1. Information Technology Foundations-BIT 112 CHAPTER 6 E-Business and E-Commerce

2. Information Technology Foundations-BIT 112 2 Chapter Outline 6.1 Overview of E-Business & E-Commerce 6.2 Business-to-Consumer (B2C) E-Commerce 6.3 Business-to-Business (B2B) E-Commerce 6.4 Electronic Payments 6.5 Ethical and Legal Issues in E-Business

3. Information Technology Foundations-BIT 112 3 Learning Objectives Describe electronic commerce, including its scope, benefits, limitations, and types. Distinguish between pure and partial electronic commerce. Understand the basics of how online auctions work. Differentiate among business-to-consumer, business-to- business, consumer-to-consumer, business-to-employee and government-to-citizen electronic commerce. Describe the major e-commerce support services, specifically payments and logistics. Discuss some ethical and legal issues relating to e- commerce.

4. Information Technology Foundations-BIT 112 4 Chapter Opening Case P. 166 Storefront in NYC J&R Web site

5. Information Technology Foundations-BIT 112 5 6.1 Overview Electronic commerce (e-commerce, EC) –Describes the buying, selling, transferring or exchanging of products, services or information via computer networks, including the Internet. E-business –A broader definition of EC, including buying and selling of goods and services, and also servicing customers, collaborating with partners, conducting e-learning and conducting electronic transactions within an organization.

6. Information Technology Foundations-BIT 112 6 Overview (continued) The product, process, and delivery agent can be physical or digital. –In traditional commerce the three factors are all physical. Also known as Brick-and-mortar organizations (i.e., organizations are purely physical organizations). Pure versus Partial Electronic Commerce depends on the degree of digitization involved. –The extent to which the commerce has been transformed from physical or digital. Virtual organizations –companies that are engaged only in EC. (Also called pure play) Click-and-mortar organizations –organizations are those that conduct some e-commerce activities, yet their business is primarily done in the physical world. i.e. partial EC.

7. Information Technology Foundations-BIT 112 7 FreshDirect (IT’s About Business 6.1) P169 The following slides give you a look at FreshDirect, which is a partial EC, or clicks-and-mortar company.

8. Information Technology Foundations-BIT 112 8

9. 9

10. 10

11. Information Technology Foundations-BIT 112 11

12. Information Technology Foundations-BIT 112 12

13. Information Technology Foundations-BIT 112 13

14. Information Technology Foundations-BIT 112 14 Types of E-Commerce Business-to-consumer (B2C) –Sellers are organizations and the buyers are individuals. Business-to-business (B2B) –Both sellers and buyers are business organizations. –B2B represents the vast majority of e-commerce. Consumer-to-consumer (C2C) –Individual sells products or services to other individuals. Business-to-employee (B2E) –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]). 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.

15. Information Technology Foundations-BIT 112 15 B2B and B2C Electronic Commerce Drawing illustrates the difference between the two types of EC.

16. Information Technology Foundations-BIT 112 16 E-Commerce Business Models Table 6.1 P 171

17. Information Technology Foundations-BIT 112 17 E-Commerce Business Models 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. Image above is the Hong Kong Government’s electronic tending system homepage. 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.

18. Information Technology Foundations-BIT 112 18 E-Commerce Business Models - 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. Note the Sony logo at the top of this Web page www.howstuffworks.com

19. Information Technology Foundations-BIT 112 19 Other E-Commerce Business Models Viral marketing –Receivers send information about a product to their friends. Group purchasing (e-coops) –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.

20. Information Technology Foundations-BIT 112 20 Still More E-Commerce Business Models 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.

21. Information Technology Foundations-BIT 112 21 And More E-Commerce Business Models Bartering online –Intermediary administers online exchange of surplus products, and/or company receives “points” for its contribution, and the points can be used to purchase other needed items.

22. Information Technology Foundations-BIT 112 22 A Little More Focus on E-Commerce Auctions A competitive process in which either a seller solicits consecutive bids from buyers or a buyer solicits consecutive bids from sellers. Two Types –Forward Auctions sellers place items, buyers bid continuously. –Reverse Auctions buyer posts request (RFQ), sellers submit bid. –In general, forward auctions result in higher prices over time, where reverse auctions result in lower prices over time.

