CHAPTER 5 E-Business and E-Commerce

CHAPTER 5 E-Business and E-Commerce

CHAPTER 5: E-Business and E-Commerce
5.1 Overview of E-Business & E-Commerce 5.2 Business-to-Consumer (B2C) Electronic Commerce 5.3 Business-to-Business (B2B) Electronic Commerce 5.4 Electronic Payments 5.5 Ethical and Legal Issues in E-Business Copyright John Wiley & Sons Canada

Copyright John Wiley & Sons Canada
LEARNING OBJECTIVES Describe the six common types of electronic commerce; provide specific personal examples of how you have used or could use B2C, C2C, G2C, and mobile commerce; and offer a specific example of B2B and G2B. Discuss the five online services of business-to-consumer electronic commerce, provide a specific example of each service, and state how you have used or would use each service. Copyright John Wiley & Sons Canada

LEARNING OBJECTIVES (CONTINUED)
Describe the three business models for business-to-business electronic commerce, and provide a specific example of each model. Describe the four types of electronic payments, provide a specific example of each one, and explain whether you would use each type. Illustrate the ethical and legal issues relating to electronic commerce with two specific examples of each issue. Copyright John Wiley & Sons Canada

OPENING CASE CASE 5.1 From Social Networks to Social Commerce The Problem We’re all familiar with national advertising campaigns for big brands that spend millions on 30-second television commercials, as an example. But did you know that local advertising is also big business? Much of that money is wasted, because local commerce is highly segmented and inefficient. A small company cannot acquire customers or advertise with the efficiency of a large chain that has multiple locations in the same town. The problem, therefore, is how to make local advertising more efficient and effective for small businesses. Copyright John Wiley & Sons Canada

OPENING CASE The Solution The solution may lie in the emerging area of social commerce, as illustrated by Groupon ( Every day, Groupon s its subscribers discounts on goods and services, but only if a minimum of people sign up for the deals. Groupon’s social commerce model pays off in three ways: (1) The subscriber gets a better price; (2) the merchant gets additional business and potential new customers; and (3) Groupon receives a share of the revenues generated by the deals. Copyright John Wiley & Sons Canada

OPENING CASE The Results Groupon’s business model has been wildly successful. The company has about 10,000 employees and sends out more than 900 deals each day in over 550 markets. The company, which launched in 2008, gained 1 million subscribers within a year and went from zero to $500 million in sales within 18 months. In 2012, gross billings rose by 35 percent to $5.4 billion. Copyright John Wiley & Sons Canada

OPENING CASE Discussion Discuss the attributes of Groupon’s business model. How does Groupon remain competitive in the market facing more than 500 companies around the world offering similar services? Copyright John Wiley & Sons Canada

OPENING CASE What We Learned From This Case Electronic commerce affects organizations in many significant ways, including the following: increasing an organization’s reach, removing barriers for entrepreneurs who are starting their own business, and drastically changing the nature of competition. Case 5.1 demonstrated how social networking can build social commerce business models. Copyright John Wiley & Sons Canada

5.1 OVERVIEW OF E-BUSINESS AND E-COMMERCE
Definitions and Concepts E-commerce, Social Commerce, Degree of Digitalization, E-business Types of E-Commerce E-Commerce and Search Major E-Commerce Mechanisms Benefits and Limitations of E-Commerce Social Commerce: Social commerce is a type of electronic commerce that uses social media to assist in the on-line buying and selling of products and services. Electronic commerce (e-commerce, EC) describes the process of buying, selling, transferring or exchanging of products, services or information via computer networks, including the Internet. E-business is a somewhat broader definition of EC, In addition to the buying and selling of goods and services, e-business also refers to servicing customers, collaborating with business partners, and performing electronic transactions within an organization. Degree of digitization is the extent to which the commerce has been transformed from physical to digital. Copyright John Wiley & Sons Canada

DEFINITIONS AND CONCEPTS (CONTINUED)
Pure versus Partial Electronic Commerce depends on the degree of digitization involved. Brick-and-mortar organizations Virtual organizations Click-and-mortar organizations Pure vs. Partial EC --The product can be physical or digital. --The process can be physical or digital. --The delivery agent can be physical or digital. Brick-and-mortar organizations are purely physical organizations. Virtual organizations are companies that are engaged only in EC. (Also called pure play) Click-and-mortar (clicks-and-bricks) organizations are those that conduct some e-commerce activities, yet their business is primarily done in the physical world. i.e. partial EC. All other combinations that include a mix of digital and physical dimensions are considered partial EC (but not pure EC). Copyright John Wiley & Sons Canada

