Chapter Five

Electronic Commerce and Enterprise Systems

 An Introduction to Electronic Commerce
 Electronic commerce (e-commerce) is the conducting of business
activities (e.g., distribution, buying, selling, marketing, and servicing of
products or services) electronically over computer networks.
 It includes any business transaction executed electronically between
companies (business-to-business), companies and consumers (business-
to-consumer), consumers and other consumers (consumer-to-consumer),
public sector and business (government-to-business), public sector
to citizens (government-to-citizen), and public sector to public sector
(government-to-government).
 Business activities that are strong candidates for conversion to e-
commerce are ones that are paper based, time consuming, and
inconvenient for customers.
 E-Commerce is “any form of business transaction in which the parties
interact electronically rather than by physical exchanges or direct
 Business-to-Business E-Commerce
Business-to-business (B2B) e-commerce is a subset of e-commerce
in which all the participants are organizations.
B2B e-commerce is a useful tool for connecting business partners in
a virtual supply chain to cut resupply times and reduce costs.
Although the business-to-consumer market grabs more of the
news headlines, the B2B market is considerably larger and is
growing more rapidly.
B2B sales within the United States were estimated to be over
$780 billion in 2015, twice the size of B2C commerce.
The top e-commerce priorities for many B2B buyers include
transparent pricing, easily accessible product details, purchase
tracking, and personalized recommendations.
 Business-to-Consumer E-Commerce
 Business-to-consumer (B2C) e-commerce is a form of e-commerce in which
customers deal directly with an organization and avoid intermediaries.
 By using B2C e-commerce to sell directly to consumers, producers, or
providers of consumer products can eliminate the middlemen, or
intermediaries, between them and the consumer.
 In many cases, this squeezes costs and inefficiencies out of the supply chain
and can lead to higher profits for businesses and lower prices for consumers.
 The elimination of intermediate organizations between the producer and the
consumer is called disintermediation.
 More than just a tool for placing orders, the Internet enables shoppers to
compare prices, features, and value, and to check other customers' opinions.
 Consumers can, for example, easily and quickly compare information about
automobiles, cruises, loans, insurance, and home prices to find better values.
 Internet shoppers can unleash shopping bots or access sites such as eBay
[Link], Google Shopping, Shopzilla, PriceGrabber, Yahoo! Shopping,
 Consumer-to-Consumer E-commerce
 Consumer-to-consumer (C2C) e-commerce is a subset of e-commerce that
involves electronic transactions between consumers using a third party to
facilitate the process.
 eBay is an example of a C2C e-commerce site; customers buy and sell items to
each other through the site.
 Founded in 1995, eBay has become one of the most popular Web sites in the
world, with 2015 net revenue of $8.5 billion.
 Other popular C2C sites include [Link], Craigslist, eBid, Etsy, Fiverr,
Ibidfree, Kijiji, Ubid, and Taobao.
 The growth of C2C is responsible for a drastic reduction in the use of the
classified pages of news papers to advertise and sell personal items and services,
so it has had a negative impact on that industry.
 On the other hand, C2C has created an opportunity for many people to
make a living out of selling items on auction Web sites.
 According to eBay, the gross merchandise volume for items sold on its site in
2015 was $82 billion.
 E-Government
 E-government is the use of information and communications technologyto simplify the
sharing of information, speed formerly paper-based processes, and improve the
relationship between citizens and government. Government-to-citizen (G2C),
government-to-business(G2B), and government-to-government (G2G) are all forms of
e-government, each with different applications.
 Citizens can use G2C applications to submit their state and federal tax returns
online, renew auto licenses, purchase postage, and apply for student loans.
 G2B applications support the purchase of materials and services from private industry
by government procurement offices, enable firms to bid on government contracts, and
help businesses identify government contracts on which they may bid.
 G2G applications support transactions between government entities, such as between
the federal government and state or local governments.
 Government to Government Services Online (GSO) is a suite of Web applications
that enables government organizations to report information-such as birth and
death data, arrest warrant information, and information about the amount of state aid
being received-to the administration of Social Security services
 Mobile Commerce
Mobile commerce (m-commerce)relies on the use of mobile devices,
such as tablets and smartphones, to place orders and conduct
business.
Smartphone manufacturers such as Apple, Huawei, Lenovo, Samsung,
and Xiaomi are working with communications carriers such as AT&T,
Sprint/Nextel, T-Mobile, and Verizon to develop wireless devices,
related technology, and services to support m-commerce.
