E-Commerce: The Second Wave Fifth Annual Edition Chapter 1:

E-Commerce: The Second Wave Fifth Annual Edition Chapter 1: Introduction to Electronic Commerce

Objectives In this chapter, you will learn about: What electronic commerce is and how it is poised for a second wave of growth and profitability Why business models have given way to revenue models and the analysis of business processes as key elements of electronic commerce initiatives E-Commerce: The Second Wave, Fifth Annual Edition 2

Objectives How economic forces have created a business environment that is fostering a rebirth of electronic commerce How businesses use value chains to identify electronic commerce opportunities How businesses use SWOT analysis to analyze and evaluate business opportunities E-Commerce: The Second Wave, Fifth Annual Edition 3

Objectives Why electronic commerce is international by its very nature and what challenges arise in doing global electronic commerce E-Commerce: The Second Wave, Fifth Annual Edition 4

Electronic Commerce: The Second Wave Electronic commerce (e-commerce) – Businesses trading with other businesses and internal processes Electronic business (e-business) – Term used interchangeably with e-commerce – The transformation of key business processes through the use of Internet technologies E-Commerce: The Second Wave, Fifth Annual Edition 5

Categories of Electronic Commerce Five general e-commerce categories – – – – – Business-to-consumer Business-to-business Business processes Consumer-to-consumer Business-to-government Supply management or procurement – Departments devoted to negotiating purchase transactions with suppliers E-Commerce: The Second Wave, Fifth Annual Edition 6

Elements of Electronic Commerce E-Commerce: The Second Wave, Fifth Annual Edition 7

Categories of Electronic Commerce (Continued) Transaction – An exchange of value Business processes – The group of logical, related, and sequential activities and transactions in which businesses engage Telecommuting or telework – Employee logs in to company computer through Internet instead of traveling to office E-Commerce: The Second Wave, Fifth Annual Edition 8

Electronic Commerce Categories E-Commerce: The Second Wave, Fifth Annual Edition 9

The Development and Growth of Electronic Commerce Electronic funds transfers (EFTs) – Also called wire transfers – Electronic transmissions of account exchange information over private communications networks Electronic data interchange (EDI) – Transmitting computer-readable data in a standard format to another business E-Commerce: The Second Wave, Fifth Annual Edition 10

The Development and Growth of Electronic Commerce (Continued) Trading partners – Businesses that engage in EDI with each other Value-added network (VAN) – Independent firm – Offers connection and transaction-forwarding services to buyers and sellers engaged in EDI E-Commerce: The Second Wave, Fifth Annual Edition 11

Actual and Estimated Online Sales in B2C and B2B Categories E-Commerce: The Second Wave, Fifth Annual Edition 12

The Second Wave of Electronic Commerce Defining characteristics of first wave – Dominant influence of U.S. businesses – Extensive use of the English language – Low bandwidth data transmission technologies – Unstructured use of e-mail – Overreliance on advertising as a revenue source E-Commerce: The Second Wave, Fifth Annual Edition 13

The Second Wave of Electronic Commerce (Continued) As second wave begins – Future of electronic commerce will be international in scope – Language translation and handling currency conversion problem will need to be solved – E-mail will be used as an integral part of marketing and customer contact strategies E-Commerce: The Second Wave, Fifth Annual Edition 14

Business Models, Revenue Models, and Business Processes Business model – A set of processes that combine to yield a profit Revenue model – Used to Identify customers Market to those customers Generate sales to those customers E-Commerce: The Second Wave, Fifth Annual Edition 15

Focus on Specific Business Processes Merchandising – Combination of store design, layout, and product display knowledge Commodity item – Hard to distinguish from the same products or services provided by other sellers – Features have become standardized and well known E-Commerce: The Second Wave, Fifth Annual Edition 16

Focus on Specific Business Processes (Continued) Shipping profile – Collection of attributes that affect how easily a product can be packaged and delivered High value-to-weight ratio – Can make overall shipping cost a small fraction of the selling price E-Commerce: The Second Wave, Fifth Annual Edition 17

Advantages of Electronic Commerce Can increase sales and decrease costs If advertising done well on the Web – Can get a firm’s promotional message out to potential customers in every country Using e-commerce sales support and ordertaking processes, a business can – Reduce costs of handling sales inquiries – Provide price quotes E-Commerce: The Second Wave, Fifth Annual Edition 18

Advantages of Electronic Commerce (Continued) Increases purchasing opportunities for buyer Negotiating price and delivery terms is easier The following cost less to issue and arrive securely and quickly – Electronic payments of tax refunds – Public retirement – Welfare support E-Commerce: The Second Wave, Fifth Annual Edition 19

Disadvantages of Electronic Commerce Perishable grocery products are much harder to sell online Difficult to – Calculate return-on-investment – Integrate existing databases and transactionprocessing software into software that enables e-commerce Cultural and legal obstacles also exist E-Commerce: The Second Wave, Fifth Annual Edition 20