BRICKS AND MORTAR, PARTIAL EC, AND PURE EC
Example Buy books at university bookstore: bricks and mortar Use Internet to order physical book from Amazon: partial EC Order and download book from Amazon: pure EC Copyright John Wiley & Sons Canada

TYPES OF E-COMMERCE Business-to-Consumer (B2C) Business-to-Business (B2B) Consumer-to-Consumer (C2C) Business-to-consumer (B2C): the sellers are organizations and the buyers are individuals. Business-to-business (B2B): both the sellers and buyers are business organizations. B2B represents the vast majority of e-commerce. Consumer-to-consumer (C2C): an individual sells products or services to other individuals. Copyright John Wiley & Sons Canada

TYPES OF E-COMMERCE (CONTINUED)
Business-to-Employee (B2E) E-Government Mobile Commerce (m-commerce) Business-to-employee (B2E): An organization uses e-commerce internally to provide information and services to its employees. Companies allow employees to manage their benefits, take training classes electronically; buy discounted insurance, travel packages, and event tickets. E-Government: the use of Internet Technology in general and e-commerce in particular to deliver information about public services to citizens (called Government-to-citizen [G2C EC]), business partners and suppliers (called government-to-business [G2B EC]). Click on E-Government link to take you to the Government of Canada Online Forms Webpage. Mobile Commerce (m-commerce) refers to e-commerce that is conducted in a wireless environment. For example, using cell phone to shop over the Internet. Copyright John Wiley & Sons Canada

E-COMMERCE AND SEARCH One of the biggest changes in recent times in the development of e-commerce has been the growing importance of search in the overall e-commerce experience. For example, Google justifies the importance of online searches because a higher number of purchases follow successful web searches compared to nonproductive searches where online shoppers tend to abandon their shopping carts. In other words, if you are able to quickly find that product you are looking for and the information you need to make a decision then you are more likely to buy it in that online session. If in the other hand you are not able to find the product and/or the information you need to make an informed decision about your purchase you are more likely to abandon your shopping cart even though you might have initially decided to buy it. Copyright John Wiley & Sons Canada

E-COMMERCE BUSINESS MODELS
On-line direct Electronic tendering system Name-your-own-price Affiliate marketing Viral Marketing Group purchasing Each of the above types of EC is executed in one or more business models. A business model is the method by which a company generates revenue to sustain itself. Copyright John Wiley & Sons Canada

E-COMMERCE BUSINESS MODELS (CONTINUED)
Online direct marketing Electronic tendering system Name-your-own-price Find-the-best-price Affiliate marketing Online direct marketing: manufacturers or retailers sell directly to customers. Electronic tendering system: businesses (or governments) request quotes from suppliers; uses B2B (or G2B) with reverse auctions. Name-your-own-price: customers decide how much they want to pay. Find-the-best-price. customers specify a need and an intermediary compares providers and shows the lowest price. Affiliate marketing: Vendors ask partners to place logos or banners on partner’s site. If customers click on logo, go to vendor’s site, and buy, then vendor pays commission to partners. Copyright John Wiley & Sons Canada

Product customization Deep discounters Membership Product customization: customers use the Internet to self-configure products or services. Sellers then price them and fulfill them quickly. Deep discounters: company offers deep price discounts. Membership: only members can use the services provided. Note: clicking on the images above will take you to the respective Web pages. (We address Electronic marketplaces and exchanges in later PowerPoints.) Copyright John Wiley & Sons Canada

Viral marketing Group purchasing Online auctions Bartering Online Viral marketing: receivers send information about your product to their friends. Group purchasing: small buyers aggregate demand to get a large volume; then the group conducts tendering or negotiates a lower price. Online auctions: companies run auctions of various types on the Internet. Note: clicking on the bottom two images will take you to the respective Web pages. Copyright John Wiley & Sons Canada

MAJOR E-COMMERCE MECHANISMS
On-line Auctions Forward Auctions Reverse Auctions An auction is a competitive process in which either a seller solicits consecutive bids from buyers or a buyer solicits consecutive bids from sellers. Click on On-line Auctions to review the mechanism used by e-bay.ca Sellers use a forward auction as a channel to many potential buyers. Note that e-bay.com uses forward auctions. In reverse auctions, one buyer, usually an organization, wants to buy a product or a service. The buyer posts a request for quotation (RFQ) on its Web site or on a third-party Web site. The RFQ contains detailed information on the desired purchase. Suppliers study the RFQ and submit bids. Everything else being equal the lowest bid wins the auction. Copyright John Wiley & Sons Canada

