Chapter 3

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Chapter 3

Using Information Technology to Engage in

Electronic Commerce

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Learning Objectives Recognize the importance and advantages of

electronic commerce. Understand how electronic commerce is being

blended into everyday business processes. Understand the difference between business-

to-business electronic commerce and business-to-commerce electronic commerce.

Be familiar with examples of good business-to-business electronic commerce and business-to-consumer electronic commerce.

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Learning Objectives (Cont’d) Know the role that interorganizational systems,

the Internet, and the world Wide Web play in electronic commerce.

Know what factors influence the adoption of Interorganizational systems.

Recognize the movement from electronic data interchange to various Web-standard data exchange practices.

Understand why many firms choose to have both a virtual store and a physical store.

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Electronic Commerce

Electronic Commerce (E-commerce) refers to a business transaction that uses network access, computer-based systems, and a Web browser interface.

Business-to-consumer (B2C) refers to transactions between a business and the final consumer of the product.

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E-commerce (Cont’d)

Business-to-business (B2B) refers to transactions between businesses in which neither one is the final consumer.

Electronic Government (E-gov) refers to transactions between a government agency and typically a citizen.

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E-commerce (Cont’d)

Main benefits to firms:• Improved customer service before, during,

and after the sale

• Improved relationships with suppliers and the financial community

• Increased economic return on stockholder and owner investments

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E-commerce (Cont’d)

Main constraints to firms:• High costs

• Security concerns

• Immature or unavailable software Scope of E-commerce

• WWW.CENSUS.GOV

• Link to the E-stats Web page to find the most current e-commerce figures.

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Table 3.1 E-commerce Sales

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Business Intelligence

Business Intelligence (BI) is the activity of gathering information about the elements in the environment that interacts with the firm.

External databases are commercial databases that, usually for a fee, provide information and analyses on virtually any subject. WWW.LEISNEXIS.COM, WWW.DIALOG.COM, WWW.GXS.COM, WWW.THOMASNET.COM

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Business Intelligence (Cont’d)

Firms use these databases to gather BI because it is faster and less expensive than trying to research a wide array of information sources.

Government databases offer a wide range of topics for researchers in many fields. WWW.LOC.GOV, WWW.CENSUS.GOV, WWW.BLS.GOV

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Business Intelligence (Cont’d)

Firms are more inclined to initiate their own external searches for market intelligence.

Search engines are the most popular means for people to obtain information available from the Web.

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Business Intelligence (Cont’d)

Search engine is a special computer program that asks a user for a word or group of words to be found. WWW.GOOGLE.COM, WWW.YAHOO.COM, WWW.MSN.COM, WWW.ASKJEEVES.COM • Searches the content of web sites on the Internet to

see if the word or words are on any Web sites.

• Makes it possible to scan large volumes of information quickly, easily, and thoroughly.

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Figure 3.1 Search Engines Explore the Internet to find Sites Containing Information You Seek

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E-commerce Strategy and Interorganizational Systems

Interorganizational system (IOS) is the strategy in which a firm is linked with transmissions of electronic data with other firms so that all of the firms work together as a coordinated unit, achieving benefits that each could not achieve alone.• Participating firms are called trading partners,

business partners, or a business alliance.

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E-commerce Strategy and Interorganizational Systems

E-commerce is fundamental to IOSs. Electronic data interchange (EDI) is a

means for achieving an IOS; a subset. Extranets are another alternative.

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IOS Benefits

Comparative Efficiency is obtained by the IOS because the trading partners can produce their goods and services with greater efficiency and provide their goods and services at lower costs to their customers. (price advantage over competitors)

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IOS Benefits (Cont’d)Comparative Efficiency Improvements

Internal efficiency within the firm’s own operations.• Gather and analyze data quickly.• Make decisions faster.

Interorganizational efficiency gained by working with other firms.• Offer more products and services.• Serve more customers.• Shift certain work to suppliers or customers.• Gather environmental data more easily.

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IOS Benefits (Cont’d)

Bargaining Power is the ability of a firm to resolve disagreements with its suppliers and customers to its own advantage.

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Bargaining Power Improvements

Unique product features enable firms to offer better service to their customers in the form of easier ordering, quicker shipments, and faster response times to requests for information.• This better service becomes a feature of the firm’s

products, making them more appealing than similar products offered by competitors.

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Bargaining Power Improvements (Cont’d)

Reduced search-related costs can reduce the firm’s “shopping” cost that its customers incur in searching for a supplier, identifying alternative products, and getting the lowest price.• The firm is a customer of its suppliers, the firm can

realize the same shopping-cost reductions when ordering from its suppliers.

