1 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7 Electronic Commerce Systems

2 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives  Identify the major categories and trends of e- commerce applications.  Identify the essential processes of an e- commerce system, and give examples of how they are implemented in e-commerce applications.

3 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives (continued)  Identify several key factors and Web store requirements needed to succeed in e- commerce.  Identify the business value of several types of e-commerce marketplaces.

4 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives (continued)  Discuss the benefits and trade-offs of several e- commerce clicks and bricks alternatives.

5 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Section I Electronic Commerce Fundamentals

6 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Electronic Commerce Fundamentals (continued)  “Few concepts have revolutionized business more profoundly than e-commerce. E- commerce is changing the shape of competition, the speed of action, and the streamlining of interactions, products, and payments from customers to companies and from companies to suppliers.”

7 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Electronic Commerce Fundamentals (continued)  E-commerce  The online process of developing, marketing, selling, delivering, servicing, and paying for products & services transacted on internetworked, global marketplaces of customers, with the support of a worldwide network of business partners.

8 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. The Scope of e-Commerce  Three Basic Categories  Business-to-Consumer (B2C)  Business-to-Business (B2B)  Consumer-to-Consumer (C2C)

9 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Scope of e-Commerce (continued)  Electronic Commerce Technologies  The Internet, intranets, and extranets are the network infrastructure or foundation  Customers must be provided with a range of secure information, marketing, transaction processing, and payment services

10 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Scope of e-Commerce (continued)  Electronic commerce technologies (continued)  Trading and business partners rely on the Internet and extranets to exchange information and accomplish secure transactions  Company employees depend on a variety of Internet and intranet resources to communicate and collaborate

11 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Scope of e-Commerce (continued)  Electronic commerce technologies (continued)  IS professionals and end users can use a variety of software tools to develop and manage the content and operations of the websites and other e-commerce resources

12 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Essential e-Commerce Processes  Nine key components of an e-commerce process architecture  Access control and security  Profiling and personalizing  Search management  Content management  Catalog management

13 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Essential e-Commerce Processes (continued)  Key components (continued)  Payment  Workflow management  Event notification  Collaboration and training

14 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Essential e-Commerce Processes (continued)  Access control and security  Processes MUST establish mutual trust and secure access  Authenticating users  Authorizing access  Enforcing security features  Must protect the resources of e-commerce sites from threats  Hackers  Theft of passwords or credit card numbers  System failures

15 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Essential e-Commerce Processes (continued)  Profiling and personalizing  One-to-one marketing strategy  Personalized view of the website  Based on…  Personal data  Website behavior and choices  Used to help authenticate your identity for account management and payment purposes

16 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Essential e-Commerce Processes (continued)  Search management  Helps customers find the specific product or service they want  Software may include a search engine component or a company may acquire a customized e-commerce search engine

17 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Essential e-Commerce Processes (continued)  Content and catalog management  Content management software helps companies develop, generate, deliver, update, and archive text data and multimedia information  Frequently takes the form of multimedia catalogs of product information  Works with profiling tools to personalize the content of the website

18 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Essential e-Commerce Processes (continued)  Content and catalog management (continued)  May be expanded to include product configuration processes that support mass customization of a company’s products

19 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Essential e-Commerce Processes (continued)  Workflow management  Workflow software engine  Predefined sets of business rules  Roles of stakeholders  Authorization requirements  Routing alternatives  Databases used  Sequence of tasks

20 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Essential e-Commerce Processes (continued)  Workflow management (continued)  Workflow systems ensure that..  Proper transactions, decisions, & work activities are performed  Correct data and documents are routed to the right employees, customers, suppliers, and other business stakeholders

21 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Essential e-Commerce Processes (continued)  Event notification  Most applications are event driven  New customer’s first visit  Payment and delivery processes  Customer relationship & supply chain management activities  Notifies those concerned when an event occurs that might affect their status in a transaction

22 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Essential e-Commerce Processes (continued)  Collaboration and training  Supports the collaboration arrangements & trading services needed by customers, suppliers, & other stakeholders  May be provided by Internet-based trading services

23 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Electronic Payment Processes  Processes are complex  Near anonymous nature of transactions  Security issues  Wide variety of debit and credit alternatives  Wide variety of financial institutions and intermediaries

24 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Electronic Payment Processes (continued)  Web payment processes  Credit cards  Purchase orders  Electronic shopping cart

25 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Electronic Payment Processes (continued)  Electronic funds transfer (EFT)  Uses a variety of IT to capture and process money and credit transfers between banks and businesses and their customers  ATMs  Pay-by-phone  Web-based  PayPal & Bill Point (cash transfers)  CheckFree and PayTrust (automatic bill paying services)