The Internet Corporation for Assigned Names and Numbers (ICANN)
created a .mobi domain in 2005 to help attract mobile users to the
Web.
Afilias administers this domain and helps to ensure that the .mobi
destinations work quickly, efficiently, and effectively with all mobile
devices.
 Advantages of Electronic and Mobile Commerce
 Conversion to an e-commerce or m-commerce system enables
organizations to reach new customers, reduce the cost of doing
business, speed the flow of goods and information, increase the
accuracy of order processing and order fulfillment, and improve the
level of customer service.
Reach New Customers: The establishment of an e-commerce Web site
enables a firm to reach new customers in new markets. Indeed, this is one
of the primary reasons organizations give for establishing a Web site.
 Reduce Costs: By eliminating or reducing time-consuming and labor-
intensive steps throughout the order and delivery process, more sales can
be completed in the same period and with increased accuracy.
Increase Accuracy: By enabling buyers to enter their own product
specifications and order information directly, human data-entry error on
the part of the supplier is eliminated.
Improve Customer Service: Increased and more detailed information about
 E-commerce Challenges
 A company must overcome many challenges to convert its business processes
from the traditional form to e-commerce processes, especially for B2C e-
commerce.
 As a result, not all e-commerce ventures are successful.
 The following are three key challenges to e-commerce:
(1)Dealing with consumer privacy concerns: Companies must be prepared to
make a substantial investment to safeguard their customers' privacy or run the
risk of losing customers and generating potential class action lawsuits should
the data be compromised.
(2) Overcoming consumers' lack of trust: Lack of trust in online sellers is one of
the most frequently cited reasons that some consumers give to explain why they
are unwilling to purchase online.
(3) Overcoming global issues: Companies involved in e-commerce and m-
commerce must think through their strategies carefully and ensure that
they provide services that truly meet customers' needs.
 Hardware
A Web server hardware platform complete with the appropriate software is a key ingredient to
e-commerce infrastructure.
The amount of storage capacity and computing power required of the Web server depends
primarily on two things: the software that must run on the server and the volume of
e-commerce transactions that must be processed.
The most successful e-commerce solutions are designed to be highly scalable so that they
can be upgraded to meet unexpected user traffic.
Key Web site performance measures include response time (typical goal < 1 second),
transaction success rate (strive for 99 percent or better), and system availability(as close to 0
minutes of unscheduled downtime as possible).
A key decision facing a new e-commerce company is whether to host its own Web site or to
let someone else do it.
Many companies decide that using a third-party Web service provider is the best way to
meet initial e-commerce needs.
The third-party company rents space on its computer system and provides a high-speed
connection to the Internet, thus minimizing the initial out-of-pocket costs for e-commerce start-
up.
The third party can also provide personnel trained to operate, troubleshoot, and manage
 Web Server Software
 In addition to the Web server operating system, each e-commerce Web site
must have Web server software to perform fundamental services, including
security and identification, retrieval and sending of Web pages, Web site
tracking, Web site development, and Web page development.
 The two most widely used Web server software packages are Apache
HTTP Server and Microsoft Internet Information Services.
E-Commerce Software
After you have located or built a host server, including the hardware,
operating system, and Web server software, you can begin to investigate and
install e-commerce software to support five core tasks: catalog management to
create and update the product catalog, product configuration to help
customers select the necessary components and options, shopping cart
facilities to track the items selected for purchase, e-commerce transaction
processing, and Web traffic data analysis to provide details to adjust the
operations of the Web site.
 Mobile Commerce Hardware and Software
 For m-commerce to work effectively, the interface between the mobile
device and its user must improve to the point that it is nearly as easy
to purchase an item on a wireless device as it is to purchase it on a
PC.
 In addition, network speeds must continue to improve so that users
do not become frustrated.
 Security is also a major concern, particularly in two areas: the security
of the transmission itself and the trust that the transaction is being
made with the intended party.
 Encryption can provide secure transmission.
 Digital certificates can ensure that transactions are made between
the intended parties.
 The mobile devices used for m-commerce have several limitations
that complicate their use.

 Electronic Payment Systems
 Electronic payment systems are a key component of the e-commerce infrastructure.
Current e-commerce technology relies on user identification and encryption to
safeguard business transactions.
 Actual payments are made in a variety of ways, including electronic cash, electronic
wallets, and smart, credit, charge, and debit cards.
