INTERNET AND

E-COMMERCE

The Internet
The

Internet is a worldwide network of

computer links linking hundreds of thousands
of individual networks all over the world.
The Internet has a range of capabilities that
organizations
are
using
to
exchange
information internally or to communicate
externally with other organizations.
This giant network of networks has become
the primary infrastructure for both electronic
commerce and electronic business.

The Internet
The Internet evolved from ARPANET, which

was developed in 1969 by the Advanced

Research Project Agency (ARPA) of the US
Department of Defense.
The Internet (Internet Protocol - IP) addresses
are used to identify the systems containing
the information needed.

The World Wide Web

World Wide Web (WWW) is a system of

universally accepted standards for storing,

retrieving,
formatting,
and
displaying
information using client/server architecture.
It was developed to allow collaborators in
remote sites share their ideas on all aspects of
a common project.
WWW is the multimedia part of the Internet.

The World Wide Web

The

Web is a system consisting of an

international
distributed
collection
of
multimedia files supported by clients (users)
and servers (information providers).
Each file is addressed in a consistent manner
using its Uniform Resource Locator (URL).
The Web enables you to point and click your
way to thousands of hyper linked web sites
and resources of multimedia information,
entertainment, or electronic commerce.

What the Internet Makes

Possible
Electronic Mail (E-Mail)
Usenet Newsgroups (Forums):
Chatting
Telnet
E- commerce
Teleconferencing, Data conferencing and

Videoconferencing

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

E-commerce
E-commerce technology includes processes that

touch customers, suppliers, and external

partners including sales, order taking, delivery,
customer service etc.
E-commerce has challenged much traditional

business thinking

E-business
E-business includes e commerce but also covers

internal processes such as production, inventory

management,
product
development,
risk
management, etc.

It is primarily the digital enablement of transactions

and processes within a firm, including information

systems under the control of the firm

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

Seven Unique Features of E-commerce Technology

Types of E-commerce
Classified by nature of market relationship
Business-to-Consumer (B2C)
Business-to-Business (B2B)
Consumer-to-Consumer (C2C)
Business to government
Classified by type of technology used
Peer-to-Peer (P2P)
Mobile commerce (M-commerce)

Business-to-Consumer (B2C)
Involves online businesses attempting to reach

individual consumers
Many types of business models within this
category including online retailers, content
providers, portals, transaction brokers, service
providers, market creators and community
providers

Business-to-Business (B2B)
Involves businesses focusing on selling to other

businesses
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)

Consumer-to-Consumer
Provides a way for consumers to

sell to each other, with the help of

an online market maker
eBay most well-known example

Classification by type of technology

P2P- Uses peer-to-peer technology, which

enables Internet users to share files and

computer resources without having to go
through a central Web server
M- commerce- Use of wireless hand held

digital devices such as cell phones to enable

transactions on the Web

E-commerce Business Models

Introduction
Business model set of planned activities

designed to result in a profit in a marketplace

Business plan document that describes a
firms business model
E-commerce business model aims to use and
leverage the unique qualities of Internet and
Web

Key Ingredients of a Business Model

Value Proposition
Defines how a companys product or service fulfills the

needs of customers
Questions to ask:
Why will customers choose to do business with your
firm instead of another?
What will your firm provide that others do not or
cannot?
Examples of successful value propositions include:
Personalization/customization
Reduction of product search costs
Reduction of price discover costs
Facilitation of transactions by managing product
delivery

Revenue Model
Describes how the firm will earn revenue,

generate profits, and produce a superior return

on invested capital
Terms financial model and revenue model often
used interchangeably
Major types:
Advertising revenue model
Subscription revenue model
Transaction fee revenue model
Sales revenue model
Affiliate revenue model

Advertising Revenue
Model
Web site that offers content, services

and/or products also provides a forum for

advertisements and receives fees from
advertisers
Example: Yahoo.com

Model
Web site that offers users content or

services charges a subscription fee for

access to some or all of its offerings
Examples:
Consumer Reports Online
Yahoo! Platinum