FORWARD AND REVERSE AUCTIONS
Bid price Bid price In general, forward auctions result in higher prices over time, where reverse auctions result in lower prices over time. Time Time Forward Auction Reverse Auction Copyright John Wiley & Sons Canada

BENEFITS OF E-COMMERCE
Benefits to organizations Makes national and international markets more accessible Lowering costs of processing, distributing, and retrieving information Benefit to customers Access a vast number of products and services around the clock (24/7/365) Benefit to society Ability to easily and conveniently deliver information, services, and products to people in cities, rural areas, and developing countries Copyright John Wiley & Sons Canada

LIMITATIONS OF E-COMMERCE
Technological Limitations Lack of universally accepted security standards Insufficient telecommunications bandwidth Expensive accessibility Non-technological Limitations Perception that EC is unsecure Unresolved legal issues Lacks a critical mass of sellers and buyers Copyright John Wiley & Sons Canada

5.2 BUSINESS-TO-CONSUMER (B2C) ELECTRONIC COMMERCE
Electronic storefronts Electronic malls An electronic storefront is a website that represents a single store. An electronic mall, also known as a cybermall or e-mall, is a collection of individual shops under one Internet address. Electronic storefronts and electronic malls are closely associated with B2C electronic commerce. An electronic marketplace (e-marketplace) is a central, virtual market space on the web where many buyers and many sellers can conduct e-commerce and e-business activities. Electronic marketplaces are associated with B2B electronic commerce. Electronic retailing (e-tailing) is the direct sale of products and services through electronic storefronts or electronic malls, usually designed around an electronic catalogue format and/or auctions. Note: clicking on the image above will take you to dell.ca (example of electronic storefront) Copyright John Wiley & Sons Canada

IT’S ABOUT BUSINESS 5.1 Internet Registry Enhances Island Nation’s Economy Matt Lauzon developed Gemvara, a website that enables consumers to design custom, high-end jewelry without ever having to visit a jewelry store. Since it’s launch in February 2011, the website has experienced monthly revenue growth in the double digits, had more than 1 million page views per month, and recorded an average order price of about $1,000. Lauzon attributes much of Gemvara’s success to its superb customer service, which his company provides 24/7. Copyright John Wiley & Sons Canada

IT’S ABOUT BUSINESS 5.1 Discussion Access the Gemvara website. What are its strengths? Its weaknesses? Would you design and purchase jewelry on the site? Why or why not? Search out websites for Gemvara competitors. Discuss each site’s strengths and weaknesses. In light of your findings, do you think Gemvara will be successful in the long term? Why or why not? How would a traditional brick-and-mortar jewelry store compete against Gemvara and other similar websites? Copyright John Wiley & Sons Canada

ONLINE SERVICE INDUSTRIES
A key issue is disintermediation Online service involves customers accessing services via the Web. Intermediaries or middlemen provide information and/or provide value-added services. When the function(s) of these intermediaries can be automated or eliminated, this process is called disintermediation. Copyright John Wiley & Sons Canada

ONLINE SERVICE INDUSTRIES (CONTINUED)
Cyberbanking Online securities trading Online job market Travel services Cyberbanking involves conducting banking activities from home, a place of business, or on the road instead of at a physical bank location. Note: Clicking on the image above will take you to the ING.ca website Virtual banks are dedicated only to Internet transactions. Online securities trading: Many Canadians use computers to trade stocks, bonds, and other ﬁnancial instruments. Around the world, several well-known securities companies, including E*Trade and Charles Schwab, offer only on-line trading. Online job market: Job seekers use the on-line job market to reply to employment ads, to place resumés on various job sites and social networking sites, and to use recruiting firms (for example, and On-line travel services: allow you to purchase airline tickets, reserve hotel rooms, and rent cars. Copyright John Wiley & Sons Canada

