Chapter 1 - Study Guide

As you read the textbook and go through this lesson, think about the following questions:
WHAT IS E-BUSINESS?
What is electronic commerce (e-commerce)? A concept that describes the process
of buying, selling, or exchanging products, services, and information via
computer networks including Internet. Kalakota and Whinston (1997) define EC
from four perspectives:

From a communications perspective, EC is the delivery of goods, services,

information, or payments over computer networks or by any other electronic
means.
From a business process perspective, EC is the application of technology toward
the automation of business transactions and workflow.
From a service perspective, EC is a tool that addresses the desire of firms,
consumers, and management to cut service costs while improving the quality of
customer service and increasing the speed of service delivery.
From an online perspective, EC provides the capability of buying and selling
products and information over the Internet and other online services.

We add two more perspectives to this list:

From a collaborations perspective, EC is the facilitator for inter- and intraorganizational collaboration.
From a community perspective, EC provides a gathering place for community
members, to learn, transact, and collaborate.
E-BUSINESS: Some people define the term commerce as describing transactions
conducted between business partners. When this definition of commerce is used, some
people find the term electronic commerce to be fairly narrow. Thus, many use the term ebusiness. E-business refers to a broader definition of EC, not just the buying and selling
of goods and services, but also servicing customers, collaborating with business partners,
and conducting electronic transactions within an organization. In this book we use the
broadest meaning of electronic commerce, which is basically equivalent to e-business.
The two terms will be used interchangeably throughout the text.
HOW ARE THE FOLLOWING DEFINED?
o Brick-and-mortar organizations? Organizations that perform their primary
business off-line, selling physical products by means of physical agents.
o Virtual (pure-play) organizations? Organizations that conduct their business
activities solely online.
o

Click-and-mortar (click-and-brick) organizations? Organizations that conduct

some e-commerce activities, usually as an additional marketing channel.

Electronic marketplace (e-marketplace)? An online marketplace where buyers

and sellers meet to exchange goods, services, money, or information.

Intranet? An internal corporate or government network that uses Internet tools,

such as Web browsers, and Internet protocols.

Extranet? A network that uses the Internet to link multiple intranets.

WHAT IS THE DIFFERENCE BETWEEN PURE AND PARTIAL E-COMMERCE?

Electronic commerce can take several forms depending on the degree of digitization (the
transformation from physical to digital) of (1) the product (service) sold, (2) the process, and
(3) the delivery agent (or intermediary). Choi et al. (1997) created a framework, shown in
Exhibit 1.1 that explains the possible configurations of these three dimensions. A product can
be physical or digital, the process can be physical or digital, and the delivery agent can be
physical or digital. These alternatives create eight cubes, each of which has three dimensions.
In traditional commerce, all three dimensions are physical (lower-left cube), and in pure EC,
all dimensions are digital (upper-right cube). All other cubes include a mix of digital and
physical dimensions. If there is at least one digital dimension, we consider the situation EC,
but only partial EC. For example, buying a book from Amazon.com is partial EC, because
the physical book is delivered by FedEx. However, buying an e-book from Amazon.com or a
software product from buy.com is pure EC, because the product delivery, payment, and agent
are all digital. Pure physical organizations (corporations) are referred to as brick-and-mortar
or old-economy organizations, whereas pure EC organizations are considered pure online
virtual organizations. Click-and-mortar organizations are those that conduct some ecommerce activities, yet their primary business is done in the physical world. Gradually,
many brick-and-mortar companies are changing to click-and-mortar ones (e.g., Qantas
Airways).

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HOW DO THE FOLLOWING FIVE AREAS SUPPORT E-COMMERCE:

People; Public policy; Marketing and advertising; Support services; Business
partnerships;
There are dozens of EC applications, some of which were illustrated in the opening
vignette about Qantas; others will be shown throughout the book. To execute these
applications, companies need the right information, infrastructure, and support services.
Exhibit 1.2 shows how EC applications are supported by infrastructure and by five
support areas (shown as supporting pillars): people, public policy, technical standards,
business partners, and support services.
People - Sellers, buyers, intermediaries, employees, and any other participants.
Public policy - Legal and other policy issues, such as privacy protection, that are
determined by the government.
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Technical standards and protocols - Security and payment protocols, such as SSL
(secure socket layer). Companies need standards and protocols so that they can
communicate with one another or move money online in a secured manner.
Business partners - Joint ventures, exchanges, and business partnerships of various sorts.
E-commerce occurs frequently throughout the supply chain (the interactions between a
company and its suppliers, customers, and other partners) and between or among business
partners.
Support services - Market research advertising, payments, logistics, and security. Many
support services are needed in EC. All of these infrastructure components require good
management practices. This means that companies need to plan, organize, motivate,
devise strategy, and reengineer processes as needed.

HOW DO WE DEFINE THE FOLLOWING CLASSIFICATIONS OF E-COMMERCE:

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B2B - All of the participants in business-to-business (B2B) e-commerce are

businesses or other organizations. Today most EC is B2B.

B2C - Business-to-consumer (B2C) EC includes retail transactions from

businesses to individual shoppers. The typical shopper at Amazon.com is a
consumer, or customer. This EC type is also called e-tailing.

