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E-Commerce Systems

Key Ideas

There are several types of electronic commerce categories: business to business (B2B), business to consumer (B2C), consumer to consumer (C2C), and government to constituent (G2C). Electronic commerce is having an impact on all levels of the economy.

Electronic commerce affects economies, organizations and individuals in some positive and some negative ways.

Ebiz Categories
B2B
B2C

C2C

BUSINESS

CONSUMER

B2G

G2C

GOVERNMENT

G2G

Business Models

How a company generates revenue

Architecture of the business flow of goods/services

TRADITIONAL SUPPLY / VALUE CHAIN

Assembly,

Raw Materials

Parts

manufacturing, Distribution packaging

Retail

Customer
1st tier suppliers 2nd tier suppliers

What are the benefits for entities involved? What are the sources of revenue?

Business to Business (B2B)

The largest category by far EDI required large volume of transactions for economic application B2B buyer and seller both interact with exchange Different models Catalogue aggregators (I.E. e-STEEL) Auction model Market exchange model (i.e. Houston Street electricity) Affiliate Model (i.e. Amazon.com crosslisting)

Business to Consumer (B2C)

Electronic stores

Traditional catalogue translated to the web

Clicks and bricks (aka clicks and mortar)

Different levels of integration of web and store activities

On-line auctions (BidButler for min & max bid) Electronic mall (Fashionmall.com) Promotion and customer service sites (Hewlett Packard) Content and advertising sites (Edmunds Car Search) Subscription models (Wall Street Journal) Clubs and communities (ClubTommy)

Consumer to Consumer (C2C)

Auctions and classifieds (eBay, Half.com)

Need for a feedback forum

Meetings and buddy lists, discussion groups

Advertisement model Popularity

Government to Constituent (G2C)

Information regarding services Savings (lower Permits and licenses costs), Portals and welcome mat to visitors efficiency Voting and governance
Quote: There is sufficient interest in G2C ebusiness that technology companies such as IBM, and prestigious consulting firms such as Booz Allen & Hamilton have divisions devoted to electronic Government (Van Slyke & Belanger)

Ebiz Impacts on the Economy

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The New Economy (Digital)

Kelly (1998)
The new economy is global The new economy prefers the intangible

Intellectual goods / services The tertiary economy

The new economy is intensely interlinked

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Economic Efficiency

Reduces cost of posting or calling for an order But, substitutes costs of building and maintaining the system

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Network Effects Email is more valuable if more people are using it Growth can be explosive
2 nodes, 1 connection 4 nodes, 6 connections How many connections with: 5 nodes? 6 nodes? 7 nodes?

3 nodes 3 connections

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Globalization

Is Geography Dead?

I.e. Translation work performed in other countries Customs and taxes Privacy and legal issues Cultural preferences Language

BUT

I.e. translating products names in other languages

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Ebiz Impacts on Organizations

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Operational Efficiency

Extension of Electronic Data Interchange (EDI) Supply chain management

How is this different for intangible goods?

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Effects of Operational Efficiency

Disintermediation

Cutting out some of the steps in the supply chain May also lower inventories with just in time deliveries

Lowering communication costs

Enterprise resource planning (ERP) systems

Enable efficient and integrated data management

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Example of Disintermediation
VALUE CHAIN FOR SELLING BOOKS TO CONSUMERS
Editor/ Publisher

Author

Agent

Printer

Distributor

Distributor

VALUE CHAIN COMPRESSION

Author Agent Editor/ Publisher Consumer

Rocket eBook Fatbrain.com

CONSUMER BENEFITS OF ONLINE DELIVERY Speed - real real-time delivery Convenience - 7x24 Price lower than physical books no shipping costs

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Effects of Operational Efficiency

Disintermediation

Cutting out some of the steps in the supply chain May also lower inventories with just in time deliveries

Lowering communication costs

Enterprise resource planning (ERP) systems

Enable efficient and integrated data management

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Electronic Business Investments

Cost of staffing

Skills such as Java and ASP programming, still somewhat scarce

Significant technology investment often required

May require significant capital expenditure

May cannibalize existing products (I.e SIM cards) Difficult to accurately estimate traffic and capacity needs

Dangers of over or under estimating

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Changing Market Structure

Created day trading (really?) Created MP3 enabled music players (changing the music industry) E-business has different impacts based on the characteristics of the industry

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RELATIVE IMPACT OF ELECTRONIC COMMERCE IN VARIOUS INDUSTRIES

Product substitution, innovation Global reach Product fragmentation, re-bundling

Lowest Impact

High (Differentiated)

..

