E. Wainright Martin Carol V. Brown Daniel W. DeHayes Jeffrey A. Hoffer William C. Perkins MANAGINGINFORMATIONTECHNOLOGY FIFTH EDITION CHAPTER 8 E-C OMMERCE A PPLICATIONS

© 2005 Pearson Prentice-Hall Chapter E-C OMMERCE T ECHNOLOGIES Page 239 Electronic commerce – the electronic transmission of buyer/seller transactions and related information between individuals and businesses or between two or more businesses that are trading partners

© 2005 Pearson Prentice-Hall Chapter E-C OMMERCE T ECHNOLOGIES Will we see continued growth in e-commerce (Internet) applications? Consider Metcalfe’s Law: The value of a network to each of its members is proportional to the number of other users, expressed as (n2 – n) / 2  There are increasing returns to be gained as more organizations and people use the Web Page 240

© 2005 Pearson Prentice-Hall Chapter Page 241 Figure 8.1 Internet Technology Innovations for E-Commerce E-C OMMERCE T ECHNOLOGIES Commercial History of the Internet

© 2005 Pearson Prentice-Hall Chapter E-C OMMERCE T ECHNOLOGIES Improvements for online sales or auction bidding New channels for customer service Collection of clickstream metrics and personal data from Web site users Acceptance of Web “cookies” stored on user’s hard drive to enable customization of Web sites Web browser improvements with multimedia Page 240 Technologies for B2C Applications

© 2005 Pearson Prentice-Hall Chapter E-C OMMERCE T ECHNOLOGIES Page 242 Technologies for B2B Applications Most important technological advance for B2B applications – XML markup language  Now have accepted standards  Can be used for a flexible, low-entry form of EDI Electronic data interchange (EDI) – proprietary applications for communicating with trading partners based on agreed- upon standards for business document transmission

© 2005 Pearson Prentice-Hall Chapter E-C OMMERCE T ECHNOLOGIES Page Technologies for B2B Applications EDI Benefits:  Reduced cycle times for doing business  Cost savings for automated transaction handling and elimination of paper documents  Improved interfirm coordination and reduced interfirm coordination costs EDI Constraints:  Start-up coordination challenges (EDI standards agreement and legal issues)  Start-up and ongoing IT costs

© 2005 Pearson Prentice-Hall Chapter E-C OMMERCE T ECHNOLOGIES Page Technologies for B2B Applications Prediction:  Web forms using XML and extranet applications will continue to grow!

© 2005 Pearson Prentice-Hall Chapter E-C OMMERCE T ECHNOLOGIES Potential constraint to e-commerce: lack of security for Internet transactions Issues:  How to control access to a computer that is physically networked to the Internet  How to ensure that security of a given communication is not violated Page 243 Technologies for IT Security

© 2005 Pearson Prentice-Hall Chapter E-C OMMERCE T ECHNOLOGIES How to control access to a computer that is physically networked to the Internet? Use of a firewall – devices that sit between the Internet and an organization’s internal network to block intrusions from unauthorized users and hackers How to ensure that security of a given communication is not violated? Encryption – based on two decoding keys and mathematical principles for factoring a product into its two prime numbers, where one key codes a message and the other decodes it Page Technologies for IT Security

© 2005 Pearson Prentice-Hall Chapter Page 244 Figure 8.2 E-Commerce Framework (Adapted from Applegate, Holsapple, et al. 1996; Kalakota and Whinston, 1996)

© 2005 Pearson Prentice-Hall Chapter Page L EGAL AND R EGULATORY E NVIRONMENT Tax Policies Copyright Lays Antitrust Laws Privacy Issues

© 2005 Pearson Prentice-Hall Chapter Page 246 S TRATEGIC O PPORTUNITIES AND T HREATS Porter’s Competitive Forces Model Supplier power Customer power Threat of new entrants Threat of substitute products or services Responses of competitors

© 2005 Pearson Prentice-Hall Chapter Page 246 S TRATEGIC O PPORTUNITIES AND T HREATS Opportunities due to the Internet: Procurement of supplies via Internet can increase company’s power over suppliers Size of potential market is expanded Distribution channels between traditional company and customer can be eliminated

© 2005 Pearson Prentice-Hall Chapter Page S TRATEGIC O PPORTUNITIES AND T HREATS Threats to traditional companies due to the Internet: Migration to price competition – difficult to keep offerings proprietary Increased number of potential competitors Internet reduces some traditional barriers (such as in-person sales force) Customers increase their bargaining power – Internet reduces customer’s switching costs

The four main areas where companies conduct business online 1. 1.Direct marketing, selling, and services 2. 2.Financial and information services 3. 3.Maintenance, repair, and operations (MRO) 4. 4.Intermediaries

Maintenance, Repair, & Operations (MRO) MRO goods include – office suppliers, office equipment, furniture, computers, and replacement parts Internet transforms corporate purchasing from a labor-and paperwork-intensive process into a self-service application

Intermediaries Content providers – companies that use the Internet to distribute copyrighted content, including news, music, games, books, movies, and many other types of information Online brokers – intermediaries between buyers and sellers of goods and services Market makers –intermediaries that aggregate three services for market participants   A place to trade   Rules to govern trading   An infrastructure to support trading

