1. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, All Rights Reserved Chapter 5 Electronic Commerce

2. 5-2 STUDENT LEARNING OUTCOMES 1.Define and describe the 2 major e-commerce business models (B2B and B2C). 2.Describe the emerging role of e-marketplaces in B2B e-commerce. 3.Identify the differences and similarities among customers and their perception of value in B2B and B2C e-commerce.

3. 5-3 STUDENT LEARNING OUTCOMES 4.Compare and contrast developing a marketing mix in B2B and B2C e-commerce. 5.Summarize ways of moving money in e- commerce and related issues. 6.Define and describe the major e-commerce government models.

4. 5-4 WHAT’S REPLACING THE DAY AFTER THANKSGIVING FOR SHOPPING SALES? The past – Black Friday (the day after Thanksgiving) was the big Christmas retail shopping dayThe past – Black Friday (the day after Thanksgiving) was the big Christmas retail shopping day The present – Cyber Monday (the Monday after the Thanksgiving weekend) is quickly taking over Black Friday as the big retail shopping dayThe present – Cyber Monday (the Monday after the Thanksgiving weekend) is quickly taking over Black Friday as the big retail shopping day

5. 5-5 WHAT’S REPLACING THE DAY AFTER THANKSGIVING FOR SHOPPING SALES? Shoppers spend Thanksgiving weekend in the mall finding retail productsShoppers spend Thanksgiving weekend in the mall finding retail products On Monday…On Monday… –They go back to work –Spend time finding the same products on the Internet at a cheaper price

6. 5-6 WHAT’S REPLACING THE DAY AFTER THANKSGIVING FOR SHOPPING SALES? Class poll…Class poll… –Where do you do your Christmas shopping? –When do you do your Christmas shopping? –Isn’t time at work spent on Christmas shopping actually lost or unproductive time to the organization?

7. 5-7 INTRODUCTION E-commerce is changing everythingE-commerce is changing everything Electronic commerce (e-commerce) – commerce, but it is commerce accelerated and enhanced by ITElectronic commerce (e-commerce) – commerce, but it is commerce accelerated and enhanced by IT –Build powerful relationships with customers –Build powerful relationships with suppliers –Build powerful relationships with partners

8. 5-8 INTRODUCTION

9. 5-9 E-COMMERCE BUSINESS MODELS There are 2 that are most prominentThere are 2 that are most prominent Business to Business (B2B) – when a business sells products and services to customers who are primarily other businessesBusiness to Business (B2B) – when a business sells products and services to customers who are primarily other businesses Business to Consumer (B2C) – when a business sells products and services to individualsBusiness to Consumer (B2C) – when a business sells products and services to individuals

10. 5-10 E-COMMERCE BUSINESS MODELS B2B is where most of the money isB2B is where most of the money is –About 97% B2C is the most well-knownB2C is the most well-known –Amazon, eBay, etc. B2B and B2C differences require that you know your customers well, develop the right marketing mix, and move money easilyB2B and B2C differences require that you know your customers well, develop the right marketing mix, and move money easily

11. 5-11 E-COMMERCE BUSINESS MODELS B2B now uses powerful e- marketplaces in which to conduct business

12. 5-12 E-COMMERCE RULES TO LVIE BY 1.Understand your business, products, services, and customers 2.Find customers and establish relationships 3.Move money easily and securely

13. 5-13 UNDERSTAND YOUR BUSINESS, PRODUCTS, SERVICES, & CUSTOMERS To be successful, you must…To be successful, you must… –Define your products and services –Define your target customers B2B (other businesses)B2B (other businesses) B2C (individuals)B2C (individuals) –Define your customers perception of the value of your products and services

14. 5-14 Who Are Your Customers? Business to BusinessBusiness to Business –Other businesses Business to ConsumerBusiness to Consumer –Individuals Each is different and has different needs and wantsEach is different and has different needs and wants

15. 5-15 Customer Product and Service Value Perception

16. 5-16 B2C: Convenience Versus Specialty ConvenienceConvenience –Lower priced –Purchased frequently –Example: common food items SpecialtySpecialty –Higher priced –Purchased less frequently –Example: Stereos, computers

17. 5-17 B2C: Commoditylike and Digital CommoditylikeCommoditylike –Same no matter where you purchase it –Examples: books, music, movies –Price and ease of ordering are important DigitalDigital –Purchased and delivered over the Internet –Best product type for B2C e-commerce –Examples: Music, software

18. 5-18 B2C: Mass Customization Mass customization – the ability of an organization to give its customers the opportunity to tailor its products or servicesMass customization – the ability of an organization to give its customers the opportunity to tailor its products or services –Dell – customized computer purchases –Apple iTunes – only the music you want (not necessarily the whole album)

