Chapter 1
Overview of Electronic Commerce
EC 2006 Prentice Hall 2
Learning Objectives
1,Define electronic commerce (EC) and describe
its various categories.
2,Describe and discuss the content and framework
of EC.
3,Describe the major types of EC transactions.
4,Describe the digital revolution as a driver of EC.
EC 2006 Prentice Hall 3
Learning Objectives
5,Describe the business environment as a driver of
EC.
6,Describe some EC business models.
7,Describe the benefits of EC to organizations,
consumers,and society.
8,Describe the limitations of EC.
9,Describe the contribution of EC to organizations
responding to environmental pressures.
EC 2006 Prentice Hall 4
Electronic Commerce,
Definitions and Concepts
electronic commerce (EC)
The process of buying,selling,or exchanging
products,services,or information via computer
networks
EC 2006 Prentice Hall 5
Electronic Commerce,
Definitions and Concepts
EC is defined through these perspectives
– Communications
– Commercial (trading)
– Business process
– Service
– Learning
– Collaborative
– Community
EC 2006 Prentice Hall 6
Electronic Commerce,
Definitions and Concepts
e-business
A broader definition of EC that includes not just the
buying and selling of goods and services,but also
servicing customers,collaborating with business
partners,and conducting electronic transactions within
an organization
EC 2006 Prentice Hall 7
Electronic Commerce,
Definitions and Concepts
Pure Versus Partial EC
– EC takes several forms depending on the degree of
digitization (the transformation from physical to digital)
(1) the product (service) sold,
(2) the process,
(3) the delivery agent (or intermediary)
EC 2006 Prentice Hall 8
Exhibit 1.1 The Dimensions of
Electronic Commerce
EC 2006 Prentice Hall 9
Electronic Commerce,
Definitions and Concepts
EC organizations
brick-and-mortar organizations
Old-economy organizations (corporations) that
perform most of their business off-line,selling
physical products by means of physical agents
virtual (pure-play) organizations
Organizations that conduct their business activities
solely online
click-and-mortar (click-and-brick) organizations
Organizations that conduct some e-commerce
activities,but do their primary business in the
physical world
EC 2006 Prentice Hall 10
Electronic Commerce,
Definitions and Concepts
Where EC is conducted
electronic market (e-marketplace)
An online marketplace where buyers and sellers meet
to exchange goods,services,money,or information
interorganizational information systems (IOSs)
Communications system that allows routine transaction
processing and information flow between two or more
organizations
intraorganizational information systems
Communication systems that enable e-commerce
activities to go on within individual organizations
EC 2006 Prentice Hall 11
The EC Framework,
Classification,and Content
Networked computing is the infrastructure for EC,and it is
rapidly emerging as the standard computing environment
for business,home,and government applications
– Networked computing connects multiple computers and other
electronic devices located in several different locations by
telecommunications networks,including wireless ones
– Allows users to access information stored in several different
physical locations and to communicate and collaborate with
people separated by great geographic distances
EC 2006 Prentice Hall 12
The EC Framework
intranet
An internal corporate or government network that uses
Internet tools,such as Web browsers,and Internet
protocols
extranet
A network that uses the Internet to link multiple
intranets
EC 2006 Prentice Hall 13
The EC Framework,
Classification,and Content
An EC Framework—supports five policymaking
support areas
– People
– Public policy
– Marketing and advertisement
– Support services
– Business partnerships
EC 2006 Prentice Hall 14
Exhibit 1.2 A Framework for
Electronic Commerce
EC 2006 Prentice Hall 15
EC Classification
Classification by nature of the transactions or
interactions
business-to-business (B2B)
E-commerce model in which all of the participants are
businesses or other organizations
business-to-consumer (B2C)
E-commerce model in which businesses sell to
individual shoppers
EC 2006 Prentice Hall 16
EC Classification
e-tailing
Online retailing,usually B2C
business-to-business-to-consumer
(B2B2C)
E-commerce model in which a business provides some
product or service to a client business that maintains its
own customers
EC 2006 Prentice Hall 17
EC Classification
consumer-to-business (C2B)
E-commerce model in which individuals use the Internet
to sell products or services to organizations or
individuals seek sellers to bid on products or services
