Introduction to Electronic Commerce and Trade

What is commerce? …activities that seek to create arm’s- length transactions between firms and individuals and involve the exchange of money, goods, or obligations.

What is E-Commerce? “an interactive concept, designed to draw together a wide range of business support services, which includes inter-organisational , directories, trading support systems for commodities, products, customised products, and custom-built goods and services: different types of support and reporting systems, including management, logistical and statistical reporting/information systems.” Clarke

A Simplified Approach Electronic commerce  “is the communication of any object of commercial interchange by electronic means” Gardner  “is the integration of , electronic funds transfer, EDI and similar techniques into a comprehensive electronic-based system of business functions” Nath et al Electronic Trade and Commerce

Electronic Business Electronic commerce Dimensions: Mass, retail and consumer markets Systems: Extra organisational systems Electronic Trade Dimensions: Business to business Systems: Inter organisational systems Electronic trading systems Electronic Business

E-Commerce History and Scope History  Began in the early 1970s (long before the Internet was open to commercial use)  Limited to large businesses initially  Electronic Fund Transfer (EFT) and Electronic Data Interchange (EDI) Scope Today Includes  advertising  home banking  shopping in electronic stores and malls  buying stocks  finding a job  conducting an auction  collaborating electronically with business partners around the globe  providing customer service

Advantages of Electronic Commerce Global reach Reduced administration costs Improved customer service Greater product choice Flexibility of product / physical location Ease of use Increased marketing capability Develop new relationships

E-Commerce Framework

Electronic Commerce Activities Electronic Data Interchange (EDI) Electronic Funds Transfer (EFT) Electronic payments (E-cash - Credit cards) Automatic Teller Machine (ATM) Video conferencing and Sales/Marketing Loan and insurance facilities Travel reservations

Electronic Commerce Platforms Television / Set top boxes Computer Networks Microcomputers PDAs ISPs

EC Benefits to Organizations Increased customer base:  Broaden markets  Find niche markets (e.g. Reduced cost:  Reach a large number of customers at little cost  Procure material and services from other companies at less cost  Allow lower inventories by facilitating “ pull ” -type supply chain management  Shorten marketing distribution channels and reduce marketing costs  Decrease the cost of creating, processing, distributing, storing, and retrieving paper-based information  Lower telecommunications costs because the Internet is much cheaper than value-added networks (VANs) Reduced cycle time:  Procure material and services from other companies rapidly  Reduce the time between the outlay of capital and the receipt of products and services Helps small businesses compete against large companies

EC Benefits to Customers Choice  Consumers can select from many vendors and many more products than they could locate otherwise  Consumers can get customized products, from PCs to cars, at competitive or bargain prices  Consumers can find unique products and collectors ’ items through virtual auctions that might otherwise require them to travel long distances to a particular auction place at a specific time Convenience  Consumers can conduct online quick comparisons to find less expensive products and services  Customers can shop or make other transactions 24 hours a day, year round, from almost any location  Product information immediately available 24 hours a day, year round, from almost any location  Consumers can interact with other consumers in electronic communities and can exchange ideas as well as compare experiences

EC Benefits to Society Convenience  Enables more individuals to work at home and to do less traveling Access  Allows some merchandise to be sold at lower prices - less affluent people can buy more and increase their standard of living  Enables people in less developed countries and rural areas to enjoy products and services that otherwise are not available to them  Facilitates delivery of public services, such as government entitlements, reducing the cost of distribution and fraud, and increasing the quality of the social services, police work, health care and education

Technical Limitations of EC A few technical challenges remain for organizations wishing to conduct EC:  Lack of universally accepted standards for quality, security, and reliability  Insufficient telecommunications bandwidth  Still-evolving software development tools  Difficulties in integrating the Internet and EC software with some existing (especially legacy) applications and databases  Need for special Web servers in addition to the network servers (added cost)  Expensive and/or inconvenient Internet accessibility for many people All of these will diminish over time

Non-Technical Limitations of EC Legal and economic concerns:  Many legal issues are yet unresolved  Lack of national and international regulations and standards  Difficulty in measuring benefits of EC and justifying EC  Insufficient number (critical mass) of sellers and buyers exists for profitable EC operations Cultural resistance:  Distrust of the new: Many sellers and buyers are waiting for EC to stabilize before they take part  Customer resistance to the change from a physical to virtual stores  Perception that electronic commerce is expensive and unsecured, so many do not want even to try it

Internet Population Source:

Internet Population Current Global internet population million users billion users – 2005 US online population 80 million – 1999 US online population 230 million – 2005 Trend is moving to world wide population.  it is projected that by 2005 the US will only represent 15% of internet users

Worldwide e-Commerce Growth (2004) Forrester Research Inc. $6.8 Trillion

Electronic Commerce as a Strategy Tool E-commerce should be more than a way of sending documents electronically Process re-engineering of the organisation may be required Rethink the way that you do business