B2B2C - In business-to-business-to-consumer (B2B2C) EC, a business provides

some product or service to a client business. The client business maintains its own
customers, to whom the product or service is provided. An example is Qantas
Pan-Pacific market cited earlier. The term B2B frequently is used to describe
B2B2C as well.

C2B - Consumer-to-business (C2B). This category includes individuals, who use

the Internet to sell products or services to organizations, as well as individuals
who seek sellers to bid on products or services they need. Priceline.com is a wellknown C2B organizer.

Intrabusiness EC - The intrabusiness EC category includes all internal

organizational activities that involve the exchange of goods, services, or
information among various units and individuals in that organization. Activities
can range from selling corporate products to employees to online training and
collaborative design efforts. Intrabusiness EC is usually performed on intranets or
corporate portals (in general, gateways to the Web).

B2E - The business-to-employees (B2E) category is a subset of the intrabusiness

category in which the organization delivers services, information, or products to
individual employees, as Qantas Airways is doing with its College Online.

C2C - In the consumer-to-consumer (C2C) category, consumers sell directly to

other consumers. Examples include individuals selling residential property, cars,
and so on in online classified ads. The advertisement of personal services over the
Internet and the selling of knowledge and expertise online are other examples of
C2C (e.g., guru.com). In addition, several auction sites allow individuals to place
items up for auction. A special type of C2C is where people exchange music,
videos, software, and other digitizable goods electronically using a peer-to-peer
(P2P) technology. A well-known organizer of P2P is Napster (napster.com). (As a
result of legal challenges, Napster no longer offers free exchanges; in 2002 it tried
offering only digital goods that people pay for.)

o Collaborative commerce - When individuals or groups communicate or collaborate

online they may be engaged in collaborative commerce (c-commerce). For

example, business partners in different locations may design a product together,
using screen sharing, or they may jointly forecast market demand.
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o E-learning - Nonbusiness EC. An increasing number of nonbusiness institutions

such as academic institutions, not-for-profit organizations, religious organizations,

social organizations, and government agencies are using EC to reduce their
expenses or to improve their general operations and customer service. (Note that
in the previous categories one can usually replace the word business with
organization.)
o E-government - Government-to-citizens (G2C) and to others. In e-government EC,

a government entity buys or provides goods, services, or information to

businesses or individual citizens.
o Exchange-to-exchange (E2E) - An exchange describes a public electronic market
with many buyers and sellers. As these proliferate, it is logical for exchanges to
connect to one another. Exchange-to-exchange (E2E) EC is a formal system that
connects exchanges.
o Mobile commerce - E-commerce transactions and activities conducted in a wireless
environment are referred to as mobile commerce, or m-commerce. Such
transactions targeted to individuals in specific locations, at specific times, are
referred to as location-based commerce, or l-commerce.
WHAT ARE THE TYPICAL E-COMMERCE BUSINESS MODELS?
1. Online, direct marketing - The most obvious model is that of selling online, from
manufacturers to customers (eliminating intermediaries) or from retailers to consumers
(making distribution more efficient). Such a model is especially efficient for digitizable
products and services. It is practiced in B2C and B2B types of EC.
2. Electronic tendering systems - Large organizational buyers, private or public, usually
make their purchases through a tendering (bidding) system, also known as a reverse
auction (Chapter 2). Such a tendering can be done online, saving time and money.
Pioneered by General Electric Corp. (gxs.com), e-tendering systems are gaining
popularity (for more on e-tendering, Several government agencies mandate that all
agency procurement must be done through e-tendering.
3. Name your own price - Pioneered by Priceline.com, this model allows buyers to set the
price they are willing to pay for a specific product or service. Priceline.com will try to
match the customers request with a supplier willing to sell the product or service at that
price. Customers, usually individuals, may have to increase their bids before they get the
product or service.

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4. Find the best price - According to this model, a customer specifies a need and then an
intermediate company, such as Hotwire.com, matches the customers need against a
database, locates the lowest price, and submits it to the consumer. The potential buyer
then has 60 minutes to accept or reject the offer. A variation of this model is available for
insurance. For example, a consumer can submit a request for insurance to Insweb.com
and receive several quotes. Many companies employ similar models to find the lowest
price. For example, consumers can go to E-LOAN (eloan.com) to find the best interest
rate for auto or home loans.
5. Affiliate marketing - Affiliate marketing is an arrangement whereby a marketing
partner (a business, an organization, or even an individual) refers consumers to the selling
companys Web site. The referral is done by placing a banner ad or the logo of the selling
company on the affiliated companys Web site. The affiliated partner receives a 3 to 15
percent commission on the purchase price whenever a customer it refers to the selling
companys Web site and makes a purchase there. In other words, by using affiliate
marketing, a selling company creates a virtual commissioned sales force. Pioneered by
CDNow the concept is now employed by thousands of retailers or manufacturers (see
affiliateworld.com). For example, Amazon.com has close to 500,000 affiliates, and even
tiny Cattoys.com offers individuals and organizations the opportunity to put its logo and
link on their Web sites to generate commissions.
6. Viral marketing - According to the viral marketing model, one can increase brand
awareness or even sales by inducing people to send messages to other people or to recruit
friends to join certain programs. It is basically Web-based word-of-mouth marketing.
7. Group purchasing - Discounts are usually available for quantity purchasing. EC has
spawned the concept of electronic aggregation, wherein a third party finds individuals or
SMEs (small-to-medium enterprises), aggregates their orders, and then negotiates (or
conducts a tender) for the best deal. Thus, using the concept of group purchasing, a small
business or even an individual can get a discount. Some leading aggregators are
Accompany.com and Shop2gether.
8. Online auctions - Almost everyone has heard of eBay.com, the worlds largest online
auction site. Several hundred other companies, including Amazon.com and Yahoo.com,
also conduct online auctions. In these auctions, online shoppers make consecutive bids
for various goods and services, and the highest bidders get the auctioned items.
9. Product and service customization - Customization of products or services means
creating a product or service according to the buyers specifications. Customization is not
a new model; in fact, it is as old as commerce itself! What is new is the ability to quickly
customize products online for consumers at prices not much higher than their
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noncustomized counterparts. Dell Computer is a good example of a company that

