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Electronic Commerce Systems

I. CHAPTER OVERVIEW

This chapter introduces the basic process components of e-commerce systems, and discusses important trends, applications, and issues in e-commerce. Section I: Section II: Electronic Commerce Fundamentals e-Commerce Applications and Issues

II. LEARNING OBJECTIVES

Learning Objectives 1. Identify the major categories and trends of e-commerce applications. 2. Identify the essential processes of an e-commerce system, and give examples of how they are implemented in e-commerce applications. 3. Identify and give examples of several key factors and Web store requirements needed to succeed in e-commerce. 4. Identify and explain the business value of several types of e-commerce marketplaces. 5. Discuss the benefits and trade-offs of several e-commerce clicks and bricks alternatives.

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III. TEACHING SUGGESTIONS

Figure 9.2 introduces students to the concept of e-commerce, detailing the buying and selling processes. Building on that figure, Figure 9.3 exemplifies the technology resources (hardware, software and database) required by many e-commerce systems. Figure 9.4 illustrates the e-commerce process architecture and highlights nine essential categories of e-commerce processes. Figure 9.7 gives an example of a secure electronic payment system with many payment alternatives. Figure 9.12 is a good slide to use to stimulate discussion with students on the importance of a number of key factors that are required in order to realize success in e-commerce. Figure 9.16 outlines five major types of e-commerce marketplaces used by businesses today.

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IV: LECTURE NOTES Section I: Electronic Commerce Fundamentals

Introduction to e-Commerce:
Electronic commerce is more than just buying and selling products online. Instead, it encompasses the entire online process of developing, marketing, selling, delivering, servicing, and paying for products and services purchased by internetworked, global marketplaces of customers, with the support of a worldwide network of business partners. Electronic commerce systems rely on the resources of the Internet, intranets, extranets, and other computer networks. Electronic commerce can include: Interactive marketing, ordering, payment, and customer support processes at e-commerce sites on the World Wide Web Extranet access of inventory databases by customers and suppliers Intranet access of customer relationship management systems by sales and customer service reps Customer collaboration in product development via Internet newsgroups and E-mail exchanges

Analyzing eBay Inc. We can learn a lot about the challenges and opportunities of the field of electronic commerce from this case. Take a few minutes to read it, and we will discuss it (See eBay Inc.: Managing Success in a Dynamic Online Marketplace in Section IX).

The Scope of e-Commerce

Companies involved in e-commerce as either buyers or sellers rely on Internet-based technologies and e-commerce applications and services to accomplish marketing, discovery, transaction processing, and product and customer service processes. The Internet, intranets, and extranets provide vital electronic commerce links between the components of a business and its customers, suppliers, and other business partners. This allows companies to engage in three basic categories of electronic commerce applications: Business-to-Consumer (B2C) e-Commerce: [Video Clips Ecom08.avi - Ecom10.avi] In this form of electronic commerce, businesses must develop attractive electronic marketplaces to entice and sell products and services to customers. Companies may offer: e-commerce websites that provide virtual storefronts and multimedia catalogs Interactive order processing Secure electronic payment systems Online customer support Business-to-Business (B2B) e-Commerce: This category of electronic commerce involves both electronic business marketplaces and direct market links between businesses. Companies may offer: Secure Internet or extranet e-commerce websites for their business customers and suppliers Electronic data interchange (EDI) via the Internet or extranets for computer-to-computer exchange of e-commerce documents with their larger business customers and suppliers B2B e-commerce portals that provide auction and exchange markets for businesses

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Consumer-to-Consumer (C2C) e-Commerce: Successes of online auctions like e-Bay, allow consumers (and businesses) to buy and sell with each other in an auction process at an auction website. Online consumer or business auctions are an important e-commerce alternative for B2C or B2B e-commerce Electronic personal advertising of products or services to buy or sell by consumers at electronic newspaper sites, consumer e-commerce portals, or personal websites is an important form of C2C e-commerce

Essential e-Commerce Processes: [Figure 9.4]

The nine essential e-commerce processes required for the successful operation or management of e-commerce activities consist of: Access control and security Profiling and personalizing Search management Content management Catalog management Payment Workflow management Event notification Collaboration and trading

Access Control and Security: E-commerce processes must establish mutual trust and secure access between the parties in an e-commerce transaction by authenticating users, authorizing access, and enforcing security features. Profiling and Personalization: Profiling processes gather data on an individual and their website behavior and choices, and build electronic profiles of their characteristics and preferences. User profiles are developed using profiling tools such as user registration, cookie files, website behavior tracking software, and user feedback. Search Management: Efficient and effective search processes provide a top e-commerce website capability that helps customers find the specific product or service they want to evaluate or buy. Content and Catalog Management: Content management software helps e-commerce companies develop, generate, deliver, update, and archive text data, and multimedia information at e-commerce websites. E-commerce content frequently takes the form of multimedia catalogs of product information. Generating and managing catalog content is a major subset of content management. Content and catalog management may be expanded to include product configuration processes that support Web-based customer selfservice and the mass customization of a companys products. Configuration software helps online customers select the optimum feasible set of product features that can be included in a finished product.

