Notes for Chapter 6

E-Business & E-Commerce

Overview of E-Business & E-Commerce
E-Commerce: Electronic commerce (EC or e-commerce) describes the process of buying,
selling, transferring, serving or exchanging products, services or information via computer
networks, including the internet.
E-Business: E-business refers to a broader definition of EC, not just the buying and selling of
goods and services, but also servicing customers, collaborating with business partners,
conducting e-learning and conducting electronic transactions within an organization.
Pure vs. Partial EC: EC can take several forms, depending on the degree of digitization- the
transformation from physical to digital- involved. The degree of digitization can relate to: (1)
the product (service) sold, (2) the process, or (3) the delivery agent (or intermediary). In pure
EC all dimensions are digital.
All others combinations that include a mix of digital and physical dimensions are considered
EC (but not pure EC). If there is at least one digital dimension, we consider the situation
partial EC. E.g. buying a shirt at Walmart Online or a book from Amazon.com is partial EC,
because the merchandize is physically delivered by a shipper. But buying an e-book from
Amazon.com is pure EC, because the product, its delivery, payment and transfer agent are all
done online. Note that some pure E-Commerce companies add some physical facilities. E.g.
Amazon.com has physical warehouses and allows customers to pick up merchandize at
physical locations.
EC Organizations: Companies that are engaged in EC are considered virtual organizations.
Click-and-Mortar organizations are those that conduct some e-commerce activities, yet their
primary business is done in the physical world (e.g. Wal-Mart Online).
The basic idea of E-Commerce is to automate as many business processes as possible. A
process can be order initiation, order fulfilment, procurement of material, manufacturing parts
(production), delivery or providing CRM. EC activities support selling, buying, and
providing relationships as well as the internal and external transactions involved. This is done
by EC mechanisms such as e-markets, e-procurement and e-CRM.
History of EC: EC applications began in early 1970s with such innovations as electronic
transfer of funds. But it flourished with the advent of electronic data interchange (EDI),
which automated routine transaction processing ad extended EC to all industries.
In the early 1990s, EC applications expanded rapidly, following the commercialization of the
internet and introduction of the web. A major shakeout in EC activities began in 2000 when
hundreds of dotcom companies went out of business. Since 2003 EC has continued to show
steady progress.

EC Newcomers: Social Networking Sites are growing popularity and providing EC

opportunities. Many of them target certain groups, such as teenagers, senior citizens, women
or students.
The creation of a trend, known as Social Commerce on the internet today is brought about by
the merging or Web 2.0 technologies, e-business opportunities and online communities.
Social commerce is concerned with the creation of places where people can collaborate
online, solicit advice from trusted individuals and avail themselves of goods and services.
Business to Consumer Applications
Electronic commerce offers a wider variety of products anytime and almost anywhere.
Directories and hyperlinks from other websites and intelligent search agents help buyers find
the best stores and products to match their needs. Two popular shopping mechanisms online
are electronic storefronts (e.g. Home Depot, Godiva.com, Wal-mart, cdnow.com etc) and
electronic malls (e.g. shopping.msn.com, cashbackstores.net etc.). Malls may be of two
types- referral malls (e.g. Hawaii.com) or Mall organizer with the facility of a shopping cart
(e.g. Yahoo). When retailing (sales of goods and/or services from many manufacturers to
many individual customes) is done online, it is called e-tailing. It offers customized products
and services to individual customers at a reasonable price and fairly fast (e.g. Dell
Computers, nike.com etc.).
Online delivery of services saves considerable cost of the service providers.Electronic
banking or cyber banking helps consumers to pay bills, apply for loans and do many more
online transactions from the comfort of their home by using credit cards, debit cards etc.
Securities, travel services and real estates are some other categories of products/ services
which are frequently bought online.
Business to Business Applications
B2B comprises 85% of EC dollar volume. It covers applications that enable an enterprise to
form electronic relationships with its distributors, resellers, suppliers, customers and other
partners. By using B2B, organizations can restructure their supply chains and partner
relationships. The major B2B business models are (1) Sell-side marketplace (selling products
or services to other organizations from own private e-marketplace and/or from a third part
site, where the buyer is expected to come to the sellers site, view catalogues and place order;
e.g. dellauction.com), (2) buy-side marketplace (organizations attempt to buy needed
products or services from other organizations electronically. Purchasing by using electronic
support is referred to as e-procurement. This uses reverse auction, group purchasing (e.g. allhealth.com) or desktop purchasing (appropriate for govt. entities and large companies). EMarketplace is the one in which there are many sellers and many buyers and where entry is
open to all are called public exchanges, which can be classified in to four basic types: (1)
vertical exchanges for direct materials, (2) vertical exchanges for indirect materials, (3)
horizontal exchanges and (4) functional exchanges.

Ethical & Legal Issues in E-Business

E-commerce is taking new forms and enabling new business practices that may bring
numerous risks, particularly to individual customers. Some of the ethical issues arise from
concern for privacy (e.g. protection of buyers identity), use of software for web-tracking,
loss of jobs due to elimination of some company agents, brokers, or employees,
disintermediation and re-intermediation. Legal issues may arise from fraudulent activities on
part of the buyer or the seller.
Managerial Issues
Failures of EC initiatives are fairly common, mainly because of incorrect revenue model,
lack of strategy and contingency planning, inability to attract enough customers, lack of
funding, too much online competition in standard products, poor order fulfilment
infrastructure and lack of qualified management. Some EC initiatives fail because of intraorganizational problems (e.g. Levi Strauss stopped online direct sales of its apparel after its
major distributors and retailers put pressure on the company not to compete with their brick
and mortar outlets) or lack of demand in the marketplace (e.g. joint-venture between Intel and
SAP to develop low cost solutions for SMEs). Still there are hundreds of success stories,
primarily in specialty and niche markets. EC can result in fundamental change in how
business is done and resistance to change from employees, vendors and customers may
develop. Education, training and publicity over an extended time period offer possible
solutions to the problem. Integration of E-Commerce with the rest of the business involve
planning, competition for corporate resources with other projects and interfacing EC with
databases, existing IT applications and infrastructure. Lack of qualified personnel, who may
decide on online marketing issues, is another managerial concern. Although outsourcing can
solve the problem, it is difficult to decide what should be outsourced and what should not be.
Because of the complexity and multifaceted nature of EC, it makes sense to prepare an
implementation plan, which should include goals, budgets, timetables and contingency plans.
It should address many legal, financial, technological, organizational and ethical issues.
Another issue is regarding making profitable alliances. Choosing the companys strategy
towards e-commerce and justifying e-commerce by conducting a cost-benefit analysis are
very difficult tasks.