23. Information Technology Foundations-BIT 112 23 Forward and Reverse Auctions Bid price Time Forward Auction Bid price Time Reverse Auction Sellers use a forward auction as a channel to many potential buyers. Sotheby’s, for example, 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, and the lowest bid wins the auction.

24. Information Technology Foundations-BIT 112 24 Benefits of E-Commerce Benefits to organizations –Makes national and international markets more accessible. –Lowering costs of processing, distributing, and retrieving information. Benefits to customers –Access a vast number of products and services around the clock (24/7/365). Benefits to Society –Ability to easily and conveniently deliver information, services and products to people in cities, rural areas and developing countries.

25. Information Technology Foundations-BIT 112 25 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.

26. Information Technology Foundations-BIT 112 26 6.2 Business-to-Consumer (B2C) Electronic Commerce B2B EC is much larger in $ volume than B2C EC, but B2C EC is more complex because it involves a larger number of buyers. Electronic storefronts –represents a single store. Electronic malls –collections of individual shops under a single Internet address.

27. Information Technology Foundations-BIT 112 27 Online Service Industries In addition to purchasing products, customers can also access needed services via the web. e.g., buying airline tickets, stocks, … A key issue is disintermediation (middlepersons). –Intermediaries: Provide information. Perform value-added services such as consulting.

28. Information Technology Foundations-BIT 112 28 Disintermediation Example Online diamond broker - disintermediates the diamond supply chain.

29. Information Technology Foundations-BIT 112 29 Web Enabled Decision Support System Allows One To Specify Diamond Desired

30. Information Technology Foundations-BIT 112 30 Other Online Service Industries Cyberbanking Online securities trading Online job market Travel services

31. Information Technology Foundations-BIT 112 31 The Long Tail Online services carry far more inventory than traditional retailers.

32. Information Technology Foundations-BIT 112 32 Issues in Electronic Retailing (E-Tailing) Channel conflict –Occurs when manufacturers disintermediate their channel partners, such as distributors, retailers, dealers, and sales representatives, by selling their products directly to consumers, usually over the Internet through electronic commerce. Multichanneling –A process in which a company integrates its offline and online channels. (e.g., returns of online items) 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.

33. Information Technology Foundations-BIT 112 33 Channel Conflict P. 177 ???

34. Information Technology Foundations-BIT 112 34 Online Advertising Advertising is an attempt to disseminate information in order to influence a buyer-seller transaction. Online Advertising methods –Banners: simply electronic billboards. –Pop-up ads: appear in front of the current browser window. –Pop-under ads: appear underneath the active window. –Permission marketing: asks consumers to give their permission to voluntarily accept online advertising and e- mail. –Viral marketing: refers to online “word-of-mouth” marketing.

35. Information Technology Foundations-BIT 112 35 A closer look at Online Advertising “We must accept the fact that there is no ‘mass’ in ‘mass media’ anymore.” Jim Stengel, Global Marketing, Proctor & Gamble. “TV networks face upheaval because of ever- increasing incursions from digital media like Internet sites.” Jeff Zucker, chief executive of the NBC Universal Television Group. “We never know where the consumer is going to be at any point in time, so we have to find a way to be everywhere. Ubiquity is the new exclusivity.” Linda Kaplan Thuler, Chief Executive at the Kaplan Thaler Group, a New York ad agency.

36. Information Technology Foundations-BIT 112 36 Drivers of today’s online advertising The emergence of “communitainment.” The increasing popularity of Usites (Web sites with primarily user generated content). Mainstreaming of the Internet. Declining usage of traditional media (TV, Newspapers). Fragmentation of content consumption. Consumers are multitasking and they do not like ads. Source: PiperJaffrey

37. Information Technology Foundations-BIT 112 37 Communitainment PiperJaffray, an investment bank, defines communitainment as the blending of community, communication, and entertainment into a new form of online activity driven by consumers. The bank predicts that consumers will shift more than 50% of their content consumption over the next decade to communitainment formats (e.g., social networking, video, and photo sharing sites), displacing traditional forms of media content like TV, magazines, and large Internet sites. This trend presents a major challenge for advertisers.

