1. Chapter 9: Electronic Commerce
Introduction to Information Technology 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc.
Chapter 9:
Electronic Commerce
Prepared by:
Roberta M. Roth, Ph.D.
University of Northern Iowa

2. Chapter Preview In this chapter, we will study:
Forms and uses of business-to-consumer electronic commerce
Forms and uses of business-to-business electronic commerce
New forms of EC
Technical and non-technical requirements needed to make EC work
Legal and ethical issues associated with EC

3. E-Commerce / E-Business
Electronic Commerce: buying and selling of products, services and information via computer networks, primarily the Internet
Electronic Business: a broader definition that includes
buying and selling, plus
servicing customers
collaborating with business partners
conducting electronic transactions within an organization
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

4. Types of E-Commerce Business-to-business EC (B2B)
Collaborative commerce (c-commerce)
Business-to-consumer EC (B2C)
Consumer-to-businesses (C2B)
Consumer-to-consumer (C2C)
Intrabusiness (intraorganizational) commerce
Government-to-citizens (G2C) and others
Mobile commerce (m-commerce)
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

5. E-Commerce History and Scope
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
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

6. E-Commerce Framework
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

7. 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
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

8. 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
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

9. EC Benefits to Society Convenience Access
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
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

10. 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
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

11. 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
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

12. Business-to-Consumer EC
Electronic Storefronts and Malls
Electronic retailing can be conducted via solo storefront or as a part of cybermall
Issues of e-tailing
May be channel conflict and conflict with existing stores
Difficult to fulfill large quantity of very small orders
Incorrect business model (advertising revenue versus profitable sales)
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

13. Business-to-Consumer EC (continued)
Services Online
Banking (
Securities trading (Schwab Online)
Job markets (Monster Board)
Travel (Expedia.com)
Real estate (Realtor.com)
Auctions (eBay.com)
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

14. 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
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

15. 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
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

16. Business-to-Consumer EC (continued)
Advertising Approaches and Issues
Permission marketing – offer incentives to consumers to receive advertising
Viral (advocacy) marketing – online word of mouth advertising (send this ad to a friend and get…)
Customizing ads – base ads on consumers’ profile
Interactive marketing – tailor ads based on stored customer data
Attracting visitors to a site
Making the top list of a search engine
Online events, promotions, and attractions
Electronic catalogs / customized catalogs
Coupons online
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

17. Business-to-Consumer EC (continued)
Providing Customer Service
Help customer determine needs
Help customer acquire product or service
Support customer during ownership of product or service
Help customer dispose of product or service
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

18. 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
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

19. 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
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

20. Electronic Commerce Innovations
E-Government – deliver information and public services to citizens and members of the public sector
M-Commerce – use of wireless devices to deliver mobile e-commerce
Consumer-to-consumer EC – direct interaction facilitated by auctions, classifieds, and bartering
Intrabusiness EC – business units interact or employees interact with employers
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

21. Electronic Commerce Requirements
Infrastructure – hardware, software, and networks needed to conduct transactions, communicate, and collaborate
Electronic Payment Mechanisms
Electronic checks
Customer opens account with a bank
the customer s an encrypted electronic check signed with a digital signature
the merchant deposits the check in his or her account; money is debited in the buyer’s account and credited to the seller’s account
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

22. Electronic Commerce Requirements
Electronic Payment Mechanisms (continued)
Electronic credit cards
Unencrypted payments - the buyer s her or his credit card number to the seller on the Internet
Encrypted payments - credit card details encrypted for security
Electronic cash in PC
bank provides special software to consumer
customer buys “electronic money” from the bank through software
the bank sends electronic money note to this customer, endorsing it with a digital signature
the money is stored on the buyer’s PC and can be spent in any electronic store that accepts e-cash
the software is also used to transfer the e-cash from the buyer’s computer to the seller’s computer
the seller either deposits the e-cash in a bank or uses the e-cash to make purchases elsewhere
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

23. Electronic Commerce Requirements
Electronic Payment Mechanisms (continued)
Electronic payment cards with e-cash
Credit cards using magnetic strips
Card holds information about prepaid cash which can be used to make payments
Smart cards
Cards with microprocessors can hold much more information
Person-to-person payment systems
Transfer of funds between individuals (PayPal)
EFT
Electronic wallets
Purchasing cards
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

24. Electronic Commerce Requirements
Security
Authentication - assurance regarding the identity of the parties who are involved in the deal
Integrity - assurance that data and information (orders, reply to queries, and payment authorization) are not accidentally or maliciously altered or destroyed during transmission
Non-repudiation - Protection against the customer’s unjustifiable denial of placing an order; buyer needs protection against the vendor denial of shipment, or sending wrong order
Privacy - many customers want their identity to be undisclosed
Safety - assurance that it is safe to provide a credit card number on the Internet
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

25. Electronic Commerce Requirements
Security (continued)
Encryption - a process of making messages indecipherable except by those who have an authorized decryption key
Single-key encryption
Public/private key encryption
Public key infrastructure
Electronic Certificates
Secure Socket Layer (SSL)
Secure Electronic Transaction Protocol (SET)
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

26. Electronic Commerce Requirements
Order Fulfillment
Find, assemble, and pack product
Ship product to customer
Collect customer payment
Arrange for returns if needed
Provide on-going support (e.g., animated assembly instructions)
EC is a ‘pull’ operation – hard to forecast demand and prepare to fulfill orders
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

27. Electronic Commerce Issues
Buyer Protection
look for reliable brand names at sites like Wal-Mart Online, Disney Online, and Amazon.com
search any unfamiliar selling site for company’s address and phone and fax number
check out the seller with the local Chamber of Commerce and/or Better Business Bureau
investigate how secure the seller’s site is by reading the posted privacy notice, and evaluate how well the site is organized
examine the money-back guarantees, warranties, and service agreements
compare prices to those in regular stores (suspect the too cheap sites)
ask friends what they know about the vendor
find out what your rights are in case of a dispute
consult the National Fraud Information Center
check for a listing of useful resources
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

28. Electronic Commerce Issues
Seller Protection
Need protection against consumers who refuse to pay or pay with bad checks and buyers’ claims that the merchandise did not arrive
Need protection against the use of their name by others as well as use of their unique words and phrases, slogans and Web address
Need legal recourse against customers who download copyrighted software and/or knowledge and sell it to others
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

29. Electronic Commerce Issues
Ethics
Privacy
most electronic payment systems know who the buyers are; therefore, it may be necessary to protect the buyers’ identity
Web Tracking
by using sophisticated software it is possible to track individual movements on the internet
Disintermediation
the use of EC may result in the elimination of some of a company’s employees as well as brokers and agents
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

30. Electronic Commerce Issues
Legal Concerns
Domain Names
several companies that have similar or same names (in different countries) compete over a domain name that is not a registered trademark
Taxes and Other Fees
Federal, state, and local taxing authorities are trying to figure out how to impose taxes on Internet sales
Copyright
intellectual property is protected by copyright laws and cannot be used freely
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

31. Chapter Summary
B2C EC encompasses e-tailing, auctions, and online services
B2C EC provides numerous marketing and advertising opportunities and challenges
B2B EC has the highest volume, and provides several business models
Payment mechanisms and security are critical EC issues
EC introduces many legal and ethical concerns
Global systems – systems connecting two or more companies in two or more countries
Electronic data interchange (EDI) – electronic movement of business documents between business partners
Electronic funds transfer (EFT) – transfer of money using telecommunications
Extranets – extended Intranets that link business partners
Shared databases – databases that business partners both have access to
Integrated messaging – delivery of and fax messages through a single communication system.

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