19. 5-19 B2B: MRO Versus Direct Maintenance, repair, and operations (MRO) materials (indirect materials) – materials necessary for running a company but do not relate to the company’s primary business activitiesMaintenance, repair, and operations (MRO) materials (indirect materials) – materials necessary for running a company but do not relate to the company’s primary business activities –Similar to convenience items in B2C –Office supplies, repair parts, lubricating oils

20. 5-20 MRO Materials Buyers in B2B make large purchasesBuyers in B2B make large purchases Can then demand a discount (not true in B2C)Can then demand a discount (not true in B2C) Can team up with other buyers to create demand aggregationCan team up with other buyers to create demand aggregation Demand aggregation – combining purchase requests from multiple buyers which justifies a larger discountDemand aggregation – combining purchase requests from multiple buyers which justifies a larger discount

21. 5-21 Direct Materials Direct materials – materials that are used in production in a manufacturing company or are placed on the shelf for sale in retail environmentsDirect materials – materials that are used in production in a manufacturing company or are placed on the shelf for sale in retail environments –Relate directly to a company’s primary business activities –Quality, quantity, and delivery timing are important

22. 5-22 Direct Materials Buyers can participate in reverse auctions for direct materialsBuyers can participate in reverse auctions for direct materials Reverse auction – process in which a buyer posts its interests in buying items and sellers compete by submitting successively lower bidsReverse auction – process in which a buyer posts its interests in buying items and sellers compete by submitting successively lower bids –The lowest bidder wins

23. 5-23 B2B: Horizontal Versus Vertical B2B e-commerce takes advantage of e- marketplacesB2B e-commerce takes advantage of e- marketplaces Electronic marketplace (e-marketplace) – interactive business providing a central market where multiple buyers and sellers can engage in e-commerceElectronic marketplace (e-marketplace) – interactive business providing a central market where multiple buyers and sellers can engage in e-commerce –Horizontal e-marketplaces –Vertical e-marketplaces

24. 5-24 E-Marketplaces

25. 5-25 Horizontal E-Marketplace Horizontal e-marketplace – connects buyers and sellers across many industriesHorizontal e-marketplace – connects buyers and sellers across many industries –Primarily for MRO materials –All industries need office supplies, travel, and the like

26. 5-26 Vertical E-Marketplace Vertical e-marketplace – connects buyers and sellers in a given industryVertical e-marketplace – connects buyers and sellers in a given industry –Primarily for direct materials –Each industry has unique direct material needs –Covisint (www.covisint.com) – automotive www.covisint.com –Many others

27. 5-27 To Summarize B2CB2C –Varying demographics and lifestyles –Convenience versus specialty products –Commoditylike and digital work best of all –Mass customization necessary in some instances

28. 5-28 To Summarize B2BB2B –MRO versus direct materials –Demand aggregation is present –E-marketplaces are vitally important Horizontal (MRO materials mainly)Horizontal (MRO materials mainly) Vertical (direct materials mainly)Vertical (direct materials mainly)

29. 5-29 FIND CUSTOMERS AND ESTABLISH RELATIONSHIPS You must first find customersYou must first find customers Then establish relationshipsThen establish relationships Otherwise, you can’t make a saleOtherwise, you can’t make a sale B2C and B2B techniques are very differentB2C and B2B techniques are very different

30. 5-30 Business to Consumer Need to determine your marketing mixNeed to determine your marketing mix Marketing mix – set of marketing tools your organization will use to pursue its marketing objectives in reaching and attracting potential customersMarketing mix – set of marketing tools your organization will use to pursue its marketing objectives in reaching and attracting potential customers –There are many such tools for B2C

31. 5-31 B2C Marketing Mix Tools Registering with search enginesRegistering with search engines Online adsOnline ads Viral marketingViral marketing Affiliate programsAffiliate programs

32. 5-32 Registering with Search Engines Some search engines will list your site for freeSome search engines will list your site for free Others charge a feeOthers charge a fee For an additional fee, your site can appear at top of a search list (every time)For an additional fee, your site can appear at top of a search list (every time)

33. 5-33 Online Ads Online ads (banner ads) – small advertisements that appear on other sitesOnline ads (banner ads) – small advertisements that appear on other sites Two variations are:Two variations are: –Pop-up ad – small Web page advertisement that appears on your screen outside the current Web site –Pop-under ad – pop-up ad you do not see until you close your current browser window

34. 5-34 Online Ads TiVo banner ad

35. 5-35 Viral Marketing Viral marketing – encourages users of a product or service supplied by a B2C business to encourage friends to join in as wellViral marketing – encourages users of a product or service supplied by a B2C business to encourage friends to join in as well –Blue Mountain Arts (www.bluemountain.com) www.bluemountain.com –Send a card –Card has link so the other person can send you a card back