26 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Electronic Payment Processes (continued)  Electronic funds transfer (continued)  Electronic bill payment  Point-of-sale terminals linked to bank EFT systems

27 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Electronic Payment Processes (continued)  Secure electronic payments  Addresses vulnerability to network sniffers  Encrypt data passing between customer and merchant  Encrypt the data passing between the customer and the company authorizing the credit card transaction  Secure Socket Layer (SSL)  Digital Wallet  Secure Electronic Transaction standard

28 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Section II E-Commerce Applications and Issues

29 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. e-Commerce Application Trends  “E-commerce is here to stay. The Web and e- commerce are key industry drivers. It’s changed how many companies do business. It’s created new channels for our customers. Companies are at the e-commerce crossroads and there are many ways to go.”

30 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. e-Commerce Application Trends (continued)

31 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. e-Commerce Application Trends (continued)  E-commerce Sectors  Six major e-commerce sectors  Infrastructure  Applications  Portals  Content  Services  Exchanges

32 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Business-to-Consumer e-Commerce  Location is not a factor  Must build customer satisfaction, loyalty, & relationships

33 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Business-to-Consumer e-Commerce (continued)  Success factors  Selection and value  Offer a good selection of attractive products and services  Build a reputation for high quality, guaranteed satisfaction, and top customer support

34 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Business-to-Consumer e-Commerce (continued)  Success factors (continued)  Performance and service  Site must be efficiently designed for ease of access, shopping, and buying  Service must be friendly and helpful  Products should be available in inventory

35 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Business-to-Consumer e-Commerce (continued)  Success factors (continued)  Look and feel  Attractive storefront, shopping areas, and multimedia product catalogs

36 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Business-to-Consumer e-Commerce (continued)  Success factors (continued)  Advertising and incentives  Targeted, personalized ads  Incentives include  Coupons  Discounts  Special offers  Vouchers for other web services

37 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Business-to-Consumer e-Commerce (continued)  Success factors (continued)  Personal attention  Encourages customers to buy and make return visits  Welcomed by name  Greeted with special offers  Guided to the parts of the site that you are most interested in  Relationship building

38 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Business-to-Consumer e-Commerce (continued)  Success factors (continued)  Community relationships  Giving customers with special interests a feeling of belonging to a unique community  Virtual communities  Discussion forums  Newsgroups  Chat rooms  Message boards  Cross-links to related web communities

39 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Business-to-Consumer e-Commerce (continued)  Success factors (continued)  Security and reliability  Customers must feel confident regarding the security of their…  Credit card  Personal information  Transaction details

40 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Business-to-Consumer e-Commerce (continued)  Success Factors (continued)  Must feel that you are dealing with a trustworthy business.  Reliability  Orders filled and shipped as you requested  Orders shipped in the timeframe promised  Good customer support

41 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Web Store Requirements  Developing a Web Store  Build  Website design tools  Site design templates  Custom design services  Website hosting

42 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Web Store Requirements (continued)  Developing a web store (continued)  Market  Web page advertising  promotions  Web advertising exchanges with affiliated sites  Search engine registrations

43 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Web Store Requirements (continued)  Serving Your Customers  Serve  Personalized web pages  Dynamic multimedia catalog  Catalog search engine  Integrated shopping cart

44 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Web Store Requirements (continued)  Serving your customers (continued)  Transact  Flexible order process  Credit card processing  Shipping and tax calculations  order notifications

45 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Web Store Requirements (continued)  Serving your customers (continued)  Support  Website online help  Customer service  Discussion group and chat rooms  Links to related sites

46 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Web Store Requirements (continued)  Managing a Web Store  Manage  Website usage statistics  Sales and inventory reports  Customer account management  Links to accounting system

47 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Web Store Requirements (continued)  Managing a web store (continued)  Operate  24/7 website hosting  Online tech support  Scalable network capacity  Redundant servers and power

48 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Web Store Requirements (continued)  Managing a web store (continued)  Protect  User password protection  Encrypted order processing  Encrypted website administration  Network fire walls and security monitors

49 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Business-to-Business e-Commerce  The wholesale and supply side of the commercial process  Businesses buy, sell, or trade with other businesses  Includes…  Electronic catalog systems  Electronic trading systems  Electronic data interchange  Electronic funds transfer

50 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. e-Commerce Marketplaces  One-to-Many  Sell-side. Host one major supplier who dictates product catalog offerings & prices.  Many-to-One  Buy-side. Attract many suppliers that flock to these exchanges to bid on the business of a major buyer.

