Chapter 1: p Introduction to Electronic Commerce

Electronic Commerce

General Course Information

Instructor: CHEN TAO Office: 550, SCHOOL OF PUBLIC ADMINISTRATION E-mail: chentao15@163.com Web site: http://spa.hust.edu.cn/2008/Classroom/ec/ p p

Electronic Commerce

Importance of this course

Survey in class

Opinions

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Some famous people

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Some famous people

1991 1991

Some famous people

200010 2000109

Some famous people

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Textbook
Gary Schneider, Electronic Commerce, Seventh Annual Edition. Thomson Course Technology, 2007, ISBN 1-4188-3703-2.

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Course Objectives
This course covers emerging online technologies and trends and their influence on the electronic commerce marketplace. k t l Students will learn various revenue models and how to market on the Web. Next, the course covers online Web Next auctions and various legal and ethical issues. Students will learn about important security issues issues, such as spam and phishing, their role in organized crime and identity theft, and online payment fraud. y p y Finally, students learn how to plan for electronic commerce.
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Tentative Course Schedule

Week W k 14-Mon 14-Wed 15-Mon 15-Wed 16-Mon Topics T i Introduction to Electronic Commerce Technology Infrastructure: The Internet and the World Wide Web Wb Selling on the Web: Revenue Models and Building a Web Presence Marketing on the Web Business-to-Business Strategies: From Electronic Data B i t B i St t i F El t i D t Interchange to Electronic Commerce Online Auctions, Virtual Communities, and Web Portals 16-Wed The Environment of Electronic Commerce: Legal, Ethical, and Tax Issues Web Server Hardware and Software Electronic Commerce Software Electronic Commerce Security Payment Systems for Electronic Commerce Planning for Electronic Commerce Chapter Ch Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter Ch t 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12

17-Mon 17 Mon

17-Wed

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Grading and Evaluation Criteria

50% of the grade is based on a midterm and a final examination. Both examinations are cumulative and given in a varied format. 20% of the grade is based on Class Participation & Attendance. Attendance 30% of th grade i b f the d is based on L b E d Lab Exercises. i

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Chapter 1: Introduction to Electronic Commerce Objectives

In this chapter, you will learn about: What electronic commerce is and how it is experiencing a second wave of growth with a new focus on profitability Why companies now concentrate on revenue models and the analysis of business processes instead of business models when they undertake electronic y commerce initiatives

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Objectives (continued)
How economic forces have created a business environment that is fostering the g second wave of electronic commerce How businesses use value chains and SWOT analysis to identify electronic commerce opportunities The international nature of electronic commerce and the challenges that arise in engaging in electronic commerce on a global scale
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Electronic Commerce: The Second Wave

Electronic commerce (e-commerce)
Businesses trading with other businesses and internal processes p

Electronic business (e-business)

Term used interchangeably with e-commerce The transformation of key business processes through the use of Internet technologies
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Categories of Electronic g Commerce

Five general e-commerce categories:
B i Business-to-consumer t Business-to-business Business processes Consumer-to-consumer Business-to-government

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Categories of Electronic Commerce (continued)

Transaction
An exchange of value

Business processes
Th group of logical, related, and sequential The fl i l l t d d ti l activities and transactions in which businesses engage

Telecommuting or telework
Emplo ees log in to compan comp ters thro gh Employees company computers through the Internet instead of traveling to the office

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The Development and Growth of p Electronic Commerce

Electronic funds transfers (EFTs)
Also called wire transfers Electronic transmissions of account exchange information over private communications networks i f ti i t i ti t k

Electronic data interchange ( g (EDI) )

Transmitting computer-readable data in a standard format to another business

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The Development and Growth of Electronic Commerce (continued)

Trading partners
Businesses that engage in EDI with each other

Value-added network (VAN)

Independent firm that offers connection and transaction-forwarding services to buyers and sellers engaged in EDI

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The Second Wave of Electronic Commerce

Defining characteristics of the first wave:
Dominant influence of U.S. businesses Extensive use of the English language Many new companies started with outside investor money Unstructured use of e-mail Over-reliance on advertising as a revenue source

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The Second Wave of Electronic Commerce (continued) ( )

Second wave:
Global enterprises in many countries are participating in electronic commerce Established companies fund electronic commerce initiatives with their own capital Customized e-mail strategies are now integral to customer contact

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Business Models Revenue Models Models, Models, and Business Processes

Business model
A set of processes that combine to yield a profit

Revenue model
A specific collection of business processes used to: to
Identify customers Market to those customers Generate sales to those customers
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Role of Merchandising
Merchandising
C bi ti of store d i Combination f t design, l layout, and product t d d t display knowledge

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Product/Process Suitability to Electronic Commerce

Commodity item
H d t di ti Hard to distinguish f i h from th same products or the d t services provided by other sellers Features have become standardized and well known

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Product/Process Suitability to Electronic Commerce (continued) ( )

Shipping p pp g profile
Collection of attributes that affect how easily a product can be packaged and delivered

