1. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-1 Introduction to Information Technology 2 nd 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. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-2 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. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-3 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

4. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-4 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)

5. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-5 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

6. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-6 EC Benefits to Organizations  Increased customer base:  Broaden markets  Find niche markets (e.g. www.dogtoys.com)www.dogtoys.com  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

7. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-7 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

8. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-8 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

9. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-9 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

10. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-10 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

11. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-11 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 cause channel conflict and conflict with existing stores  Difficult to fulfill large quantity of very small orders  Incorrect business model (advertising revenue versus profitable sales)

12. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-12 Business-to-Consumer EC (continued)  Services Online  Banking (www.sfnb.com)www.sfnb.com  Securities trading (Schwab Online)Schwab Online  Job markets (Monster Board)Monster Board  Travel (Expedia.com)Expedia.com  Real estate ( Realtor.com ) Realtor.com  Auctions ( eBay.com ) eBay.com

13. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-13 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

14. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-14 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 email  Pop-up windows

15. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-15 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

16. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-16 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

17. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-17 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

18. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-18 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

19. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-19 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 e-mails 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

20. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-20 Electronic Commerce Requirements  Electronic Payment Mechanisms (continued)  Electronic credit cards Unencrypted payments - the buyer e-mails 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

21. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-21 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)PayPal  EFT  Electronic wallets  Purchasing cards

22. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-22 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 - P rotection 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

23. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-23 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)

24. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-24 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

25. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-25 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 www.consumerworld.org for a listing of useful resourceswww.consumerworld.org

26. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-26 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

27. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-27 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

28. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-28 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

29. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-29 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

30. Introduction to Information Technology, 2nd Edition Turban, Rainer & Potter © 2003 John Wiley & Sons, Inc. 9-30 Copyright © 2003 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United Stated Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information herein.