customizes products for its customers. Many other companies are following Dells lead:
The automobile industry is customizing its products, and expects to save billions of
dollars in inventory reduction alone every year by producing cars made-to-order. Mattels
My Design lets fashion-doll fans custom-build a friend for Barbie at Mattels Web site;
the dolls image is displayed on the screen before the customer orders. Nike allows
customers to customize shoes, which can be delivered in a week. De Beers allows
consumers to design their own engagement ring.
10. Electronic marketplaces and exchanges - Electronic marketplaces existed in isolated
applications for decades (e.g., stock and commodities exchanges). But as of 1999,
thousands of e-marketplaces have introduced new efficiencies to the process. If they are
well organized and managed, e-marketplaces can provide significant benefits to both
buyers and sellers. Of special interest are vertical marketplaces, (also called vertical
portals, or vortals), which concentrate on one industry (e.g., e-steel.com for the steel
industry and Chemconnect.com for the chemical industry).
11. Supply chain improvers - One of the major contributions of EC is in the creation of
new models that change or improve supply chain management. Most interesting is the
conversion of a linear supply chain, which can be slow, expensive, and error prone, into a
hub. An example of such an improvement is provided in EC Application Case 1.2.
Any of the preceding business models can be independent or they can be combined
among themselves or with traditional business models. One company may use several
different business models.
WHAT ARE THE BENEFITS OF EC?
Few innovations in human history encompass as many potential benefits as EC does. The global
nature of the technology, the opportunity to reach hundreds of millions of people, the interactive
nature of EC, the variety of possibilities for its use, and the resourcefulness and rapid growth of
its supporting infrastructures, especially the Web, result in many potential benefits to
organizations, individuals, and society. These benefits are just starting to materialize, but they
will increase significantly as EC expands. It is not surprising that some maintain that the EC
revolution is as profound as the change that accompanied the Industrial Revolution.
Benefits to Organizations:
The benefits of e-commerce to organizations fall into several main categories, as described in the
following list:

