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E-Business and E-Commerce

Describe the six common types of electronic commerce.

Describe the various online services of business-to-consumer (B2C) commerce, providing specific examples of each.

Describe the three business models for business-to-business electronic commerce.

Identify the ethical and legal issues related to electronic commerce, providing examples.

[ LEARNING OBJECTIVES]

Overview of E-Business and E-Commerce

Business-to-Consumer (B2C) Electronic Commerce

Business-to-Business (B2B) Electronic Commerce

Ethical and Legal Issues in E-Business

[ CHAPTER OUTLINE ]

Student PowerPoints for note taking

WileyPLUS Learning Space

E-Book

Author video lecture for each chapter section

Practice quizzes

Flash Cards for vocabulary review

Additional “What’s in IT for Me?” cases

Video interviews with managers

Lab Manuals - Microsoft Office 2010 & 2013

[ WEB RESOURCES]

[ Opening Case The Omni Channel Strategy to Compete with Amazon]

The Business Problem

The Solution

The Results

Questions

Why is an “omni-channel” strategy such an important component of retailers’ missions today?

Describe the problems retailers face in implementing a ship-from-store strategy.

Identify some strategies that Amazon could employ to counter the ship-from-store strategy from traditional bricks-and-mortar retailers.

FlightCar

7.1

[about business]

What are possible disadvantages of FlightCar’s business model for its customers? Provide specifi c examples to support your answer.

Can FlightCar survive in its marketplace? Why or why not? Support your answer.

Would you allow FlightCar to rent your car while you were traveling? Why or why not? Support your answer. Does your answer to this question have any bearing on your answer to Question 2?

Overview of E-Business and E-Commerce

7.1

Definitions and Concepts

Types of E-Commerce

Major E-Commerce Mechanisms

Electronic Payment Mechanisms

Benefits and Limitations of E-Commerce

Definitions and Concepts

Electronic Commerce

The process of buying, selling, transferring, or exchanging products, services, or information via computer networks, including the Internet.

Electronic Business (e-business)

A much broader concept than e-commerce

Servicing customers, collaborating with business partners, and performing electronic transactions within an organization

Electronic Commerce (EC or e-commerce): the process of buying, selling, transferring, or exchanging products, services, or information via computer networks, including the Internet.

Electronic Business (e-business): in addition to the buying and selling of goods and services, e-business (a broader concept) refers to servicing customers, collaborating with business partners, and performing electronic transactions within an organization.

Definitions and Concepts (Con’t)

Degree of digitization

Brick-and-Mortar organizations

Virtual Organizations

Clicks-and-Mortar Organizations

Degree of Digitization: the extent to which the commerce has been transformed from physical to digital which can relate to both the product or service being sold and the delivery agent or intermediary. In other words, the product can be either physical or digital, and the delivery agent can also be either physical or digital.

Brick-and-Mortar Organizations: organizations that exist as purely physical organizations.

Virtual (or pure-play) Organizations: all dimensions of the organization are digital and they engage in pure electronic commerce only.

Clicks-and-Mortar (or Clicks-and-Bricks): organizations that are partial electronic commerce (EC) combining both virtual and physical dimensions.

Types of E-Commerce

Business-to-consumer (B2C)

Business-to-business (B2B)

Consumer-to-consumer (C2C)

Business-to-employee (B2E)

E-Government

Mobile commerce (M-commerce)

Business-to-Consumer (B2C): the sellers are organizations, and the buyers are individuals.

Business-to-Business (B2B): both the sellers and the buyers are business organizations. B2B comprises the vast majority of EC volume.

Consumer-to-Consumer (C2C): an individual sells products or services to other individuals.

Business-to-Employee (B2E): an organization uses EC internally to provide information and services to its employees.

E-government: E-government is the use of Internet technology in general and e-commerce in particular to deliver information and public services to citizens.

Government-to-Citizen (G2C): government to individual citizens.

Government-to-Business (G2B): G2B EC is much like B2B EC, usually with an overlay of government procurement regulations.

Mobile Commerce (m-commerce): e-commerce that is conducted entirely in a wireless environment.