Workflow Management: E-business workflow systems help employees electronically collaborate to accomplish structured work tasks within
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knowledge-based business processes. Workflow management in both e-business and e-commerce depends on a workflow software engine containing software models of the business processes to be accomplished. The workflow model expresses the predefined sets of business rules, roles of stakeholders, authorization requirements, routing alternatives, databases used, and sequence of tasks required for each e-commerce process. Event Notification: Most e-commerce applications are event-driven systems that respond to a multitude of events. Event notification processes play an important role in e-commerce systems, since customers, suppliers, employees, and other stakeholders must be notified of all events that might affect their status in a transaction. Collaboration and Trading: This category of e-commerce processes are those that support the vital collaboration arrangements and trading services needed by customers, suppliers, and other stakeholders to accomplish e-commerce transactions.

Electronic Payments Processes:

Payments for the products and services purchased are an obvious and vital step in the electronic commerce transaction process. Concerns of electronic payments and security include: The near-anonymous electronic nature of transactions taking place between the networked computer systems of buyers and sellers, and the security issues involved. Electronic payment process is complex because of the wide variety of debit and credit alternatives and financial institutions and intermediaries that may be part of the process. Varieties of electronic payment systems have evolved. New payment systems are being developed and tested to meet the security and technical challenges of electronic commerce over the Internet. Web Payment Processes: [Figure 9.7] Most e-commerce systems on the Web involving businesses and consumers (B2C) depend on credit card payment processes. Buy many B2B e-commerce systems rely on more complex payment processes based on the use of purchase orders. Both types of e-commerce typically use an electronic shopping cart process, which enables customers to select products from website catalog displays and put them temporarily in a virtual shopping basket for later checkout and processing.

Electronic Funds Transfer: Electronic funds transfer (EFT) systems are a major form of electronic commerce systems in banking and retailing industries. EFT systems use a variety of information technologies to capture and process money and credit transfers between banks and businesses and their customers.

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Secure Electronic Payments: When you make an online purchase on the Internet, your credit card information is vulnerable to interception by network sniffers, software that easily recognizes credit card number formats. Several basic security measures are being used to solve this security problem. They include: Encrypt (code and scramble) the data passing between the customer and merchant Encrypt the data passing between the customer and the company authorizing the credit card transaction Take sensitive information offline

Security methods developed include: Secure Socket Layer (SSL) - automatically encrypts data passing between your Web browser and a merchants server. Digital Wallet - you add security software add-on modules to your Web browser. This enables your browser to encrypt your credit card data in such a way that only the bank that authorizes credit card transactions for the merchant can see it. Secure Electronic Transaction (SET) - software encrypts a digital envelope of digital certificates specifying the payment details for each transaction. SET is expected to become the dominant standard for secure electronic payments on the Internet.

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IV: LECTURE NOTES (cont) Section II: e-Commerce Applications and Issues
E-Commerce Application Trends
E-commerce is changing how companies do business both internally and externally with their customers, suppliers, and other business partners. How companies apply e-commerce to their business is also subject to change as their managers confront a variety of e-commerce alternatives. Analyzing Keihin Aircon NA, Inc. We can learn a lot about the challenges and opportunities faced by companies as they integrate their e-commerce systems with those of their customers and suppliers. (See Keihin Aircon NA, Inc.: Lean Manufacturing Is a Process Whose Time has Come in Section IX).

E-Commerce Trends [Figure 9.10] : B2C e-commerce has moved from merely offering multimedia company information (brochureware), to offering e-commerce services at Web storefront sites with electronic catalogs and online sales. Interactive marketing capabilities have been added to support a personalized e-commerce experience, and a totally integrated Web store that completely supports a variety of customer shopping experiences. B2C e-commerce is moving toward a self-service model where customers configure and customize the products and services they wish to buy. B2B e-commerce started with website support of business customer self-service, and is moving toward automated intranet and extranet procurement systems. B2B e-commerce participants were early users of extranets connecting trading partners, and are now moving strongly toward the use of e-commerce portals that provide auctions, exchange, and barter markets for business customers within or across industries.

Business-to-Consumer e-Commerce:
Electronic commerce on the Internet between businesses and consumers is accelerating the impact of information technology on consumer behavior and business processes and markets. e-Commerce Success Factors [Figure 9.12] A basic fact of Internet retailing (E-tailing) is that all websites are created equal as far as the location, location, location imperative of success in retailing is concerned. No site is any closer to its customers, and competitors offering similar goods and services are only a mouse click away. This makes it vital that businesses find ways to build customer satisfaction, loyalty, and relationships, to keep customers coming back to their Web stores. The key to e-tailing success is to optimize factors such as: Selection and value Performance and service efficiency Look and feel of the site Advertising and incentives to purchase Personal attention Community relationships Security and reliability

Web Store Requirements

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Most business-to-consumer e-commerce ventures take the form of retail business sites on the World Wide Web. The primary focus of such e-tailers is to develop, operate, and manage their websites to they become high-priority destinations for consumers who will repeatedly choose to go there to buy products and services.

Developing a Web Store In order to launch your own retail store on the Internet, you must: Build an e-commerce website. Many companies use simple website design software tools and predesigned templates provided by their website hosting service to construct their Web retail store. Larger companies can use their own software developers or hire an outside website development contractor to build a custom-designed e-commerce site. Develop your website as a retail Web business by marketing it in a variety of ways that attract visitors to your site and transform them into loyal Web customers.

Serving Your Customers Once your retail store is on the Web and receiving visitors, the website must help you welcome and serve them personally and efficiently so that they become loyal customers. Most e-tailers use several website tools to create user profiles, customer files, and personal Web pages and promotions that help them develop a one-to-one relationship with their customers. This can be done by: Creating incentives to encourage visitors to register Develop Web cookie files to automatically identify returning visitors Contracting with website tracking companies for software to automatically record and analyze the details of the website behavior and preferences of Web shoppers. Ensure that your website has the look and feel of an attractive, friendly, and efficient Web store.