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Bargaining Power Improvements (Cont’d)

Increased switching costs is when a firm makes it more expensive, in cost and/or convenience, for customers to switch to a competitor.• Providing customers with such information resources

as hardware, software, and data communications channels that would have to be replaced if products were purchased from another firm.

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IOS Expansion

Vendor stock replenishment is a special type of IOS in that the customer trusts the supplier enough to allow the supplier to access its computer-based inventory system.• The supplier initiates the replenishment process by

electronically monitoring the firm’s inventory levels.

• Wal-Mart uses the IOS strategy extensively.

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EDI

EDI consists of direct computer-to-computer transmissions of data in a machine-readable, structured format.

Older technology, but majority of B2B commerce use

Enables data to be transmitted and received without rekeying

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EDI (Cont’d)

Equipment (communications lines, hardware, etc.) and support services provided by telephone companies (AT&T, MCI, et al.)

Value-added network (VAN) is when the services that operate and manage the communications line (circuit) are provided in addition to the line itself.

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EDI (Cont’d)

EDI is the dominant implementation of an IOS.• More that two-thirds of e-commerce is

conducted using EDI compared to other alternatives.

• More costly: $5,000-$30,000 per year with a single vendor or customer

• More bulky than newer IOS systems

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Extranet

Extranets enable the sharing of sensitive computer-based information with other firms using information technology over the internet.• Used in collaboration with trusted suppliers and large

customers

• Security and privacy are serious concerns, so extranets are generally secured behind a firewall and use encryption such as Pretty Good Privacy (PGP).

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Extranet (Cont’d)

Firewall permits only authorized users to access the firm’s information.

Extranets allow for the same type of data exchange as EDI.

Extranets incorporate the common protocols and communication networks of the Internet, which results in a great cost savings (EDI is costly to use).

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IOS Adoption Influences

Proactive and reactive business partners Adoption influences

• Competitive pressures (HIGH, firm is reactive in adopting IOS, usually EDI)

• Exercised power (powerful firm is proactive in adopting/demanding IOS)

• Internal need (firms see participation as a way to improve)

• Top management support (ALWAYS influences the decision)

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Figure 3.2 Internal and Environmental Influences on IOS Adoption

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IOS Benefits

Direct benefits• Reduced data entry errors

• Lower costs

• Increased operational efficiency

Indirect benefits• Increased ability to compete

• Improved relationships with trading partners

• Better customer service

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Figure 3.3 IOS Direct and Indirect Benefits

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B2C Strategies for E-commerce

Important to understand B2C Strategies• More products and services are becoming available

for digital delivery.

• More consumers are overcoming their reluctance to purchase using the Web.

• Higher communication speeds in homes has made delivery of digital products practical.

• Fear of information theft has been replaced with acceptance.

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Digital Products Entertainment–songs, albums, movies, etc.

WWW.SONY.COM Computer programs and updates–virus

protection software, tax software, etc. Services–WWW.LENDINGTREE.COM Can be consumed as soon as they are

downloaded Purchasers incur a substantial cost of the

transaction in terms of computer cost, online connection fees, storage media, and so on.

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Physical Products

Items must be transported to the consumer.

Shipment has to be arranged. Traditional delivery methods are slow. Faster delivery time options are costly. Mail/shipping companies offer services

such as online tracking that allows more information and control over delivery.

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Virtual vs. Hybrid Sales

Virtual sales are those made by a firm that does not operate a physical storefront.• Customer can’t enter and purchase the product.

Hybrid sales occur when firms have both a physical storefront and a Web site where customers can purchase products.• Brick-and-click operations

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Virtual Sales Challenges

Provide necessary product information without overwhelming the customer.

Communicating image files from the Web site to the customer’s computer can take time.

Payment over the Internet has suffered bad press–credit card fraud.

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Hybrid Sales

Most firms had storefronts before sales over the Internet were possible.

Both a physical storefront and the Internet are necessary to their business plans.

Stores act as showcases for products. Customers enjoy convenience of shopping

over the Web. B2C sales means less inventory at its store;

more sales floor space.

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Virtual Sales

Limit images displayed response time, WWW.OFFICEDEPOT.COM.

Secure data transfer of credit card information.• VeriSign

• PayPal

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The Next Step for E-commerce Mobile commerce (m-commerce) is the use

of cell phones and personal digital assistants (PDAs) to engage in wireless e-commerce.