they need
consumer-to-consumer (C2C)
E-commerce model in which consumers sell directly to
other consumers
EC 2006 Prentice Hall 18
EC Classification
peer-to-peer
Technology that enables networked peer computers to
share data and processing with each other directly; can
be used in C2C,B2B,and B2C e-commerce
mobile commerce (m-commerce)
E-commerce transactions and activities conducted in a
wireless environment
EC 2006 Prentice Hall 19
EC Classification
location-based commerce (l-commerce)
M-commerce transactions targeted to individuals in
specific locations,at specific times
intrabusiness EC
E-commerce category that includes all internal
organizational activities that involve the exchange of
goods,services,or information among various units
and individuals in an organization
EC 2006 Prentice Hall 20
EC Classification
business-to-employees (B2E)
E-commerce model in which an organization delivers
services,information,or products to its individual
employees
collaborative commerce (c-commerce)
E-commerce model in which individuals or groups
communicate or collaborate online
e-learning
The online delivery of information for purposes of
training or education
EC 2006 Prentice Hall 21
EC Classification
exchange (electronic)
A public electronic market with many buyers and sellers
exchange-to-exchange (E2E)
E-commerce model in which electronic exchanges
formally connect to one another for the purpose of
exchanging information
e-government
E-commerce model in which a government entity buys
or provides goods,services,or information to
businesses or individual citizens
EC 2006 Prentice Hall 22
The Future of EC
Overall,the growth of the field will continue to be
strong into the foreseeable future
Despite the failures of individual companies and
initiatives,the total volume of EC is growing by 15
to 25% every year
EC 2006 Prentice Hall 23
Digital Evolution Drives EC
digital economy
An economy that is based on digital technologies,
including digital communication networks,computers,
software,and other related information technologies;
also called the Internet economy,the new economy,
or the Web
The digital revolution accelerates EC by providing
competitive advantage to organizations and
enabling innovations
EC 2006 Prentice Hall 24
Business Environment Drives EC
Economic,legal,societal,and technological
factors have created a highly competitive business
environment in which customers are becoming
more powerful
EC 2006 Prentice Hall 25
Business Environment Drives EC
The environment–response–support model
Companies must not only take traditional actions such
as lowering costs and closing unprofitable facilities,but
also introduce innovative actions such as customizing,
creating new products,or providing superb customer
service
EC 2006 Prentice Hall 26
Exhibit 1.4 Major Business Pressures
and the Role of EC
EC 2006 Prentice Hall 27
Business Environment Drives EC
Categories of business pressures
– market (economic)
– societal
– technological
EC 2006 Prentice Hall 28
Business Environment Drives EC
Organizational response strategies
– Strategic systems
– Agile systems
– Continuous improvement efforts and business process
restructuring
– Customer relationship management
– Business alliances
– Electronic markets
EC 2006 Prentice Hall 29
Business Environment Drives EC
– Reductions in Cycle Time and Time-to-Market
cycle time reduction
Shortening the time it takes for a business to complete a
productive activity from its beginning to end
– Empowerment of Employees
EC allows the decentralization of decision making and
authority via empowerment and distributed systems,but
simultaneously supports a centralized control
– Supply Chain Improvements
EC can help reduce supply chain delays,reduce inventories,
and eliminate other inefficiencies
EC 2006 Prentice Hall 30
Business Environment Drives EC
– Mass Customization,Make-to-Order in Large
Quantities
mass customization
Production of large quantities of customized items
– Intrabusiness,From Sales Force Automation to
Inventory Control
knowledge Management (KM)
The process of creating or capturing knowledge,
storing and protecting it,updating and maintaining it,
and using it
EC 2006 Prentice Hall 31
EC Business Models
business model
A method of doing business by which a company can
generate revenue to sustain itself
Business models are a subset of a business plan
or a business case
– See Chapters 14 and 16 and Online Tutorial T1
EC 2006 Prentice Hall 32
EC Business Models
The Structure of Business Models
– A description of the customers to be served and the
company’s relationships with these customers
(customers’ value proposition)
– A description of all products and services the business