38. Information Technology Foundations-BIT 112 38 Fragmentation of Content Consumption Source: PiperJaffray

39. Information Technology Foundations-BIT 112 39 And…consumers are multitasking Source: PiperJaffray

40. Information Technology Foundations-BIT 112 40 And…consumers don’t like ADS Source: PiperJaffray

41. Information Technology Foundations-BIT 112 41 Eight Types of Web sites for Advertising 1 - Portals: most popular; best for reach but not targeting 2 - Search: second largest reach; high advertising value Source: PiperJaffray

42. Information Technology Foundations-BIT 112 42 Eight Types of Web sites for Advertising 3 - Commerce: high reach; not conducive to advertising 4 - Entertainment: large reach; strong targetability Mall of Hawai’i

43. Information Technology Foundations-BIT 112 43 Eight Types of Web sites for Advertising 5 - Community: emphasize being a part of something; good for specific advertising 6 - Communications: not good for branding; low targetability

44. Information Technology Foundations-BIT 112 44 Eight types of sites (continued) 7-News/weather/sports: poor targetability 8 - Games: good for very specific types of advertising

45. Information Technology Foundations-BIT 112 45 What the eight categories mean for advertisers Portals and Search have the greatest reach. Community and Games have the highest level of engagement. Search and News/Weather/Sports have the highest monetization.

46. Information Technology Foundations-BIT 112 46 6.3 Business-to-Business (B2B) Electronic Commerce Organizations sell or buy their products or services to other organizations electronically from their own Web site and/or from a third-party Web site. –Sell-side marketplace, Buy-side marketplace, & Electronic Exchanges. Sell-side Marketplace Key mechanisms: electronic catalogs and forward auctions Buy-side Marketplace Key mechanism: reverse auctions

47. Information Technology Foundations-BIT 112 47 Ariba (Sell-side Marketplace)

48. Information Technology Foundations-BIT 112 48 Other Sell-side Marketplaces

49. Information Technology Foundations-BIT 112 49 United Sourcing Alliance An example of a buy-side marketplace.

50. Information Technology Foundations-BIT 112 50 Electronic Exchanges Exchanges have many buyers and many sellers.

51. Information Technology Foundations-BIT 112 51 Boeing PART Boeing PART is an example of an electronic exchange.

52. Information Technology Foundations-BIT 112 52 Vertical Exchange – A type of Electronic Exchange within a specific industry. Example: PlasticsNet - Search Jobs, Find Companies, Post Your Resume

53. Information Technology Foundations-BIT 112 53 The Paper Site (Vertical Exchange)

54. Information Technology Foundations-BIT 112 54 Horizontal Exchange – A type of Electronic Exchange Horizontal exchanges connect buyers and sellers across many industries and are used mainly for Maintainance Repair Operations (MRO) materials.

55. Information Technology Foundations-BIT 112 55 Functional Exchange – A type of Electronic Exchange Functional exchanges, needed services such as temporary help or extra office space are traded on an “as-needed” basis.

56. Information Technology Foundations-BIT 112 56 6.4 Electronic Payments 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 cards are the B2B equivalent of electronic credit cards and are typically used for unplanned B2B purchases. Electronic cash –Stored-value money cards allow you to store a fixed amount of prepaid money and then spend it as necessary. –Smart cards contain a chip called a microprocessor that can store a considerable amount of information and are multipurpose – can be used as a debit card, credit card or a stored-value money card. –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.

57. Information Technology Foundations-BIT 112 57 6.5 Ethical and Legal Issues Ethical Issues –Privacy: ecommerce provides opportunities for businesses and employers to track individual activities on the WWW using cookies or special spyware. This allows private/personal information to be tracked, compiled, and stored as an individual profile. This profile can be used or sold to other businesses for target marketing or by employees to aide in personnel management decisions (i.e., promotions, raises, layoffs). –Disintermediation: causing job loss among intermediaries.

58. Information Technology Foundations-BIT 112 58 Legal Issues Specific to E-Commerce Fraud on the Internet –i.e. stocks, investments, business opportunities, auctions. Domain Names –problems with competition over a name. Cybersquatting –refers to the practice of registering domain names solely for the purpose of selling them later at a higher price. –Domain Tasting 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.

59. Information Technology Foundations-BIT 112 59 Chapter Closing Case P. 195