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 EC expands the marketplace. With minimal capital outlay, a company can easily
and quickly locate more customers, the best suppliers, and the most suitable
business partners nationally or worldwide. For example, Boeing Corporation
reported a savings of 20 percent after it posted on the Internet a request for a
proposal to manufacture a subsystem. A small vendor in Hungary answered the
request and won the electronic bid. Not only was the subsystem cheaper, but it
was delivered about twice as quickly as Boeing had anticipated. EC also enables
companies not only to find new customers, but also to interact more closely with
them. This promotes better customer relationship management (CRM) and
increases customer loyalty.
EC offers significant cost savings. With EC, companies no longer need to bear the
costs of creating, processing, distributing, storing, and retrieving paper-based
information. For example, by introducing an electronic procurement system,
companies can cut purchasing administrative costs by as much as 85 percent. EC
also lowers telecommunications coststhe Internet is much cheaper to access
than VANs. Further, EC enables efficient e-procurement that can reduce
administrative costs by 80 percent or more, reduce purchasing prices by 5 to 15
percent, and reduce purchasing cycle time by more than 50 percent. By reducing
the length of the operating cycle (the transition from cash to inventories to
receivables and back to cash), companies are able to spend less on financing
costs. The Insights and Additions box, on facing page, lists some specific
examples of savings from EC.
EC improves business organization and processes. EC allows for many
innovative business models that provide strategic advantages and/or increase
profits. Pulltype production processing, such as that used by Dell, allows for
inexpensive customization of products and services, and it provides a competitive
advantage for companies that implement this strategy. In addition, supply chain
inefficiencies, such as excessive inventories and delivery delays, can be
minimized with EC. For example, by building cars to order instead of for dealers
showrooms, the automotive industry expects to save tens of billions of dollars
annually, just from inventory reduction. Group purchasing combined with
electronic bidding is another example of an innovative business model. In short,
e-commerce provides organizations with an unparalleled level of strategic control,
offering a tremendous competitive edge.
EC promotes interactivity. EC allow companies to interact with their customers
and business partners and to receive quick and accurate feedback.
Other benefits of EC include improved corporate image, simplified business processes,
compressed time-to-market (time from the inception of an idea to its implementation),
significantly increased productivity, reduced paper and paperwork, increased access to
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information, and increased flexibility. EC also allows for a high degree of specialization that is
not economically feasible in the physical world. For example, a store that sells only dog toys
can operate in cyberspace (dogtoys.com); in the physical world, such a store would not have
enough customers to be profitable.
Benefits to Consumers:
The benefits of EC to consumers center mostly around convenience, speed, and cost. EC allows
consumers to shop or perform other transactions year round, 24 hours a day, from almost any
location. It provides consumers with more choices of more products, from many vendors.
Consumers can locate relevant and detailed product and service information and conduct
comparisons in seconds, rather than in days or weeks. By enabling consumers to shop in many
places and conduct quick comparisons, EC facilitates competition, which results in substantially
lower prices for consumers. In some cases, especially with digitized products, EC also allows for
quick delivery. Another benefit to customers is the ability to buy customized products and
personalized services at a very reasonable cost. EC offers consumers new forms of interaction,
both commercial and social. Online auctions, for example, allow individuals to sell things
quickly and buyers to locate collectors items and find bargains. EC also allows customers to
design their own products and services, from a car to a shirt. Finally, EC enables customers to
interact with other customers in virtual communities, groups of individuals linked on the
Internet, where they can exchange ideas as well as compare experiences.
Benefits to Society:
EC benefits to society are improvements in the standard of living and delivery of public services.
For example, people in less-developed countries and in rural areas are now able to enjoy
products and services that were otherwise unavailable. This includes opportunities to learn
skilled professions or earn college degrees.
Also, EC enables more individuals to work at home and do less traveling for work or shopping,
resulting in less traffic on the roads and reduced air pollution. Public services, such as health
care, education, and distribution of government social services, can be delivered via EC at a
reduced cost and/or with improved quality. For example, EC provides rural doctors access to
information and technologies with which they can better treat their patients.
WHAT ARE THE LIMITATIONS OF EC?
EC has both technological and nontechnological limitations. The major limitations are
summarized in Exhibit 1.4. Despite these limitations, EC is expanding rapidly. For example, the
number of people in the United States who buy and sell stocks electronically increased from
300,000 at the beginning of 1996 to over 25 million by the spring of 2002. In Korea, about 67
percent of all stock market transactions took place over the Internet in the spring of 2002 (versus
2 percent in 1998). According to the major financial institution J. P. Morgan, the number of
online brokerage customers in Europe will reach 17.1 million in 2003 (versus 1.4 million in
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1999). As experience accumulates and technology improves, the cost-benefit ratio of EC will
increase resulting in greater rates of EC adoption.
The benefits presented here may not be convincing enough reasons for a business to implement
EC. Much more compelling are the economic impact of EC and the digital revolution, along with
the effects of EC on business competition.

WHAT IS THE DIGITAL REVOLUTION AND THE ECONOMIC IMPACT OF EC?

The Digital Revolution:
The digital economy refers to an economy that is based on digital technologies, including digital
communication networks (the Internet, intranets, extranets, and private VANs), computers,
software, and other related information technologies. The digital economy is also sometimes
called the Internet economy, the new economy, or the Web economy. In this new economy,
digital networking and communication infrastructures provide a global platform over which
people and organizations interact, communicate, collaborate, and search for information. This
platform includes the following characteristics:

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o A vast array of digitizable productsdatabases, news and information, books,

