Overview of E-Business and E-Commerce

• Any entrepreneur or company that decides to practice electronic commerce must develop a strategy to do so effectively.
• The first step is to determine exactly why you want to do business over the Internet using a Web site.
• There are several reasons for employing Web sites:
• • To sell goods and services
• • To induce people to visit a physical location
• • To reduce operational and transaction costs
• • To enhance your reputation

• A Web site can accomplish any of these goals. Unless a company (or you) has substantial resources, however, it is difficult to accomplish all of them at the same time.
• The appropriate Web site for achieving each goal will be somewhat different.
• As you set up your Web site, you must consider how the site will generate and retain traffic, as well as a host of other issues.
• The point here is that, when you are studying the various aspects of electronic commerce, you should keep the strategy of the organization or entrepreneur in mind.
• This will help you determine the type of Web site to use.
• This section examines the basics of e-business and e-commerce.

Definitions and Concepts

• Recall that electronic commerce describes the process of buying, selling, transferring, or exchanging products, services, or information via computer networks, including the Internet.
• Electronic business (e-business) is a somewhat broader concept. In addition to the buying and selling of goods and services, e-business refers to servicing customers, collaborating with business partners, and performing electronic transactions within an organization.

• Electronic commerce can take several forms depending on the degree of digitization involved.
• The degree of digitization is the extent to which the commerce has been transformed from physical to digital.
• This concept can relate to both the product or service being sold and the delivery agent or intermediary.
• In other words, the product can be either physical or digital, and the delivery agent can be either physical or digital.

• In traditional commerce, both dimensions are physical. Purely physical organizations are referred to as brick-and-mortar organizations. (You may also see the term bricks-and-mortar.)
• In contrast, in pure EC all dimensions are digital. Companies engaged only in EC are considered virtual (or pure-play) organizations.
• All other combinations that include a mix of digital and physical dimensions are considered partial EC (but not pure EC). Clicks-and-mortar organizations conduct some e-commerce activities, yet their primary business is carried out in the physical world.

• A common alternative to the term clicks-and-mortar is clicks-and-bricks.
• You will encounter both terms.
• Therefore, clicks-and-mortar organizations are examples of partial EC.
• E-commerce is now so well established that people generally expect companies to offer this service in some form.

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• Purchasing a shirt at Walmart Online or a book from Amazon.com is an example of partial EC because the merchandise, although bought and paid for digitally, is physically delivered by FedEx or UPS.
• In contrast, buying an e-book from Amazon.com or a software product from Buy.com constitutes pure EC because the product itself as well as its delivery, payment, and transfer are digital.
• To avoid confusion, we use the term electronic commerce to denote both pure and partial EC.

Types of E-Commerce

• E-commerce can be conducted between and among various parties.
• In this section, you will identify the six common types of e-commerce, and you will learn about three of them—C2C, B2E, and e-government—in detail.
• You then consider B2C and B2B in separate sections because they are very complex.

Business-to-consumer electronic commerce (B2C)

• In B2C, the sellers are organizations, and the buyers are individuals.
• • Business-to-business electronic commerce (B2B). In B2B transactions, both the sellers and the buyers are business organizations.
• B2B comprises the vast majority of EC volume.

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Consumer-to-consumer electronic commerce (C2C)

• In C2C (also called customer-to customer), an individual sells products or services to other individuals.
• The major strategies for conducting C2C on the Internet are auctions and classified ads.

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• In dozens of countries, the volume of C2C selling and buying on auction sites is exploding.
• Most auctions are conducted by intermediaries such as eBay (www.ebay.com).
• Consumers can also select general sites such as www.auctionanything.com, a company that sells software and services that help individuals and organizations conduct their own auctions.
• In addition, many individuals are conducting their own auctions.

Mobile commerce (m-commerce)

• The term m-commerce refers to e-commerce that is conducted entirely in a wireless environment.
• An example is using cell phones to shop over the Internet.

Major E-Commerce Mechanisms

• Businesses and customers can buy and sell on the Internet through a number of mechanisms.
• The most widely used mechanisms are:
• • Electronic catalogs,
• • Electronic auctions,
• • E-storefronts,
• • E-malls, and
• • E-marketplaces.

