chain whether within an organisation , between businesses, between business & consumers, or between public and private sectors whether paid or unpaid” UK Government

“ E-Commerce is the sharing of business information , maintaining business relationships & conducting business transactions by means of telecommunications networks” Zwass (1998)

Extract the key terms from these definitions

“The transformation of key business processes through the use of internet technologies” IBM’s Definition of E-Business

“E-Commerce is buying & selling activities over digital media”

E-Business – encompasses e-commerce & “includes the front & back-office applications that form the

engine for modern business. Its not just about e-commerce transactions, it’s about redefining old business models with the aid of technology to maximise customer value” R. Kalakota (1999) p4

Cost savings in e-commerce come from “disintermediation”

Source: Benjamin & Wigand (1995)

Producer Wholesaler Retailer Consumer

Producer Wholesaler Retailer Consumer

Producer Wholesaler Retailer Consumer

Price/Shirt Savings

$52.72

$41.34

$20.45

0%

28%

62%

Fundamental Shift in the Economics is Under

way• The explosion in connectivity is

causing new patterns of behaviour and business strategy

• In the past, the focus has been on adapting operating processes to IT.

• Now a change in strategic business fundamentals is underway

Case Study – The Demise of

Encyclopaedia Britannica

• Cost structure designed to support an army of salesman

• Competition form Microsoft EnCarta turned the business on its head

Information and Organisations

• Information is the glue that holds organisations together

• Information is intrinsic to Physical Value Chain activities

• Information asymmetries characterise many buy-seller relationships

• Information forms the basis for competitive advantage

Information and Organisations

• Information and the means of delivery determine corporate structures

• When information is carried by “things” it is generally constrained by the physical chain

Reach and Richness• Reach - the number of people exchanging

information • Richness –

– combination of bandwidth, – the degree to which the network can be

customised and – it’s interactivity

• In general, richness has demanded proximity

Richness v Reach before WWW

Reach

Richness

Evans and Wurster, 1997

Reach and Richness• There has traditionally been a trade off

between richness and reach because information activities have been intrinsically tied to physical value chains.

• With the arrival of greater connectivity and the adoption of non-proprietary protocols increasing richness and reach is possible simultaneously.

Implications for Company Structures

• The trade-off between reach and richness has determined organisational hierarchies

• The elimination of the trade-off means that traditional channels of information and control are no longer necessary

Deconstruction of the Value Chain

• Newspaper case study.– No longer tied to the print medium.– Possible to deconstruct newspaper

business and selectively offer parts of the business online

Deconstruction of the Value Chain

• High cost of distribution channels has driven the economics of banking

• Increasing richness has allowed greater richness of information over a distance through telebanking

• Hence, a cheaper distribution channel has appeared.

Types of E-Commerce

Business to Consumer (B2C) Business to Business (B2B) Business to Government (B2G) Consumer to Consumer (C2C) Consumer to Business (C2B)

The B2B Transformation

Electronic commerce emerged in the1980s with the use of electronic messaging technologies and EDI

EDI was effective in reducing costs incurred in processing, handling and storage of product improving profitability of business

The B2B Transformation

EDI was not effective in leveling the playing field for small business

operators. The proprietary nature of EDI systems

meant that suppliers had to invest in several (expensive) pieces of software when doing business with different companies.

ensuring flexibility “Pair-wise” tyranny rules under EDI incremental adoption path was not

possible Integration costs of EDI were high

The Internet’s Role

The internet has emerged as a low cost, non-proprietary, easy to use medium to conduct business

XML plays a vital role in B2B infrastructure today

Effort is being given to standardising business processes so that they can be captured in “web services” software.

Microsoft .Net is an example of this

Defining a message schema for information exchange

between partners• SOAP- Simple Object Access Protocol • SOAP is a communication protocol for

accessing Web Services.• SOAP is written in XML and enables

applications to exchange information over HTTP.

• SOAP overcomes the problem of firewalls blocking messages by using HTTP.

