1 CS5038 The Electronic Society 1. Overview of Electronic Commerce Background Definitions Perspectives Variations Business Models Pressures on businesses.

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CS5038 The Electronic Society1. Overview of Electronic Commerce

• Background• Definitions • Perspectives • Variations

• Business Models • Pressures on businesses• Responses of businesses • The Networked Business

• Benefits • Problems

Also look at 2. Retailing (next) and then 3. Customers

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General Business Terminology

• Transactions : Exchange of goods, services, information, money.

• Supply Chain: entire system (directly) concerned with getting products and services from a supplier to a customer.

• Business process: tasks undertaken by business in producing goods and services

• Broker: middleman who helps facilitate transaction

• Tendering: process of bidding to provide a good or service.

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Firms and Profits

• Most firms basically try to maximize profits (in some overall sense)

• Revenue = inflow of money or other capital

• Cost = outflow of money or capital

• Profit = revenue – cost

• Two basic ways to increase profits.

• Various strategies to achieve this.

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Specialization

``One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head: to make the head requires two or three distinct operations: to put it on is a particular business, to whiten the pins is another ... and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which in some manufactories are all performed by distinct hands, though in others the same man will sometime perform two or three of them.”

Adam Smith An Inquiry into the Nature and Causes of the Wealth of Nations, 1776.

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Transaction Costs

• Firms have internal and external trans. costs

•This picture is taken from http://en.wikipedia.org/wiki/File:Market-Hierarchy-Model.png , Creative Commons License, Source/Author: Achim Grochowski.

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The Value of Information

• Information can have a value• Know-how, intellectual property, …• Customer data• …

• Broker often makes money by using information that it would be difficult or expensive for others to get.

• Asymmetric information: Sometimes different participants in a market have different amounts of information about each other. • Car dealer vs. customer • Insurance company vs. customer (buyer has more)

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E-Commerce Definitions

E-commerce : Any kind of transaction done, partly, or completely, over a (computer and telecommunications) network

The term `E-commerce’ also refers to the processes used by participants in such transactions.

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Intrabusiness (organisational) e-Commerce

Internal to organisation, intranet: e.g.

•Between business units

•From businees to employees

•Between employees

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Interorganisational Information System (IOS)

Used to share information between organisations. Used for collaborative commerce.

•Often used to improve efficiency of supply-chain

•E.g. when vendor of some product starts to run low in stock IOS can share that information back to the suppplier, who can then ship more stock.

•Electronic Data Interchange (EDI) standards

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E-commerce Types

Business-to-business (B2B): online transactions (e.g. purchases) with other businesses.

Business-to-consumer (B2C): online transactions between businesses and consumers.

Business-to-employee (B2E): information and services made available to employees online (subset of intrabusiness).

Consumer-to-consumer (C2C): online transactions between consumers

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E-commerce Types

Consumer-to-Business (C2B): consumers seek sellers or sell services to organisations.

• Price comparison websites

• Sites for freelancers: http://www.elance.com/ , http://www.guru.com/ , http://www.peopleperhour.com/

• Affiliate schemes: say, a link from a consumer’s web-page to an online retailer, and the consumer gets rewarded either per-click or per-sale.

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E-commerce Types

Peer-to-Peer (P2P) – direct transactions without middlemen. E.g. consumers exchange games, DivX videos, MP3 music

Government-to-Citizens (G2C) – government provides services and information to citizens

Example: http://dvlaregistrations.direct.gov.uk/

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E-commerce Types

Exchange: a system to host buyers and sellers. Often has: dynamic pricing, matching of services.

• Examples: •http://www.adpdsi.co.uk/uk/

Exchange-to-Exchange (E2E) – system to connect exchanges

If complicated supply chain, probably need to interact, build-systems to deal with multiple exchanges.