magazines, TV and radio programming, movies, electronic games, musical CDs, and
softwarethat are delivered over a digital infrastructure anytime, anywhere in the world.
o Consumers and firms conducting financial transactions digitally through digital
currencies or financial tokens, carried via networked computers and mobile devices.
o Microprocessors and networking capabilities embedded in physical goods such as home
appliances and automobiles.
The term digital economy also refers to the convergence of computing and communication
technologies on the Internet and other networks and the resulting flow of information and
technology that is stimulating e-commerce and vast organizational changes. This convergence
enables all types of information (data, audio, video, etc.) to be stored, processed, and transmitted
over networks to many destinations worldwide. The digital economy is creating an economic
revolution, which, according to the Emerging Digital Economy II (ecommerce.gov), is evidenced
by unprecedented economic performance and the longest period of uninterrupted economic
expansion in history (about 10 years) combined with low inflation. Web-based EC systems are
accelerating the digital revolution by providing competitive advantage to organizations. In a
study conducted by Lederer et al. (1998), enhancing competitiveness or creating strategic
advantage was ranked as the number-one benefit of Web-based systems.
The Economics of Digital System:
The economics of EC are based on principles that sometimes differ from those underlying
traditional markets. These EC principles are drawn from information and network economics.
Consider the following examples. Products Cost Curves The average-cost (AVC) curve of many
physical products and services is U-shaped. This indicates that, at first, as quantity increases, the
average cost declines. As quantity increases still more, the cost goes back up due to increasing
variable costs (especially administrative and marketing costs) in the short run, when production
capacity is fixed. In contrast, the variable cost per unit of digital products is very low (in most
cases) and almost fixed, regardless of the quantity. Therefore, total cost per unit will decline as
quantity increases, as the fixed costs are spread (prorated) over more units. This relationship
results in increasing returns with increased sales.
Other Cost Curves
EC has other economic advantages over traditional commerce. In Exhibit 1.6 we show three cost
componentsthe production function, transaction costs, and agency/administration costsand
the effect of EC on each.
Production function -The production function is shown in Exhibit 1.6a. It indicates that for the
same quantity of production, Q, companies can either use a certain amount of labor or they can
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invest in more automation (they can substitute IT capital for labor). For example, for a quantity
Q 1,000, the lower the amount of labor needed, the higher the required IT investment. When
EC enters the picture, it shifts the function inward (from Q1 to Q), lowering the amount of
labor and/or capital needed to produce the same Q 1,000.
Transaction costs - The economics of the firms transaction costs (costs associated with
conducting a sale) are shown in Exhibit 1.6b. Traditionally, in order to reduce this cost, firms had
to grow in size (as depicted in curve T). In the digital economy, the transaction cost is shifted
inward, to position T. This means that EC makes it possible to have low transaction costs with
smaller firm size or to enjoy much lower transaction costs when firm size increases.
Agency costs - Exhibit 1.6c shows the economics of the firms administrative (agency) costs. In
the old economy, administrative costs (A) grew with the size (and complexity) of the firm,
preventing companies from growing to a very large size. In the digital economy, the
administrative costs curve is shifted outward, too. This means that as a result of EC, companies
can significantly expand their business without too much increase in administrative costs.
Reach vs. Richness - Another economic impact of EC is the trade-off between the number of
customers a company can reach (called reach) and the amount of interactions and information
services they can provide to customers (called richness). According to Evans and Wurster
(2000), for the same amount of cost (resources), there is a trade-off between reach and richness.
The more customers a company wants to reach, the fewer services they can provide to them.

Web Resources
Evolution of E-Commerce (6:52 minutes)
E-Commerce (the growth of e-commerce) (8:02 minutes)
Global E-Commerce in the Future (5:48 minutes)
Social Commerce: It's time to make the move (2:49 minutes)

REVIEW QUESTIONS
1.

What is electronic commerce?

Electronic Commerce is defined as: The use of electronic transmission mediums (telecommunications)
to engage in the exchange, including buying and selling of products and services, involving
transportation, either physically or digitally, from location to location.

2.

What is electronic business?

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Electronic business encompasses all aspects of electronic commerce. Additionally, it is the exchange
of information not directly related to the actual buying and selling of goods. Increasingly, businesses
are using electronic mechanisms to distribute information and provide customer support.
3.

What are five potential benefits of electronic commerce for businesses?

The potential benefits of electronic commerce are:
Internet and web-based electronic commerce is more affordable than traditional EDI;
Internet and web-based electronic commerce allows more business partners to be reached than
with traditional EDI;
Internet and web-based electronic commerce can reach a more geographically dispersed customer
base;
procurement processing costs can be lowered;
cost of purchases can be lowered;
reductions in inventories;
lower cycle times;
better customer service; and
lower sales and marketing costs.

4.

What is the production cycle?

The production cycle time is the time it takes a business to build a product beginning with the design
phase and ending with the completed product.

5.

What are five potential benefits of electronic commerce for consumers?

The five potential benefits of electronic commerce for consumers are:
increased choice of vendors and products;
convenience from shopping at home or office;
greater amounts of information that can be accessed on demand;
more competitive prices and increased price comparison capabilities; and
greater customization in the delivery of services.
U.S. Department of Commerce, 1998

6.

How does greater access to information translate into greater buying power?
Greater access translates in customers having an increased choice of vendors because they are no
longer geographically constrained by a reasonable walking or driving distance. Customers have a
greater choice of services they can receive from global Internet companies. Further, knowledge is
power to the consumer in the negotiation process.

7.

How long did it take the radio to reach 50 million people? The Internet?
In only four years after it was opened to the public, the Internet was able to reach 50 million people,
which is just a fraction of the time it took for radio (38 years), television (13 years), and personal
computers (16 years) to reach the same usage rate.

8.

What is the Internet and who built it?

The Internet is a network of networks. The Internet has evolved over time into its current form, which
is still evolving. The Internet2 is now being implemented. The Internet came online in 1969 as a

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joint project between the Defense Advanced Research Projects Agency (DARPA) and four university
host computers.
9.

When was e-mail put into use?

Electronic mail was introduced in 1972.

