Chapter 10

Electronic Commerce and the Strategic Impact of Information Systems

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Electronic Commerce Systems

E simply means anything done via the internet and commerce means buying and selling products, services and information. So, E Commerce refers to the process of buying and selling or exchanging of products, services, or information via computer networks including interne An Electronic Commerce System is an information system that provides e-commerce capabilities for an organization. Electronic commerce is the use of network, especially the internet to promote and sell goods and services. 2001 Business & Information Systems 2/e 2

Hardware and Software

Requires the business have a web site. The web software runs on a web server which has special e-commerce software that provides electronic commerce function. A customer in e-commerce by using a browser which is the beginning page for information. Business may use intranet or extranet for ecommerce with other business
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How does an e-commerce site work?

Graph for e-commersite

Request for information

Customer Computer with Browser software

Web server computer with e-Commerce Information software

Request for data

Data

Database server computer with database software & database

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Chapter 10 E-Commerce: Digital Markets, Digital Goods Electronic Commerce and the Internet

Management Information Systems

The Benefits of Disintermediation to the Consumer

The typical distribution channel has several intermediary layers, each of which adds to the final cost of a product, such as a sweater. Removing layers lowers the final cost to the consumer.

Figure 10-2

Benefits of E-Commerce

For Consumers Reduced Prices Global marketplace 24 hour access Larger Purchase per transaction Reduced time For Business Increased potential market share Easier entry to new market Low cost advertisement Low barriers to entry Improved customer relation

Disadvantages of E-Commerce

For Consumer Unable to examine products personally Security Credit card fraud Trust For Business Hardware and software Maintenance of Website Intellectual property Taxation Training and maintenance
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Chapter 10 E-Commerce: Digital Markets, Digital Goods Electronic Commerce and the Internet

Management Information Systems

Key concepts in e-commerce (cont.) Digital goods

Goods that can be delivered over a digital network E.g., Music tracks, video, software, newspapers, books Cost of producing first unit almost entire cost of product: marginal cost of producing 2nd unit is about zero Costs of delivery over the Internet very low

Marketing costs remain the same; pricing highly variable

Industries with digital goods are undergoing revolutionary changes (publishers, record labels, etc.)

Difference between Digital goods and Traditional goods

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EC Business Models

Business model: Business model is a method of doing business by which a company can generate revenue to sustain itself. A business model describes the rationale of how an organization creates, delivers, and captures value (economic, social, or other forms of value). The process of business model construction is part of business strategy Business models are a subset of a business plan or a business case. It is a set of planned activities designed to result in a profit in a marketplace. E-commerce business model is a business model that aims to use and leverage the unique qualities of the internet and the world wide web.

EC Business Models

Revenue Models Description how the company will earn revenue, produce profits, and produce a superior return on invested capital.
How will you earn money?

Major revenue models

Sales Transaction fees Subscription fees Advertising fees Affiliate fees Other revenue sources

Value Proposition: Defines how a companys product or service fulfills the needs of customers. Why should the customer buy from you?

E-Commerce Business Model

Bricks and clicks business model: Business model by which a company integrates both offline (bricks) and online (clicks) presences. It already has an established brand name and it can use it physical store to promote the website One example of the bricks-and-clicks model is when a chain of stores allows the user to order products online, but lets them pick up their order at a local store. Storefront Model: The business provides a website with product information, a shopping cart and a online ordering mechanism. User select the product they want to buy and place an order through the shopping cart. The product price is usually fixed but can be negotiable. Fit for physical goods and services.e.g amazon.com,Redenvelop.com Built order merchant model: A manufacturer such as computer vendor can use this model by offering goods and services and ability to order customized versions. This provides added value to consumers and allows the manufacturer to create only those products that will be sold.e.g dell.com