E-Commerce Business Models

Online direct marketing

Electronic tendering system

Name-your-own-price

Find-the-best-price

Affiliate marketing

Viral marketing

Group purchasing (e-coops)

Online direct marketing: Manufacturers or retailers sell directly to customers. Very efficient for digital products and services. Can allow for product or service customization (www.dell.com)

Electronic tendering system: Businesses request quotes from suppliers. Uses B2B with a reverse auction mechanism

Name-your-own-price: Customers decide how much they are willing to pay. An intermediary tries to match a provider (www.priceline.com)

Find-the-best-price: Customers specify a need; an intermediary compares providers and shows the lowest price. Customers must accept the offer in a short time, or they may lose the deal (www.hotwire.com)

Affiliate marketing: Vendors ask partners to place logos (or banners) on partner’s site. If customers click on logo, go to vendor’s site, and make a purchase, then the vendor pays commissions to the partners

Viral marketing: Recipients of your marketing notices send information about your product to their friends

Group purchasing: (e-coops) Small buyers aggregate demand to create a large volume; the group then conducts tendering or negotiates a low price

E-Commerce Business Models (Continued)

Online Auctions

Product customization

Electronic marketplaces

Bartering online

Deep discounters

Membership

Online auctions: Companies run auctions of various types on the Internet. Very popular in C2C, but gaining ground in other types of EC as well (www.ebay.com)

Product customization: Customers use the Internet to self configure products or services. Sellers then price them and fulfill them quickly (build-to-order) (www.jaguar.com)

Electronic marketplaces and exchanges: Transactions are conducted efficiently (more information to buyers and sellers, lower transaction costs) in electronic marketplaces (private or public)

Bartering online: Intermediary administers online exchange of surplus products and/or company receives “points” for its contribution, which it can use to purchase other needed items (www.bbu.com)

Deep discounters: Company offers deep price discounts. Appeals to customers who consider only price in their purchasing decisions (www.half.com)

Membership: Only members can use the services provided, including access to certain information, conducting trades, etc. (www.egreetings.com)

Major E-Commerce Mechanisms

Electronic catalogs

Electronic auctions

E-storefronts

E-malls

E-marketplaces

Auction: a competitive buying and selling process in which prices are determined dynamically by competitive bidding.

Forward Auctions: sellers solicit bids from many potential buyers and prices tend to increase over time.

Reverse Auctions: one buyer, usually an organization, wants to purchase a product or a service and buyer posts a request for quotation (RFQ) on its Web site or on a third party site. Prices tend to decrease over time.

Electronic Storefront: a Web site that represents a single store.

Electronic Mall: (also known as a cybermall or an e-mall) a collection of individual shops consolidated under one Internet address and they are closely associated with B2C electronic commerce.

Electronic Marketplace (e-marketplace): a central, virtual market space on the Web where many buyers and many sellers can conduct e-commerce and e-business activities.

Electronic Payment Mechanisms

Electronic Checks (e-checks)

Electronic Cards

Electronic credit cards

Virtual credit cards

Purchasing cards

Stored-value money cards

Smart cards

Digital Wallets

Person-to-Person Payments

Electronic Payment Mechanisms: enable buyers to pay for goods and services electronically, rather than writing a check or using cash.

Electronic Checks: (e-checks), which are used primarily in B2B, are similar to regular paper checks.

Electronic Cards: There are a variety of electronic cards, and they are used for different purposes. The most common types are electronic credit cards, virtual credit cards, purchasing cards, stored-value money cards, and smart cards.

Virtual Credit Cards: allow customers to shop online and can be used only once in order to thwart criminals by using a different, random card number every time you shop online.

Purchasing Cards: are the B2B equivalent of electronic credit cards and in some countries, purchasing cards are the primary form of payment between companies.

Stored-Value Money Cards: allow you to store a fixed amount of prepaid money and then spend it as necessary and each time you use the card, the amount is reduced by the amount you spent.

Smart Cards: contain a chip that can store a considerable amount of information—more than 100 times the amount contained on a stored-value money card and are frequently multipurpose. That is, you can use them as a credit card, a debit card, a stored-value money card, or a loyalty card.

Digital Wallet: an application used for making financial transactions. These apps can be on users’ desktops or on their smartphones.

Person-to-Person Payments: enable two individuals, or an individual and a business, to transfer funds without using a credit card (e.g., PayPal).

Figure 7.1 How e-credit cards work.