10. What three forces lead to the WWWs emergence as the single most dynamic force in information
technology?
increasingly powerful and inexpensive scalable systems and applications;
growing availability of telecommunications, and
the spread of digital information.
11. What is the traditional value chain?
The traditional value chain typically depicts the information system data as flowing sequentially
through the processes with inputs/outputs from the supplier at the back-end stage and to the customer
at the front-end stage.
12. What is the customer-oriented value chain?
The value chain with the customer set as the center of focus to a firm is a customer-oriented valuechain. The firms information system is the glue that links all phases of its processes together. This
customer-oriented value-chain enables the customer to access the firms (the suppliers) information
system at virtually every phase in order to assess the progress of the order.
13. What is a virtual enterprise?
The virtual enterprise is one in which the underlying firms are so inter-meshed that it is difficult to tell
where one organization begins and the other ends. This electronic nexus of firms appears seamlessly
organized to the customer/client.
14. What are the four virtual spaces of Angehrns model? What are the major electronic commerce
concerns of each?
Virtual Information Space
the information that is displayed is accurate and current;
the information that is displayed is only viewed by authorized users;
the customer can easily find the site and navigate through it once they have reached the site; and
the site is accessible without long wait times.
Virtual Distribution Space.
delivery of products and services only to legitimate, approved customers; and
reliable delivery of products and services.
Virtual Transaction Space.
Security over data;
Accuracy and integrity of processing methods;
Reliability of vendor;
Reputability of trading partner; and

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 Privacy concerns by customers.

Virtual Communication Space.
Electronic Commerce is affected if such a community is a service for which its members pay or if
negotiation agents are used.
15. What are the three major legal/regulatory constraints facing electronic commerce?
Three major legal/regulatory constraints faced by businesses engaging in electronic commerce are:
taxation,
privacy, and
encryption.
16. What are three pillars of electronic commerce?
The three pillars of electronic commerce are:
Electronic Information
Electronic Relationships
Electronic Transactions.
17. What is a differentiating feature of electronic commerce from print and broadcasting mediums?
A differentiating feature of electronic commerce from other mediums, such as print and broadcasting,
is that it is interactive and users expect to experience interaction when they visit a site.
18. What are two primary impediments to electronic transactions?
Two impediments to constructing the electronic transaction pillar exist: the ability to engage in
meaningful and sufficient negotiation processes and security of transaction data.
19. What are four security concerns of businesses?
The four security concerns of businesses are:
revenue, information and data integrity loss;
theft of trade secrets or data;
infection with a computer virus; and
manipulation of their internal systems or software applications.

DISCUSSION QUESTIONS
1.

What is one difference between EDI and electronic commerce?

EDI is a subset of electronic commerce. A primary difference is that electronic commerce encompasses
a broader commerce environment than EDI. Electronic commerce allows a marketplace to exist where
buyers and sellers not previously known to one another can transact.

2.

How did use of the Internet help General Electric reduce the cost of goods that it purchased?
General Electric Companys 1997 Internet activity clearly demonstrates that electronic commerce can
provide substantial, tangible benefits to a firm when implemented properly. In 1997, General Electric
purchased approximately $1 billion worth of supplies using the Internet.

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3. How can electronic commerce help to reduce inventory costs? Give an example.
Internet electronic commerce can help firms to more optimally order the inventories by electronically
linking suppliers and purchasers together and allowing them to share updated production forecasts and
projected inventory levels in order to allow both parties to collaboratively "fine-tune" their production
and delivery schedules. Further, the carrying costs of inventory can be reduced if firms are able to
more effectively order goods with less uncertainty. Firms can also use electronic commerce to
unload unwanted inventory.
Example: Wal-Marts link to its suppliers. USAirs unloading of excess capacity via e-mail
notification to customers.
4.

How can electronic commerce help to reduce the production cycle time? What industries can greatly
benefit from this?
Internet electronic commerce is enabling the reduction of the cycle time by allowing engineers and
production teams to electronically share design specifications for initial approval and refinement
processes. The automobile industry, oil refinement, chemical production and any manufacturing firm
will benefit from such reductions.

5.

How can electronic commerce enhance customer service? Give an example.

Customer service can be enhanced using electronic commerce by helping the customer to access
information before, during, and after the sale. Before the sale is made, customers can electronically
retrieve product specifications, quantity, and pricing information. During the product/service
fulfillment cycle, customers can electronically check on the status of the
order. For example, Federal Express' customers can electronically track the status of their packages
without the need to speak with a human. For follow-up service, customers can electronically access
help desks, repair information, etc.

6.

How can electronic commerce help a firm reach its customers in a very low-cost fashion? Give an
example.
Some firms are able to shift some of their sales and marketing functions to electronic processes. This
shift in communication mediums allows the firm to either reduce their overhead costs or better utilize
their human resources to engage in building customer relations rather than performing tedious sales
processing tasks.

7.

Does Internet access make employees more or less productive? Give an example.
Whether the availability to access the Internet for personal use is abused or misused by an employee
depends on the personal characteristics of the employee and their work ethic. For busy employees that
work long-hours, the ability to take care of some errands may ease their tension and allow them to
actually devote more time that is of better quality to their tasks.
Example: A worker is so consumed with surfing and managing his/her stock portfolio on the
Internet that he/she loses track of time and has wasted three hours of company time.
Example: A worker is able to accomplish 2 or 3 errands during the day on the Internet making
it easier for him/her to work late.

8.

Why is it important for web sites to differentiate their sites from other similar sites?
It is important for a web site to differentiate its site from others in order to produce an effect. Similar
to traditional marketing, web site creation must create a brand recognition strategy.