E-Commerce Business Model

Service provider model: A pizza delivery service can operate on pay

per item basis but many Internet-based services cannot easily operate this way.e.g googlemap,u tube.com,xdrive.com Subscription based access model : Visitors pays a fixed fee per month or a year in return for unlimited access to the services. Access beyond a certain limit is subject to a surcharge .e.g online article, news games Prepaid Access model : User pay a certain amount for access to the services for a certain time period or content. It is similar to prepaid telephone card and it use smart card. Broker model : Broker are market maker. They bring buyer and seller together and facilitates transaction between them. Makes money by charging a fee on every facilitated transaction or percentage of price. a. transaction broker e.g etrade.com,expedia.com,paypal.com b.Information broker e.g edmunds.com, realtor.com, kbb.com

E-Commerce Business Model

a. b.

Advertisers model: A site offers free access to something and shows advertisement on every page. A user clicks on an advertisement and goes to an advertisers page. The advertisers pays the site operators either eyeballs or click through.e.g bdjobs.com Targeting advertiser: related to the topic at hand on the site gets higher exposure and click through. Updating advertisers: To present users fresh advertisement periodically. Portal site model : A portal offers one stop access to specific content and services like news, stock information or chat. It targets its ad based on the personalization. e.g yahoo.com, my.cnn.com Free access model: Users are given something for free, but with advertisement. A free web space provider typically provides advertising banners at the top or bottom of its sites. Virtual mall model: It is a hosting site that hosts many merchants, service providers, brokers and other business. The virtual mall can act as an intermediary between customers and the business it hosts by facilitating payment and guaranteeing a full refund if a merchant does not deliver in time. E.g kids and lover

E-Commerce Business Model

Virtual Community Model: A website that attracts a group of users with a

common interest who work together on the site. It requires registration and fee for access to the site. Unregistered visitors are often attracted by offering teasers to entice registration. e.g largest virutal community is Slashdot, usenet newsgroups. Infomediary model: Collects, evaluates and sell information on consumers and their buying behavior to other parties who want to reach those consumers. A visitors is offered something for free which allows infomediary to monitor the visitors online activities. A simple way to achieve this to require registration to access to the site. Direct sales model Direct selling is marketing and selling products to consumers directly, away from a fixed retail location. Sales are typically made through party plan, one to one demonstrations, and other personal contact arrangements. A text book definition is: "The direct personal presentation, demonstration, and sale of products and services to consumers, usually in their homes or at their jobs. Freemium business model: Business model that works by offering basic Web services, or a basic downloadable digital product, for free, while charging a premium for advanced or special features.

Types of Electronic Commerce

Business-to-consumer (B2C) Business-to-business (B2B) Consumer-to-consumer (C2C) Intraorganizational

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Business-to-Consumer

Business-to-consumer (B2C) involves a business selling its products or services electronically to the final consumer, which is usually an individual. It involves commercial interaction between a business entity and an individual consumer, where a business sells to a consumer for example, a customer buying a shirt from a retailer through the Internet. Munshigi.com, bengalcommerc.com, bajna.com and e-bangla.com are the most popular B2C e-commerce in Bangladesh. www.amazon.com, www.dell.com, www.walmart.com
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Business-to-Consumer

B2C companies operate in several ways:

E-tailers: sell the products they produce Called direct marketers & provides after sales service information as well as return and exchange options. Some e-tailers specialize in a certain product and others provide a wide a range of product for customers Using others e-companies to sell their products Called indirect marketers Sell their products electronically Called full cybermarketers
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Business-to-Consumer (contd.)

Selling through traditional means as well as electronically

Called partial cybermarketers

Filling orders for their own stock

Called electronic distributor

Send orders they receive to manufacturers or wholesalers that fill the orders

Called electronic brokers

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Business-to-Business (B2B)

Business-to-business (B2B): Sales

of goods and services to other businesses (Grainger.com, Ariba.com) www.cisco.com www.fedex.com www.procurenet.com Business-to-business applications of Ecommerce involve electronic catalog, exchange, and auction marketplaces that use Internet, intranet, and extranet websites and portals to unite buyers and sellers.