Managing a Web Store A Web store must be managed as both a business and a website, and most e-commerce hosting companies offer software and services to help you do just that. For example service providers can offer their clients: A variety of management reports that record and analyze Web store traffic, inventory, and sales results. Build customer lists for e-mail and Web page promotions, or provide customer relationship management features to help retain Web customers. E-commerce software includes links to download inventory and sales data into accounting packages. Twenty-four hours a day and seven days a week operation all year long. Password and encryption protection of Web store transactions and customer records, and employ fire walls and security monitors to repel hacker attacks and other security threats. Provide clients twenty four hour tech support to help them with technical problems

Business-to-Business e-Commerce:
Business-to-business electronic commerce is the wholesale and supply side of the commercial process, where businesses buy, sell, or trade with other businesses. B2B electronic commerce relies on many different technologies, most of which are implemented at e-commerce websites on the World Wide Web and corporate intranets and extranets. Some examples of B2B applications include: Electronic catalog systems Electronic trading systems such as exchange and auction portals Electronic data interchange Electronic funds transfers

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Many businesses are integrating their Web-based e-commerce systems with their e-business systems for supply chain management, customer relationship management, and online transaction processing, as well as to their traditional, or legacy, computer-based accounting and business information systems. This ensures that all electronic commerce activities are integrated with e-business processes and supported by up-to-date corporate inventory and other databases, which in turn are automatically updated by Web sales activities.

e-Commerce Marketplaces: [Figure 9.16]

Businesses of any size can now buy at business-to-business e-commerce marketplaces. A number of e-commerce marketplaces are used by businesses today. Many B2B e-commerce portals provide several types of marketplaces. For example: An electronic catalog shopping and ordering site for products from many suppliers in an industry. An exchange for buying and selling at negotiated prices. An auction website for business to business auctions or products and services.

These B2B e-commerce portals are developed and hosted by third-party market maker companies who serve as infomediaries that bring buyers and sellers together in catalog, exchange, and auction markets. Infomediaries are companies that serve as intermediaries in e-business and e-commerce transactions. Business value of using B2B e-commerce infomediary companies include: Ability to makes business purchasing decisions faster, simpler, and more cost effective Business buyers get one-stop shopping, accurate purchasing information, and impartial advice from infomediaries that they cant get from the sites hosted by suppliers and distributors Businesses can negotiate or bid for better prices from a larger pool of vendors Suppliers benefit from easy access to customers from all over the globe

Clicks and Bricks in e-Commerce:

E-business managers must understand the alternatives and benefit trade-offs that e-business enterprises face when choosing an e-commerce clicks and bricks strategy. They must be able to answer this important question Should we integrate our e-commerce virtual business operations with our traditional physical business operations, or keep them separate?

e-Commerce Integration: Many companies have chosen integrated clicks and bricks strategies, where their e-business is integrated in some major ways into the traditional business operations of a company. The business case for such strategies rests on: Capitalizing on any unique strategic capabilities that may exist in a companys traditional business operations that could be used to support an e-commerce business. Gaining several strategic benefits of integrating e-commerce into a companys traditional business; such as the sharing of established brands and key business information, and joint buying power and distribution efficiencies.

Other Clicks and Bricks Strategies:

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Other clicks and bricks strategies range from: Partial e-commerce integration using joint ventures and strategic partnerships Complete separation via the spin-off of an independent e-commerce company Benefits and challenges of a completely separate clicks and bricks strategy: Access to venture capital funding, create an entrepreneurial culture, attract quality management, maintain a high degree of business flexibility, and accelerate decision-making. Stress to students: That there is no universal clicks and bricks e-commerce strategy for every company, industry, or type of business. Both e-commerce integration and separation have major business benefits and shortcomings. Deciding on a clicks and bricks strategy depends heavily on whether or not a companys unique business operations provide strategic capabilities and resources to successfully support integration with an e-commerce venture.

e-Commerce Channel Choices [Figure 9.19]: An e-commerce channel is the marketing or sales channel created by a company to conduct and manage its chosen e-commerce activities. How this e-commerce channel is integrated with a companys traditional sales channel is a major consideration in developing its e-commerce strategies.

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IV: LECTURE NOTES (cont)

Summary
Electronic Commerce. Electronic commerce encompasses the entire online process of developing, marketing, selling, delivering, servicing, and paying for products and services. The Internet and related technologies and e-commerce websites on the World Wide Web and corporate intranets and extranets serve as the business and technology platform for e-commerce marketplaces for consumers and businesses in the basic categories of business-to-consumer (B2C), business-to-business (B2B), and consumer-to-consumer (C2C) e-commerce. The essential processes that should be implemented in all e-commerce applications access control and security, personalizing and profiling, search management, content management, catalog management, payment systems, workflow management, event notification, and collaboration and trading are summarized in Figure 9.4. e-Commerce Issues. Many e-business enterprises are moving toward offering full-service B2C and B2B e-commerce portals supported by integrated customer-focused processes and internetworked supply chains as illustrated in Figure 9.10. In addition, companies must evaluate a variety of e-commerce integration or separation alternatives and benefit trade-offs when choosing a clicks and bricks strategy and e-commerce channel, as summarized in Figures 9.18 and 9.19. B2C e-Commerce. Businesses typically sell products and services to consumers at e-commerce websites that provide attractive Web pages, multimedia catalogs, interactive order processing, secure electronic payment systems, and online customer support. However, successful e-tailers build customer satisfaction and loyalty by optimizing factors outlines in Figure 9.12, such as selection and value, performance and service efficiency, the look and feel of the site, advertising and incentives to purchase, personal attention, community relationships, and security and reliability. In addition, a Web store has several key business requirements, including building and marketing a Web business, serving and supporting customers, and managing a Web store, as summarized in Figure 9.14. B2B e-Commerce. Business-to-business applications of e-commerce involve electronic catalog, exchange, and auction marketplaces that use Internet, intranet, and extranet websites and portals to unite buyers and sellers, as summarized in Figure 9.16 and illustrated in Figure 9.17. Many B2B e-commerce portals are developed and operated for a variety of industries by third-part market-maker companies called infomediaries, which may represent consortiums of major corporations.