FIGURE 7.1 How e-credit cards work. (The numbers 1–9 indicate the sequence of activities.)

• Step 1: When you purchase a book from Amazon, for example, your credit card information and purchase amount are encrypted in your browser. This procedure ensures the information is safe while it is “traveling” on the Internet to Amazon.

• Step 2: When your information arrives at Amazon, it is not opened. Rather, it is transferred automatically (in encrypted form) to a clearinghouse, where it is decrypted for verification and authorization.

• Step 3: The clearinghouse asks the bank that issued you your credit card (the card issuer bank) to verify your credit card information.

• Step 4: Your card issuer bank verifies your credit card information and reports this to the clearinghouse.

• Step 5: The clearinghouse reports the result of the verification of your credit card to Amazon.

• Step 6: Amazon reports a successful purchase and amount to you.

• Step 7: Your card issuer bank sends funds in the amount of the purchase to Amazon’s bank.

• Step 8: Your card issuer bank notifies you (either electronically or in your monthly statement) of the debit on your credit card.

• Step 9: Amazon’s bank notifies Amazon of the funds credited to its account.

Figure 7.2 Example of a purchasing card.

Figure 7.3 The New York City Metro Card

Figure 7.4 Smart cards are frequently multipurpose.

Benefits & Limitations of E-Commerce

National and International markets are more Accessible

Lowers costs of processing, distributing, and retrieving information

Provides access to a vast number of products and services 24/7

Deliver information, services, and products to people in cities, rural areas, and developing countries

Lack of universally accepted security standards

In less-developed countries telecommunications bandwidth is often insufficient, and Web access is expensive

Perceptions that e-commerce is insecure

Unresolved legal issues

Lacks a critical mass of buyers and sellers

Benefits

Limitations

Organization Benefit: national and international markets more accessible by lowering the costs of processing, distributing, and retrieving information.

Customer Benefit: by being able to access a vast number of products and services, around the clock.

Benefit to Society: the ability to easily and conveniently deliver information, services, and products to people in cities, rural areas, and developing countries.

Technological Limitations:

Lack of universally accepted security standards

In less-developed countries, telecommunications bandwidth often is insufficient, and accessing the Web is expensive.

Non-technological Limitations of E-Commerce:

Perceptions that EC is insecure

EC has unresolved legal issues

EC lacks a critical mass of sellers and buyers.

Overcoming the Limitations of Electronic Commerce in the Developing World

7.2

[about business]

Describe how the Young Village Officials’ Farm and Jumia are trying to overcome the limitations of electronic commerce. Provide specific examples to support your answer.

What are the advantages of electronic commerce to rural farmers in China (above and beyond increased income)?

What are the advantages of electronic commerce to the people of Nigeria?

Business-to-Consumer (B2C) Electronic Commerce

7.2

Electronic Storefronts and Malls

Online Service Industries

Issues in E-Tailing

Electronic Storefront: a Web site that represents a single store.

Electronic Mall: (also known as a cybermall or an e-mall) a collection of individual shops grouped under a single Internet address.

Online Advertising: the practice of using the Internet and WWW to disseminate information in an attempt to influence a buyer–seller transaction through the direct response approach which personalizes advertising and marketing making the advertising process media rich, dynamic, and interactive.

Swipely

7.3

[about business]

Describe the advantages that Swipely offers merchants that help it maintain a competitive advantage in the marketplace.

Refer back to Chapter 2. Does Swipely function as a strategic information system for a merchant? Why or why not?

Online Services Industry

Disintermediation

Cyberbanking

Online Securities Trading

The Online Job Market

Travel Services

Online Advertising

Advertising Methods

Disintermediation: a process whereby intermediaries are eliminated.

Intermediaries (or middlemen) Have Two Functions:

they provide information, and this function can be fully automated and most likely will be assumed by e-marketplaces and portals that provide information for free.

they perform value-added services such as consulting.

Cyberbanking (or Electronic Banking): involves conducting various banking activities from home, at a place of business, or on the road instead of at a physical bank location. It include capabilities ranging from paying bills to applying for a loan.

Online Securities Trading: the use of computers to trade stocks, bonds, and other financial instruments. (e.g., E*Trade, Ameritrade, etc.) which is cheaper than a full-service or discount broker.