Business-to-Business

Three main types of B2B e-commerce:

Supplier-oriented marketplace supplier company provides ecommerce capabilities for other businesses to order its products. As like B2C other companies place order. Buyer-oriented marketplace business that want to purchase requests quotations or bids from other companies electronically. Interested parties place order and buyer selects the winning supplier from the submitted bids Intermediary-oriented marketplace acts as an intermediary between buyer and seller.provides the business capabilities for supplier and buyers to identify each others One company may involve two or more B2B business Use public internet or private extranet set up by company. Extranet is more secure than internet.
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Consumer-to-Consumer

In consumer-to-consumer (C2C) electronic commerce, one consumer sells a product or service to another consumer usually through an intermediary e-commerce business. It involves commercial interaction between two private individuals for example, auction sites. If a person wants something to sale, then he can get it listed at an auction site, and others can bid for it.
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Intrabusiness

Intrabusiness, or organizational, electronic commerce involves transactions between departments, regions, subsidiaries, or other units of a business. Transaction takes place over the business intranet.
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Other types of e-commerce

Types of E-services Government- to- citizen(G2C) Government-to-Business(G2B) Government-to-Employee (G2E) Government-to-Governement(G2G)

Interorganizational Information Systems

An InterOrganizational System (IOS) is an information system shared by one or more suppliers and customers. In manyB2B situation business uses the same supplier repeatedly and establish a relationship in advance with supplier and is called IOS Traditionally IOS use VAN for network but now Internet, Extranet is used IOS transmit data in specific format and special protocol is used for data encryption. The most familiar example of IOSs are Electronic Data Interchange (EDI) systems which provide for the transfer of data between businesses. Electronic Funds Transfer (EFT) systems provide for the transfer of money between financial institutions.
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Business Alliances

Businesses coordinate some of their operations or link some of their resources to form business alliances, which serve the interests of all businesses in the alliance. Types of alliances Between a business and a competitive business e.g. Bank for ATM 7& insurance company to share risk Between a business and a noncompetitive business for promoting & selling the product or services. e.g. Bank form alliance with airlines company. Between a business and its suppliers and customers
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Characteristics of Interorganizational Systems

Businesses are involved in InterOrganzational Systems (IOS) as either:

Sponsors a business that sets up and maintains an IOS e.g. Airline that sets up an airline reservation systems Participant a business that uses an IOS e.g an airline agent uses an airline reservation systems

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Characteristics of Interorganizational Systems (contd.)

Business can participate in an IOS in several ways:

A business simply enters input and receives output by using an IOS sponsored by another business. A business accesses data storage or processing capabilities of another business in the IOS. E.g. a supplier can check the inventory database of customer called supplier or vendor managed inventory. A business can participate in an IOS by using the capabilities of the IOS received from the sponsor for managing internal operations. e.g an IOS for pharmacy used to order drugs, manage inventory and prepare of F/S.the last function involves the internal operation
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Electronic Data Interchange Systems

An Electronic Data Interchange (EDI) system provides for electronic communication of data between businesses. Types of data sent include

Purchase order data Shipping data Invoice data Product description data Price list data Insurance data
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How does EDI Systems work

Product specification Req Request for quotation Quotation Purchase order price List Price Request

Business
Purchase order acknowledgement Customer order Order acknowledgement

Customer

Supplier
Shipping Notification

Invoice

Bill

How does EDI Systems work

Data sends in EDI represnts transaction Output for one business andinput for another e.g. purchase order, invoice data TPS of two business communicate with each other Not all data sent in EDI represent transactions
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Traditional versus Internet EDI

An EDI system, like all IOSs, requires a data communications link between businesses. Traditionally use VAN Internet EDI systems require special software to send encrypted standardized data. EDI data is generally input directly into the system by the receiving business. Some EDI invoice data in input to an accounts payable systems that generates a payment Some data may read by people most entered into the systems
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EDI Benefits and Problems

Benefits of EDI

Speed that saves time Data entry errors are reduced Reduce the cost of transaction Organizational participation Technical problems must be solved Can be expensive
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Problems with EDI