 Web sites that accept multiple payment types convert more visitors to purchasing
customers than merchants who offer only a single payment method.
 Authentication technologies are used by many organizations to confirm the identity of
a user requesting access to information or assets.
 A digital certificate is an attachment to an email message or data embedded in a
Web site that verifies the identity of a sender or Web site.
 A certificate authority (CA) is a trusted third-party organization or company that
issues digital certificates.
 The CA is responsible for guaranteeing that the people or organizations granted these
unique certificates are in fact who they claim to be.
 Digital certificates thus create a trust chain throughout the transaction, verifying both
 Transport Layer Security
 All online shoppers fear the theft of credit card numbers and banking information.
 To help prevent this type of identity theft, the Transport Layer Security
communications protocol is used to secure sensitive data.
 Transport Layer Security (TLS) is a communications protocol or system of rules that
ensures privacy between communicating applications and their users on the Internet.
 TLS enables a client (like a Web browser) to initiate a temporary, private conversation
with a server (like a shopping site on the Web or an online bank).
 Before the client and server start communicating, they perform an automated
process called a "handshake" where they exchange information about who they
are, and which secret codes and algorithms they'll use to encode their messages to
each other.
 Then for the duration of the conversation, all the data that passes between the
client and server is encrypted so that even if somebody does listen in, they won't
be able to determine what's being communicated.
 In addition to TLS handling the encryption part of a secure e-commerce transaction, a
digital certificate is assigned to the Web site to provide positive server identification
so shoppers can be assured of with whom that are dealing.
 Electronic Cash
 Electronic cash is an amount of money that is computerized,
stored, and used as cash for e-commerce transactions.
 Typically, consumers must open an account with an electronic cash
service provider by providing identification information.
 When the consumers want to withdraw electronic cash to make a
purchase, they access the service provider via the Internet and
present proof of identity-a digital certificate issued by a certification
authority or a username and password.
 After verifying a consumer's identity, the system debits the
consumer's account and credits the seller's account with the
amount of the purchase.
 ApplePay, PayPal, Square, Stripe, and WePay are leading online
payment service providers that facilitate the use of electronic cash.
 Credit, Charge, Debit, and Smart Cards
 Many online shoppers use credit and charge cards for most of their Internet purchases
 A credit card, such as Visa or Master Card, has a preset spending limit based on the
user's credit history, and each month the user can pay all or part of the amount owed.
 Interest is charged on the unpaid amount.
 A charge card, such as American Express, carries no preset spending limit, and the
entire amount charged to the card is due at the end of the billing period.
 You can't carry a balance from month to month with a charge card like you can with
a credit card.
 Charge cards require customers to pay in full every month or face a fee.
 Debit cards look like credit cards, but they operate like cash or a personal check.
 The debit card is linked directly to your savings or checking account.
 Each time you use the card, money is automatically taken from your checking or
savings account to cover the purchase.
 Credit, charge, and debit cards currently store limited information about you on a
magnetic stripe.
 This information is read each time the card is swiped to make a purchase.
 All credit card customers are protected by law from paying more than $50
for fraudulent transactions.
 The smart card is a credit card-sized device with an embedded microchip
to provide electronic memory and processing capability.
 Smart cards can be used for a variety of purposes, including storing a user's
financial facts, health insurance data, credit card numbers, and network
identification codes and passwords. They can also store monetary values for
spending.
 Smart cards are better protected from misuse than conventional credit,
charge, and debit cards because the smart-card information is encrypted.
 Conventional credit, charge, and debit cards clearly show your account
number on the face of the card.
 The card number, along with a forged signature, is all that a thief needs to
purchase items and charge them against your card.
 A smart card makes credit theft practically impossible because a key to
unlock the encrypted information is required, and there is no external
number that a thief can identify and no physical signature a thief can forge.
 Transaction Process Systems
 Organizations employ transaction processing systems (TPSs) to capture and
process the detailed data necessary to update records about the fundamental
business operations of the organization.
 These systems include order entry, inventory control, shipment processing,
payroll, accounts payable, accounts receivable, and the general ledger, to name
just a few.
 The input to these systems includes basic business transactions, such as
customer orders, purchase orders, receipts, time cards, invoices, and customer
payments.
 The processing activities include data collection, data editing, data correction,
data processing, data storage, and document production.
 The result of processing business transactions is that the organization's
records are updated to reflect the status of the operation at the time of the
last processed transaction.