In summary,• SOAP is platform independent enabling

applications on different platforms to exchange information.

• SOAP will become a W3C endorsed standard• SOAP is also at the heart of Microsoft’s .NET

Web Services• For more information see:http://www.w3schools.com/soap/soap_intro.asp

Components of a well-functioning commercial web

site• As far as the consumer is concerned the tech-talk is well and good but does the website achieve the following?

• A well-organized collection of products and/or services

• A convenient way for a customer to select products• Convenient order forms• Convenient and secure ways of payment• A way of keeping information about orders• Customer support and feedback

Implications for Competitive Advantage• Deconstruction of the Value Chain

represents a threat for established businesses and an opportunity for others

Channel Extending Intermediaries

supplier customer

CEIsupplier

supplier

supplier

customer

customer

customer

Search for opportunities to add value: e.g. high customer search costs, switching costs, low customer satisfaction

Wield new power by consolidating traditional buyers & customers. Become the first-line interface with consumers.

Implications for Competitive Advantage1. Existing value chains will fragment

into multiple businesses each of which will have it’s own source of competitive advantage.

a. Why should this occur?

Implications for Competitive Advantage2. Some new businesses will benefit

from network economics of scale that can give rise to monopolies

a. How does this come about?

Implications for Competitive Advantage3. As value chains fragment and

reconfigure, new opportunities will arise for purely physical businesses

a. What examples can you think of that support this?

Implications for Competitive Advantage4. When a company focuses on different

activities the value proposition underlying its brand identity will change.

a. What does this mean?

Implications for Competitive Advantage5. Customers switching costs will drop

and companies will have to develop new ways of generating customer loyalty

a. Why have switching costs dropped?

Implications for Competitive Advantage8. Incumbents could easily become

victims of their obsolete physical infrastructure and their own psychology.

a. Can you think of any examples?

What Will Happen to Your Business

• Newspapers• Banking• Football Club• Hospital• General Practitioner• Supermarket

“The music industry will be out in five years – kaboom, gone.”

Tim WhiteEditor, Billboard Magazine

Wired, Feb. 2003

Will it?

Further readings• Kalakota R., Robinson M (2000), e-

Business, Roadmap for Success, Addison-Wesley

• Lawrence et al., 2002, Technology of Internet Business, John Wiley & Sons Australia

• Laudon & Laudon (2002), Management Information Systems, Prentice Hall

Further readings• Evans, Philip B. and Wurster, Thomas S. 1997,

‘Strategy and the new economics of information’, Harvard Business Review, Sept-Oct 1997 75(5) p. 70-80

• Glushko, R. et al. (1999) ‘ An XML Framework for agent based E-commerce’ in Communication of the ACM, Vol. 42, Issue 3.

Go to…

Barua, A. et al. (2001) ‘Measuring the Internet

Economy’, Centre of Electronic Commerce

Research, University of Texas. Available from

http://crec.mccombs.utexas.edu/works/articles/internet_economy.pdf

Measuring the Internet Economy

1. Identify the four layers that the authors propose for the Internet economy.

 2. If you are currently employed, what layer are you

employed at? If you are not employed, what layer of the Internet layer would you like to work at and why?

 3. Where in the Internet Economy “food chain” does

Malaysia and Indonesia exist? 4. What are the key findings of the paper?

Answers

1. Identify the four layers that the authors propose for the Internet economy.

 Internet Infrastructure Level; The Internet applications layer; the internet intermediary layer; the internet commerce layer

Answers

2.  If you are currently employed, what layer are you employed at? If you are not employed, what layer of the Internet layer would you like to work at and why?

 

Answers

3. Where in the Internet Economy “food chain” does Singapore exist?

 

Answers

 4. What are the key findings of the paper?• Internet economy is much bigger than originally thought.

(101 billion• IE is growing at an astounding rate• IE rivals century old industries such as (energy, cars and

telecommunications)• IE has had a major impact on jobs and responsibilities• Infrastructure and applications players make up over half

of the IE.• Internet intermediaries are critical to IE growth