will offer
– A description of the business process required to make
and deliver the products and services
EC 2006 Prentice Hall 33
EC Business Models
The Structure of Business Models
– A list of the resources required and the identification of
which ones are available,which will be developed in-
house,and which will need to be acquired
– A description of the organization supply chain,including
suppliers and other business partners
– A description of the revenues expected (revenue
model),anticipated costs,sources of financing,and
estimated profitability (financial viability)
EC 2006 Prentice Hall 34
EC Business Models
Revenue Models
revenue model
Description of how the
company or an EC project
will earn revenue
Major revenue models
– Sales
– Transaction fees
– Subscription fees
– Advertising fees
– Affiliate fees
– Other revenue sources
EC 2006 Prentice Hall 35
EC Business Models
Value proposition
value proposition
The benefits a company can derive from using EC
How do e-marketplaces create value? (Amit and
Zott 2001)
– Search and transaction cost efficiency
– Complementarities
– Lock-in
– Novelty
EC 2006 Prentice Hall 36
Exhibit 1.6 Common Revenue Models
EC 2006 Prentice Hall 37
EC Business Models
Typical EC Business Models
– Online direct marketing
– Electronic tendering systems
tendering (reverse auction)
Model in which a buyer requests would-be sellers to
submit bids; the lowest bidder wins
name-your-own-price model
Model in which a buyer sets the price he or she is
willing to pay and invites sellers to supply the good or
service at that price
EC 2006 Prentice Hall 38
EC Business Models
Typical EC Business Models
– Find the best price
affiliate marketing
An arrangement whereby a marketing partner (a
business,an organization,or even an individual) refers
consumers to the selling company’s Web site
viral marketing
Word-of-mouth marketing in which customers promote
a product or service to friends or other people
EC 2006 Prentice Hall 39
EC Business Models
Typical EC Business Models
group purchasing
Quantity purchasing that enables groups of purchasers
to obtain a discount price on the products purchased
SMEs
Small-to-medium enterprises
e-co-ops
Another name for online group purchasing
organizations
EC 2006 Prentice Hall 40
EC Business Models
Typical EC Business Models
– Online auctions
– Product and service customization
customization
Creation of a product or service according to the
buyer’s specifications
– Electronic marketplaces and exchanges
– Information brokers
EC 2006 Prentice Hall 41
EC Business Models
Typical EC Business Models
– Bartering
– Deep discounting
– Value-chain integrators
– Value-chain service providers
– Supply chain improvers
EC 2006 Prentice Hall 42
Benefits of EC
Global Reach
Cost Reduction
Supply Chain
Improvements
Extended Hours
Customization
New Business Models
Vendors’ Specialization
Rapid Time-to-Market
Lower Communication
Costs
Efficient Procurement
Improved Customer
Relations
Up-to-Date Company
Material
No City Business
Permits and Fees
Other Benefits
Benefits to Organizations
EC 2006 Prentice Hall 43
Benefits of EC
Ubiquity
More Products and
Services
Customized Products
and Services
Cheaper Products and
Services
Instant Delivery
Information Availability
Participation in Auctions
Electronic Communities
No Sales Tax
Benefits to Consumers
EC 2006 Prentice Hall 44
Benefits of EC
Benefits to Society
– Telecommuting
– Higher Standard of Living
– Homeland Security
– Hope for the Poor
– Availability of Public Services
EC 2006 Prentice Hall 45
Exhibit 1.7 Limitations of EC
EC 2006 Prentice Hall 46
Networks for EC
corporate portal
A major gateway through which employees,business
partners,and the public can enter a corporate Web
site
EC 2006 Prentice Hall 47
Exhibit 1.8 The Networked Organization
EC 2006 Prentice Hall 48
Managerial Issues
1,Is it real?
2,Why is B2B e-commerce so attractive?
3,There are so many EC failures—how can one avoid
them?
4,How do we transform our organization into a digital one?
5,How should we evaluate the magnitude of business
pressures and technological advancement?
6,What should be my company’s strategy toward EC?
7,What are the top challenges of EC?
EC 2006 Prentice Hall 49
Summary
1,Definition of EC and description of its various
categories.
2,The content and framework of EC.
3,The major types of EC transactions.
4,The role of the digital revolution.
5,The role of the business environment as an EC
driver.
EC 2006 Prentice Hall 50
Summary
6,The major EC business models.
7,Benefits of EC to organizations,consumers,and
society.
8,Limitations of EC.
9,Contribution to organizations responding to
environmental changes.