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9. Why do you think the travel industrys Internet growth potential is so great?
The travel industry is a crossover industry in that it serves both businesses and consumers. Prior to the
Internet, the only way to get prices was to call a travel agent or each individual airline. The Internet
allows easier access to flights and other travel arrangements.
10. Why is it so important to align the electronic commerce strategy with the overall business strategy?
If electronic commerce applications are not placed in the proper business context and the strategy
aligned with the business overall business strategy, then the electronic commerce application is likely
to fail. A study by the Cambridge Information Network found that over one-third of firms studied did
not believe that their company successfully implemented its electronic commerce initiative.
Approximately one-fourth of these firms attributed the lack of success to a failure to connect the
electronic commerce effort with the goals of the business. Thus, new business models are necessary
that integrate electronic commerce initiatives with overall business goals.
11. Give examples of how the suppliers information system can be used at every link in the value chain by
the customer?
A customer may link to the firms inventory data such as price, quantity, and availability, prior to
entering into a sales contract.
Example: A general contractor finding price availability before choosing Home Depot as a
supplier.
Further, the customer may be able to electronically receive design and product specifications prior to
entering into a sales contract.
Example: An automobile manufacturer that outsources its car seat manufacturing can ensure that a
suppliers product will fit its design specifications.
The actual sales may be placed electronically and a promised or expected shipping date given by the
suppliers information system to the customer. Once the order is placed, the customer may be able to
check the status of the order/service placed.
Example: Examining the status of an order placed (waiting for shipment, shipped, or delivered).
12. Why do you think web-based firms report more security breaches than other companies?
The nature of the transactions and the vast number of people who have access to the Internet are one of
the primary reasons why firms engage in web-based commerce report more security breaches. By
connecting to the very public Internet, a firm enters a completely new and exponentially larger network
than firms not connected or only connected to a private network. Greater connectivity poses greater
risk and vulnerability.

CASES
1.

Web Site Comparison

For each of the following items, locate two web sites that sell them:
airline tickets;
personal computers;
compact discs; and
clothes.

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a. Mention how you located each site. If you used a search engine. Mention the search engine and
the search terms you used.
b. For each item, record the sites URL and company name. Compare the amount of information
given and the relative prices.
c. Mention which site your preferred and why. Would you return to the site or would you continue to
look for a better site. Why?
Students answers are going to differ. The following is a possible example of an a and b. Part c should
be answered using intelligible support from the information provided:
Airline:
http://www.travelocity.com. Extensive information of hotel, airline, car rental and getaway
packages are offered. Prices vary according to flights and times needed. It allows cross
comparisons.
http://www.americanairlines.com. Information was extensive, but limited to American Airlines.
Pricing was subject to times and destination.
Personal Computers:
http://www.gateway.com. Extensive product information and pricing was offered.
http://www.dell.com. Extensive pricing and customer service was easily assessable.
Compact Discs:
http://www.cdnow.com/cgi-bin/mserver/redirect/leaf=from=bad:s:yhb:kmug:xswad. The
company name is CD Now. Extensive information could be found through its own search
mechanism. Prices are comparable to store prices. Shipping and handling are additional.
http://www.cdusa.com/. The web site offered extensive pricing information and availability.
Clothes:
http://www.llbean.com/products/guide_pages/holiday_gifts/home/?qs=4906900-exci. Extensive
information on current and back issues was located and pricing information.
Http:/www.jcrew.com. Information of store location and catalogs were offered. Pricing data and
other information was given.

2.

ICDT Model
Visit Disneys web site (www.disney.com) and using Angehrns ICDT model, classify the activities
found on the site into the four virtual spaces.
http://www.disney.com can be classified as the virtual information space. The information is easily
accessible and current.
The on-line ordering process may be classified by both the Virtual Distribution and Virtual transaction
space because of the nature of the procurement process and security issues involved.
Virtual communications is encompassed by the on-line chat sessions available from the site and the
corporate relations site.
Students should visit the site in order to grasp the concept of the ICDT model.

3.

Value Chain Management using Electronic Commerce

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Using the Internet, locate a consulting service or software vendor that claims to help firms better
manage their value chains using some form of electronic commerce. Prepare a report for class that
includes the following items:
a. the name of the company;
Roadmap Technologies.
b. type of firm consulting or software vendor;
Roadmap Technologies is a leading provider of value chain analytical applications containing built-in
business intelligence and predictive capabilities for the decision support needs of an organization.
Roadmap software leverages investments in data warehouses, data marts and ERP to deliver
applications for sales forecasting, demand planning, contract. (http://www.roadmap-tech.com/).
management, sales planning and tracking, customer and product profitability.
c. potential benefits to customers of services/software;
To better manage the binding constraints within the value chain.
if a client list is given by the consultant or vendor, list the names of three companies that use or
endorse the service/software.
No client list was given.

d.

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offices.
a.

Why did some of the equipment used in the disaster recovery plan work initially and then ultimately
fail?
The back-up systems were not devised for use over an extended period of time. The back up systems
were generally targeted for use for 24 to 48 hours, not three to five days or even weeks.

b.