High value to weight ratio value-to-weight

Can make overall shipping cost a small fraction of the lli th selling price i

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Advantages of Electronic Commerce

Electronic commerce can increase sales and decrease costs If advertising is done well on the Web, it can get a firms promotional message out to firm s potential customers in every country Using e commerce sales support and order e-commerce ordertaking processes, a business can:
R d Reduce costs of h dli sales i t f handling l inquiries ii Provide price quotes
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Advantages of Electronic Commerce (continued) ( )

It increases purchasing opportunities for buyers Negotiating p g g price and delivery terms is easier y The following cost less to issue and arrive securely and quickly:
Electronic payments of tax refunds Public retirement Welfare support
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Disadvantages of Electronic Commerce

Perishable grocery products are much harder to sell online It is difficult to:
Calculate return on investment Integrate existing databases and transaction transactionprocessing software into software that enables ecommerce

Cultural and legal obstacles also exist

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Economic Forces and Electronic Commerce

Economics
Study of how people allocate scarce resources

T Two conditions of a market diti f k t

Potential sellers of a good come into contact with potential buyers A medium of exchange is available

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Transaction Costs
Transaction costs are the total costs that a buyer and seller incur Significant components of transaction costs:
Cost of information search and acquisition q Investment of the seller in equipment or in the hiring f kill d hi i of skilled employees t supply products or l to l d t services to the buyer

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Transaction Costs

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Using Electronic Commerce to Reduce Transaction Costs

Businesses and individuals can use electronic commerce to reduce transaction costs by:
Improving the flow of information p g Increasing coordination of actions

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Network Economic Structures

Network economic structures
N ith a market nor a hi Neither k t hierarchy h Companies coordinate their strategies, resources, and skill sets b f d kill t by forming l i long-term, stable t t bl relationships with other companies and individuals based on shared purposes

Strategic alliances (strategic partnerships)

Relationships created within the network economic structure

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Network Economic Structures ( (continued) )

Virtual companies
Strategic alliances that occur between or among companies operating on the Internet

Strategic partners
Entities that come together as a team for a specific project or activity j t ti it

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Network Effects
Law of diminishing returns
Most activities yield less value as the amount of consumption increases

Network effect
As more people or organizations participate in a network, the value of the network to each participant i ti i t increases

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Identifying Electronic Commerce Opportunities pp

Firm
Multiple business units owned by a common set of shareholders

Industry
Multiple firms that sell similar p p products to similar customers

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Strategic Business Unit Value Chains

Value chain
A way of organizing the activities that each strategic business unit undertakes

Primary activities include:

Designing, producing, promoting, marketing, delivering, and supporting the products or services it sells

S Supporting activities i l d ti ti iti include:

Human resource management and purchasing
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Industry Value Chains

Value system
Larger stream of activities into which a particular business units value chain is embedded unit s Also referred to as industry value chain

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SWOT Analysis: Evaluating Business Unit Opportunities pp

In SWOT analysis:
An analyst first looks into the business unit to y identify its strengths and weaknesses The analyst then reviews the operating environment and identifies opportunities and threats

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International Nature of Electronic Commerce

Companies with established reputations:
Often create trust by ensuring that customers know who they are Can rely on their established brand names to create trust on the Web

Customers inherent lack of trust in strangers on the Web is logical and to be expected

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Language Issues
To do business effectively in other cultures a bus ess ust business must adapt to t ose cu tu es those cultures Researchers have found that customers are more lik l t b products and services f likely to buy d t d i from Web sites in their own language Localization
Translation that considers multiple elements of the local environment

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Culture Issues
An important element of business trust is a t c pat g o the other party anticipating how t e ot e pa ty to a transaction will act in specific circumstances C l Culture:
Combination of language and customs g g Varies across national boundaries Varies across regions within nations

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Infrastructure Issues
I t Internet infrastructure includes: ti f t t i l d
Computers and software connected to the Internet Communications networks over which message packets travel

Organization for Economic Cooperation and Developments (OECD) Statements on ( ) Information and Communications Policy deal with telecommunications infrastructure development issues

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Infrastructure Issues (continued)

Flat-rate access system
Consumer or business pays one monthly fee for unlimited telephone line usage Contributed to rapid rise of U S electronic U.S. commerce

T Targets for technological solutions i l d t f t h l i l l ti include paperwork and processes that accompany international transactions

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Summary
Commerce
Negotiated exchange of goods or services

Electronic commerce
Application of new technologies to conduct business more effectively

First wave of electronic commerce

E d d i 2000 Ended in

Second wave of electronic commerce

New approaches to integrating Internet technologies into business processes
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Summary (continued)
Using electronic commerce businesses have: commerce,
Created new products and services Improved promotion, marketing and delivery of promotion marketing, existing offerings

The global nature of electronic commerce g leads to many opportunities and few challenges To conduct electronic commerce across international borders, you must understand the trust, cultural, language, and legal issues

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