Overview of Electronic Commerce
EC 2006 Prentice Hall 2
Learning Objectives
1,Define electronic commerce (EC) and describe
its various categories.
2,Describe and discuss the content and framework
of EC.
3,Describe the major types of EC transactions.
4,Describe the digital revolution as a driver of EC.
EC 2006 Prentice Hall 3
Learning Objectives
5,Describe the business environment as a driver of
EC.
6,Describe some EC business models.
7,Describe the benefits of EC to organizations,
consumers,and society.
8,Describe the limitations of EC.
9,Describe the contribution of EC to organizations
responding to environmental pressures.
EC 2006 Prentice Hall 4
Electronic Commerce,
Definitions and Concepts
electronic commerce (EC)
The process of buying,selling,or exchanging
products,services,or information via computer
networks
EC 2006 Prentice Hall 5
Electronic Commerce,
Definitions and Concepts
EC is defined through these perspectives
– Communications
– Commercial (trading)
– Business process
– Service
– Learning
– Collaborative
– Community
EC 2006 Prentice Hall 6
Electronic Commerce,
Definitions and Concepts
e-business
A broader definition of EC that includes not just the
buying and selling of goods and services,but also
servicing customers,collaborating with business
partners,and conducting electronic transactions within
an organization
EC 2006 Prentice Hall 7
Electronic Commerce,
Definitions and Concepts
Pure Versus Partial EC
– EC takes several forms depending on the degree of
digitization (the transformation from physical to digital)
(1) the product (service) sold,
(2) the process,
(3) the delivery agent (or intermediary)
EC 2006 Prentice Hall 8
Exhibit 1.1 The Dimensions of
Electronic Commerce
EC 2006 Prentice Hall 9
Electronic Commerce,
Definitions and Concepts
EC organizations
brick-and-mortar organizations
Old-economy organizations (corporations) that
perform most of their business off-line,selling
physical products by means of physical agents
virtual (pure-play) organizations
Organizations that conduct their business activities
solely online
click-and-mortar (click-and-brick) organizations
Organizations that conduct some e-commerce
activities,but do their primary business in the
physical world
EC 2006 Prentice Hall 10
Electronic Commerce,
Definitions and Concepts
Where EC is conducted
electronic market (e-marketplace)
An online marketplace where buyers and sellers meet
to exchange goods,services,money,or information
interorganizational information systems (IOSs)
Communications system that allows routine transaction
processing and information flow between two or more
organizations
intraorganizational information systems
Communication systems that enable e-commerce
activities to go on within individual organizations
EC 2006 Prentice Hall 11
The EC Framework,
Classification,and Content
Networked computing is the infrastructure for EC,and it is
rapidly emerging as the standard computing environment
for business,home,and government applications
– Networked computing connects multiple computers and other
electronic devices located in several different locations by
telecommunications networks,including wireless ones
– Allows users to access information stored in several different
physical locations and to communicate and collaborate with
people separated by great geographic distances
EC 2006 Prentice Hall 12
The EC Framework
intranet
An internal corporate or government network that uses
Internet tools,such as Web browsers,and Internet
protocols
extranet
A network that uses the Internet to link multiple
intranets
EC 2006 Prentice Hall 13
The EC Framework,
Classification,and Content
An EC Framework—supports five policymaking
support areas
– People
– Public policy
– Marketing and advertisement
– Support services
– Business partnerships
EC 2006 Prentice Hall 14
Exhibit 1.2 A Framework for
Electronic Commerce
EC 2006 Prentice Hall 15
EC Classification
Classification by nature of the transactions or
interactions
business-to-business (B2B)
E-commerce model in which all of the participants are
businesses or other organizations
business-to-consumer (B2C)
E-commerce model in which businesses sell to
individual shoppers
EC 2006 Prentice Hall 16
EC Classification
e-tailing
Online retailing,usually B2C
business-to-business-to-consumer
(B2B2C)
E-commerce model in which a business provides some
product or service to a client business that maintains its
own customers
EC 2006 Prentice Hall 17
EC Classification
consumer-to-business (C2B)
E-commerce model in which individuals use the Internet
to sell products or services to organizations or
individuals seek sellers to bid on products or services
they need