Online Job Market: Companies and government agencies advertise available positions, accept resumes, and take applications via the Internet while job seekers use the online job market to reply online to employment ads, to place resumes on various sites, and to use recruiting firms (e.g., www.monster.com, www.simplyhired.com, www.linkedin.com, and www.truecareers.com).

Travel Services: use of the Internet and WWW to plan, explore, and arrange almost any trip economically allowing customers to purchase airline tickets, reserve hotel rooms, and rent cars.

Penske Used Trucks

7.4

[about business]

Describe how disintermediation works in this case. Provide an example to support your answer.

Why is it so important for different functional areas in an organization to work together in designing an organizational Web site?

Referencing Question 2, discuss the implications of this statement: “Regardless of your major, an understanding of information technology will be of value to you.”

Can Simple Disrupt Traditional Banking?

7.5

[about business]

Would you be willing to bank with an Internet bank? Why or why not?

What are the disadvantages of Simple’s banking model? Provide examples to support your answer.

Check on the status of Simple today. Now, answer the “five serious questions” listed in the case regarding BBVA Compass Bank’s purchase of Simple in 2014.

Advertising Methods

Banners

Pop-up Ad

Pop-under Ad

Spamming

Permission Marketing

Viral Marketing

Banner Ads: electronic billboards containing a short text, graphics, video clips, or sound to promote a product or a vendor.

Characteristics of Banner Ads:

the most common form of advertising on the Internet

customized to a target audience

convey only limited information because of their small size

many viewers simply ignore them

Pop-Up Ad: an Internet ad that appears in front of the current browser window.

Pop-Under Ad: an Internet ad appears underneath the active window; when users close the active window, they see the ad.

Spam: indiscriminate distribution of electronic ads without the permission of the receiver.

Permission Marketing: asks consumers to give their permission to voluntarily accept online advertising and e-mail.

Viral Marketing: online word-of-mouth marketing including messages forwarded to friends, family members, and other acquaintances suggesting they “check this out" which enables companies to build brand awareness at a minimal cost without having to spam millions of uninterested users.

Issues in E-Tailing

Channel Conflict

Multichanneling

Order Fulfillment

Two Most Significant E-Tailing Issues:

Channel Conflict

Fulfillment

Channel Conflict: a situation in which clicks-and-mortar companies face a conflict with their regular distributors when they begin selling directly to customers online. These conflicts can arise in areas such as pricing, resource allocation (e.g., how much money to spend on advertising).

Multichanneling (or omni-channeling): a process in which companies integrate their online and offline channels creating the opportunity for 'showrooming.'

Showrooming: occurs when shoppers visit a brick-and-mortar store to examine a product in person then conduct research about the product on their smartphones. In these situations customers often purchase the product from the Web site of a competitor of the store they are visiting.

Order Fulfillment: when a company sells directly to customers, it is involved in various order-fulfillment activities including: quickly finding the products to be shipped; packing orders; arranging for the packages to be delivered speedily to the customer’s door; collect the money from each customer; handle the return of unwanted or defective products.

Business-to-Business (B2B) Electronic Commerce

7.3

Sell-Side Marketplaces

Buy-Side Marketplaces

Electronic Exchanges

Sell-Side Marketplace Model: organizations attempt to sell their products or services to other organizations electronically from their own private e-marketplace Web site and/or from a third-party Web site. In the B2B sell-side marketplace the buyer is an organization.

Key Mechanisms in the Sell-Side Marketplace Model:

Forward auctions

Electronic catalogs customized for each large buyer

Third-Party Auction Sites (e.g., eBay)

Buy-Side Marketplaces Model: a model in which organizations attempt to procure needed products or services from other organizations electronically. Procurement is the overarching function that describes the activities and processes to acquire goods and services.

Procurement: involves the activities necessary to establish requirements, sourcing activities such as market research and vendor evaluation, and negotiation of contracts.

Purchasing: the process of ordering and receiving goods and services and it is a subset of the procurement process.

Reverse Auction: A major method of procuring goods and services in the buy-side model is the reverse auction.

E-procurement: uses reverse auctions, particularly group purchasing.

Group Purchasing: multiple buyers combine their orders so that they constitute a large volume and therefore attract more seller attention and when buyers place their combined orders on a reverse auction, they can negotiate a volume discount.

