Chapter 1

Introduction to Electronic Commerce

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 Defining Electronic Commerce
• Electronic commerce refers to business activities
conducted using electronic data transmission via
the Internet and the World Wide Web.
• Three main elements of e-commerce:
– Business-to-consumer
– Business-to-business
– The transactions and business processes that support
selling and purchasing activities on the Web

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 Forms of Electronic Commerce
• Web-based e-commerce
• Electronic Funds Transfers (EFTs)
• Electronic Data Interchange (EDI)
• Examples:
– General Electric
– Wall-Mart

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 Value Added Network (VAN)
• A value added network is an independent
firm that offers connection and EDI
transaction forwarding services to buyers
and sellers engaged in EDI.
• VANs are responsible for ensuring the
security of data transmitted.
• VANs charged a fixed monthly fee plus a
per-transaction charge to subscribers.

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 Elements of Traditional
Commerce: the Buyer’s Side
• Identify specific need
• Search for products or services that will satisfy the
specific need
• Select a vendor
• Negotiate a purchase transaction
• Make payment
• Perform regular maintenance and make warranty
claims

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 Elements of Traditional
Commerce: the Seller’s Side
• Conduct market research to identify
customer needs
• Create product or service that will meet
customers’ needs
• Advertise and promote product or service
• Negotiate a sale transaction

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 Elements of Traditional
Commerce: the Seller’s Side
• Ship goods and invoice to customer
• Receive and process customer payments
• Provide after-sale support, maintenance,
and warranty services

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Activities as Business Processes
• Business Processes refer to activities in
which businesses engage, as they
accomplish a specific element of
commerce, including:
– Transferring funds
– Placing orders
– Sending invoices
– Shipping goods to customers
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 Electronic Commerce Processes
• Electronic fund transfer (EFT)
• Electronic data interchange (EDI)
• Internet commerce
• Electronic business (IBM style)

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 Electronic Commerce Processes
• Examples of business processes:
– Well suited to electronic commerce
– Well suited to traditional commerce
– A combination of both strategies

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 Well-suited E-commerce
Business Processes
• Sale/purchase of books and CDs and other
commodities
• Online delivery of software
• Promotion and delivery of travel services
• Online shipment tracking

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Well-suited Traditional Business
Processes
• Sales/purchase of high-fashion clothing
• Sale/purchase of perishable food products
• Processing of small-denomination
transactions
• Sale of high-value jewelry and antiques

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 Business Processes Suited to
Both Commerce Strategies
• Sale/purchase of automobiles
• Online banking
• Roommate-matching services
• Sale/purchase of investment and insurance
products

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 Advantages of Electronic
Commerce
• Electronic commerce can increase sales and
decrease costs.
• Web advertising reaches to a large amount
of potential customers throughout the
world.
• Web creates virtual communities for
specific products or services.

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 Advantages of Electronic
Commerce
• A business can reduce the costs by using
electronic commerce in its sales support and
order-taking processes.
• Electronic commerce increases sale
opportunities for the seller.
• Electronic commerce increases purchasing
opportunities for the buyer.

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 General Welfare of Society
• Electronic commerce benefits the general
welfare of society because:
– electronic payments of tax refunds and welfare
cost less to issue and arrive securely.
– electronic payments can be audited easily.
– electronic commerce enables people to work
from home.
– electronic commerce makes products and
services available in remote areas.

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 Disadvantages of Electronic
Commerce
• Some business processes are difficult to be
implemented through electronic commerce.
• Return-on-investment is difficult to apply to
electronic commerce.
• Businesses face cultural and legal obstacles
to conducting electronic commerce.

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 International Electronic
Commerce
• About 60 percent of all electronic
commerce sites are in English, therefore
many language barriers need to be
overcome.
• The political structures of the world
presents some challenges.
• Legal, tax, and privacy are concerns of
international electronic commerce.

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 The Internet and World Wide
Web
• The Internet is a large system of interconnected
computer networks that spans the globe.
• The Internet supports e-mail, online newspapers
and publications, discussion groups, games, and
free software.
• The World Wide Web includes an easy-to-use
standard interface for Internet resources accesses.

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 Economic Forces of Electronic
Commerce
• Transaction costs were the main motivation for
moving economic activity from markets to
hierarchically structured firms.
• Transaction costs are the total of all costs that a
buyer and a seller incur for business.
• Types of economic organization:
– Market form
– Hierarchically-structured form

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 The Role of Electronic
Commerce
• Businesses and individuals can use
electronic commerce to reduce transaction
cost.
• Electronic commerce can make network
economic structures, which rely on
information sharing, and are much easier to
construct and maintain.

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 Value Chains
• A strategic business unit is one particular
combination of product, distribution
channel, and customer type.
• A value chain is a way of organizing the
activities that each strategic business unit
undertakes to design, produce, promote,
market, deliver, and support the products or
services it sells.
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 Strategic Business Unit Value
Chains
• For each business unit, the primary activities are:
– Identify customers
– Design
– Purchase materials and supplies
– Manufacture
– Market and sell
– Deliver
– Provide after-sale service and support

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 Strategic Business Unit Value
Chains
• The support activities of value chain for a
strategic business unit include:
– Finance and administration
– Human resources
– Technology development

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 Industry Value Chains
• Value system describes the larger stream of
activities into which a particular business
unit’s value chain is embedded.
• Industry value chain refers to value systems.
• Using the value chain reinforces the idea that
electronic commerce should be a business
solution.

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