• Catalogs have been printed on paper for generations.
• Today, however, they are available on CD-ROM and the Internet.
• Electronic catalogs consist of a product database, a directory and search capabilities, and a presentation function.
• They are the backbone of most e-commerce sites.

• An auction is a competitive buying and selling process in which prices are determined dynamically by competitive bidding.
• Electronic auctions (e-auctions) generally increase revenues for sellers by broadening the customer base and shortening the cycle time of the auction.
• Buyers generally benefit from e-auctions because they can bargain for lower prices.
• In addition, they do not have to travel to an auction at a physical location.

• The Internet provides an efficient infrastructure for conducting auctions at lower administrative costs and with many more involved sellers and buyers.
• Individual consumers and corporations alike can participate in auctions
• There are two major types of auctions: forward and reverse.
• In forward auctions, sellers solicit bids from many potential buyers.
• Usually, sellers place items at sites for auction, and buyers bid continuously for them.

• The highest bidder wins the items. Both sellers and buyers can be either individuals or businesses.
• The popular auction site eBay.com is a forward auction.
• In reverse auctions, one buyer, usually an organization, wants to purchase a product or a service.
• The buyer posts a request for quotation (RFQ) on its Web site or on a third-party site.

• The RFQ provides detailed information on the desired purchase.
• Interested suppliers study the RFQ and then submit bids electronically.
• Everything else being equal, the lowest-price bidder wins the auction.
• The reverse auction is the most common auction model for large purchases (in terms of either quantities or price).
• Governments and large corporations frequently use this approach, which may provide considerable savings for the buyer.

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• Auctions can be conducted from the seller’s site, the buyer’s site, or a third party’s site.
• For example, eBay, the best-known third-party site, offers hundreds of thousands of different items in several types of auctions.
• Overall, more than 300 major companies, including Amazon.com and Dellauction.com, sponsor online auctions.

• An electronic storefront is a Web site that represents a single store.
• An electronic mall, also known as a cybermall or e-mall, is a collection of individual shops under one Internet address.
• Electronic storefronts and electronic malls are closely associated with B2C electronic commerce.

• An electronic marketplace (e-marketplace) is a central, virtual market space on the Web where many buyers and many sellers can conduct e-commerce and e-business activities.
• Electronic marketplaces are associated with B2B electronic commerce.

Electronic Payment Mechanisms

• Implementing EC typically requires electronic payments. Electronic payment mechanisms enable buyers to pay for goods and services electronically, rather than writing a check or using cash.
• Payments are an integral part of doing business, whether in the traditional manner or online.
• Traditional payment systems have typically involved cash and/or checks.
• In most cases, traditional payment systems are not effective for EC, especially for B2B.
• Cash cannot be used because there is no face-to-face contact between buyer and seller.

• Not everyone accepts credit cards or checks, and some buyers do not have credit cards or checking accounts.
• Finally, contrary to what many people believe, it may be less secure for the buyer to use the telephone or mail to arrange or send payments, especially from another country, than to complete a secured transaction on a computer.
• For all of these reasons, a better method is needed to pay for goods and services in cyberspace.
• This method is electronic payment systems.

• Let’s take a closer look at four types of electronic payment:
• Electronic checks,
• Electronic credit cards,
• Purchasing cards, and
• Electronic cash.

Electronic Checks

• Electronic checks (e-checks), which are used primarily in B2B, are similar to regular paper checks.
• A customer who wishes to use e-checks must first establish a checking account with a bank.
• Then, when the customer buys a product or a service, he or she e-mails an encrypted electronic check to the seller.
• The seller deposits the check in a bank account, and the funds are transferred from the buyer’s account into the seller’s account.

• Like regular checks, e-checks carry a signature (in digital form) that can be verified (see www.authorize.net).
• Properly signed and endorsed e-checks are exchanged between financial institutions through electronic clearinghouses.
• (See www.eccho.org and www.troygroup.com for details.)

• Electronic Cards. There are a variety of electronic cards, and they are used for different purposes.
• The most common types are electronic credit cards, virtual credit cards, purchasing cards, stored-value money cards, and smart cards.
• Electronic credit cards allow customers to charge online payments to their credit card account.
• These cards are used primarily in B2C and in shopping by small-to-medium enterprises (SMEs). Here is how e-credit cards work (see Figure 7.1).