Domco, Inc. switched its operations to a disaster recovery site. Why did it have to shut down business
operations for three days? Do you think the disaster recovery plan included a three day business
closure?
Domocos generators failed after three days causing the firm to shut down. The firm did not plan on a
three-day closure, and they did not prepare for all scenarios of disaster recovery. They did not
anticipate a lengthy disaster, nor did they prepare for obstructions of roadways, cellular and
telecommunications, or network lines.

c.

How did advance communications networks help the New York state disaster recovery headquarters?
The advanced communication network allowed the NY state disaster recovery headquarters by
allowing it to link up through frame-relay and Integrated Services Digital Network (ISDN). The
system combines underground ISDN lines and IP (Internet Protocol) networks that dont use regular
phone lines to keep the system running even when phone communication and electricity has failed.

d.

Should this disaster have caught so many businesses off-guard? Was it that unpredictable?
For the geographic location in which these businesses exist in it should not have taken them off guard.
Due to past storms it was not that unpredictable and could have been avoided although it would have
been extremely costly to be more risk adverse to such situations.

e.

Overall, what worked well and what did not? What can be done to improve disaster recovery planning
for this region?
Reliance on traditional forms of communication and transportation failed the companies. The focus of
short-term disaster recovery versus long term viability of a backup proved to be disastrous. NY States
approach of investing in ISDN and IP technology proved to work well. To improve disaster recovery
in this area and all regions past scenarios would serve as possible predictors or the future. Conducting
extensive Dress Rehearsals and preparing for a loss of manpower would serve the companies well.
Although this would help reduce such future occurrences one must still keep in mind the exorbitant
costs associated with reducing control risk.

Chapter Quiz
1. Which of the following is a technological limitation of EC?
A. security and privacy concerns that deter customers from buying
B. order fulfillment requirements of large-scale B2C
C. difficulty obtaining venture capital
D. unresolved taxation, public policy, and legal issues
2. Ebay auctions are mostly:
A. business-to-consumer
B. business-to-business
C. consumer-to-consumer
D. business-to-employees
3. The type of EC transactions used by Zappos are:
A. business-to-consumer
B. business-to-business
C. consumer-to-consumer
D. business-to-employees
4. The second generation of Internet-based services that lets people collaborate and share
information online in new ways, such as social networking sites, wikis, communication
tools, and folksonomies best defines:
A. Social Web
B. EC 2.0
C. Virtual Web
D. Web 2.0
5. Major barriers to EC include all of the following except:
A. implementation difficulties
B. lack of programmers
C. lack of potential customers.
D. competition
E. cost
6. A ________ is a company's method of doing business to generate revenue to sustain itself.
A. marketing strategy
B. business plan
C. value chain
D. business model
7. Large private organizational buyers and government agencies make large-volume or
large-value purchases through ________, also known as reverse auctions.
A. name-your-own-price models
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B. viral marketing
C. electronic tendering systems
D. online direct marketing
8. Economic, legal, societal, and technological factors have created a highly competitive
business environment in which customers are becoming less powerful.
A. True
B. False
9. Electronic commerce is an interdisciplinary field.
A. True
B. False
10. The structure of a social network is often very simple.
A. True
B. False
11. Benefits of e-commerce to customers include:
A. instant delivery.
B. ubiquity.
C. no sales tax.
D. all of the above.
12. A category of Internet applications that helps connect friends, business partners, or
individuals with specific interests by providing free services such as photo presentation, email, blogging, and so on using a variety of tools best describes:
A. public networking.
B. intranet.
C. social networking.
D. extranet.
13. A network that uses the Internet to link ent intranets best defines:
A. extranet.
B. corporate net.
C. collaboration network.
D. relational network.
14. The e-commerce model in which a business provides some product or service to a client
business that maintains its own customers is called:
A. consumer-to-consumer.
B. business-to-business-to-consumer.
C. business-to-consumer.
D. business-to-business.
15. Collaborative computing is an approach aimed at making the human-computer
interface more natural.
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A. True
B. False
16. Enterprise social networks are privately owned by corporations and operate inside
them.
A. True
B. False
17. Pure-play organizations are old-economy organizations that perform their primary
business offline, selling physical products by means of physical agents.
A. True
B. False
18. According to the ________ revenue model, customers pay a fixed amount, usually
monthly, to receive some type of service.
A. subscription fees
B. transaction fees
C. affiliate fees
D. advertising fees
19. A broader definition of EC that includes not just the buying and selling of goods and
services, but also servicing customers, collaborating with business partners, and conducting
electronic transactions within an organization best defines:
A. e-collaboration.
B. e-tailing.
C. cyber business.
D. e-business.
20. Using Web 2.0 tools, companies can:
A. provide incentives such as sweepstakes and contests for customers to get involved in new
product or service design and marketing campaigns.
B. encourage consumers to rate and comment on products.
C. allow consumers to create their own topic areas and build communities.
D. do all of the above.
21. Many companies use a corporate portal, which is a gateway for customers, employees,
and partners to reach corporate information and communicate with the company.
A. True
B. False
22. Facebook is an example of an enterprise social network.
A. True
B. False
23. Purchasing a computer from Dell's Web site is partial EC because the merchandise is
physically delivered.
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A. True
B. False

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