ONLINE ADVERTISING Online Advertising methods Banners (example of a banner ad below) Pop-up ad Pop-under ad Spamming Permission marketing Viral marketing Advertising is an attempt to disseminate information in order to influence a buyer-seller transaction Internet advertising redefines the advertising process, making it media-rich, dynamic, and interactive. Banners are simply electronic billboards. When customers click on a banner ad, they are transferred to the vendor’s homepage. Pop-up ad appears in front of the current browser window. Pop-under ad appears underneath the active window. Spamming is the indiscriminate distribution of electronic ads without the permission of the receiver. Permission marketing asks consumers to give their permission to voluntarily accept online advertising and . Viral marketing refers to online “word-of-mouth” marketing. Copyright John Wiley & Sons Canada

ONLINE ADVERTISING ON SOCIAL NETWORKS
Types of Online Advertising: Self-service advertising is advertising purchased without the assistance of a sales representative. Brand advertising relies on large advertising campaigns that emphasize the company’s brand and use special features like fan pages that are unique to Facebook and other social networking sites. Copyright John Wiley & Sons Canada

ONLINE ADVERTISING ON SOCIAL NETWORKS (CONTINUED)
Performance-based advertising occurs when the advertising company pays only for measurable results; that is, when someone clicks on a company’s ad and goes on to purchase something. Impression-based advertising occurs when a company purchases a set amount of impressions. An impression is a single instance of an ad appearing on a website. Copyright John Wiley & Sons Canada

ISSUES IN E-TAILING Channel conflict: occurs when clicks-and-mortar companies may face a conflict with their regular distributors when they sell directly to customers on-line. Multichannelling: a process many companies use to integrate their on-line and off-line channels Order fulfillment: involves finding the product to be shipped; packaging the product; arrange for speedy delivery to the customer; and handle the return of unwanted or defective products. Copyright John Wiley & Sons Canada

5.3 BUSINESS-TO-BUSINESS (B2B) ELECTRONIC COMMERCE
In B2B e-commerce, the buyers and sellers are organizations. Copyright John Wiley & Sons Canada

B2B SELL-SIDE MARKETPLACE
Key mechanisms: electronic catalogs and forward auctions Click on the Dell Auction link to access a Sell-Side Marketplace: Dell Auction In the sell-side marketplace, organizations sell their products or services to other organizations electronically from their own Web site and/or from a third-party Web site. This model is similar to the B2C model in which the buyer comes to the seller’s site, views catalogs, and places an order. In the B2B sell-side marketplace, the buyers are organizations. Copyright John Wiley & Sons Canada

B2B BUY-SIDE MARKETPLACE
Key mechanism: reverse auctions Click on the link below to access a Buy-Side Marketplace: United Sourcing Alliance is a common Sell-Side Marketplace The buy-side marketplace is a model in which organizations attempt to buy needed products or services from other organizations electronically. A major method of buying goods and services in the buy-side model is the reverse auction. Purchasing by using electronic support is referred to as e-procurement. E-procurement uses reverse auctions, particularly group purchasing. In group purchasing, multiple buyers combine their orders so that they constitute a large volume and therefore attract more seller attention. Copyright John Wiley & Sons Canada

ELECTRONIC EXCHANGES There are three basic types of public exchanges: vertical, horizontal, and functional Vertical Exchanges Horizontal Exchanges Functional Exchanges E-marketplaces, called public exchanges or just exchanges, are independently owned by a third party and connect many sellers and many buyers. Vertical exchanges connect buyers and sellers in a given industry. Vertical exchanges are frequently owned and managed by a consortium, a term for a group of major players in an industry. Horizontal exchanges connect buyers and sellers across many industries and are used primarily for MRO materials. In functional exchanges, needed services such as temporary help or extra office space are traded on an “as-needed” basis. Copyright John Wiley & Sons Canada

5.4 ELECTRONIC PAYMENTS Electronic checks (e-checks) Electronic credit cards Purchasing cards Electronic cash Stored-value money cards Smart cards Person-to-person payments Digital Wallets Electronic payment systems enable you to pay for goods and services electronically rather than by writing a cheque or using cash. . Electronic checks (e-checks) are similar to paper checks and are used mostly in B2B. Electronic credit cards allow customers to charge online payments to their credit card account. Purchasing card are the B2B equivalent of electronic credit cards is purchasing cards (see Figure 5.6). In some countries, purchasing cards are the primary form of payment between companies. Electronic cash(e-cash) appears in three major forms: stored-value money cards, smart cards, and person-to-person payments. Stored-value money cards resemble credit cards, they actually are a form of e-cash. Smart cards contain a chip that can store a considerable amount of information—more than 100 times that of a stored-value money card Smart cards are frequently multipurpose; that is, you can use them as a credit card, a debit card, a stored-value money card, or a loyalty card. Smart cards are ideal for micropayments, which are small payments of a few dollars or less. Person-to-person payments are a form of e-cash that enables two individuals, or an individual and a business, to transfer funds without using a credit card. Example: PayPal Digital wallets (or e-wallets) are not proper on-line payment systems but are software mechanisms that provide security measures, combined with convenience, to EC purchasing. Copyright John Wiley & Sons Canada