36. 5-36 Affiliate Programs Affiliate program – arrangement between two e-commerce sites that directs viewers from one site to anotherAffiliate program – arrangement between two e-commerce sites that directs viewers from one site to another –If viewers buy at the second site, the second site pays a small fee to the first site –Usually a percentage of the sale

37. 5-37 Affiliate Programs Click-throughs and conversion rates are importantClick-throughs and conversion rates are important Click-through – count of the number of people who visit one site and use an ad to get to anotherClick-through – count of the number of people who visit one site and use an ad to get to another Conversion rate – percentage of potential customers who actually buy somethingConversion rate – percentage of potential customers who actually buy something

38. 5-38 Affiliate Programs

39. 5-39 Business to Business Marketing Much more personalMuch more personal Not usually done with generic ads designed for mass distributionNot usually done with generic ads designed for mass distribution Often take place in e-marketplacesOften take place in e-marketplaces

40. 5-40 Business to Business Marketing Once a contact is made, the relationship must be establishedOnce a contact is made, the relationship must be established This often requires face-to-face meetingsThis often requires face-to-face meetings Must also integrate the IT systems to the supplier business and customer businessMust also integrate the IT systems to the supplier business and customer business

41. 5-41 To Summarize B2CB2C –Marketing mix drives customers to Web site –Search engines, online ads, viral marketing, and affiliate programs –Focus on conversion rates to measure success

42. 5-42 To Summarize B2BB2B –Frequently occurs in an e-marketplace –Requires establishing formal business relationship –Requires IT system integration –Doesn’t include broad and generic marketing mix

43. 5-43 MOVE MONEY EASILY & SECURELY In e-commerce, most money moves electronicallyIn e-commerce, most money moves electronically Security becomes very importantSecurity becomes very important

44. 5-44 B2C Payment Systems Credit cardsCredit cards Financial cybermediariesFinancial cybermediaries Electronic checksElectronic checks Electronic Bill Presentment and PaymentElectronic Bill Presentment and Payment Smart cardsSmart cards

45. 5-45 Financial Cybermediaries Financial cybermediary – Internet-based company that makes it easy for one person to pay another person or organization over the InternetFinancial cybermediary – Internet-based company that makes it easy for one person to pay another person or organization over the Internet –PayPal (www.paypal.com) is the most well-known www.paypal.com

46. 5-46 Financial Cybermediaries

47. 5-47 Electronic Checks Electronic check – mechanism for sending money from your checking or savings account to another person or organizationElectronic check – mechanism for sending money from your checking or savings account to another person or organization –Many implementations –Most common implementation is online banking

48. 5-48 Electronic Bill Presentment & Payment Electronic Bill Presentment and Payment (EBPP) – system that sends bills over the Internet and provides an easy-to-use mechanism (perhaps a button) to pay for them if the amount looks correctElectronic Bill Presentment and Payment (EBPP) – system that sends bills over the Internet and provides an easy-to-use mechanism (perhaps a button) to pay for them if the amount looks correct –Available through Checkfree (www.checkfree.com) and Quicken (www.quicken.com) www.checkfree.comwww.quicken.comwww.checkfree.comwww.quicken.com

49. 5-49 Smart Cards Smart card – plastic card (the size of a credit card) that contains an embedded chip on which digital information can be stored and updatedSmart card – plastic card (the size of a credit card) that contains an embedded chip on which digital information can be stored and updated –Debit cards are an implementation

50. 5-50 B2C Payment Systems Must move money and other information such as shipping addressMust move money and other information such as shipping address Digital wallets can helpDigital wallets can help Digital wallet – software and informationDigital wallet – software and information –Software provides transaction security –Information includes delivery information and other forms of necessary information

51. 5-51 Digital Wallets Can be…Can be… –Client-side – you create this digital wallet and keep it on your computer –Server-side (also called a thin wallet) – an organization creates this for you and keeps it on its servers

52. 5-52 B2B Payment Systems Business customers…Business customers… –Make large purchases –Will not pay with credit card or financial cybermediary –Use financial EDI –Pay for many purchases at once (perhaps the end of the month)

53. 5-53 EDI Electronic data interchange (EDI) – direct computer-to-computer transfer of transaction information in standard business documents, such as invoices and purchase orders, in a standard formatElectronic data interchange (EDI) – direct computer-to-computer transfer of transaction information in standard business documents, such as invoices and purchase orders, in a standard format –How businesses communicate with each other –Used in e-marketplaces and VANs