Economic Forces and Electronic Commerce Economics – Study of how people allocate scarce resources Two conditions of a market – Potential sellers of a good come into contact with potential buyers – A medium of exchange is available E-Commerce: The Second Wave, Fifth Annual Edition 21

Transaction Costs Total costs that a buyer and seller incur Significant components of transaction costs – Cost of information search and acquisition – Investment of seller in equipment or in the hiring of skilled employees to supply product or service to buyer E-Commerce: The Second Wave, Fifth Annual Edition 22

The Role of Electronic Commerce Businesses and individuals – Can use electronic commerce to reduce transaction costs by Improving flow of information Increasing coordination of actions E-Commerce: The Second Wave, Fifth Annual Edition 23

Network Economic Structures Network economic structure – Companies coordinate their strategies, resources, and skill sets Strategic alliances (strategic partnerships) – Relationships created within the network economic structure E-Commerce: The Second Wave, Fifth Annual Edition 24

Network Economic Structures (Continued) Virtual companies – Strategic alliances that occur between or among companies operating on the Internet Strategic partners – Come together as a team for a specific project or activity E-Commerce: The Second Wave, Fifth Annual Edition 25

Network Effects Law of diminishing returns – Most activities yield less value as the amount of consumption increases Network effect – As more people or organizations participate in a network Value of network to each participant increases E-Commerce: The Second Wave, Fifth Annual Edition 26

Value Chains in Electronic Commerce Strategic business unit – One particular combination of product, distribution channel, and customer type Firm – Multiple business units owned by a common set of shareholders Industry – Multiple firms that sell similar products to similar customers E-Commerce: The Second Wave, Fifth Annual Edition 27

Strategic Business Unit Value Chains Value chain – A way of organizing the activities that each strategic business unit undertakes Primary activities – Design, produce, promote, market, deliver, and support the products or services it sells Supporting activities – Human resource management and purchasing E-Commerce: The Second Wave, Fifth Annual Edition 28

Value Chain for a Strategic Business Unit E-Commerce: The Second Wave, Fifth Annual Edition 29

Industry Value Chains Value system – Larger stream of activities into which a particular business unit’s value chain is embedded – Also referred to as industry value chain E-Commerce: The Second Wave, Fifth Annual Edition 30

Industry Value Chain for a Wooden Chair E-Commerce: The Second Wave, Fifth Annual Edition 31

SWOT Analysis: Evaluating Business Unit Opportunities SWOT analysis – Analyst first looks into the business unit to identify its strengths and weaknesses – Analyst then reviews operating environment and identifies opportunities and threats E-Commerce: The Second Wave, Fifth Annual Edition 32

SWOT Analysis Questions E-Commerce: The Second Wave, Fifth Annual Edition 33

Results of Dell’s SWOT Analysis E-Commerce: The Second Wave, Fifth Annual Edition 34

International Nature of Electronic Commerce Companies with established reputations – Often create trust by ensuring that customers know who they are – Can rely on their established brand names to create trust on the Web Customers’ inherent lack of trust in “strangers” on the Web – Logical and to be expected E-Commerce: The Second Wave, Fifth Annual Edition 35

This Cartoon from The New Yorker Illustrates Anonymity on the Web E-Commerce: The Second Wave, Fifth Annual Edition 36

Language Issues To do business effectively in other cultures – Must adapt to culture Researchers have found that – Customers are more likely to buy products and services from Web sites in their own language Localization – Translation that considers multiple elements of local environment E-Commerce: The Second Wave, Fifth Annual Edition 37

Culture Issues Important element of business trust – Anticipate how the other party to a transaction will act in specific circumstances Culture – Combination of language and customs – Varies across national boundaries – Varies across regions within nations E-Commerce: The Second Wave, Fifth Annual Edition 38

Infrastructure Issues Internet infrastructure includes – Computers and software connected to Internet – Communications networks over which message packets travel Organization for Economic Cooperation and Development’s (OECD) – Statements on Information and Communications Policy Deal with telecommunications infrastructure development issues E-Commerce: The Second Wave, Fifth Annual Edition 39

Infrastructure Issues (Continued) Flat-rate access system – Consumer or business pays one monthly fee for unlimited telephone line usage – Contributed to rapid rise of U.S. electronic commerce Targets for technological solutions – Paperwork and processes that accompany international transactions E-Commerce: The Second Wave, Fifth Annual Edition 40

Parties Involved in a Typical International Trade Transaction E-Commerce: The Second Wave, Fifth Annual Edition 41

Summary Commerce – Negotiated exchange of goods or services Electronic commerce – Application of new technologies to conduct business more effectively First wave of electronic commerce – Ended in 2000 Second wave of electronic commerce – New approaches to integrating Internet technologies into business processes E-Commerce: The Second Wave, Fifth Annual Edition 42

Summary Using electronic commerce, businesses have – Created new products and services – Improved promotion, marketing, and delivery of existing offerings Global nature of electronic commerce – Leads to many opportunities and few challenges To conduct electronic commerce across international borders – You must understand the trust, cultural, and language legal issues E-Commerce: The Second Wave, Fifth Annual Edition 43