consumer-to-consumer (C2C)
E-commerce model in which consumers sell directly to
other consumers
EC 2006 Prentice Hall 18
EC Classification
peer-to-peer
Technology that enables networked peer computers to
share data and processing with each other directly; can
be used in C2C,B2B,and B2C e-commerce
mobile commerce (m-commerce)
E-commerce transactions and activities conducted in a
wireless environment
EC 2006 Prentice Hall 19
EC Classification
location-based commerce (l-commerce)
M-commerce transactions targeted to individuals in
specific locations,at specific times
intrabusiness EC
E-commerce category that includes all internal
organizational activities that involve the exchange of
goods,services,or information among various units
and individuals in an organization
EC 2006 Prentice Hall 20
EC Classification
business-to-employees (B2E)
E-commerce model in which an organization delivers
services,information,or products to its individual
employees
collaborative commerce (c-commerce)
E-commerce model in which individuals or groups
communicate or collaborate online
e-learning
The online delivery of information for purposes of
training or education
EC 2006 Prentice Hall 21
EC Classification
exchange (electronic)
A public electronic market with many buyers and sellers
exchange-to-exchange (E2E)
E-commerce model in which electronic exchanges
formally connect to one another for the purpose of
exchanging information
e-government
E-commerce model in which a government entity buys
or provides goods,services,or information to
businesses or individual citizens
EC 2006 Prentice Hall 22
The Future of EC
Overall,the growth of the field will continue to be
strong into the foreseeable future
Despite the failures of individual companies and
initiatives,the total volume of EC is growing by 15
to 25% every year
EC 2006 Prentice Hall 23
Digital Evolution Drives EC
digital economy
An economy that is based on digital technologies,
including digital communication networks,computers,
software,and other related information technologies;
also called the Internet economy,the new economy,
or the Web
The digital revolution accelerates EC by providing
competitive advantage to organizations and
enabling innovations
EC 2006 Prentice Hall 24
Business Environment Drives EC
Economic,legal,societal,and technological
factors have created a highly competitive business
environment in which customers are becoming
more powerful
EC 2006 Prentice Hall 25
Business Environment Drives EC
The environment–response–support model
Companies must not only take traditional actions such
as lowering costs and closing unprofitable facilities,but
also introduce innovative actions such as customizing,
creating new products,or providing superb customer
service
EC 2006 Prentice Hall 26
Exhibit 1.4 Major Business Pressures
and the Role of EC
EC 2006 Prentice Hall 27
Business Environment Drives EC
Categories of business pressures
– market (economic)
– societal
– technological
EC 2006 Prentice Hall 28
Business Environment Drives EC
Organizational response strategies
– Strategic systems
– Agile systems
– Continuous improvement efforts and business process
restructuring
– Customer relationship management
– Business alliances
– Electronic markets
EC 2006 Prentice Hall 29
Business Environment Drives EC
– Reductions in Cycle Time and Time-to-Market
cycle time reduction
Shortening the time it takes for a business to complete a
productive activity from its beginning to end
– Empowerment of Employees
EC allows the decentralization of decision making and
authority via empowerment and distributed systems,but
simultaneously supports a centralized control
– Supply Chain Improvements
EC can help reduce supply chain delays,reduce inventories,
and eliminate other inefficiencies
EC 2006 Prentice Hall 30
Business Environment Drives EC
– Mass Customization,Make-to-Order in Large
Quantities
mass customization
Production of large quantities of customized items
– Intrabusiness,From Sales Force Automation to
Inventory Control
knowledge Management (KM)
The process of creating or capturing knowledge,
storing and protecting it,updating and maintaining it,
and using it
EC 2006 Prentice Hall 31
EC Business Models
business model
A method of doing business by which a company can
generate revenue to sustain itself
Business models are a subset of a business plan
or a business case
– See Chapters 14 and 16 and Online Tutorial T1
EC 2006 Prentice Hall 32
EC Business Models
The Structure of Business Models
– A description of the customers to be served and the
company’s relationships with these customers
(customers’ value proposition)
– A description of all products and services the business