54. 5-54 EDI and a VAN

55. 5-55 Financial EDI Financial EDI – an electronic process used primarily within B2B for the payment of purchasesFinancial EDI – an electronic process used primarily within B2B for the payment of purchases –This is electronic money in B2B –Often occurs through an automated clearing house

56. 5-56 Security: The Pervading Concern Security is very important when moving moneySecurity is very important when moving money Some security measures…Some security measures… –Encryption –Secure Sockets Layers –Secure Electronic Transactions –Many, many others

57. 5-57 Encryption Encryption – scrambles the contents of a file so that you can’t read it without having the right decryption keyEncryption – scrambles the contents of a file so that you can’t read it without having the right decryption key Often through public key encryption (PKE) – uses two keys: a public key for everyone and private key for only the recipient of the encrypted informationOften through public key encryption (PKE) – uses two keys: a public key for everyone and private key for only the recipient of the encrypted information

58. 5-58 Public Key Encryption

59. 5-59 Secure Sockets Layers Secure Sockets Layer (SSL)…Secure Sockets Layer (SSL)… –Creates a secure connection between a Web client and server –Encrypts the information –Sends the information over the Internet Denoted by lock icon on browser or https:// (notice the “s”)Denoted by lock icon on browser or https:// (notice the “s”)

60. 5-60 Secure Sockets Layers The “s” in https and the padlock

61. 5-61 Secure Electronic Transactions Secure Electronic Transaction (SET) – transmission method that ensures transactions are legitimate as well as secureSecure Electronic Transaction (SET) – transmission method that ensures transactions are legitimate as well as secure –Helps verify use of a credit card, for example, by sending the transaction to the credit issuer as well as the seller/supplier

62. 5-62 To Summarize B2CB2C –Credit cards, financial cybermediaries, electronic checks, EBPP, smart cards, and digital wallets –Pay for individual purchases, usually in small amounts –Each payment must be validated

63. 5-63 To Summarize B2BB2B –Use EDI to facilitate ordering process –VANS can provide for EDI and financial EDI –Use financial EDI for payment of purchases

64. 5-64 To Summarize B2C and B2B – security…B2C and B2B – security… –Overriding concern –Encryption, SSLs, SET, and others

65. 5-65 THE BROADENING OF E- GOVERNMENT Electronic government (e-government) – use of digital technologies to transform government operations in order to improve efficiency, effectiveness, and service deliveryElectronic government (e-government) – use of digital technologies to transform government operations in order to improve efficiency, effectiveness, and service delivery Make the government click-and-mortarMake the government click-and-mortar Click-and-mortar – Presence in the real world (mortar) and also in the virtual world (click)Click-and-mortar – Presence in the real world (mortar) and also in the virtual world (click)

66. 5-66 E-Government Focuses Government to Government (G2G, intra- G2G)Government to Government (G2G, intra- G2G) Government to Business (G2B)Government to Business (G2B) Government to Consumer (G2C)Government to Consumer (G2C) International Government to Government (inter-G2G)International Government to Government (inter-G2G)

67. 5-67 Government to Government Government to government (G2G, intra-G2G) – e-commerce activities performed within a single nation’s governmentGovernment to government (G2G, intra-G2G) – e-commerce activities performed within a single nation’s government –Vertical – up and down among federal, state, and local levels –Horizontal – integration of agencies within a specific level

68. 5-68 Government to Government

69. 5-69 Government to Business Government to Business (G2B) – e-commerce performed between a government and businessesGovernment to Business (G2B) – e-commerce performed between a government and businesses –Purchasing direct and MRO materials –Soliciting bids for work –Licensing applications –Meeting regulations –Many other applications

70. 5-70 Government to Consumer Government to consumer (G2C) – e- commerce performed between a government and its citizens or consumersGovernment to consumer (G2C) – e- commerce performed between a government and its citizens or consumers –Paying taxes –Registering vehicles –Providing information and services –Student loans –Many other applications

71. 5-71 International Government to Government International government to government (inter-G2G) – e-commerce performed between two or more governmentsInternational government to government (inter-G2G) – e-commerce performed between two or more governments –Providing foreign aid –Export and import transportation –Many other applications

72. 5-72 U.S. Government Spending on IT in 2002

73. 5-73 CAN YOU… 1.Define and describe the 2 major e-commerce business models (B2B and B2C). 2.Describe the emerging role of e-marketplaces in B2B e-commerce. 3.Identify the differences and similarities among customers and their perception of value in B2B and B2C e-commerce.

74. 5-74 CAN YOU… 4.Compare and contrast developing a marketing mix in B2B and B2C e-commerce. 5.Summarize ways of moving money in e- commerce and related issues. 6.Define and describe the major e-commerce government models.