Transaction Fee Revenue Model

Company that receives a fee for enabling

or executing a transaction
Examples:
eBay.com
E-Trade.com

Sales Revenue Model

Company derives revenue by selling goods,

information, or services to customers

Examples:
Amazon.com
LLBean.com
Gap.com

Affiliate Revenue Model

Sites that steer business to an affiliate

receive a referral fee or percentage of the

revenue from any resulting sales
Example:
MyPoints.com

Market Opportunity
Refers to a companys intended market

space and the overall potential financial

opportunities available to the firm in that
market space
Market space the area of actual or
potential commercial value in which a
company intends to operate
Realistic market opportunity is defined by
revenue potential in each of market niches
in which company hopes to compete

Competitive
Environment
Refers

to the other companies selling

similar products and operating in the same
marketspace
Influenced by:
how many competitors are active
how large their operations are
what market share for each competitor is
how profitable these firms are
how they price their products

Competitive Advantage
Achieved when firm can produce a superior

product and/or bring product to market at a

lower price than most, or all, of
competitors.
Firms achieve competitive advantage when
they are able to obtain differential access
to the factors of production that are denied
to competitors
Asymmetry when one participant in a
market has more resources than others

Market Strategy
A plan that details how a company intends

to enter a new market and attract

customers
Best business concepts will fail if not
properly marketed to potential customers

Organizational
Development
Describes how the company will organize

the work that needs to be accomplished

Work is typically divided into functional
departments
Move from generalists to specialists as the
company grows

Management Team
Strong management team gives instant

credibility to outside investors

A strong management team may not be
able to salvage a weak business model, but
should be able to change the model and
redefine the business as it becomes
necessary

E-Commerce Applications
Manufacturing On line SCM
Marketing Web marketing,

personalization,

customer profiling
Investment and Finance Increased efficiency eg
on line stock trading
On-Line BankingAuctions

Advantages of E-Commerce
Shorten Procurement cycles through the use of on-line

catalogues, ordering and payment

Cut costs on materials through competitive bidding
Gain access to world wide markets at a fraction of
traditional costs
Ensure product, marketing information and prices are
always up to date
Allow small and medium sized businesses to compete
with large businesses over a common platform

Advantages of E-Commerce
Increase of purchasing opportunities for the buyer as it

also increases sales opportunities for the seller

Availability of the goods on 24/7
Electronic systems are easier to audit and monitor
than check systems
Reduction of traffic jams and environmental pollution
Availability on global scale even in remote areas

Disadvantages
Can cause disintermediation which is the process

of cutting out the middlemen by by-passing

traditional retail channels (retail stores and mail-order
houses) and selling directly to the customer
Lack of insurance available to cover losses due to
hackers destroying files, stealing inventory, trade
secrets or injecting viruses into the systems
Requires firms to rethink their business models and
ways of interacting with customers
Traditional audit trails change or disappear, making
error correction, disaster recovery, and application
testing more difficult

Disadvantages
Fear of customers sending their credit card numbers

over the internet and having on-line merchants you

have never met
Customers resistance to change and computer
phobia
Inability to physically inspect the goods
Lack of clear legal framework
Digital divide problem

Review Questions
How can a firm use the internet to achieve

customer intimacy?
How has internet technology changed
business models?
How has ecommerce changed customer
retailing and business to business retailing?

How can a firm use the internet to achieve

customer intimacy?
Interactive marketing
Personalization
Self service
Click stream tracking

How has internet technology changed

business models?
Adding value to existing products and services
Creating new products and services
Emergence of many business models eg;

storefronts, information brokers, service

providers

How has ecommerce changed customer

retailing and business to business retailing?

Internet creates new channels for marketing

and sales
Opportunity for customer support
Enhancing customer intimacy
Web personalization
Reduced transaction cost

END