51 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. e-Commerce Marketplaces (continued)  Some-to-Many  Distribution marketplaces. Unite major suppliers who combine their product catalogs to attract a larger audience of buyers.  Many-to-Some  Procurement marketplaces. Unite major suppliers who combine their purchasing catalogs to attract more suppliers.  More competition, lower prices

52 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. e-Commerce Marketplaces (continued)  Many-to-Many  Auction marketplaces. Used by many buyers and sellers that can create a variety of buyers’ or sellers’ auctions to dynamically optimize prices.

53 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Clicks and Bricks  Alternatives  E-Commerce Integration  E-commerce is integrated into the traditional business operations of a company.  Business case for integration  Capitalizing on unique strategic capabilities that exist in a company’s traditional business operations

54 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Clicks and Bricks (continued)  Alternatives (continued)  Gaining strategic benefits such as..  Sharing established brands  Sharing key business information  Joint buying power  Distribution efficiencies

55 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Clicks and Bricks (continued)  Alternatives (continued)  Partial e-commerce integration using joint ventures and strategic partnerships  Complete separation via the spin-off of an independent e-commerce company

56 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Clicks and Bricks (continued)  E-Commerce Channel Choices  An e-commerce channel is the marketing or sales channel created by a company to conduct and manage its chosen e-commerce activities

57 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Clicks and Bricks (continued)  Revenue-generating alternatives  Additive channel  New offer channel  Subscription  Advertising  Sponsorship  Licensing  Portaling  Commission  Tolling

58 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Discussion Questions  Do you agree that most businesses should engage in electronic commerce on the Internet?  Are you interested in investing in, owning, managing, or working for a business that is primarily engaged in electronic commerce on the Internet?

59 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Discussion Questions (continued)  Why do you think there have been so many business failures among “dot-com” companies that were devoted only to retail e-commerce?  Do the e-commerce success factors discussed in the chapter guarantee success for an e- commerce business venture?  What else could go wrong & how would you confront those challenges?

60 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Discussion Questions (continued)  If personalizing a customer’s website experience is a key success factor, then electronic profiling processes to track visitor website behavior are necessary. Do you agree? What are the ethical implications?  All corporate procurement should be accomplished in e-commerce auction marketplaces, instead of using B2B websites that feature fixed-price catalogs or negotiated prices. Do you agree?

61 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Discussion Questions (continued)  If you were starting an e-commerce web store, which of the business requirements listed in this chapter would you primarily do yourself, and which would you outsource to a Web development or hosting company?  Which of the e-commerce clicks and bricks alternatives discussed in this chapter would you recommend to Barnes & Noble? Amazon.com? Wal-Mart? Any business?

62 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 1 – Yahoo, Inc.  How is Yahoo doing financially right now?  Is Yahoo making the right moves toward continuing e-commerce profitability?

63 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 1 (continued)  What are several other things Terry Semel could do to make Yahoo more successful?  Will Yahoo be able to compete successfully with AOL and MSN as an online service and e- commerce portal?

64 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 2 – ChemConnect & Heritage Services  What are the business benefits and limitations of using public B2B exchanges like ChemConnect?  What is the business value of private B2B exchanges for a company?

65 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 2 (continued)  Should a small business use public or private B2B exchanges, or should they use exchanges like eBay, that attract both consumers and small businesses?

66 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 2 (continued)  How can ChemConnect broaden its customer base?

67 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 3 – Staples, Steelcase, Countrywide, & HSN  Does the fact that customers who shop online and in other channels generate more sales, as Staples and HSN have found, mean that most companies should have an e-commerce website?

68 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 3 (continued)  Do you agree with Steelcase that it is better for people to get product information online than from a salesperson?

69 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 3 (continued)  Do the Steelcase and Countrywide websites do a good job of encouraging customers and visitors to buy their products and use their services?

70 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 4 – eBags, Economy.com, & Classmates Online  Do you feel that eBags will be able to sustain its recent profitability?  How else could Economy.com increase its products, markets, and profitability?

71 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 4 (continued)  How could other kinds of businesses use the Classmates Online business model to help strengthen their e-commerce success?

72 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 5 – Office Depot, Lands’ End, & Others  Which website, Office Depot or Lands’ End, does a better job of helping users find the products they want?

73 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 5 (continued)  When comparing the business value of the integration of customer information at Martha Stewart, retailer information at Panasonic, and inventory information at NextWine, which capability is of greatest importance to the success of an e-commerce business?

74 McGraw-Hill/Irwin Copyright © 2004, The McGraw-Hill Companies, Inc. All rights reserved. Real World Case 5 (continued)  Which website capability or feature would you most like to see added to e-commerce websites?