• Step 1: When you buy a book from Amazon, for example, your credit card information and purchase amount are encrypted in your browser.
• This way the information is safe while it is “traveling” on the Internet to Amazon.
• • Step 2: When your information arrives at Amazon, it is not opened.
• Rather, it is transferred automatically (in encrypted form) to a clearinghouse, where it is decrypted for verification and authorization.
• • Step 3: The clearinghouse asks the bank that issued you your credit card (the card issuer bank) to verify your credit card information.

• Step 4: Your card issuer bank verifies your credit card information and reports this to the clearinghouse.
• • Step 5: The clearinghouse reports the result of the Verification of your credit card to Amazon.
• • Step 6: Amazon reports a successful purchase and amount to you.
• • Step 7: Your card issuer bank sends funds in the amount of the purchase to Amazon’s bank.
• • Step 8: Your card issuer bank notifies you (either electronically or in your monthly statement) of the debit on your credit card.
• • Step 9: Amazon’s bank notifi es Amazon of the funds credited to its account.

• Virtual credit cards allow customers to shop online (see Figure 7.2). These cards can be used only once.
• The reason for this limitation is to thwart criminals by using a different, random card number every time you shop online.
• Going further, a virtual number is good only on the Web site where you make your purchase.
• An online purchase made with a virtual card number shows up on your bill just like any other purchase.

• Purchasing cards are the B2B equivalent of electronic credit cards (see Figure 7.3).
• In some countries, purchasing cards are the primary form of payment between companies.
• Unlike credit cards, where credit is provided for 30 to 60 days (for free) before payment is made to the merchant, payments made with purchasing cards are settled within a week.

• Finally, smart cards contain a chip that can store a considerable amount of information— more than 100 times the amount contained on a stored-value money card (see Figure 7.5).
• Smart cards are frequently multipurpose—that is, you can use them as a credit card, a debit card, a stored-value money card, or a loyalty card.
• Smart cards are ideal for micropayments, which are small payments of a few dollars or less.

Person-to-Person Payments.

• Person-to-person payments enable two individuals, or an individual and a business, to transfer funds without using a credit card.
• One of the first companies to offer this service was PayPal (an eBay company).
• An attractive security feature of PayPal is that you have to put only enough money in the account to cover any upcoming transactions.
• Therefore, if anyone should gain access to your account, that person will not have access to all of your money.

• Person-to-person payment services work this way. First, you select a service and open up an account.
• Basically, this process entails creating a user name, selecting a password, and providing the service with a credit card or bank account number.
• Next, you transfer funds from your credit card or bank account to your new account.
• Now you are ready to send money to someone over the Internet.

• You access the service—for example, PayPal—with your user name and password, and you specify the e-mail address of the person to receive the money, along with the dollar amount that you want to send.
• The service then sends an e-mail to the payee’s e-mail address.
• The e-mail contains a link back to the service’s Web site.

• When the recipient clicks on the link, he or she is taken to the service.
• There, the recipient is asked to set up an account to which the money that you sent will be credited.
• The recipient can then credit the money from this account to either a credit card or a bank account.
• The service charges the payer a small amount, roughly $1 per transaction.

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Benefits and Limitations of E-Commerce

• Few innovations in human history have provided as many benefits to organizations, individuals, and society as e-commerce has.
• E-commerce benefits organizations by making national and international markets more accessible and by lowering the costs of processing, distributing, and retrieving information.
• Customers benefit by being able to access a vast number of products and services, around the clock.
• The major benefit to society is the ability to easily and conveniently deliver information, services, and products to people in cities, rural areas, and developing countries.

• Despite all these benefits, EC has some limitations, both technological and non technological, that have restricted its growth and acceptance.
• One major technological limitation is the lack of universally accepted security standards.
• Also, in less-developed countries, telecommunications bandwidth often is insufficient, and accessing the Web is expensive.
• Non technological limitations include the perceptions that EC is insecure, has unresolved legal issues, and lacks a critical mass of sellers and buyers.
• As time passes, these limitations, especially the technological ones, will diminish or be overcome.

Business-to-Consumer (B2C)�Electronic Commerce

• B2B EC is much larger than B2C EC by volume, but B2C EC is more complex.
• The reason is that B2C involves a large number of buyers making millions of diverse transactions per day with a relatively small number of sellers.
• As an illustration, consider Amazon, an online retailer that offers thousands of products to its customers.