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V. KEY TERMS AND CONCEPTS - DEFINED

Clicks and Bricks Alternatives (308): Companies have a number of alternatives such as spin off, strategic partnership, joint venture, and in-house division. E-commerce Channel (310): e-Commerce channel is the marketing or sales channel created by a company to conduct and manage its chosen e-commerce activities. E-Commerce Marketplaces Auction (307): e-Commerce auction is an auction website which allows consumers (and businesses) to buy and sell with each other in an auction process. E-Commerce Matketplaces Catalog (306): e-Commerce catalog is a high-speed web-trading site, which offers electronic catalog shopping and ordering for products, which are offered by many suppliers in an industry. E-Commerce Marketplaces Exchange (306): e-commerce exchange is a high-speed platform where buyers and sellers can interact to negotiate prices for products and services. E-Commerce Marketplaces Portal (306): e-commerce portals are developed and hosted by third-party market maker companies who serve as infomediaries that bring buyers and sellers together in catalog, exchange, and auction markets. E-Commerce Success Factors (299): Some of the key factors for success in e-commerce include: selection and value, performance and service, look and feel, advertising and incentives, personal attention, community relationships, and security and reliability. E-Commerce Technologies (286): Electronic commerce can be viewed as depending on six layers of technology: application services, brokerage and data management, interface services, secure messaging, middleware services, and network infrastructure. Electronic Commerce (284): Companies today are participating in or sponsoring three basic categories of electronic commerce applications: business-to-consumer, business-to-business, and consumer-to-consumer e-commerce. Electronic Commerce - Business-to-Business (286): In this form of electronic commerce, businesses must develop attractive electronic marketplaces to entice and sell products and services to customers. Electronic Commerce - Business-to-Consumer (286): This category of electronic commerce involves both electronic business marketplaces and directs market links between businesses. Electronic Commerce - Consumer-to-Consumer (287): The buying and selling, marketing and servicing, and delivery and payment of products, services, and information over the Internet, intranets, extranets, and other networks, between an internetworked enterprise and its prospects, customers, suppliers, and other business partners. Includes C2C e-commerce websites and portals for catalog, exchange, and auction markets. Electronic Funds Transfer (294): The development of banking and payment systems that transfer funds electronically instead of using cash or paper documents such as checks.

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Essential e-commerce Processes (288): The essential e-commerce processes required for the successful operation and management of e-commerce activities include: Access control and security, profiling and personalizing, search management, content management, catalog management, payment, workflow management, event notification, and collaboration and trading. Essential e-commerce Processes Access Control and Security (288): e-commerce processes must establish mutual trust and secure access between the parties in an e-commerce transaction by authenticating users, authorizing access, and enforcing security features. Essential e-commerce Processes Catalog Management (290): e-commerce content frequently takes the form of multimedia catalogs of product information. Generating and managing catalog content is a major subset of content management. Essential e-commerce Processes Collaboration and Trading (293): The major category of e-commerce processes are those that support the vital collaboration arrangements and trading services needed by customers, suppliers, and other stakeholders to accomplish e-commerce transactions. Essential e-commerce Processes Content Management (290): Content management software helps e-commerce companies develop, generate, deliver, update, and achieve text data, and multimedia information at e-commerce websites. Essential e-commerce Processes Electronic Payment Systems (293): Alternative cash or credit payment methods using various electronic technologies to pay for products and services in electronic commerce. Essential e-commerce Processes Event Notification (293): Most e-commerce applications are event-driven systems that respond to a multitude of events. Event notification software works with workflow management software to monitor all e-commerce processes and record all relevant events, including unexpected changes or problem situations. Essential e-commerce Processes Profiling and Personalizing (289): Profiling is used to gather data on customers and their website behaviour and choices to build an electronic profile of their characteristics and preferences. These profiles are used to recognize the customer as an individual user in order to create a one-to-one marketing strategy. Essential e-commerce Processes Search Management (290): Efficient and effective search processes provide a top e-commerce website capability that helps customers find the specific product or service they want to evaluate or buy. Essential e-commerce Processes Workflow Management (291): Workflow systems ensure that the proper transactions, decisions, and work activities are performed, and the correct data and documents are routed to the right employees, customers, suppliers, and other business stakeholders. Infomediaries (307): Infomediaries are companies that serve as intermediaries in e-business and e-commerce transactions. Trends in e-commerce (296): Some of the trends in e-commerce applications include Business-to-Consumer (B2C), Business-to-Business (B2B), and Consumer-to-Consumer (C2C). Web Store Requirement (302): Essential Web store requirements necessary to implement and support a successful retail business on the Web including building, serving, and managing the Web store in order for it to be a successful e-commerce business.

