MBA 61062: ELECTRONIC COMMERCE Chapter 1 Introduction to E-Commerce S. Sabraz Nawaz Senior Lecturer in MIT MBA 61062: ELECTRONIC COMMERCE

E-Commerce by S. Sabraz Nawaz Learning Objectives Define electronic commerce (EC) and describe its various categories. Describe and discuss the content and framework of EC. Describe the major types of EC transactions. Understand the elements of the digital world. Describe the drivers of EC as they relate to business pressures and organizational responses. Describe some EC business models. Describe the benefits and limitations of EC to organizations, consumers, and society. E-Commerce by S. Sabraz Nawaz

E-Commerce by S. Sabraz Nawaz Welcome Activity Visit Amazon.com, register if you are not a member and buy a Nike loafer. Visit any online training site and buy a training. E-Commerce by S. Sabraz Nawaz

Electronic Commerce: Definitions and Concepts electronic commerce (EC) The process of buying, selling, or exchanging products, services, or information via Internet and intranet e-business A broader definition of EC that includes not just the buying and selling of goods and services, but also servicing customers, collaborating with business partners, delivering e-learning, and conducting electronic transactions within an organization E-Commerce by S. Sabraz Nawaz

Definitions and Concepts: Pure Versus Partial EC EC can be either pure or partial depending on the nature of its three major activities: Ordering and payments Order fulfillment Delivery to customers. Each activity can be physical or digital. Thus, there are eight possible combinations E-Commerce by S. Sabraz Nawaz

Definitions and Concepts: Pure Versus Partial EC E-Commerce by S. Sabraz Nawaz

Definitions and Concepts: Pure Versus Partial EC If there is at least one digital dimension, we consider the situation EC, but only partial EC. Purchasing a computer from Dell’s website or a book from Amazon.com is partial EC, because the merchandise is physically delivered. Buying an e-book from Amazon.com or a software product from Buy.com is pure EC, because ordering, processing, and delivery to the buyer are all digital. E-Commerce by S. Sabraz Nawaz

Electronic Commerce: EC Organizations brick-and-mortar (old economy) organizations Old-economy organizations (corporations) are purely physical; perform their primary business off-line, selling physical products by means of physical agents virtual (pure-play) organizations Organizations that conduct their business activities solely online click-and-mortar (click-and-brick) organizations Organizations that conduct some e-commerce activities, usually as an additional marketing channel E-Commerce by S. Sabraz Nawaz

Electronic Commerce: Definitions and Concepts electronic market (e-marketplace) An online marketplace where buyers and sellers meet to exchange goods, services, money, or information Any individual can also open a market selling products or services online. Electronic markets are connected to sellers and buyers via the Internet or to its counterpart within organizations, an intranet . E-Commerce by S. Sabraz Nawaz

Electronic Commerce: Definitions and Concepts Interorganizational information systems (IOSs) Communications systems that allow routine transaction processing and information flow between two or more organizations Intraorganizational information systems Communication systems that enable e-commerce activities to go on within individual organizations Review Questions: Define EC and e-business Distinguish between pure and partial EC Define click-and-mortar and pure play organizations Define electronic markets, IOSs, and intraorganizational information systems E-Commerce by S. Sabraz Nawaz

The Electronic Commerce Field: Classification, Content, and History intranet An internal corporate or government network that uses Internet tools, such as Web browsers, and Internet protocols extranet A network that uses the Internet to link multiple intranets Some people still use a stand-alone computer but majority of people use compters connected to Internet. Or intranet or extranet. E-Commerce by S. Sabraz Nawaz

The Electronic Commerce Field: Classification, Content, and History AN EC FRAMEWORK The EC field is a diverse one involving many activities, organizational units, and technologies. People: Sellers E-Commerce by S. Sabraz Nawaz

E-Commerce by S. Sabraz Nawaz AN EC FRAMEWORK Five support areas for EC applications People: Sellers, buyers, intermediaries, information system and technology specialists, other employees, and any other participants. Public policy: Legal and other policy and regulatory issues, such as privacy protection and taxation, which are determined by governments. Marketing and advertisement: Like any other business, EC usually requires the support of marketing and advertising. This is especially important in B2C online transactions. Support services: Many services are needed to support EC. These range from content creation to payments to order delivery. Business partnerships: Joint ventures, exchanges, and business partnerships of various types are common in EC E-Commerce by S. Sabraz Nawaz

E-Commerce by S. Sabraz Nawaz

The Electronic Commerce Field: Classification, Content, and History EC is classified by the nature and direction of transactions and interactions business-to-business (B2B) E-commerce model in which all of the participants are businesses or other organizations business-to-consumer (B2C) E-commerce model in which businesses sell to individual shoppers e-tailing Online retailing, usually B2C Common classification of EC is by nature of transaction or relationship among the participants. E-Commerce by S. Sabraz Nawaz