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Electronic Commerce Process Terms

EC defined from these perspectives:Communications

E-delivery: Goods, services, information, paymentsBusiness process

Automate business transactions and workflowService

Cut service costs, improve quality and speedOnline

Buying, selling and other services on internetCollaborations

Inter- and intraorganisationalCommunity

Gather to learn, transact, communicate

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Variations

Pure vs. Partial EC: based on the degree of digitisation ofProductProcess Delivery agent

Traditional commerce: all dimensions are physical

Pure EC: all dimensions are digital

Partial EC: all other possibilities include a mix of digital and physical dimensions

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Dimensions of E-Commerce

Prentice Hall, 2002

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Variations (2)

Internet vs. Non-Internet EC:

VANs – value added network (hosted service that acts as intermediary between business partners)

LANs – local area network

Vending Machine

Click and Mortar

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Business Models

Name your price – priceline.comFind the best price – hotwire.comDynamic brokering – getthere.comAffiliate marketing – amazon.comElectronic tendering systems – gxs.comOnline auctions – ebay.comCustomization and personalization – dell.comElectronic marketplaces and exchanges – e-steel.comSupply chain improvers Collaborative commerce

Where is the company positioned in the value chain?

A method of doing business by which a company can generate revenue to sustain itself.

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Rappa’s Business Models

Brokerage – exchange, trading community, aggregatorAdvertising – portals, sponsorship bannersInfomediary

Recommender - users provide recommendations on products, e.g. http://www.epinions.com

Registration - session tracking of users, allows greater targeting of advertising, e.g. http://www.nytimes.com

Merchant - retailManufacturer – eliminate middlemanAffiliate – online referrals for commissionCommunity – voluntary contributors, regular visitorsSubscription – high value content

Many companies changed to subscription models in last two yearsUtility – pay by byte

http://www.digitalenterprise.org/models/models.html

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Example: ORBIS Corp.

Prentice Hall, 2002

TRANSFORM

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Major Business Pressures

Market / Economy

Strong competitionGlobal economyRegional trade agreements (NAFTA)Low labor cost in some countriesFrequent changes in marketsIncreased power of consumers

Technology

Rapid technological obsolescenceIncrease innovations and new technologiesInformation overloadRapid decline in technology cost vs. performance ratio

Society / Environment

Changing nature of workforce(De)regulation of servicesShrinking subsidiesEthical and legal issuesSocial responsibility of E-bus.Rapid political changes

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Organizational ResponsesStrategic systems (e.g. FedEx tracking system) – strategic advantage

Continuous improvement efforts Customer Relationship Management (CRM) – maximum value proposition to customer – online help,

product information, tools Total Quality Management (TQM) - ongoing refinements in response to continuous feedback

Business process reengineering (BPR) - major innovations

Business Alliances Virtual Corporation: legal and taxation status allows multiple businesses to work together under one

umbrella. Often temporary. Keiretsu - Long term alliance of manufacturers, suppliers and finance corporations

Cooperation in E-markets – purchasing consortia

IT SupportVarious possible benefits:

•Reducing cycle time (=business process time) and time to market

•Improved opportunities for collaborative work

•Improvements to supply-chain: speed and efficiency

•Mass customization

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Technology: IntranetIntranet

(Internal) corporate network LAN (Local Area Network)

WAN (Wide …)

Uses Internet technology Open, flexible connectivity

Limited to authorised employees Secure behind firewall

• Much on the following slides on Portals and Intranet Architecture come from a lecture by Paul Chan: http://www.icua.us/student/aec/3aec71.ppt

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Architecture of an Intranet

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Technology: ExtranetExtranet:

Links intranets in different locations, from approved partners, vendors, suppliers, etc.

Uses Internet technology

Security required – Virtual Private Network (VPN) Information travels through encrypted tunnels

between Intranets

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The Networked Business: Internet, Intranet, Extranet

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Enterprise (Corporate) Portals

Corporate (enterprise) portal—a gateway for entering a corporate Web site, enabling communication, collaboration, and access to company informationProvide single-point access to specific enterprise

information and applications available on: Internet Intranets Extranets

Companies may have separate portals for outsiders and for insiders

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Corporate Portal as a Gateway to Information

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Corporate Portal Framework

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Interoperability & Protocols

• Need technological protocols to facilitate e-commerce. • Currently include:

• TCP/IP: The Internet Protocol Suite. The standard computer networking protocol stack for exchanging packets of data across an unreliable network.