Third generation (3G) telecommunications is data-capable wireless technologies.• Europe purchased 3G licenses in 2000; United States

in 2004.• $40 billion per year global industry by 2009.

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M-commerce

Early applications included news services, financial information alert/transactions, and banking.

Movie ticket purchases, parking payments, etc. gaining acceptance.

Japan is 1st country to have a 3G carrier (almost all Japanese have a cell phone).

United States-only about 40% have a cell phone.

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The Next Step … (Cont’d)

Wireless Internet Hot spots are created using a wired connection (for high communications speed) and then broadcast via a wireless access point to an area approx. 100 meters; Starbucks.

Business-class wireless computing would provide fast wireless communication everywhere over the same communications carrier as cell phones; Verizon.

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Using the Internet

The origin of the Internet can be traced to 1969, when the U.S. government established a network called ARPANET.

ARPANET demonstrated that it was possible for a person to request and receive data over a complex network that included many computers and network connections.

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World Wide Web

World Wide Web (WWW) efforts began in 1989 when Tim Berners-Lee came up with a idea for physicists to communicate.

Hypertext-electronic documents that are linked together.

Physicists would be able to click on words or phrases displayed on their computer screens and retrieve the hypertext.

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World Wide Web (Cont’d)

Hypertext became a reality in 1992. Hypermedia is the transmission of multimedia

consisting of text, graphics, audio, and video over the WWW.

WWW (Web) is information accessible via the Internet whereby hypermedia documents (computer files) are stored and then retrieved by means of a unique addressing scheme.

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World Wide Web Terms

Web site–collection of Web pages Hypertext link–pointer (text or a graphic) used

to access hypertext stored at a Website Web page–hypermedia file stored at a unique

Web site address Home page–first page of a Web site Browser–software designed to find and read

files on the Internet written in hypertext markup language (HTTP).

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World Wide Web Terms (Cont’d) Uniform resource locator (URL)–unique address of a

Web page Protocol–set of standards that govern communication of

data (HTTP, FTP, URL) Domain name–address of the website where a Web

page is stored Path–certain directory/subdirectory and file at the Web

site File Transfer Protocol (FTP) users can copy files onto

their computers from any Web site.

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Figure 3.5 World Wide Web Terminology

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Understanding the Difference

The Internet is a global communications network that connects millions of computers.• Provides the network architecture

The Web is a collection of computers acting as content servers that host documents formatted to enable viewing of text, graphics, and audio as well as allowing linkages to other documents on the Web.• Provides the method for storing and retrieving its

documents

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Cyberspace and the Information Superhighway

Cyberspace1: a society that had become a slave to technology.

Information Superhighway describes a positive force that gives everyone access to the wealth of information that exists in modern society.

1 Term coined in 1984, author William Gibson Neuromancer

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Internet Standards

Internet Society (1992) promotes commercial Internet use.

Internet Engineering Task Force (IETF) responsible for Internet standards.

World Wide Web Consortium (W3C) responsible for Web standards.

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E-commerce and Hospital Supply Chain Management Hospitals conduct most of their purchases online.

• Only 5 % benefit compared to manual purchasing. Hospitals can use a standard protocol such as the

Internet to replace EDI.• Global Healthcare Exchange (WWW.GHX.COM) help

hospitals implement clinical commercial exchange

• Hospitals have hundreds, sometimes thousands, of vendors; the savings is substantial.

Speed and ease of connection to a new vendor for e-commerce is a strong incentive for change.• Analyze purchase requests.

• Find less expensive substitute or less costly vendor.

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Business Applications of the Internet Retailing Operations

• Most of the large retail chains have established a Web presence.

• Retailers make their home pages directly accessible through the Web.

Virtual mall combine with other stores in a collection sites.

Retailing organizations changing the face of Web information.• WWW.AUTOBYTEL.COM• WWW.AMAZON.COM

Over 70% of Internet users make a yearly online purchase.

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Suggestions for Successful Internet Use Make sure your Web site is robust. Make sure your browser and database structure are both

flexible and intuitive. Emphasize content. Update often. Look beyond customers. Target content to specific users’ needs. Make the interface intuitive. Be in the right Web location. Create a sense of community. Get help if you need it.

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Future Impact of the Internet on Business

E-commerce is growing in the United States and worldwide (15% annually past 5 years).

3G cellular technology will enable users to make purchases using their phones as a debit or credit card; 4G service will soon be available.

By 2008 phones will be used routinely for purchases.