The Electronic Commerce Field: Classification, Content, and History business-to-business-to-consumer (B2B2C) E-commerce model in which a business provides some product or service to a client business that maintains its own customers consumer-to-business (C2B) E-commerce model in which individuals use the Internet to sell products or services to organizations or individuals who seek sellers to bid on products or services they need E-Commerce by S. Sabraz Nawaz

The Electronic Commerce Field: Classification, Content, and History intrabusiness EC E-commerce category that includes all internal organizational activities that involve the exchange of goods, services, or information among various units and individuals in an organization business-to-employees (B2E) E-commerce model in which an organization delivers services, information, or products to its individual employees E-Commerce by S. Sabraz Nawaz

The Electronic Commerce Field: Classification, Content, and History consumer-to-consumer(C2C) E-commerce model in which consumers sell directly to other consumers collaborative commerce (c-commerce) E-commerce model in which individuals or groups communicate or collaborate online E-Commerce by S. Sabraz Nawaz

The Electronic Commerce Field: Classification, Content, and History e-learning The online delivery of information for purposes of training or education e-government E-commerce model in which a government entity buys or provides goods, services, or information from or to businesses or individual citizens E-Commerce by S. Sabraz Nawaz

E-Commerce by S. Sabraz Nawaz Activity Visit emeraldinsight.com and search for any article on e-Commerce and download. E-Commerce by S. Sabraz Nawaz

E-Commerce by S. Sabraz Nawaz Some points on History EC was first developed in 1970 with the introduction of EFT Then came EDI; a technology used to transfer routine documents Later expanded from financial transaction to other types of transactions to manufacturers, retailers and other businesses More new EC applications followed; ranging from travel reservation system to stock trading. In 1969, US government began Internet as experiment. In 1990 WWW was introduced – major milestone in EC In 1995 many Internet applications appeared – from direct online sales to e-learning In 1999, the emphasis of EC shifted from B2C to B2B 2001 from B2B to B2E, c-commerce, e-government, e-learning, and m-commerce. In 2005, social networks started to receive quite a bit of attention, as did m- commerce and wireless applications EFT: Funds could be routed electronically from one organization to another but limited to large corporations and financial institutions. In 1999 many .com failed because lack of finance, lack of marketing experience, not enough stock, distribution problem etc. E-Commerce by S. Sabraz Nawaz

The Digital World: Economy, Enterprises, and Society digital economy The digital economy , also known as the Internet economy, is an economy based on online transactions, mostly e-commerce. It includes digital wireline or wireless communication networks (e.g., the Internet, intranets, extranets, and VANs), computers, software, and other related information technologies. Characters: A vast array of digitizable products Consumers and companies conduct financial transactions through digital currencies Microprocessors and networking capabilities are embedded in physical goods Information is transformed into a commodity Works and productions are organized in new and innovative ways. E-Commerce by S. Sabraz Nawaz

The Digital World: Economy, Enterprises, and Society digital economy It also refers to the convergence of computing and communication technologies on the Internet and other networks and the resulting flow of information and technology that is stimulating EC and vast organizational changes. This convergence enables all types of information (data, audio, video, etc.) to be stored, processed, and transmitted over networks to many destinations worldwide. E-Commerce by S. Sabraz Nawaz

Major characteristics of digital economy: Many digitizable products – books, databases, magazines, information, electronic games, and software – are delivered over a digital infrastructure anytime, anywhere in the world, interconnected by a global grid. We are moving from analog to digital, even the media is going digital (TV as of February 2009). Information is transformed into a commodity. Financial transactions are now digitized and chips are embedded in many products (e.g., cameras, cars). Knowledge is codified. Work and business processes are organized in new and innovative ways. Disruptive innovation is occurring in many industries. E-Commerce by S. Sabraz Nawaz

Major characteristics of digital economy: E-Commerce by S. Sabraz Nawaz

The Digital World: Economy, Enterprises, and Society digital enterprise A new business model that uses IT in a fundamental way to accomplish one or more of three basic objectives: reach and engage customers more effectively boost employee productivity improve operating efficiency It uses converged communication and computing technology in a way that improves business processes E.g.: Dell, Amazon and Google use computers and information systems to automate most of its business processes. All internal communications done by intranet All business partners are connected by Internet or extranet or value added network Many such companies employ a corporate portal; a gateway for customers, employees and partners Major concern for many companies is how to transform themselves as digital enterprise so that they can take part in the digital economy. E-Commerce by S. Sabraz Nawaz

E-Commerce by S. Sabraz Nawaz Digital Enterprise: How a company uses the Internet, Intranet and Extranet E-Commerce by S. Sabraz Nawaz

The Digital World: Economy, Enterprises, and Society corporate portal A major gateway through which employees, business partners, and the public can enter a corporate Web site E-Commerce by S. Sabraz Nawaz

