1

Business Network Management

Lecture 1

Presented By:
Dr. Asmaa Saad
 Textbook:
Kenneth C, Laudon, and Traver Carol Guercio. E-
Commerce 2017: Business, technology, society. Pearson,
2017.

2
 Table of Contents
Chapter 1: The Revolution Is Just Beginning

Chapter 2: E-commerce Business Models and Concepts

Chapter 3: The Internet and World Wide Web: E-commerce Infrastructure

Chapter 4: Building an E-commerce Web Site

Chapter 5: Security and Encryption

Chapter 6: E-commerce Payment Systems

Chapter 10: Retailing on the Web

 Chapter 1
The Revolution Is Just Beginning

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 Learning Objectives
◼ Define e-commerce and describe how it differs from e-
business
◼ Identify the unique features of e-commerce technology and
discuss their business significance
◼ Describe the major types of e-commerce
◼ Understand the visions and forces behind the E-commerce I
era
◼ Understand the successes and failures of E-commerce I
◼ Identify several factors that will define the E-commerce II
era
◼ Identify the major themes underlying the study of e-
commerce
◼ Identify the major academic disciplines contributing to e-
commerce research
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[Link]: Tuned-Up and Profitable
Page 3

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 [Link]:Tuned-Up and
Profitable
◼ Story of Amazon in many ways mirrors story of e-
commerce itself
◼ Amazon offers consumers four compelling reasons to
shop: selection, convenience, price and service
◼ Founded in 1995, went public in 1997
◼ From 1997-2000, revenues increased from $148
million to $2.7 billion but so did losses, to $1.4 billion
◼ In 2001-2002, new focus on cost-cutting and
achieving profitability leads to first quarterly profits
ever in 2002

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 E-commerce Developments
and Themes-2003
◼ Contrary to expectations, e-commerce is rebounding and
the e-commerce revolution is still just beginning
◼ More and more people and businesses are using the
Internet to conduct commerce
◼ The e-commerce channel is deepening as more and more
products and services come online
◼ Broadband and wireless Internet access are growing
◼ E-commerce business models are being refined to
achieve higher levels of profitability
◼ At societal level, there is continued conflict over
copyrights, content regulation, taxation, privacy, and
Internet fraud and abuse.

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New Developments in E-commerce,
2003
Table 1.1,
Page 8

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 E-commerce Defined
◼ E-commerce involves digitally enabled
commercial transactions between and among
organizations and individuals
◼ Digitally enabled transactions include all
transactions mediated by digital technology
◼ Commercial transactions involve the
exchange of value across organizational or
individual boundaries in return for products or
services

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 E-commerce vs. E-business
◼ Debate among consultants and academics
about meanings and limitations of terms e-
commerce and e-business
◼ We use the term e-business to refer primarily
to the digital enablement of transactions and
processes within a firm, involving information
systems under the control of the firm
◼ E-business does not include commercial
transactions involving an exchange of value
across organizational boundaries

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The Difference between
E-commerce and E-business
Figure 1.1, Page 11

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 Why Study E-commerce
◼ E-commerce technology is different and more
powerful than any of the other technologies
that we have seen in the past century.
◼ E-commerce has challenged much traditional
business thinking
◼ E-commerce has a number of unique
features that help explain why we have so
much interest in e-commerce

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 Seven Unique Features of E-commerce
Technology and Their Significance
◼ Is ubiquitous (available everywhere, all the time)
◼ Offers global reach (across cultural/national boundaries)
◼ Operates according to universal standards (lowers market
entry for merchants and search costs for consumers)
◼ Provides information richness (more powerful selling
environment)
◼ Is interactive (can simulate face-to-face experience, but on
global scale)
◼ Increases information density (amount and quality of
information available to all market participants)
◼ Permits personalization/customization

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Seven Unique Features of E-commerce Technology
Table 1.2,
Page 12

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The Changing Trade-off between
Richness and Reach
Figure 1.2, Page 15

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 Types of E-commerce
Classified by nature of market relationship
◼ Business-to-Consumer (B2C)
◼ Business-to-Business (B2B)
◼ Consumer-to-Consumer (C2C)

Classified by type of technology used

◼ Peer-to-Peer (P2P)
◼ Mobile commerce (M-commerce)

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Major Types of E-commerce
Table 1.3, Page 17

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 Business-to-Consumer (B2C)
E-commerce
◼ Involves online businesses attempting to
reach individual consumers
◼ In 2002, total B2C revenues were about $72-
$78 billion
◼ Many types of business models within this
category including online retailers, content
providers, portals, transaction brokers,
service providers, market creators and
community providers

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 Business-to-Business (B2B)
E-commerce
◼ Involves businesses focusing on selling to
other businesses
◼ Largest form of e-commerce ($800 billion in
2002)
◼ Two primary business models within B2B:
▪ Net marketplaces (includes e-distributors,
e-procurement companies, exchanges and
industry consortia)
▪ Private industrial networks (includes single
firm networks and industry-wide networks)
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 Consumer-to-Consumer (C2C)
E-commerce
◼ Provides a way for consumers to sell to
each other, with the help of an online
market maker
◼ eBay most well-known example
◼ Estimated that size of C2C commerce
will reach $15 billion by 2004

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 Peer-to-Peer (P2P) E-commerce
◼ Uses peer-to-peer technology, which enables
Internet users to share files and computer
resources without having to go through a
central Web server
◼ Napster most well-known example until put
out of business for copyright infringement
◼ Today, Kazaa is the leading P2P software
network, although also under attack for
copyright infringement

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 M-commerce
◼ Use of wireless digital devices such as cell
phones and handheld devices to enable
transactions on the Web
◼ Most widely used in Japan and Europe
(especially Finland)
◼ Expected to grow rapidly in U.S. over the next
five years.