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Chapter 10 E-Commerce: Digital Markets, Digital Goods M-Commerce

Management Information Systems

M-commerce services and applications

Wireless mobile devices are starting to be used for purchasing goods and services. Although m-commerce represents small fraction of total e-commerce transactions, revenue has been steadily growing.Mcommerce application is applicable where time critical and people on the move Location-based services: verizons Vz navigator, MeetMoi, Smater Agent enable user with GPS to find apartment. Banking and financial services: City Bank,bank of America,Islami bank,dutch bangla bank Wireless Advertising:yahoo mobile home page,MSN mobile portal,Google mobile version search engine Games and entertainments:Myspace with vohone,Film companies,mobiTV offered by sprint &cingular

Chapter 10 E-Commerce: Digital Markets, Digital Goods M-Commerce

Management Information Systems

Limitations in mobiles access of Web information

Data limitations: Untill 3G broadbrand comes it impossible Small display screens Wireless portals (mobile portals)
Major search provider GOOGLE,Yahoo,MSN introduce search services for mobile phone Feature content and services optimized for mobile devices to steer users to information they are most likely to need

Google mobile service remember recent place name searches,so that user initiate a search for movies it return a list of local movies and purchase ticket.
Microsoft Tellme service allow user speak into their phones to search movie listing, stock quotes, news and other informaiton on mobile screen

Payment Systems

In order to understand e-commerce payment systems, you first need to be familiar with the various types of generic payment systems. There are five main types of payment systems: Cash Checking transfer Credit cards Stored value Accumulating balance

Cash: Cash is legal tender defined by a national authority to represent value.

Payment Systems

Checking transfer: Funds transferred directly via a signed draft or check from a consumers checking account to a merchant or other individual. Credit cards: Represents an account that extends credit to consumers, permits consumers to purchase items while deferring payment, and allows consumers to make payments to multiple vendors at one time. Stored value: Account created by depositing funds into an account and from which funds are paid out or withdrawn as needed. Accumulating balance: enable user to make micropayment Account that accumulates expenditure and to which consumers makes periodic payments. Digital checking:Extend functionality of existing checking accounts to be used for online payments

Payment Methods

Stored-Value Cards: In this method, a consumer can purchase a card with a specific amount of value stored in it. The card can then be used to buy certain goods or services from the Internet, and proportionate amount gets deducted each time a purchase is made. Digital wallet: It is a software that stores credit card and owner identification information and provides this data automatically during electronic commerce purchase transactions by eliiminating repeatative informaiton. Smart card: It is a credit card size plastic card that stores digital information and that can be used for electronic payments in place of cash. Electronic billing presentment and payment systems: It is used for paying routine monthly bills. They allow users to view their bills electronically and pay them through electronic fund transfers from bank and credit cards accounts.

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Chapter 10 E-Commerce: Digital Markets, Digital Goods Electronic Commerce Payment Systems

Management Information Systems

Digital payments systems for m-commerce

Three types of mobile payment systems in use in Japan
Stored value system charged by credit cards or bank accounts
Mobile debit cards Mobile credit cards

In the U.S., the cell phone has not yet evolved into a mobile payment system

Global Information Systems

Though the business operate within a country increasingly business engage in activities that extend beyond the national boarder An international business may produce its products in several countries and sell them in many countries. Domestic information systems : Business operates only in a single country. e.g payroll systems Global (international) information systems provide communication between business locations around the world, transfer of data between international locations, and use of system functions at different locations worldwide. E.g. order entry systems
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Global Electronic Commerce

Global e-commerce systems should:

Offer sites in several languages, with a feature that allows the user to select the preferred language. Allow customers to pay in several different currencies& provide conversion between the currencies Be sensitive to cultural differences in various countries. Must deal with different laws Canbe interorganizational systems global EDI,Global EFT transfer fund internationlly. An internationl business may be sponsor or participant in global IOS
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