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VI. REVIEW QUIZ - Match one of the key terms and concepts
1 2 3 4 5 6 7 8 9 10 11 12 13 6 6b 6a 6c 5 8 8a 8g 8d 8i 8f 8c 9 Electronic commerce Business-to-consumer e-commerce Business-to-business e-commerce Consumer-to-consumer e-commerce E-commerce technologies Essential e-commerce processes Access control and security Profiling and personalizing Content management Workflow management Event notification Collaboration and trading Infomediaries 14 15 16 17 18 19 20 21 22 23 24 25 3 3d 3a 3c 3b 2 7 8e 10 1 4 11 E-Commerce marketplaces Portal Auction Exchange Catalog E-commerce channel Electronic funds transfer Electronic payment systems Trends in e-commerce Clicks and bricks alternatives E-commerce success factors Web store requirements

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VII. ANSWERS TO DISCUSSION QUESTIONS

1. Most businesses should engage in electronic commerce on the Internet. Do you agree or disagree with this statement? Explain your position.

Electronic commerce is no longer a luxury. In order to compete in the global marketplaces, businesses must engage in electronic commerce and have a presence on the Internet. The Internet is the driving force in the new economy. Businesses are engaging in e-commerce to develop, market, sell, deliver, service, and pay for products and services which are being transacted on the internetworked, global marketplaces of customers, and with the support of a worldwide network of business partners. 2. Are you interested in investing in, owning, managing, or working for a business that is primarily engaged in electronic commerce on the Internet? Explain your position.

This is a very subjective question, and will vary from student to student. However, one thing is for sure, this is a growing field of interest, and businesses are seriously considering this new concept of conducting business. Certainly, this field is also opening new career opportunities for individuals who are interested in working in this dynamic and changing environment. 3. Refer to the Real World Case on eBay in the chapter. What are the benefits and limitations of being an eBay Power Seller or Trading Assistant? Benefits would include: 4. eBay Power Sellers and Trading Assistants feel like owners. They take the initiative to expand the eBay Economy often beyond eBay managements wildest dreams. They get to influence almost every new feature or policy, no matter how small. They have helped spur the (organic) growth of new businesses and business owners.

Why do you think there have been so many business failures among dot-com companies that were devoted only to retail e-commerce?

Students answers will vary, however one possible reason that they may give is the simple fact that organizations rushed into the getting a presence on the Internet without really knowing what or how it would work. Retail e-commerce is not simply a matter of having a site presence; it is servicing your customers better than your competitors. E-commerce customer value is imperative what the customer wants, when and where its wanted, at the lowest possible cost. Common sense had to prevail simply putting a site together does not guarantee that customers will come.

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5.

Do the e-commerce success factors listed in Figure 9.12 guarantee success for an e-commerce business venture? Give a few examples of what else could go wrong and how you would confront such challenges.

The success factors listed in Figure 9.12 are very important; however they certainly do not guarantee success for an e-commerce business venture. What is important is that organizations develop and continue to improve their websites so that they capture and maintain their customers. Stress to students that customers can and do click away from a site when they are not satisfied with it or find it difficult to use. Businesses must continually strive to find ways to build customer satisfaction, loyalty, and relationships with their customers to keep them coming back. 6. If personalizing a customers website experience is a key success factor, then electronic profiling processes to track visitor website behavior are necessary. Do you agree or disagree with this statement? Explain your position.

When companies personalize the shopping experience of their customers, they are encouraging them to buy and make return visits. Through specialized software companies are able to automatically record details of their customers visits and build user profiles of them. Rather it is necessary to track visitor website behavior may be argumentative for some students. Companies use profiling in order to build one-to-one marketing and relationship with their customers. This is done in the name of marketing in order to capture market share, however it may also be considered an invasion of privacy if the individual does not know that their web behavior is being tracked for this purpose. 7. All corporate procurement should be accomplished in e-commerce auction marketplaces, instead of using B2B websites that feature fixed-price catalogs or negotiated prices. Explain your position on this proposal.

Business value of using FreeMarkets auction services versus developing a companys own online auction is that the business can save money by using an online auction service. By utilizing existing services such as FreeMarket, a business can concentrate on their core business rather than that of taking on the challenges of Internet technology. FreeMarket acts as the consultant, showing new clients how to spell out every possible requirement in the RFQ. FreeMarket is also expert at finding and screening suppliers that the clients dont have the time or the information to track on their own. FreeMarket culls down a long list of buyers and selects those it wants to invite as bidders. 8. Refer to the Real World Case on Keihin Aircon in the chapter. What are some of the business and IT challenges faced by companies striving for lean manufacturing by integrating their procurement, customer, and supplier systems? What types of solutions might you propose to overcome these challenges? If you were starting an e-commerce Web store, which of the business requirements summarized in Figure 9.14 would you primarily do yourself, and which would you outsource to a Web development or hosting company? Why? This is a very subjective question, and will vary from student to student. If students have no expertise in this area they may suggest that it would be beneficial to have all of the work outsourced to a professional Web development or hosting company. If the site is not developed properly, and with a professional look customers will not be interested in it. Also, if it is poorly designed and difficult to use you will not attract any business. On the other hand, companies can now use simple website design software tools and predesigned templates which are readily available from website hosting services to construct their Web retail sites. The aim of the Web store is to market it so that it will attract customers and transform them into loyal Web customers. Whatever suggestions students give to answering this question they must keep in mind the simple fact is that the best possible development is what is required in order to increase the chances of having a successful site. 10. Which of the e-commerce clicks and bricks alternatives illustrated in Figure 9.18 would you recommend to Barnes & Noble? Amazon.com? Wal-Mart? Any business? Explain your position.