New Possibilities A Connemara based salmon fish farm managed to sell £50,000 worth of stock in the first three months selling on the web Marlborough offers clients remote access to videoed interviews of potential employees, which allows filtering of suitable candidates at an early stage thus saving time and money In the world’s developed economies, tangible good account for 20% of GDP, down from 50% after WWII

Electronic Commerce Focus Business to Business  physical business transactions outnumber consumer sales by ten to one Consumer to Business Forrester Research estimates that by 2003, consumers will spend $108 billion buying goods online, while businesses will spend $1.3 trillion

Business to Business V’s Business to Consumer

Industry sector Business to Business (B2B)

Fortune 500 Firms (Survey in 1999) Nearly all have web sites Less than 10% have transaction-based web sites 70% of these were setup for reasons relating to public relations, customer service and technical support

Internet Retailing 5% of unique visitors to sites ultimately become customers 1.6% of visits result in purchases Portal sites directly drive less than 30% of on-line retailing revenues Computer goods, entertainment, travel and discount brokerage sales account for more then 80% of the online market Two-thirds of shoppers who put items in a virtual shopping cart abandon the process before checking out

Business-to-Consumer EC (continued) Personalization – ability to customize product, service, advertisement, or customer service B2C EC enables personalization at low cost Internet enables marketing research  Questionnaires Usually involve some inducement  Direct behavior observation Cookies or site tracking services

Business-to-Consumer EC (continued) Use of intelligent agents  Help customers determine what to buy  Search for and compare vendor prices  Collect information and develop customer profiles Online advertising  Banners Keyword banners Random banners  Direct  Pop-up windows

Business-to-Business EC Composes the majority of EC volume Enables organizations to form electronic relationships Covers all activities along the supply chain Business Models:  Sell-Side Marketplace Organizations sell products to other organizations electronically.  Buy-Side Marketplace Buyers post needs; sellers submit bids  Electronic Exchanges Electronic marketplaces link many buyers and many sellers

Business-to-Business EC (continued) Collaborative Commerce – non- buying/selling activities between businesses  Planning and scheduling  Design  New product information  Product content management  Order management  Sourcing and procurement

New business models E -procurement Supply chain automation Customer service Intentions Value Network

E- procurement Large companies have been purchasing materials using EDI and VANs for some time These tended to be expensive to operate and difficult to use. They also required an existing relationship to be in place between the parties.

Internet-based E-Procurement The internet allows virtually everything that a company needs to be purchased online Predefined relations are not required Hewlett-Packard announced plans to sell everything from desks to paper clips over the web.

Supply Chain Automation The Holy Grail of business to business electronic commerce This type of system would link internal ERP systems, like SAP / Oracle, with external marketplaces Allows employees to source products in the marketplace and have the ERP deal with ordering delivery payment and so forth.

Customer Service Most companies lose half their customers every five years. Cost of acquiring a new customer is 4-6 times as much as retaining one  If a company can reduce that by 10-15%, it has the potential to improve profitability by 50% Creating a closer relationship with customers through ubiquitous contact

Intentions Value Network Use provider alliances to integrate a broad array of services into a customised intention solution Bundling different/related products and services within the same industry to create solutions

Intentions Value Network Shift the mind set from seller and product driven to a buyer/service driven business model The focus is not on individual products or services but on the integration of a wide variety of information, products and services to satisfy the specific intentions or needs of a community of buyers

Intentions Value Network An Integrator oversees a network of approved suppliers providing products and services The critical role of the Integrator is to understand the customer’s values, needs, behaviour and preferences related to the overall intention

Business Models (Rappa,2000) Brokerage Advertising Infomediary Merchant Manufacturer Affiliate Community Subscription Utility

Timmers (1999)

Pitfalls for Electronic Commerce Content Convenience Confidence Security Cost Legal uncertainty Lack of qualified staff Acceptance of service by suppliers/customers Lack of industry standards Technical problems

Trust Trust is central to any commercial transaction, and it foundation is identity authentication Trust requires trading partners to be confident their communications proceed privately, unaltered, and cannot be later refuted

Security Privacy  The message only viewed by the intended recipient Authentication  Vital to ensure users can be recognised and verified (passwords) Integrity  Ensure message is not tampered with during the transmit Scalability  Can the system continue to give the same level of security with increased users

Legal Issues Business transactions/contracts Jurisdiction Domain Name Issues Linking/Framing Issues Content Liability Online Disclaimers Intellectual Property

E-commerce Security Encryption Digital Signatures

Conclusions Altered business models New business models If this is a new economic revolution, those who do not conform will not survive A lot of money could be spent gambling

Readings “Business Models on the Web” – Rappa (2000) “The e-Business ®Evolution” – Amor (1999) – Chapter 4 (Avoiding Legal Issues)