will offer
– A description of the business process required to make
and deliver the products and services
EC 2006 Prentice Hall 33
EC Business Models
The Structure of Business Models
– A list of the resources required and the identification of
which ones are available,which will be developed in-
house,and which will need to be acquired
– A description of the organization supply chain,including
suppliers and other business partners
– A description of the revenues expected (revenue
model),anticipated costs,sources of financing,and
estimated profitability (financial viability)
EC 2006 Prentice Hall 34
EC Business Models
Revenue Models
revenue model
Description of how the
company or an EC project
will earn revenue
Major revenue models
– Sales
– Transaction fees
– Subscription fees
– Advertising fees
– Affiliate fees
– Other revenue sources
EC 2006 Prentice Hall 35
EC Business Models
Value proposition
value proposition
The benefits a company can derive from using EC
How do e-marketplaces create value? (Amit and
Zott 2001)
– Search and transaction cost efficiency
– Complementarities
– Lock-in
– Novelty
EC 2006 Prentice Hall 36
Exhibit 1.6 Common Revenue Models
EC 2006 Prentice Hall 37
EC Business Models
Typical EC Business Models
– Online direct marketing
– Electronic tendering systems
tendering (reverse auction)
Model in which a buyer requests would-be sellers to
submit bids; the lowest bidder wins
name-your-own-price model
Model in which a buyer sets the price he or she is
willing to pay and invites sellers to supply the good or
service at that price
EC 2006 Prentice Hall 38
EC Business Models
Typical EC Business Models
– Find the best price
affiliate marketing
An arrangement whereby a marketing partner (a
business,an organization,or even an individual) refers
consumers to the selling company’s Web site
viral marketing
Word-of-mouth marketing in which customers promote
a product or service to friends or other people
EC 2006 Prentice Hall 39
EC Business Models
Typical EC Business Models
group purchasing
Quantity purchasing that enables groups of purchasers
to obtain a discount price on the products purchased
SMEs
Small-to-medium enterprises
e-co-ops
Another name for online group purchasing
organizations
EC 2006 Prentice Hall 40
EC Business Models
Typical EC Business Models
– Online auctions
– Product and service customization
customization
Creation of a product or service according to the
buyer’s specifications
– Electronic marketplaces and exchanges
– Information brokers
EC 2006 Prentice Hall 41
EC Business Models
Typical EC Business Models
– Bartering
– Deep discounting
– Value-chain integrators
– Value-chain service providers
– Supply chain improvers
EC 2006 Prentice Hall 42
Benefits of EC
Global Reach
Cost Reduction
Supply Chain
Improvements
Extended Hours
Customization
New Business Models
Vendors’ Specialization
Rapid Time-to-Market
Lower Communication
Costs
Efficient Procurement
Improved Customer
Relations
Up-to-Date Company
Material
No City Business
Permits and Fees
Other Benefits
Benefits to Organizations
EC 2006 Prentice Hall 43
Benefits of EC
Ubiquity
More Products and
Services
Customized Products
and Services
Cheaper Products and
Services
Instant Delivery
Information Availability
Participation in Auctions
Electronic Communities
No Sales Tax
Benefits to Consumers
EC 2006 Prentice Hall 44
Benefits of EC
Benefits to Society
– Telecommuting
– Higher Standard of Living
– Homeland Security
– Hope for the Poor
– Availability of Public Services
EC 2006 Prentice Hall 45
Exhibit 1.7 Limitations of EC
EC 2006 Prentice Hall 46
Networks for EC
corporate portal
A major gateway through which employees,business
partners,and the public can enter a corporate Web
site
EC 2006 Prentice Hall 47
Exhibit 1.8 The Networked Organization
EC 2006 Prentice Hall 48
Managerial Issues
1,Is it real?
2,Why is B2B e-commerce so attractive?
3,There are so many EC failures—how can one avoid
them?
4,How do we transform our organization into a digital one?
5,How should we evaluate the magnitude of business
pressures and technological advancement?
6,What should be my company’s strategy toward EC?
7,What are the top challenges of EC?
EC 2006 Prentice Hall 49
Summary
1,Definition of EC and description of its various
categories.
2,The content and framework of EC.
3,The major types of EC transactions.
4,The role of the digital revolution.
5,The role of the business environment as an EC
driver.
EC 2006 Prentice Hall 50
Summary
6,The major EC business models.
7,Benefits of EC to organizations,consumers,and
society.
8,Limitations of EC.
9,Contribution to organizations responding to
environmental changes.