9.

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Figure 9.18 illustrates the spectrum of alternatives and benefit trade-offs that e-business enterprises face when choosing an e-commerce clicks and bricks strategy. In all of the companies listed in this question, the most important strategy is that managers must be able to decide if they should integrate their e-commerce virtual business operations with their traditional physical business operations, or keep them separated. Being that these two alternatives are the opposite extreme of each other, companies can choose to use other strategies that combine both of these alternatives spin-off, strategic partnership, joint venture, and in-house division. Barnes&Noble chose a completely separate clicks and bricks strategy by creating a totally independent e-commerce company from their retail chain. Wal-Mart would probably be best suited with a joint venture division due to their product offering and the large number of different suppliers.

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VIII. ANSWERS TO ANALYSIS EXERCISES

1. Small Business e-Commerce Portals a. Check out Microsofts Small Business Center and the other e-commerce portals mentioned. Identify several benefits and limitations for a business using these websites. All of these sites (Small Business Center, Prodigy Biz, Entrabase.com, and GoBizGo.com) are interesting sites that offer a wide variety of products and services. For example: Small Business Center Small Business Centers website offers assistance in starting your own Web, marketing your business online, and help on how to manage more effectively. The website is free but the services such as marketing or web hosting are not. Microsoft appears to have adopted the strategy that if they can help you get off the ground with free information ("How to Write a Business Plan", etc.) then you are more likely to need their services. They have a section for small business, which advertises that they can bring together best in-class products and services to serve small businesses through the Web. With marketplace news, better buying opportunities for products and services, and technology solutions for marketing and sales, web-design, hosting, e-commerce and more, this site claims they can take your business online quickly, enable you to reach new customers, turn browsers into buyers, and extend and customize your site with Front Page 2000. Prodigy Biz Prodigy Biz essentially offers web hosting, eCommerce hosting, maintenance and administrative services. Prodigy provides productivity gains through design templates. Unfortunately, this results in functionality limits and creativity constraints. In short, your web site is going to look a lot like many other websites even if the graphics and colors aren't necessarily the same. Entrabase.com Entrabase offers a soup to nuts solution to get its customers off the ground and onto the web. Services include web hosting, eCommerce hosting, management and administration tools, and consulting services. Entrabase allows you to focus on your business and not the technology. The website's design was extremely effective in organization and presentation. Even though Entrabase has a lot to offer its customers, a visitor does not need to explore randomly in order to discover Entrabase' full product and service spectrum. This site would appeal to an established business or a start up with experienced management. It has little to offer the novice entrepreneur. b. Which is your favorite? Why? Students answers will vary. Students should select the site that they believe will give them the easiest options to set their small businesses up online. The site must be easy to use, offer customers a real experience, and provide an incentive to return. The better the design, the more likely customers will come back. Companies must find ways to build up customer loyalty the better the site the more likely your customer will be to add you to their favorite section. Ultimately, the best site should be the site that provides your business with the flexibility appropriate for your business while minimizing development, maintenance, and management costs. However, these are features that students would have difficulty evaluating without actually signing up and trying them out. c. Which site would you recommend or use to help a small business wanting to get into e-commerce? Why?
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Students' answers may vary. The answers should focus on value, fit, and price. Microsoft's site offers far more features and far more free information than the other two.

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2.

e-Commerce Websites for Car Buying a. Check out several of the websites shown in Figure 8.22. Evaluate them based on ease of use, response times, relevance of information provided, and other criteria you feel are important. Dont forget the classic: Did they make you want to buy? Any student clicking around in these sites would no doubt want to purchase a car. Many of these sites let you look for new and used cars. They let you pick your body style, color, options, etc. One of the things that does not make Canadians want to buy is that all of these sites are American sites and are geared to the American market. b. Which sites would you use or recommend if you or a friend actually wanted to buy a car? Why? 1) Students' answers will vary. They should depend on what the individual needs. If you are really interested in a foreign model, the Edmunds website is neat. You can look at the BMW, Lexus, and other foreign built cars. However, if you prefer North American built cars you would probably choose the Ford or GM sites. Sites were you are able to customize your own options seem to be the best to surf in. As well, price comparison features are relatively important as consumers are looking to spend their scarce resources in getting the best buy for their money. c. Check out the Consumer Federation of America's study on anti-competitive new car buying state laws or similar studies online. How much do they estimate consumers would save if they could purchase cars directly from manufacturers online? http://www.consumerfed.org/fincarpr.pdf. $1,500 per new car or about $20 billion annually. Car manufacturers would desperately like to move toward a more efficient distribution system, but in the short run, they can not afford to upset their established supply chain. They must also be careful not to run afoul of antitrust laws the original premise for these restrictions. Note also the following article published one of Ford's websites: http://www.thecarconnection.com/index.asp?article=3524. I find it interesting that Ford lends validity to the CFA's 2001 study.