HOW E-CREDIT CARDS WORK
Electronic credit (e-credit) cards allow customers to charge on-line payments to their credit card account. These cards are used primarily in B2C and in shopping by small-to-medium enterprises (SMEs). Several major credit card issuers are offering customers the option of shopping on-line with virtual, single-use credit card numbers . The goal is to thwart criminals by using a different, random card number every time you shop on-line. This virtual number is good only on the website where you make your purchase. An on-line purchase made with a virtual card number shows up on your bill just like any other purchase. Copyright John Wiley & Sons Canada

5.5 ETHICAL AND LEGAL ISSUES
Ethical Issues Privacy Job Loss Privacy: By making it easier to store and transfer personal information, e-business presents some threats to privacy. Most electronic payment systems know who the buyers are, thereby; it may be necessary to protect the buyers’ identities. Another major privacy issue is tracking that occurs when individuals’ activities on the Internet can be tracked by cookies. Job Loss: the use of EC may eliminate the need for some of a company’s employees, as well as brokers and agents. Copyright John Wiley & Sons Canada

LEGAL ISSUES SPECIFIC TO E-COMMERCE
Fraud on the Internet: fraudulent activity i.e. stocks, auctions, investments, business opportunities. Domain Names are considered to be legal when the person or business who owns the name has operated a legitimate business under that name for some period of time. Cybersquatting is the practice of registering or using domain names for the purpose of profiting from the goodwill or the trademark that belongs to someone else. is Canada`s Internet Registration Authority Copyright John Wiley & Sons Canada

LEGAL ISSUES SPECIFIC TO E-COMMERCE (CONTINUED) Domain Tasting Taxes and Other Fees Copyright Domain Tasting is a practice of registrants using the five-day "grace period" at the beginning of a domain registration to profit from pay-per-click advertising. Taxes and other Fees when and where (and in some cases whether) electronic sellers should pay business license taxes, franchise fees, gross-receipts taxes, excise taxes, …etc. Copyright protecting intellectual property in e-commerce and enforcing copyright laws is extremely difficult because it involves hundreds of millions of people who have access to billions of web pages in about 200 countries with differing copyright laws. Copyright John Wiley & Sons Canada

CHAPTER CLOSING Six common types of electronic commerce: B2C, B2B, C2C, B2E, G2C EC and G2B EC Five on-line services of B2C EC: Electronic banking, On-line securities trading, On-line job matching, On-line travel services, and, On-line advertising Four types of electronic payments: Electronic cheques, Electronic credit, Electronic cash (e-cash), and, Person-to-person payments Three business models for B2B EC: sell-side marketplace, buy-side marketplace, and, public exchanges. Two major ethical issues relating to electronic commerce: privacy and job loss Copyright John Wiley & Sons Canada

CLOSING CASE CASE 5.2 The Future of Shopping The Problem Once considered a retail pioneer, by late 2011, eBay had become an auction wasteland and was mired in obsolete technology. Copyright John Wiley & Sons Canada

CLOSING CASE The Solution In order to save the company, John Donahoe (eBay’s new CEO) completely remodeled the company’s business practices. He removed layers of bureaucracy between engineers and management, opened PayPal to outside developers, created a website that consumers could experiment with and comment on, and invested in new e-commerce technology. He also shifted eBay’s focus as a website. Copyright John Wiley & Sons Canada

CLOSING CASE The Results With their new business strategy put in place, eBay has made it easier, faster, and more convenient for its customers to shop. Furthermore, the company’s customers have more choices than ever before, and many of those choices are relevant to the customer’s location. Copyright John Wiley & Sons Canada

CLOSING CASE Discussion What are the advantages of eBay’s hybrid shopping experience vision for the customer? What are potential disadvantages of eBay’s hybrid shopping experience vision for the customer? Copyright John Wiley & Sons Canada

CHAPTER 5 E-Business and E-Commerce

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