Chapter 5 Electronic Commerce, Intranets, and Extranets

Chapter 5 Objectives Understand e-commerce and how it evolved Understand e-commerce strategies Understand the difference between intranets and extranets Understand consumer-focused and business- focused e-commerce Understand key e-commerce applications

Electronic Commerce Defined E-Commerce – online exchange of goods, services, and money between firms, and between firms and their customers –More than just buying and selling: Pre-sale events and marketing After-sale customer service

Electronic Commerce Defined E-Commerce –Business-to-Consumer (B2C) –Business-to-Business (B2B) –Business-to-Employee (B2E) –Consumer-to-Consumer (C2C)

Electronic Commerce Defined Internet and World Wide Web Capabilities –Expanding market –Wider customer base –More products –Closer relationships with customers

Electronic Commerce Defined Internet and World Wide Web Capabilities –Real-time access to information Web site linked to corporate database Customers can check the balances of their frequent flier accounts Customers do not have to wait for monthly statement Example: Alaska Airlines –Mass customization Tailoring products to a customers needs Example: Lands’ End (Clothing retailer) developed a virtual model so that customers can dress the model to select clothing –Interactive communication Improving firm’s image through responsiveness Firms are augmenting telephone-based ordering, Web-based customer support (Web chat) Example: E*Trade

Electronic Commerce Defined Internet and World Wide Web Capabilities –Collaboration –Reduced transaction costs –Enhanced operational efficiency –Disintermediation Cutting out the “middleman” Reaching customers directly

Electronic Commerce Defined Electronic Commerce Business Strategies –Brick-and-mortar Traditional, physical companies –Click-only (“virtual”) companies Online only Example: eBay –Click-and-mortar (or “Brick & Click”) Both physical and virtual –Challenge: increased IS complexity

Business-to-Business Electronic Commerce Electronic Data Interchange –Definition – EDI refers to the electronic transmission of business documents between organizations via networks –“EDI is the forefather of B2B” –Estimated that U.S. companies buy about $500 billion worth of goods and services electronically per year via EDI networks –EDI: usually over value-added networks (VANs)

EDI System Architecture

Business-to-Business Electronic Commerce Electronic Data Interchange –Advantages Wide variety of business documents Streamlines business processes Reduced document handling, reduces paperwork Shortens time of business transaction (from day to second) Reduces errors

Business-to-Business Electronic Commerce Electronic Data Interchange –Disadvantages Costly to implement Costly to maintain Requires skilled technicians EDI can cost up to $100,000 and monthly telecommunications charges associated with VANs can be several thousand dollars per month Often too costly for small or medium-sized companies

Business-to-Business Electronic Commerce The Internet Changed Everything –B2B now available to companies of all sizes –Intranet – internal, private network using Web technologies to facilitate transmission of proprietary information within the organization –Extranet – two or more firms using the Internet to do business together

Business-to-Business Electronic Commerce Intranet System Architecture –Firewalls – hardware devices with special software that prevent unauthorized access –An intranet server is placed behind the firewall –Packets are never routed outside the firewall, but remain within the organizations network

Internet Architecture

Business-to-Business Electronic Commerce Intranet Applications –Training: Employee can access video lectures, presentation slides from their desktop –Application Integration: Intranet integrates all disparate applications installed in different environments to consolidate information Enterprise Resource Planning (ERP) Customer Relationship Management (CRM) Sales Force Automation (SFA) –Online Entry of Information –Real-Time Access to Information –Collaboration

Business-to-Business Electronic Commerce Extranet System Architecture –Extranet Connects two or more business partners Like an intranet Same software, hardware, and networking Additional component: –Virtual Private Network (VPN) –Secure transmission of proprietary info

Business-to-Business Electronic Commerce Extranet System Architecture –Virtual Private Network (VPN) Tunneling –A technology that encapsulates, encrypts, and transmits data over the Internet –A secure “tunnel” is created over the VPN connecting the two intranets Authentication –Confirms the identity of the remote user who is attempting to access information from the Web server

Business-to-Business Electronic Commerce Extranet Applications –Supply Chain Management Example: Dell Computers –Real-Time Access to Information Example: CSX railroad –Collaboration Example: Caterpillar

Business-to-Business Electronic Commerce Enterprise Portals –Enterprise portals Extranets for business partners Access points (or front doors) by which a business partner accesses secured, proprietary information from an organization

Business-to-Business Electronic Commerce Enterprise Portals –Distribution portals Automate the business processes in selling products to multiple buyers –Procurement portals Automate the business processes that occur before, during, and after sales have been transacted –Trading Exchanges Electronic marketplaces run by 3rd-party vendors Revenues are from commissions on transactions

Business-to-Consumer Electronic Commerce B2C –Internet – fastest acceptance of any communications technology –Retail transactions between a company and end consumers –Electronic retailing (e-tailing)

Business-to-Consumer Electronic Commerce Stages of B2C E-Commerce –E-Information Disseminate information globally Example: Ferrari –E-Integration Consumer-driven access to information Example: Allstate and Burlington Northern Santa Fe –E-Transaction Interactive communication and transaction support Example: eBay and Priceline.com

Formula for Electronic Commerce Success The Rules for Web Site Success –1. Offer something unique –2. Web site must be aesthetically pleasing –3. Easy to use and fast –4. Motivate people to visit, stay, and return –5. Advertise your Web presence –6. Learn from your Web site