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3. Comparing e-Commerce Sites a. Using a spreadsheet record a set of information similar to that shown below for each product (categories describing the product will vary depending upon the type of product you select CDs might require the title of the CD and Performer(s), while toys or similar products would require the name of the product and its description. For each product rank each company based on the price charged. Give a rating of 1 for the lowest price and 3 for the highest and split the ratings for ties two sites tying for 1st and 2nd lowest price would each receive a 1.5. If a site does not have one of the products available for sale, give that site a rating of 4 for that product. Add the ratings across your products to produce an overall price/availability rating for each site. Based on your experience with these sites rate them on their ease of use, completeness of information, and order-filling and shipping options. As in part B, give a rating of 1 to the site you feel is best in each category, a 2 to the second best and a 3 to the poorest site. Prepare a set of Power Point slides or similar presentation materials summarizing the key results and including an overall assessment of the sites you compared. [See Data/Solutions File Ch 09 Exercise 3.xls]

b.

c.

d.

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4.

eCommerce: The Dark Side a. Search using the terms "Ponzi Scheme" or "Pyramid Scheme." To find current examples in action, try searching for "plasma TV $50", "cash matrix," or "e-books" and "matrix," or "gifting" through a search engine or action site. A Ponzi Scheme, also known as a pyramid scheme promises large, guaranteed payoffs to "investors" (victims). As more investors participate, the scheme uses the new funds to pay off the early participants. Naturally, the delighted early participants are happy to offer glowing testimonials. The scheme continues until it collapses as there is mathematically no possible way to pay off all the later participants, all their funds having gone to pay off the earliest participants. This type of scheme takes on many guises including seemingly legitimate financial advisors who simply dupe their clients as long as possible and run with the money to certain multi-level marketing schemes selling worthless products such as freely available e-Books, "mailing lists," and the like. Promoters offer these "products" in an attempt to masquerade as legitimate. A common variation promises plasma TVs or other expensive electronics and actually explains to participants the entire process! How bad can it get? Within the last decade, millions of citizens in both Albania and in the Philippines were duped out of hundreds of millions of dollars. However, those are just extreme cases. A scheme entitled "Women Empowering Woman," "Woman's Empowering Network," and "The Dinner Club" made national news in the U.S. not long ago. Thousands of women lost $5,000 each to these schemes. To protect yourself, simply ask "is the money coming from a real and appropriately priced product or service" or is the money really coming from signing up more people to participate? If it's the latter, it's a pyramid scheme. b. Search using the terms "phishing" and "identity." If possible include a printout of a real-world example that you or an acquaintance may have received via e-mail. Phishing is simply a slang term for tricking people via e-mail to give up account information by masquerading as a legitimate company such as eBay, AOL, or PayPal. Such e-mails continue to become increasingly convincing. They appear to be sent by a legitimate organization, and they typically claim that you must renew, verify, reset, validate, etc. your account. These e-mails make contain links to an official looking website complete with official looking explanations and forms to fill out. The forms may ask for things like account names and passwords. One form went so far as to ask for bank routing numbers, credit card numbers and ATM pin numbers! With this information in hand, the con artist can quickly clean out your accounts. To protect yourself, remember that if a major organization such as AOL or eBay lost thousands of accounts, it's going to make national news. You should be able to find reference to the problem through any number of on-line news agencies (such as news.google.com). Second, because of these types of fraud, these organizations will likely never send customers an e-mail asking for this type of personal information. Lastly, if you need make changes to your account, don't follow the links provided by an e-mail. Simply type in the correct home page yourself and see if the account provider has posted the appropriate information there. After all, if there really had been a problem that they were willing to e-mail hundreds of thousands of people about, wouldn't they have posted notice about it on their own home page? Of course they would. c. Search using the term "third party escrow." What legitimate function does this serve? Provide an example of a legitimate third party escrow service for Internet transactions. How has the third party escrow system been used to commit fraud on the Internet? Escrow services hold the buyers money and assures the seller the payment has been received. Once received, the seller can then ship the product, and the escrow service will hold the buyer's money until the buyer indicates his or her satisfaction with the product. If the buyer is satisfied, the money goes to the seller. If the

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buyer isn't satisfied, then he or she must return the product in order to receive a refund. The escrow service takes a commission on each trade. This process works reasonably well so long as the escrow service isn't secretly collaborating (or outright owned by) one of the trading parties. If that's the case, then all benefit is lost. It isn't possible to simply visit a third party escrow service's website. Anyone can develop or, more likely, copy a legitimate looking website. Instead, simply research the service o the web and see what turns up. Alternatively, use an escrow service recommended by the auction site (this, of course, assumes the auction site is legitimate). If your trading partner wants you to use an escrow service that no search engine has any information about, simply don't complete the transaction. You may hate to give up a really sweet deal, but it really isn't a deal if it's a con. d. Prepare a one page paper describing a type of online fraud not covered above. Prepare presentation materials and present your findings to the class. Be sure to include a description of the fraud, how to detect it, and how to avoid it. Use real-world illustrations if possible. Sadly, there's a huge range of possible responses. They include key logging, the "Nigerian" letter, cashier's check and wire transfer frauds, and even a scam to help you get back your money after you have been scammed (for a fee).

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IX. ANSWERS TO REAL WORLD CASES

RWC 1: eBay Inc.: Managing Success in a Dynamic Online Marketplace 1. Why has eBay become such a successful, fast growing, and diverse online marketplace? Visit the eBay website to help you answer, and check out their many trading categories, specialty sites, international sites, and other features. Discussion points would include: 2. Feedback system in which buyers and sellers rate each other on each transaction. EBays policing of the listings to control fraud. Its equivalent of a bank, PayPal, that allows buyers to make electronic payments to eBay/sellers who cant afford a merchant credit card account. A powerful vortex that draws diverse products and players into its profitable economy. Expansion into B2C and B2B activities rather than remaining a pure consumer auction marketplace. User voice in decisions, The Voice of the Customer program, making users feel like owners.