 A TPS also provides employees involved in other business processes with data
Traditional Transaction Processing Methods and Objectives
 With batch processing systems, business transactions are accumulated over a
period of time and prepared for processing as a single unit or batch.
 Transactions are accumulated for as long as necessary to meet the needs of the
users of that system. For example, it might be important to process invoices and
customer payments for the accounts receivable system daily.
 On the other hand, the payroll system might process time cards biweekly
to create checks, update employee earnings records, and distribute labor costs.
 The essential characteristic of a batch processing system is the delay between an
event and the eventual processing of the related transaction to update the
organization's records.
 For many applications, batch processing is an appropriate and cost effective
approach. Pay roll transactions and billing are typically done via batch processing.
 Because of the importance of transaction processing, organizations expect their TPSs
to accomplish a number of specific objectives, including the following:
 Capture, process, and update databases of business data required to sup- port
routine business activities
 Ensure that the data is processed accurately and completely
 Avoid processing fraudulent transactions
 Produce timely user responses and reports
 Reduce clerical and other labor requirements
 Help improve customer service
 Achieve competitive advantage
 An organization typically employs the following types of transaction processing
systems:
 Order processing
 Accounting systems
 Purchasing systems
 Transaction Processing Activities
Along with having common characteristics, all TPSs perform a common
set of basic data-processing activities.
TPSs capture and process data that describes fundamental business
transactions.
This data is used to update databases and to produce a variety of
reports for people both within and outside the enterprise.
The business data goes through a transaction processing cycle that
includes data collection, data editing, data correction, data processing,
data storage, and document production.
 Enterprise Systems
An enterprise system is central to individuals and organizations of all sizes and
ensures that information can be shared with authorized users across all business
functions and at all levels of management to support the running and
managing of a business.
Enterprise systems employ a database of key operational and planning data that
can be shared by all, eliminating the problems of missing information and
inconsistent information caused by multiple transaction processing systems that each
support only one business function or one department in an organization.
Businesses rely on enterprise systems to perform many of their daily activities
in areas such as product supply, distribution, sales, marketing, human
resources, manufacturing, accounting, and taxation so that work can be
performed quickly without waste or mistakes.
Without such systems, recording and processing business transactions would
consume huge amounts of an organization's resources.
This collection of processed transactions also forms a storehouse of data invaluable to
decision making.
The ultimate goal of such systems is to satisfy customers and provide significant benefits
 Enterprise Resource Planning
 Enterprise resource planning (ERP)is a set of integrated programs that manage a
company's vital business operations for an entire organization, even a complex,
multisite, global organization.
 Recall that a business procedure is a set of coordinated and related activities that
takes one or more types of input and creates an output of value to the customer
of that procedure.
 The customer of the procedure might be a traditional external business
customer who buys goods or services from the firm.
 An example of such a procedure is capturing a sales order, which takes
customer input and generates an order.
 The customer in a business procedure might also be an internal customer, such as
an employee in another department of the firm.
 For example, the shipment process generates the internal documents workers need
in the warehouse and shipping departments to pick, pack, and ship orders.
 At the core of the ERP system is a database that is shared by all users so that all
business functions have access to current and consistent data for operational
decision making and planning.
 Advantages of ERP
 Increased global competition, new needs of executives for control over the total
cost and product flow through their enterprises, and ever more-
numerous customer interactions drive the demand for enterprise-wide access to
real-time information.
 ERP offers integrated software from a single vendor to help meet those needs.
 The primary benefits of implementing ERP include improved access to quality data
for operational decision making, elimination of costly, inflexible legacy systems,
improvement of work processes, and the opportunity to upgrade and standardize
technology infrastructure.
 ERP vendors have also developed specialized systems that provide effective
solutions for specific industries and market segments.
 Customer Relationship Management
 A customer relationship management (CRM)system helps a company
manage all aspects of customer encounters, including marketing, sales,
distribution, accounting, and customer service.
 Think of a CRM system as an address book with a historical record of
all the organization's interactions with each customer.
 The goal of CRM is to understand and anticipate the needs of
current and potential customers to increase customer retention and
loyalty while optimizing the way that products and services are sold.
 CRM is used primarily by people in the sales, marketing, distribution,
accounting, and service organizations to capture and view data about
customers and to improve communications.
 Businesses implementing CRM systems often report benefits such as
improved customer satisfaction, increased customer retention, reduced
operating costs, and the ability to meet customer demand.
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