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 Growth of the Internet
◼ The Internet is a worldwide network of computer
networks built on common standards
◼ Internet was first created in 1960s
◼ Today is world’s largest network, connecting over 500
million computers worldwide
◼ Services include the Web, e-mail, file transfers, etc.
◼ Can measure growth of Internet by looking at number
of Internet hosts with domain names:
▪ In January 2003, there were 170 million Internet
hosts with domain names, up from 70 million in
2000
▪ Growing at about 50% a year

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The Growth of the Internet, Measured by Number
of Internet Hosts with Domain Names
Figure 1.3, Page 20

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 Growth of the Web
◼ Web is the most popular service on the
Internet
◼ Developed in early 1990s
◼ Provides access to Web pages -- documents
created with HTML
◼ Can include text, graphics, animations, music,
videos
◼ Web content in form of Web pages has grown
exponentially, from over 2 billion pages in
2000 to over 6 billion pages in 2003

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The Growth of Web Content
Figure 1.4, Page 21

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 Insight on Technology: Spider Webs,
Bow Ties, and Scale-Free Networks
◼ Small world theory of Web (every Web page
is thought to be separated from any other
Web page by a small number of clicks) has
been debunked by recent research
◼ New research indicates Web has “bow-tie”
form with a strongly connected component, In
pages,Out pages, tendrils and tubes.
◼ Barabasi calls Web a “scale-free network”
with “very connected super nodes”

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Insight on Technology: Spider Webs,
Bow Ties, and Scale-Free Networks
Page 22

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 Origins and Growth of E-commerce
◼ Precursors to e-commerce include
▪ Baxter Healthcare (in 1970s, used telephone-
based modems to reorder supplies; in 1980s,
became a PC-based remote order entry system)
▪ Electronic Data Interchange (EDI) standards
developed in 1980s; permitted firms to exchange
commercial documents and conduct digital
commercial transactions across private networks
▪ French Minitel (1980s videotext system; still in use
today)
◼ None of these precursor system had functionality of
Internet

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 Origins and Growth of E-commerce
◼ For our purposes, we will date the
beginning of e-commerce to 1995
▪ First banner advertisements - October
1994
▪ First sales of banner ad space - early
1995
◼ Since then, has been fastest growing
form of commerce in U.S.

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The Growth of B2C E-commerce
Figure 1.5, Page 24

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The Growth of B2B E-commerce
Figure 1.6, Page 25

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 Technology and E-commerce in
Perspective
◼ First, the Internet and Web are just two of a long list
of technologies, such as automobiles and radio, that
have followed a similar historical path:
▪ Creation of business models designed to leverage
the technology and explosive early growth,
followed by retrenchment and then a long-term
successful exploitation of the technology by larger
established firms
◼ Second, although e-commerce has grown
explosively, eventually its growth will cap as it
confronts its own fundamental limitations.

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 Potential Limitations on the
Growth of B2C E-commerce
◼ Expensive technology – Although currently a
limitation, may become less so as prices of entry-
level PCs fall
◼ Complex software interface – Integration with
television may reduce this limitation
◼ Sophisticated skill set – This limitation may recede as
PC operating system evolves, becomes more simple
◼ Persistent cultural attraction of physical markets and
traditional shopping experiences – unlikely to change
◼ Persistent global inequality limiting access to
telephones and computers – unlikely to change

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Limitations on the Growth of B2C E-commerce
Table 1.4, Page 26

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Growth Projections for Wireless Web Devices and
Broadband Home Connections in the United States
Figure 1.7, Page 27

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 E-commerce I and E-commerce II
◼ E-commerce I: A period of explosive growth and
extraordinary innovation; key concepts developed
and explored
▪ Begins in 1995, ends in March 2000 when stock
market valuations for [Link] companies begin to
collapse
▪ Thousands of [Link] companies formed, backed
by over $125 billion in financial capital
◼ E-commerce II: Characterized by a reassessment of
e-commerce companies and their value
▪ Begins in January 2001; ongoing

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 The Visions and Forces Behind
E-commerce 1: 1995-2000
◼ For computer scientists:
▪ A vindication of the vision of a universal
communications and computing environment
▪ Belief that Internet should not be controlled by
government, and remain free for all
◼ For economists:
▪ Vision of a perfect Bertrand market and friction-
free commerce, characterized by low transaction
costs, low search costs, price transparency, low
menu costs, dynamic pricing, disintermediation,
and elimination of unfair competitive advantages