Types of Intermediaries

© 2005 Pearson Prentice-Hall Chapter E-B USINESS M ODELS Figure 8.4 Potential Benefits to Sellers and Buyers Page 249 B2C Applications

© 2005 Pearson Prentice-Hall Chapter If Buyers and Sellers are Fragmented, Independent Intermediaries are likely to be successful. If Sellers are Concentrated, Sellers are likely to dominate. If Buyers are Concentrated, Buyers are likely to dominate. Figure 8.5 Opportunities for B2B Marketplace Page 250 B2B Applications

© 2005 Pearson Prentice-Hall Chapter E-B USINESS M ODELS Weill and Vitale proposition: The value propositions of eight business models differ according to the degree to which the following e- business assets are captured online:  Customer transaction – to capture revenue  Customer data – to capture data about customer’s purchasing needs  Customer relationship – ability to influence customer’s behaviors Page 251 Atomic Business Models

© 2005 Pearson Prentice-Hall Chapter E-B USINESS M ODELS Figure 8.6 Business Models and Their E-Business Assets Page 251 Atomic Business Models (Based on Weill and Vitale 2001, Straub 2004)

© 2005 Pearson Prentice-Hall Chapter Figure 8.6 Business Models and Their E-Business Assets Page 251 Atomic Business Models (Based on Weill and Vitale 2001, Straub 2004) E-B USINESS M ODELS

© 2005 Pearson Prentice-Hall Chapter D IRECT-TO- C USTOMER E XAMPLES Dot-com pioneer in online retailing of third-party products Began as bookseller competitor Now a multi-store, online mall First profitable year 2003 Provides excellent online shopping experiences for millions of customers Page 252 Amazon.com

© 2005 Pearson Prentice-Hall Chapter Figure 8.7 Amazon.com Home Page Page 253 (© 2004 Amazon.com, Inc. All right reserved.)

© 2005 Pearson Prentice-Hall Chapter D IRECT-TO- C USTOMER E XAMPLES Page 254 Dell.com Traditional direct seller and market leader of made-to-order microcomputers Developed custom software to support “mass customization” strategy Took advantage of early penetration of Internet market

© 2005 Pearson Prentice-Hall Chapter Figure 8.8 Dell.com Home Page Page 254 (Used with permission of Dell Corporation.)

© 2005 Pearson Prentice-Hall Chapter D IRECT-TO- C USTOMER E XAMPLES Page 255 Landsend.com Traditional catalog company that developed capability to give online tools to customers so they could make orders for new custom clothing via its Web site

© 2005 Pearson Prentice-Hall Chapter Figure 8.9 Landsend.com Home Page Page 256 (© 2004 Lands’ End, Inc. Used with permission.)

© 2005 Pearson Prentice-Hall Chapter D IRECT-TO- C USTOMER E XAMPLES Amazon.com Dell Lands’ End All developed B2C Web sites that use advanced technologies to support customized interactions with customers Page 256 Successful Online Models

© 2005 Pearson Prentice-Hall Chapter D IRECT-TO- C USTOMER E XAMPLES Figure 8.10 Common Online Activities by U.S. Consumers Page 257 Successful Online Models Source: Pew Internet & American Life Project Surveys, 2002

© 2005 Pearson Prentice-Hall Chapter I NTERMEDIARY E XAMPLES Page 257 Figure 8.11 Key Characteristics of Six Types of Intermediaries (Based on Weill and Vitale, 2001)

© 2005 Pearson Prentice-Hall Chapter I NTERMEDIARY E XAMPLES Page 258 eBay A dot-com pioneer in electronic auctions One of first to achieve profitability Now is a C2C, B2B, and B2C intermediary

© 2005 Pearson Prentice-Hall Chapter Figure 8.12 eBay.com Home Page Page 259 These materials have been reproduced with the permission of eBay, Inc. Copyright © eBay, Inc. All rights reserved.

© 2005 Pearson Prentice-Hall Chapter I NTERMEDIARY E XAMPLES Page Yahoo! Early dot-com intermediary Has recently leveraged IT innovations and business acquisitions to become a leading portal As a portal, site owns only the customer relationship Primary source of revenue is advertisements Through acquisition, now offers online job searches

© 2005 Pearson Prentice-Hall Chapter Figure 8.13 Yahoo.com Home Page Page 260 (Reproduced with permission of Yahoo! Inc. Copyright © 2004 by Yahoo! Inc. YAHOO! And the YAHOO! Logo are trademarks of Yahoo! Inc.)

© 2005 Pearson Prentice-Hall Chapter I NTERMEDIARY E XAMPLES Page Manheim Traditional B2B intermediary for sale of used cars Has leveraged the Internet to reduce purchasing and sales costs Provides remote, real-time bidding during physical auctions

© 2005 Pearson Prentice-Hall Chapter Figure 8.14 Manheim.com Home Page Page 261 (Used with permission of Manheim.)

Types of Intermediaries

© 2005 Pearson Prentice-Hall Chapter S PECIAL I SSUE: W HAT M AKES A G OOD W EB S ITE? Page 262 Why is Web page design important? For e-commerce applications, the company’s Web site is the company

© 2005 Pearson Prentice-Hall Chapter Figure Cs Framework for Web Site Design Page 262 (Based on Rayport and Jaworski, 2004)