• Each customer purchase is relatively small, but Amazon must manage every transaction as if that customer were its most important one.
• The company needs to process each order quickly and efficiently, and ship the products to the customer in a timely manner.
• In addition, it has to manage returns.
• Multiply this simple example by millions, and you get an idea of how complex B2C EC can be.
• Overall, B2B complexities tend to be more business related, whereas B2C complexities tend to be more technical and volume related.

• This section addresses the primary issues in B2C EC.
• We begin by studying the two basic mechanisms that customers utilize to access companies on the Web: electronic storefronts and electronic malls.
• The complexity of B2C EC creates two major challenges for sellers: channel conflict and order fulfillment.
• We examine these two topics in detail.

Electronic Storefronts and Malls

• For several generations, home shopping from catalogs, and later from television shopping channels, has attracted millions of customers.
• Today, shopping online offers an alternative to catalog and television shopping.
• Electronic retailing (e-tailing) is the direct sale of products and services through electronic storefronts or electronic malls, usually designed around an electronic catalog format and/or auctions.

• Like any mail-order shopping experience, e-commerce enables you to buy from home and to do so 24 hours a day, 7 days a week.
• Compared to mail order, however, EC offers a wider variety of products and services, including the most unique items, often at lower prices.

• Furthermore, within seconds, shoppers can access very detailed supplementary product information.
• In addition, they can easily locate and compare competitors’ products and prices.
• Finally, buyers can find hundreds of thousands of sellers.
• Two popular online shopping mechanisms are electronic storefronts and electronic malls.

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Electronic Storefronts

• As we saw earlier in the chapter, an electronic storefront is a Web site that represents a single store.
• Today, Internet shoppers can access hundreds of thousands of electronic storefronts. Each storefront has a unique uniform resource locator (URL), or Internet address, at which buyers can place orders.
• Some electronic storefronts are extensions of physical stores such as Hermes, The Sharper Image, and Walmart.

• Others are new businesses started by entrepreneurs who discovered a niche on the Web (e.g., Restaurant.com and Alloy.com).
• Manufacturers (e.g., www.dell.com) and retailers (e.g., www.officedepot.com) also use storefronts.

Electronic Malls

• Electronic Malls Whereas an electronic storefront represents a single store, an electronic mall, also known as a cybermall or an e-mall, is a collection of individual shops grouped under a single Internet address.
• The basic idea of an electronic mall is the same as that of a regular shopping mall: to provide a one-stop shopping place that offers a wide range of products and services.

• A cybermall may include thousands of vendors.
• For example, Microsoft Shopping (now Bing shopping, www.bing.com/shopping) includes tens of thousands of products from thousands of vendors.
• There are two types of cybermalls. In the first type, known as referral malls (e.g., www.hawaii .com), you cannot buy anything.
• Instead, you are transferred from the mall to a participating storefront.

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• In the second type of mall (e.g http://shopping.google.com), you can actually make a purchase (see Figure 7.6).
• At this type of mall, you might shop from several stores, but you make only one purchase transaction at the end.
• You use an electronic shopping cart to gather items from various vendors and then pay for all of them in a single transaction.
• The mall organizer, such as Google, takes a commission from the sellers for this service.

Online Service Industries

• In addition to purchasing products, customers can also access needed services via the Web.
• Selling books, toys, computers, and most other products on the Internet can reduce vendors’ selling costs by 20 to 40 percent.
• Further reduction is difficult to achieve because the products must be delivered physically.

• Only a few products, such as software and music, can be digitized and then delivered online for additional savings.
• In contrast, services, such as buying an airline ticket and purchasing stocks or insurance, can be delivered entirely through e-commerce, often with considerable cost reduction.
• Not surprisingly, then, online delivery of services is growing very rapidly, with millions of new customers being added each year.

• One of the most pressing EC issues relating to online services (as well as in marketing tangible products) is disintermediation.
• Intermediaries, also known as middlemen, have two functions:
• (1) They provide information, and
• (2) they perform value-added services such as consulting.

• The first function can be fully automated and most likely will be assumed by e-marketplaces and portals that provide information for free.
• When this occurs, the intermediaries who perform only (or primarily) this function are likely to be eliminated.
• The process whereby intermediaries are eliminated is called disintermediation.