Nuclear Submarines Big 3 Auto Manufacturers

UNIQUENESS Features Tailoring Buying experience Brand

Amazon.com Dell Gasoline Banking/Brokerage Retail Pharmacy Food

Low (Commodity)
Highest Impact

Unbundling of relationships Intense price competition New intermediaries

High

CUSTOMIZATION DEGREE Product/service Buying/servicing experience

Low

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Ebiz Impacts on Individuals

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Advantages & Limitations

Almost half of on-line shoppers cite convenience

24 hours a day, seven days a week (anywhere, anytime)

Only 2% cite lower prices Informed buyer Limitations

Better for products you dont need to touch & feel Time delay from purchase to receipt of product (if tangible)

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Advantages: Increased Choice

Broader array of suppliers Interactive catalogues Consumer pull rather than merchant push Customer relationship management
Building profiles of users (potentially anticipating needs as they arise) Differentiating products and prices

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Limitations: Access Inequalities

The digital divides

Wealthy nations and poorer nations Development skills for those with access versus those without Different access to government services and protections Potential distinction by gender, race, age

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Potential for Fraud

Credit card fraud

Difficulty authenticating purchaser identity Escrow service Rating and commenting

On-line auction fraud

Multilevel marketing/pyramids Travel and vacation

Similar to traditional fraud

Substandard services

Internet access services International modem dialing Web cramming

Business opportunities Investments Health care products and services

Not really free products

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Electronic Payment Security Technologies

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Authentication

Digital signatures
A unique code applied to an electronically transmitted message that identifies the sender Uses hashing technology so that changing the code will no longer match with the document

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Digital Certificates

An electronic document that verifies the sender or receivers identify Certificate authority Types and classes of digital certificate
Site certificates Personal authority certificates Certifying authority certificates Software publisher certificates

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Privacy & Security

Privacy

statement or policy Trust seals

BBBOnLine,

subsidiary of Better Business Bureau AICPA WebTrust, examination by CPA TRUSTe, administered by nonprofit group

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Secure Sockets Layer (SSL)

A protocol designed to provide a secure connection between the sender and receiver of information Server name of https://

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Functioning of SSL

Three basic properties of secure channel

The channel is private The channel is authenticated The channel is reliable

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Establishing an SSL Secure Connection

1. 2. 3. 6. 7. 8. 9. User browses Web Selects payment screen Request sent to server Browser Browser Browser Browser picks one algorithm creates key pair encrypts secret key sends encrypted key to server

4. 5.

Server returns payment screen Server returns certificate

10. Server decrypts

Two-way encrypted transmissions can occur

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Secure Electronic Transaction (SET)

A security protocol designed for handling encrypted electronic payments online Specifications include:
Confidentiality of information Payment data integrity Authentication of merchants, cardholders, and clearinghouses Interoperability with other protocols

Dual Signature

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Digital Wallet

Software that encrypts payment information and stores it in a file Opponents suggest serious privacy and security issues

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Examples

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Yahoo, Inc.

How is Yahoo doing financially right now? Is Yahoo making the right moves toward continuing e-commerce profitability? Will Yahoo be able to compete successfully with AOL and MSN as an online service and e-commerce portal?

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ChemConnect & Heritage Services

What are the business benefits and limitations of using public B2B exchanges like ChemConnect? What is the business value of private B2B exchanges for a company? Should a small business use public or private B2B exchanges, or should they use exchanges like eBay, that attract both consumers and small businesses?

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Staples, Steelcase, Countrywide, & HSN

Does the fact that customers who shop online and in other channels generate more sales, as Staples and HSN have found, mean that most companies should have an e-commerce website? Do you agree with Steelcase that it is better for people to get product information online than from a salesperson?

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eBags, Economy.com, & Classmates Online

Do you feel that eBags will be able to sustain its profitability? How else could Economy.com increase its products, markets, and profitability? How could other kinds of businesses use the Classmates Online business model to help strengthen their e-commerce success?

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Office Depot, Lands End, & Others

Which website, Office Depot or Lands End, does a better job of helping users find the products they want? Which website capability or feature would you most like to see added to ecommerce websites?