• HTTP: web-browser makes requests, possibly for resources (web-pages etc.), and web-server responds.

• SSL (and TLS): cryptographic protocols for sending encrypted messages over internet.

• HTTPS: a secure version of HTTP. Basically, HTTP combined with SSL.

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Interoperability & Protocols

• XML: Extensible Markup Language. Standard, machine-readable data format. Basis for other technologies including RSS, SOAP, … and modern versions of Office, OpenOffice, iWork.

• SOAP: Simple Object Access Protocol. Standard for exchanging structured information (e.g. XML) across network.

• JavaScript: a programming language (not Java).

• AJAX: Asynchronous JavaScript and XML. Group of technologies used for interactive web applications. Execution on both the client and server sides. • HTML and CSS for presentation of static components. JavaScript executes on client for

dynamic components and interactivity. HTTP or HTTPS used to send to or request data (possibly XML) from server, or for server to execute some program (possibly JavaScript).

•

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Benefits of E-Commerce

To Organizations

Expands the marketplace

Decreases the cost (less paper)

Pull-type supply chain management

Customisation = competitive advantage

Less time between outlay of capital and receipt of products and services

Supports BPR efforts

To Society

Work at home less traveling less traffic and pollution

Lower prices benefit less affluent people

Third world and rural areas access products otherwise unavailable

Public services at a reduced cost and improved quality

To Consumers

Open 24 hours a day

More choices

Better prices

Quick delivery

Product information in seconds

Interact with other consumers

Facilitates competition

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Problems With E-Commerce (A)

Technical Problems Insufficient telecommunication bandwidth Difficult to integrate Internet EC software with some existing

applications and databases Additional cost of infrastructure Software development tools are still evolving Standards (security, reliability, communication) are still evolving Interoperability problems.

Cost Problems Developing EC in house can be expensive and may result in delays.

Difficult to justify - intangible benefits are difficult to quantify.

E.g. customer relationship management (CRM).

Non-technical problems can be more serious…

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Problems With E-Commerce (B)Other limiting factors

Switch from physical to virtual store may be difficult, expensive Lack of touch and feel online Channel conflict Unresolved legal issues Rapidly evolving and changing EC Lack of support services Insufficiently large number of sellers and buyers Expensive and/or inconvenient accessibility to the Internet.

Security, Privacy and Trust B2C - Hard to convince customers that online transactions are

secure Customers do not trust:

Unknown sellers, Paperless transactions, Electronic money

Legal Issues: TaxIn USA, one driving force behind early e-store success

was lower taxBecause of a tax loophole, sales tax (VAT) was

not charged on e-commerce salesAutomatically gave price advantage to e-

commerce sites!

Legal Issues: Intl E-CommerceIn theory, e-commerce means sites can sell globally

In practice, difficult because of different tax rules, regulations, customs, etcMore common to set up subsidiaries in different

countries, as Amazon has done

Lack of global legal/regulatory framework hinders ecommerce

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Social Problems With E-CommerceWhat if,

• Information aggregated by companies about consumers is used to the advantage of companies, but not the consumers

• There is not fair competition

• It enables cartels to form

• Prices for consumers go up

• The company claims to be operating in a different jurisdiction, and does not submit to regulation or law

• Avoids tax (even whilst professing not to be `doing evil’)http://en.wikipedia.org/wiki/Double_Irish_Arrangement

• Does not re-invest in country in which revenue is generated

?

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Summary• Definitions – B2C, B2B, B2E• Perspectives – communications, business process,

services• Variations – Pure v. partial• Business Models and Rappa’s models• Pressures on businesses – market, technology, society• Responses of businesses – BPR, alliances, IT support• The Networked Business - Internet, Intranet, Extranet• Benefits – organisations, consumers, society• Problems – technical and non-technical