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• In contrast, performing value-added services requires expertise.
• Unlike the information function, then, this function can be only partially automated.
• Thus, intermediaries who provide value-added services not only are likely to survive, but they may actually prosper.
• The Web helps these employees in two situations: (1) when the number of participants is enormous, as with job searches, and (2) when the information that must be exchanged is complex.

Issues in E-Tailing

• Despite e-tailing’s increasing popularity, many e-tailers continue to face serious issues that can restrict their growth.
• Perhaps the two most significant issues are channel conflict and order fulfillment.
• Clicks-and-mortar companies may face a conflict with their regular distributors when they sell directly to customers online.

• This situation, known as channel conflict, can alienate the distributors.
• Channel conflict has forced some companies to avoid direct online sales.
• For example, Walmart, Lowe’s, and Home Depot would rather have customers come to their stores.
• Therefore, although all three companies maintain e-commerce Web sites, their sites place more emphasis on providing information—products, prices, specials, and store locations—than on online sales.

• Channel conflict can arise in areas such as pricing and resource allocation—for example, how much money to spend on advertising.
• Another potential source of conflict involves the logistics services provided by the offline activities to the online activities.
• For example, how should a company handle returns of items purchased online?
• Some companies have completely separated the “clicks” (the online portion of the organization) from the “mortar” or “bricks” (the traditional bricks-and-mortar part of the organization).

• However, this approach can increase expenses, reduce the synergy between the two organizational channels, and alienate customers.
• As a result, many companies are integrating their online and offline channels, a process known as multi channeling.

• From a more positive perspective, eBay sees great potential in the hybrid online/offline shopping experience.
• The second major issue confronting e-commerce is order fulfillment, which can create problems for e-tailers as well.

• Any time a company sells directly to customers, it is involved in various order-fulfillment activities.
• It must perform the following activities: quickly find the products to be shipped; pack them; arrange for the packages to be delivered speedily to the customer’s door;
• collect the money from every customer, either in advance, by COD, or by individual bill; and handle the return of unwanted or defective products.

• It is very difficult to accomplish these activities both effectively and efficiently in B2C, because a company has to ship small packages to many customers and do it quickly.
• For this reason, companies involved in B2C activities often experience difficulties in their supply chains.
• In addition to providing customers with the products they ordered and doing it on time, order fulfillment provides all related customer services.

• For example, the customer must receive assembly and operation instructions for a new appliance.
• In addition, if the customer is unhappy with a product, the company must arrange an exchange or a return.
• (Visit www.fedex.com to learn how FedEx manages returns.)

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• In the late 1990s, e-tailers faced continuous problems in order fulfillment, especially during the holiday season.
• These problems included late deliveries, delivering wrong items, high delivery costs, and compensation to unsatisfied customers.
• For e-tailers, taking orders over the Internet is the easy part of B2C e-commerce.

• Delivering orders to customers’ doors is the hard part.
• In contrast, order fulfillment is less complicated in B2B.
• These transactions are much larger, but they are fewer in number.
• In addition, these companies have had order fulfillment mechanisms in place for many years.

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Business-to-Business (B2B)�Electronic Commerce

• In business to business (B2B) e-commerce, the buyers and sellers are business organizations.
• B2B comprises about 85 percent of EC volume.
• It covers a broad spectrum of applications that enable an enterprise to form electronic relationships with its distributors, resellers, suppliers, customers, and other partners.
• Organizations can use B2B to restructure their supply chains and their partner relationships.

• B2B applications utilize any of several business models.
• The major models are
• sell-side marketplaces,
• buy-side marketplaces, and
• electronic exchanges.

Sell-Side Marketplaces

• In the sell-side marketplace model, organizations attempt to sell their products or services to other organizations electronically from their own private e-marketplace Web site and/or from a third-party Web site.
• This model is similar to the B2C model in which the buyer is expected to come to the seller’s site, view catalogs, and place an order.
• In the B2B sell-side marketplace, however, the buyer is an organization.

• The key mechanisms in the sell-side model are forward auctions and electronic catalogs that can be customized for each large buyer.
• Sellers such as Dell Computer (www .dellauction.com) use auctions extensively.
• In addition to conducting auctions from their own Web sites, organizations can use third-party auction sites, such as eBay, to liquidate items.
• Companies such as Ariba (www.ariba.com) are helping organizations to auction old assets and inventories.

