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Chapter 12: Introduction To E-Business And Fundamentals Of E-Commerce In MIS

12.1 Learning Outcomes After complete this lesson, you would be able to: 1. Evaluate changes in trading patterns and marketplace models enabled by e-commerce. 2. Identify the main business models of electronic trading. 3. Describe different revenue models and transaction mechanisms available through hosting an e-commerce site. 12.2 From E-Commerce To E-Business Kalakota and Whinston (1997) refer to a range of different perspective for e-commerce: A communication perspective the delivery of information, product/services or payment by electronic means. A business perspective the application of technology towards the automation of business transactions and workflows. A service perspective enabling cost cutting at the same time as increasing the speed and quality of service delivery. An online perspective the buying and selling of products and information online. Zwass (1998) uses a broad definition of e-commerce: The sharing of business information, maintaining business relationships, and conducting business transactions by means of telecommunications networks. The UK government also uses a broad definition: E-commerce is the exchange of information across electronic networks, at any stage in the supply chain, whether within an organization, between businesses, between businesses and consumers, or between the public and private sector, whether paid or unpaid. 12.3 E-Commerce E-commerce is not solely restricted to the actual buying and selling of products, but also pre-sale and post-sales activities across the supply chain.

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Supply Chain Management Supply chain management is the coordination of all supply activities of an organization from its suppliers and partners to its customers. An e-commerce transaction can be considered from two perspectives: buy-side and sell-side transactions. BUY-SIDE E-commerce Refers to e-commerce transactions between a purchasing organization and its suppliers. SELL-SIDE E-commerce Refers to e-commerce transactions organization and its customers. between a supplier

12.4 E-business Is a broader term referring to how technology can benefit all internal business processes and interactions with third parties. This includes buy-side and sell-side e-commerce and internal value chain. Three (3) alternative definitions of the relationship between ecommerce and e-business: E-Commerce (EC) has some degree of overlap with electronic business (EB). EC is broadly equivalent to EB. EC is a subset of EB. 12.4.1 Tangible Benefits Of E-Business Increased sales from new sales leads giving rise to increased revenue from: New customers, new markets Existing customers Marketing cost reductions from: Reduced time in customer service Online sales Reduced printing and distribution costs of marketing communications Supply-chain cost reduction from: Reduced levels of inventory Increased competition from suppliers
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Shorter cycle time in ordering Administrative cost reductions from more efficient routine business processes such as recruitment, invoice payment and holiday authorization.

12.4.2 Intangible Benefits Of E-Business Corporate image communication Enhance brand More rapid, more responsive marketing communications including PR Faster product development lifecycle enabling faster response to market needs Improved customer service Learning for the future Meeting customer expectations to have a website Identify new partners, support existing partners better Better management of marketing information and customer information Feedback from customer on products 12.5 E-Commerce Fundamentals Management Issues: 1. What are the implications of changes in marketplace structures for how we trade with customers and other partners? 2. Which business models and revenue models should we consider to exploit the Internet? 3. What will be the importance of online marketplace hubs or exchanges to our business? 12.6 The E-Commerce Environment Electronic communications are disruptive technologies new technologies that prompt businesses to reappraise their strategic approaches Electronic communications have also given rise to many exciting new business models and create potentials. All organizations operate within an environment that influences the way in which they conduct business.

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Strategy development is strongly considering the environment the business operates in.

influenced

by

12.7 The E-Commerce Market Place 12.7.1 Business or Consumer Model B2C commercial transactions are between an organization and consumers B2B commercial transactions are between an organization and other organizations. C2C consumers transact directly with consumers (e.g. online auctions, community sites) 12.7.2 Marketplace Channel Structures Channel structures describe the way a manufacturer or selling organization delivers products and services to their customers. The relationship between a company and its channel partners can be dramatically altered by the opportunities afforded by the Internet. This occurs because the Internet offers a means of bypassing some of the channel partners. The process is known as disintermediation or cutting out the middleman Disintermediation The removal of intermediaries such as distributors or brokers that formerly linked a company to its customers. What are the implications of re-intermediation for the e-commerce managers? o This implies the need to integrate, using the Internet, databases containing information must be updated from time to time o Strict monitoring of online information is necessary Countermediation Creation of new intermediary by an established company. Informediary A business whose main source of revenue derives from capturing consumer information and developing detailed profiles of individual customers for use by third parties. 12.7.3 Intermediaries Broker
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o o o o

Also referred to as Cybermediaries Examples: Directories (such as Yahoo, Excite) Search Engines (such as AltaVista, Infoseek) Forums, fan clubs, user groups Evaluators (sites which act as reviewers of services) Virtual marketplace or virtual trading community