Why do you think eBay has become the largest online/offline seller of used cars, and the largest online seller of certain other products, like computers and photo equipment? Points to include in the discussion would include: The purchase of Kruse International to acquire rather than start a marketplace that would require a different strategy than simply opening a new category. A deal to include listings from online classifieds site AutoTrader.com LLC. Arranged insurance and warranty plans. Established an escrow service. Established shipping and inspection services. Recognizing that companies and consumers sell to other consumers and that B2C is not different than consumer-to-consumer selling.

3.

Is eBays move from a pure consumer-to-consumer auction marketplace to inviting large and small businesses to sell to consumers and other businesses, sometimes at fixed prices, a good long term strategy? Why or why not? Discussion points to include: Profitability to eBay. EBays ability to meet the continual shift in demand for products and services. The ability of eBay to maintain its Voice of the Customer program which is one of its most cherished institutions. The ability to provide the IT to deliver the online system in the future at the level of quality expected by the users. The impact of Trading Assistants on the effectiveness of eBay to continue its growth.

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RWC 2: Keihin Aircon NA, Inc.: Lean Manufacturing Is A Process Whose Time Has Come 1. What are the major business advantages of lean manufacturing? Provide some specific examples. Examples could include: Reduce the amount of inventory and products in stock Just-in-time production and purchasing Improvements in the quality of the manufacturing process Greater flexibility to react to changes in demand and customer preferences Improved manufacturing cycle which leads into the ability to deliver in specific place and time Smooth peak and off-peak cycles, production is pulled by demand 2. Does a companys size have any effect on the advantage gained from lean manufacturing and integrations of the various procurement systems? As with many innovations of this type, there is probably a minimum company size (however it is measured) below which the cost of setting it up outweighs the benefits. All the companies mentioned in the case are of medium to large to very large size. However, once an organization is above said threshold, the advantage gained from instituting lean-manufacturing practices would probably be commensurate with the level of inefficiency currently existing in its operations. 3. Should all manufacturing businesses begin a process of integration toward a lean-manufacturing posture? Explain. Not necessarily, lean manufacturing would have to fit with the business strategy and operations focus of the organization. There are manufacturing environments where lean-manufacturing may be counterproductive. For instance, manufacturers of very idiosyncratic, one-of-a-kind products do not have enough standardization in their processes (because of the nature of the business they are in) to benefit from this innovation (even though it has been around for some time). For other business environments, like production lines and assemblies of standard parts lean-manufacturing might prove to be very valuable, even necessary in order to successfully compete.

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4. 1.

RWC 3: E-Trade and Wells Fargo: The Business Case for Clicks and Bricks e-Commerce What lessons in business strategy can be applied to development of the e-commerce channels of other companies from the experience of E-Trade? Lessons that could be applied would include: Diversification through selective acquisitions Implementation of cost reduction programs. Viewed itself as a business and not an Internet-based business that was exempt from all the rules of business.

2.

What is the business value of the C.E.O. online wholesale banking portal to Wells Fargo? Discussion points would include: In a recession Wells Fargos Internet-based revenues grew 25 percent. The C.E.O. banking portal improved and enhanced the client relationships. The more that clients are exposed to all of Wells Fargos banking products when they log on, the more likely the customer is to sign up for additional services. Wells Fargo focused on what the customers wanted convenience, instantaneous account information, and most of all, industrial-strength security and access controls.

3.

What can other companies learn from the successes and mistakes of the Wells Fargo e-commerce system? What lessons could be learned would include: An e-commerce system is not cheap. Maintaining an Internet system for customers allows cross selling other services which improves customer relationships. Learn what the customers want and do not want from the e-commerce site and meet their needs. Users of a successful e-commerce site will become dependent upon it.

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RWC 4: Microsoft and Dell: The WWW is Anything But Business as Usual 1. What is the primary driver behind the Web upgrade activities of Microsoft and Dell? Probably the major driver is to become more responsive to customer needs. Tied to that are other activities supporting that goal, such as: Improving the functionality of the websites up to desktop-application standards as opposed to traditional web computing (limited functionality, static pages, etc) Developing a variety of communication avenues, both to push information to interested parties and to learn about their needs and worries Creating a consistent one-look interface that can accommodate dynamic content without ever losing its consistency Fine-tuning the back-end to improve response times and scale activities throughout the organization, freeing resources for more value-added activities 2. What is the business value of Microsofts web-based, live feedback program? The main payoff from that program is the communication to and from selected users, those who are either technically up-to-date and will be making recommendations, and those who will be making decisions when purchase-time comes. Microsoft is able to push new initiatives to them and also garner well-informed feedback. That is why this program is restricted to hand-picked users. 3. What lessons on developing successful e-commerce projects can be gained from the information in this case? Examples could include: Focus on what the customer needs as opposed to what the company wants to provide Successful e-commerce projects are those that develop once and take advantage of economies of scale and mass-customization to provide localized content within a globalized infrastructure As the capabilities of the Web increase (in terms of what is able to do as opposed to its traditional role) companies need to meet new standards of functionality above and beyond static web pages and slow response times

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