• The sell-side model is used by hundreds of thousands of companies.
• It is especially powerful for companies with super reputations.
• The seller can be either a manufacturer (e.g., Dell or IBM), a distributor (e.g., www.avnet.com), or a retailer (e.g., www.bigboxx.com).

• The seller uses EC to increase sales, reduce selling and advertising expenditures, increase delivery speed, and lower administrative costs.
• The sell-side model is especially suitable to customization.
• Many companies allow their customers to confi gure their orders online.

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• For example, at Dell (www.dell.com), you can determine the exact type of computer that you want.
• You can choose the type of chip (e.g., Itanium 2), the size of the hard drive (e.g., 1 terabyte), the type of monitor (e.g., 22-inch fl at screen), and so on.
• Similarly, the Jaguar Web site (www.jaguar.com) allows you to customize the Jaguar you want.
• Self-customization greatly reduces any misunderstandings concerning what customers want, and it encourages businesses to fill orders more quickly.

Buy-Side Marketplaces

• Procurement is the overarching function that describes the activities and processes to acquire goods and services.
• Distinct from purchasing, procurement involves the activities necessary to establish requirements, sourcing activities such as market research and vendor evaluation, and negotiation of contracts.
• Purchasing refers to the process of ordering and receiving goods and services.
• It is a subset of the procurement process.

• The buy-side marketplace is a model in which organizations attempt to procure needed products or services from other organizations electronically.
• A major method of procuring goods and services in the buy-side model is the reverse auction.
• The buy-side model uses EC technology to streamline the procurement process.

• The goal is to reduce both the costs of items procured and the administrative expenses involved in procuring them.
• In addition, EC technology can shorten the procurement cycle time.
• Procurement by using electronic support is referred to as e-procurement.
• E-procurement uses reverse auctions, particularly group purchasing.

• In group purchasing, multiple buyers combine their orders so that they constitute a large volume and therefore attract more seller attention.
• In addition, when buyers place their combined orders on a reverse auction, they can negotiate a volume discount.
• Typically, the orders of small buyers are aggregated by a third party vendor, such as the United Sourcing Alliance (www.usa-llc.com).

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Electronic Exchanges

• Private exchanges have one buyer and many sellers. Electronic marketplaces (e-marketplaces), called public exchanges or just exchanges, are independently owned by a third party, and they connect many sellers and many buyers.
• Public exchanges are open to all business organizations.
• They frequently are owned and operated by a third party.
• Public exchange managers provide all of the necessary information systems to the participants.

• Thus, buyers and sellers merely have to “plug in” in order to trade.
• B2B public exchanges are often the initial point for contacts between business partners.
• Once the partners make contact, they may move to a private exchange or to private trading rooms provided by many public exchanges to conduct their subsequent trading activities.

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• Electronic exchanges deal in direct materials and indirect materials.
• Direct materials are inputs to the manufacturing process, such as safety glass used in automobile windshields and windows.
• Indirect materials are those items, such as office supplies, that are needed for maintenance, operations, and repairs (MRO).

• There are three basic types of public exchanges: vertical, horizontal, and functional.
• All three types offer diversified support services, ranging from payments to logistics.
• Vertical exchanges connect buyers and sellers in a given industry.
• Examples of vertical exchanges are www.plasticsnet.com in the plastics industry and www.papersite.com in the paper industry.

• The vertical e-marketplaces offer services that are particularly suited to the community they serve.
• Vertical exchanges are frequently owned and managed by a consortium, a term for a group of major players in an industry.
• For example, Marriott and Hyatt own a procurement consortium for the hotel industry, and Chevron owns an energy e-marketplace.

• Horizontal exchanges connect buyers and sellers across many industries.
• They are used primarily for MRO materials.
• Examples of horizontal exchanges are TradersCity (www.traderscity.com), Globalsources (www.globalsources.com), and Alibaba (www.alibaba.com).
• Finally, in functional exchanges, needed services such as temporary help or extra office space are traded on an “as-needed” basis.
• For example, Employease (www.employease.com) can find temporary labor by searching employers in its Employease Network.