12.8 Focus on Portal Portal A website that acts as a gateway to information and services available on the Internet by providing search engines, directories, and other services such as personalized news or free e-mail. Search engines, spiders and robots Automatic tools known as spiders or robot index registered sites. User search this by typing keywords and are presented with a list of pages Directories or catalogues Structured listing of registered sites in different categories. The concept of PORTAL has evolved to reflect the range of services offered by some cybermediaries. It originated with reference to sites that were the default homepages of users. Example: www.msn.com www.microsoft.com www.yahoo.com www.lycos.com Portals are important to companies looking to use banner advertising or sponsorship to promote their products. 12.9 Types Of Marketplace Identified Sell-Side (Seller controlled) Vendor sites I.e. home site of company with e-commerce facilities. Intermediaries controlled by sellers. Buy-Side (buyer Controlled) Intermediaries controlled by buyers.

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Website procurement posting e.g. www.zygonet.com, www.respond.com , purchasing agents e.g. www.powerbuy.com

Marketplace (Neutral) Intermediaries not controlled by buyers. Industry (www.industry.net) 12.10 Commercial Arrangements For Transactions Commercial mechanism Online transaction mechanism

Negotiated deal Negotiation bargaining between single seller (www.commerceone.net) and buyer Brokered deal (www.screentrade.co.uk) Auction (www.ebay.com) Achieved thru online intermediaries offering auction and pure markets online Seller auction buyers bids determine final price of sellers offerings Buyer auction buyers request prices from multiple sellers Reverse buyers post desired price for seller acceptance Static call online catalogue with fixed prices Dynamic call online catalogue with continuously updated prices and features

Fixed price sale Example: e-tailers

Pure markets Spot buyers and sellers bids clear instantly (electronic share dealing) Barter (www.bartertrust.com) Barter buyers and sellers exchange goods

12.11 Business Models For E-Commerce Business model An architecture for product, service and information flows, including a description of the various business actors and their roles,
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and a description of the potential benefits for the various business actors, and a description of the sources of revenue. Timmers (1999) identified 11 different types of business model that can be facilitated by the web: 1. E-shop 2. Third-party marketplaces 3. E-procurement 4. Value chain integrators 5. E-malls 6. Value chain service providers 7. E-auctions 8. Information brokerage 9. Virtual communities 10. Trust and other services 11. Collaboration platforms 12.12 Internet Start-Up Companies The Dot.Coms The dot.coms was launched in response to the availability of new business and revenue models. The emphasis of e-business and e-commerce management is deliberately placed on how e-communications will impact on existing organizations. Dot.coms Businesses whose main trading presence is on the Internet. Example: Amazon.com Amazon.com offline operations are very important to delivering customer satisfaction. Bricks and mortar A traditional organization with limited online presence. Clicks and mortar A business combining an online and offline presence. Clicks only or internet pure play An organization principally with an online presence. 12.12.1 Valuing Dot.Coms Critical factors to model when considering the future success of a company: 1. The cost of acquiring a customer through marketing 2. The contribution margin per customer (before acquisition cost)
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3. The average annual revenues per year from customers and other revenues such as banner advertising and affiliate revenues. 4. The total number of customers. 5. The customer churn rate (The proportion of customers (typically subscribers) that no longer purchase a companys products in a time period). Six assessment criteria (Gwyther, 1999) to identify successful UK internet companies: 1. Concept This describes the strength of business model. It includes: Potential to generate revenue ; Superior customer value value proposition First mover advantage 2. Innovation The extent to which the business model merely imitates realworld or online models. Companies that continue to innovate will clearly gain competitive advantage and this is also assessed. 3. Execution Aspects of execution that can be seen to have failed for some companies are promotion, performance, availability, security & fulfillment. 4. Traffic This is measured in terms of page impressions and online revenues. 5. Financing This describes the ability of the company to attract venture capital or other funding to help execute the idea. 6. Profile This is the ability of the company to generate favorable publicity and to create awareness within its target market. 12.12.2 The Impact Of The Dot.Com Phenomenon On Traditional Organizations
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There is no merit in becoming a dot.com business. Within five years successful businesses will have embraced and deployed at real-scale across the whole enterprise the processes and technologies that we now know as dot.com. Guidelines for managers developing e-commerce strategy : 1. Explore new business and revenue models. 2. Perform continuous scanning of the marketplace and respond rapidly. 3. Set up partner networks to leverage the expertise and reputation of specialists. 4. The real world is still important for product promotion and fulfillment. 5. Examine the payback and return on investment of new approaches carefully. Review Questions 1. What is E-Commerce? 2. Identify the main business models of electronic trading. 3. Describe different revenue models and transaction mechanisms available through hosting an e-commerce site.

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