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 The Visions and Forces Behind E-
commerce I: 1995-2000 (cont’d)
◼ For entrepreneurs, their financial backers and
marketing professionals, e-commerce represented an
extraordinary opportunity to return far above normal
returns on investment based on:
▪ Worldwide access to consumers
▪ New marketing communications technologies that
were universal, inexpensive and powerful
▪ Ability to segment market
▪ First mover advantages – by building in switching
costs
▪ Network effects

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Quarterly Amounts Raised by
Venture-Backed Firms
Figure 1.8, Page 29

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 Insight on Business: A Short
History of [Link] IPOs
◼ Between 1998-2000, over $120 billion invested by
venture capitalists in over 12,450 [Link] start-up
ventures
◼ Over 1,260 of these firms went public in initial public
offerings (IPOs)
◼ During E-commerce I heyday (1998-2000), shares
often tripled or quadrupled in value on 1st day of
trading
◼ By 2003, many of these firms either are trading at
much lower values or have shut down
◼ Second wave of [Link] investment is focusing on
acquisition of Web companies
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 E-commerce II: 2001-2007
◼ Crash in stock market values for e-commerce
companies throughout 2000 marks end of E-
commerce I period
◼ Reasons for crash:
▪ Run-up in technology stocks due to enormous information
technology capital expenditure of firms rebuilding their
internal business systems to withstand Y2K
▪ Telecommunications industry had built excess capacity in
high-speed fiber optic networks
▪ 1999 Christmas season provided less sales growth that
anticipated and demonstrated e-commerce was not easy
([Link])
▪ Valuations of [Link] and technology companies had risen
so high supporters were questioning whether earnings could
justify the prices of the shares.

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 E-commerce Today: Successes
and Failures
◼ E-commerce I a stunning technological success
◼ E-commerce I a mixed success from a business
perspective
◼ Many visions developed during E-commerce I not
fulfilled
▪ Economists’ visions of “friction-free” commerce
and Bertrand model of extreme market efficiency
not entirely realized
▪ Entrepreneurs and venture capitalists’ visions
have not materialized exactly as predicted either

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E-commerce I and E-commerce II Compared
Table 1.5, Page 35

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 Predictions for the Future
◼ Technology of e-commerce will continue to propagate
through all commercial activity
◼ E-commerce prices will rise to cover the real cost of
doing business on Web and pay investors reasonable
rate of return
◼ E-commerce margins and profits will rise to levels
more typical of all retailers
◼ In B2C and B2B, traditional Fortune 500 companies
will play growing and dominant role
◼ Number of successful pure online companies will
decline and most successful e-commerce firms will
adopt mixed “clicks and bricks” strategies
◼ Growth of regulatory activity worldwide

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NRF/Forrester Online Retail Index, December 2002
Table 1.6, Page 37

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Fastest Growing Non-Travel E-commerce
Categories 2002
Table 1.7, Page 38

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Top 25 Shopping Web Sites for
Week Ending November 10, 2002
Table 1.8, Page 39

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 Understanding E-commerce:
Organizing Themes
◼ Technology: Development and mastery of
digital computing and communications
technology
◼ Business: New technologies present
businesses and entrepreneurs with new ways
of organizing production and transacting
business
◼ Society: Intellectual property, individual
privacy and public policy

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The Internet and the Evolution
of Corporate Computing
Figure 1.9, Page 41

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 Insight on Society: Keeping Your
Clickstream Private is Getting Harder
◼ One-to-one marketing/personalization is one of the
virtues or vices of e-commerce, depending on one’s
perspective
◼ Clickstream—clicking behavior at a site; used to
create a user profile by advertising networks such as
DoubleClick, ValueClick, 24/7 Real Media
◼ Web sites also use Web logs, cookies, Web bugs and
spyware/adware
◼ Many consumers feel these practices constitute
invasion of privacy
◼ Ways to protect privacy– merchant and advertising
network privacy policies, new technologies, laws

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 Academic Disciplines
Concerned with E-commerce
◼ Technical Approaches
▪ Computer scientists and information system
researchers
▪ Management scientists
◼ Behavioral Approaches
▪ Information system researchers
▪ Economists
▪ Marketing
▪ Management
▪ Finance and accounting
▪ Sociologists
▪ Legal scholars
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Disciplines Concerned with E-commerce
Figure 1.10, Page 45

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 Case Study: Kazaa Is Rockin’
and Rappin’ But for How Long?
◼ Kazaa’s Media Desktop – largest and most successful
free music file-swapping site; 65 million users worldwide; 3
million downloads per week; 1 billion tracks available
◼ Relies on a software program known as Fast Track;
claims there is no central index, control, or administration
◼ Makes money by acting as an advertising network; has
also developed parallel network called Altnet that uses a
pay-for-download business model
◼ Currently being sued by RIAA and MPIA for copyright
infringement (Metro Goldwyn Mayer Studios v. Grokster et
al.)
▪ April 2003, court ruled defendants not liable; case is
being appealed

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Kazaa’s Home Page
Page 47

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Music Swapping Software
Page 48

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