Private Exchanges: have one buyer and many sellers.

Public Exchanges: Electronic marketplaces that are independently owned by a third party, and they connect many sellers with many buyers which are open to all business organizations and frequently owned and operated by a third party.

Electronic Exchanges: deal in both direct and indirect materials.

Direct Materials: inputs to the manufacturing process, such as safety glass used in automobile windshields and windows.

Indirect Materials: those items, such as office supplies, that are needed for maintenance, operations, and repairs (MRO).

Three Basic Types of Public Exchanges:

Vertical Exchanges: connect buyers and sellers in a given industry.

Horizontal Exchanges: connect buyers and sellers across many industries.

Functional Exchanges: needed services such as temporary help/labor or extra office space are traded on an “as-needed” basis.

Sell-Side Marketplace

Key Mechanisms for Sell-Side Marketplace

Forward Auctions

Electronic Catalogs

Third Party Auction Sites

Key Mechanisms in the Sell-Side Marketplace Model:

Forward auctions

Electronic catalogs customized for each large buyer

Third-Party Auction Sites (e.g., eBay)

Buy-Side Marketplace

Buy-Side Marketplaces Model

Procurement

Purchasing

Reverse Auction

E-procurement

Group Purchasing

Procurement: involves the activities necessary to establish requirements, sourcing activities such as market research and vendor evaluation, and negotiation of contracts.

Purchasing: the process of ordering and receiving goods and services and it is a subset of the procurement process.

Reverse Auction: A major method of procuring goods and services in the buy-side model is the reverse auction.

E-procurement: uses reverse auctions, particularly group purchasing.

Electronic Exchanges

Three Basic Types of Public Exchanges:

Vertical Exchanges

Horizontal Exchanges

Functional Exchanges

Three Basic Types of Public Exchanges:

Vertical Exchanges: connect buyers and sellers in a given industry.

Horizontal Exchanges: connect buyers and sellers across many industries.

Functional Exchanges: needed services such as temporary help/labor or extra office space are traded on an “as-needed” basis.

Ethical and Legal Issues in E-Business

7.4

Ethical Issues

Legal and Ethical Issues Specific to E-Commerce

Ethical Issues

Threats to Privacy

Potential Job Loss

Threats to Privacy:

Business makes it easier to store and transfer personal information

To protect the buyers’ identities businesses must frequently use encryption to provide this protection

Tracking: individuals’ activities on the Internet can be tracked by cookies that store a user's browsing history on their PC’s hard drive

Antivirus software packages must routinely search for potentially harmful cookies.

The use of EC may eliminate the need for some of a company’s employees, as well as brokers and agents.

How should the company handle the layoffs?

Should companies be required to retrain employees for new positions?

Should the company compensate or otherwise assist the displaced workers?

Legal and Ethical Issues Specific to E-Commerce

Fraud on the Internet

Domain Names

Cybersquatting

Taxes and Other Fees

Domain Names: considered legal when the person or business who owns the name has operated a legitimate business under that name for some time.

Cybersquatting: the practice of registering or using domain names for the purpose of profiting from the goodwill or the trademark that belongs to someone else. The Anti-Cybersquatting Consumer Protection Act (1999) permits trademark owners in the United States to sue for damages in such cases.

Domain Tasting: lets registrars profit from the complex money trail of pay-per-click advertising. companies register domain names that are very similar to their competitors’ domain names in order to generate traffic from people who misspell Web addresses. Domain tasters exploit this policy by claiming Internet domains for five days at no cost.

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Taxes and Other Fees:

Federal, state, and local authorities are now scrambling to create some type of taxation policy for e-business within their jurisdictions.

Based on location, should electronic businesses pay business license taxes, franchise fees, gross receipts taxes, excise taxes, privilege taxes, and utility taxes?

How should tax collection be controlled?

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Copyright: intellectual property is protected by copyright laws and cannot be used freely which is difficult to enforce online.

[ Closing Case Uber: Disrupting the Taxi Industry]

The Business Problem

A Possible Solution

How Uber Works

Battles with the Establishment

The Results

Questions

Discuss how taxi companies could combat Uber, Lyft, and SideCar. (Hint: Why couldn’t taxi companies deploy similar types of information technology?)

Describe the disadvantages of Uber’s business model. Provide specifi c examples to support your answer.