Digital Vs Brick-and-Mortar Company E-Commerce by S. Sabraz Nawaz

The Digital World: Economy, Enterprises, and Society Digital society The most important element of digital world is people and the way they live and interact Digital society has changed contemporary life with regard to almost any activity; work, shopping, entertainment, travel, medical care, education, and much more. Digital TV, camera, car etc. Another good example is how politicians interact with public E-Commerce by S. Sabraz Nawaz

Electronic Commerce Drivers and the Changing Business Environment EC is driven by many economic, legal, societal, and technological factors that have created a highly competitive business environment in which customers are becoming more powerful These environmental factors can change quickly, vigorously, and sometimes in an unpredictable manner Companies need to react quickly to both the problems and the opportunities resulting from this new business environment Political changes Financial Crisis E-Commerce by S. Sabraz Nawaz

E-Commerce by S. Sabraz Nawaz Major Drivers of EC EC initiatives play an increasing role in supporting innovations and strategies that help companies to compete and flourish, especially companies that want to introduce changes rather than respond to them. The essentials of the capabilities that drive EC are the ability to: Provide efficient and effective business transaction Provide global reach for selling, buying or finding business partners Conduct business anytime, anywhere in a convenient way Disseminate information rapidly; frequently in real-time Compare prices Customize products and personalize services Use rich media in advertisement and social networking Receive experts’ and other users’ advice quickly Collaborate in different ways both internally and externally Increase productivity, e.g. by having smart applications Easily and quickly find information about both vendors, products and competitors E-Commerce by S. Sabraz Nawaz

Major Contributions to the Growth of EC E-Commerce by S. Sabraz Nawaz

E-Commerce by S. Sabraz Nawaz Activity Build your own Jaguar car. E-Commerce by S. Sabraz Nawaz

Electronic Commerce Drivers and the Changing Business Environment Since EC technology is improving over time and decreasing in cost, its comparative advantage is increasing, contributing to its growth. The EC growth is related to changing business environment People, organizations, etc. are trying to improve their performance; for some it is a challenges; for other it is a requirement for survival, for some it is the key to improved life, profitability or reputation The Business Environment and Performance Model E-Commerce by S. Sabraz Nawaz

Major Business Pressures E-Commerce by S. Sabraz Nawaz

Innovative Organizational Responses Cycle Time: The period required to complete one cycle of an operation; or to complete a function, job, or task from start to finish. E-Commerce by S. Sabraz Nawaz

WHAT BUSINESS PRESSURES DO YOU SEE IN YOUR BUSINESS ENVIRONMENT? E-Commerce by S. Sabraz Nawaz

Electronic Commerce Business Models A business model is a method of doing business by which a company can generate revenue to sustain itself; it spells out where the company is positioned in the value chain E-Commerce by S. Sabraz Nawaz

E-Commerce by S. Sabraz Nawaz Remember this? E-Commerce by S. Sabraz Nawaz

Electronic Commerce Business Models THE STRUCTURE AND PROPERTIES OF BUSINESS MODELS Revenue Models Sales Transaction fees Subscription fees Advertising fees Affiliate fees Other revenue sources Other revenue sources: companies allow people to play games for a fee or to watch a live match in real time for fee. Licensing fee such as MS Office cloud Innovative revenue for individuals: Buy low and sell high eg. A person who bought pizza.com domain for $20 in 1994 sold it for $2.6 in 2008 E-Commerce by S. Sabraz Nawaz

E-Commerce by S. Sabraz Nawaz Common Revenue Models E-Commerce by S. Sabraz Nawaz

Electronic Commerce Business Models TYPICAL EC BUSINESS MODELS Online direct marketing Electronic tendering systems tendering (bidding) system Model in which a buyer requests would-be sellers to submit bids; the lowest bidder wins Electronic marketplaces and exchanges Viral marketing Social networking and Web 2.0 tools E-Commerce by S. Sabraz Nawaz

E-Commerce by S. Sabraz Nawaz Activity Visit Dell.com and buy a PC. E-Commerce by S. Sabraz Nawaz

The Benefits, Limitations, and Impacts of Electronic Commerce THE BENEFITS AND IMPACTS OF EC A few innovations in human history encompasses benefits as EC does The global nature of the technology, the opportunity to reach hundreds of millions of people, its interactive nature, resourcefulness and rapid growth, etc. have resulted in many benefits to organizations, individual customers, and society E-Commerce by S. Sabraz Nawaz

Benefits of E-Commerce E-Commerce by S. Sabraz Nawaz

Benefits of E-Commerce E-Commerce by S. Sabraz Nawaz

Limitations of E-Commerce E-Commerce by S. Sabraz Nawaz

End of Chapter 01 with Case Study E-Commerce by S. Sabraz Nawaz