Chapter 1 Foundations of Electronic Commerce docx

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© Prentice Hall, 2000
Chapter 1
Foundations of Electronic
Commerce

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Learning Objectives
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Define electronic commerce and describe its various
categories
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Distinguish between electronic markets and inter-
organizational systems
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Describe the benefits of electronic commerce to
organizations, consumers, and society
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Describe the limitations of electronic commerce
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Understand the forces that drive the widespread use
of electronic commerce
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Describe and discuss the changes that will be
caused by electronic commerce
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Discuss some major managerial issues regarding
electronic commerce

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Opening Vignettes:
Intel Corp. and Happy Puppy
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Intel Corporation
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Business-to-business (B2B) products selling
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Customer service
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Purchasing from and dealing with suppliers
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Happy Puppy
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Retailing company’s games
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Marketing others’ games
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Business-to-consumers (B2C)

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Definitions and Content of Field
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Electronic Commerce (EC) is where business
transactions take place via telecommunications
networks, especially the Internet.
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Electronic commerce describes the buying and selling

of products, services, and information via computer
networks including the Internet.
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The infrastructure for EC is a networked computing
environment in business, home, and government.
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E-Business describes the broadest definition of EC. It
includes customer service and intrabusiness tasks. It
is frequently used interchangeably with EC.

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A global networked environment is known
as the Internet
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A counterpart within organizations, is
called an intranet
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An extranet extends intranets so that they
can be accessed by business partners.
Definitions and Content of Field (cont.)

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Pure Vs. Partial Electronic
Commerce
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Three dimensions
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the product (service) sold [physical / digital];
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the process [physical / digital]
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the delivery agent (or intermediary) [physical / digital]
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Traditional commerce
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all dimensions are physical
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Pure EC
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all dimensions are digital
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Partial EC
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all other possibilities include a mix of digital and
physical dimensions

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Physical
agent
Digital
agent
Digital
Product
Physical
Product
Physical process

Digital process
Virtual process
Virtual delivery agent
Virtual product
Electronic
commerce areas
The core of
electronic commerce
The Dimensions of Electronic
Commerce
Traditional
commerce

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Figure 1.2 shows that the EC applications are
supported by infrastructures, and their
implementation is dependent on four major areas
(shown as supporting pillars) people, public
policy, technical standards and protocols, and
other organizations.
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The EC management coordinates the
applications, infrastructures, and pillars. It also
includes Internet marketing and advertisement.
The Electronic Commerce Field
A Framework for Electronic Commerce
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Electronic Commerce Applications

• Stocks Jobs • On-line banking
• Procurement and purchasing• Malls • On-line marketing and advertising
• Home shopping • Auctions • Travel • On-line publishing
People:
Buyers, sellers,
intermediaries,
services, IS people,
and management
Public
policy,
legal, and
privacy
issues
Technical standards
for documents,
security, and
network protocols
payment
Organizations:
Partners,
competitors,
associations,
government services
Infrastructure
(1)
Common business
services infrastructure
(security smart
cards/authentication
electronic payment,

directories/catalogs)
(2)
Messaging and
information distribution
infrastructure
(EDI, e-mail, Hyper Text
Transfer Protocol)
(3)
Multimedia content
and network
publishing infrastructure
(HTML, JAVA, World
Wide Web, VRML)
(4)
Network infrastructure
(Telecom, cable TV
wireless, Internet)
(VAN, WAN, LAN,
Intranet, Extranet)
(5)
Interfacing
infrastructure
(The databases,
customers, and
applications)
Management
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A market is a network of interactions and
relationships where information, products,
services, and payments are exchanged.
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The market handles all the necessary
transactions.
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An electronic market is a place where shoppers
and sellers meet electronically.
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In electronic markets, sellers and buyers
negotiate, submit bids, agree on an order, and
finish the execution on- or off-line.
Electronic Markets
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Shopper/Purchaser Seller/Supplier
Electronic Market
(Transaction Hander)
Electronic commerce
network
(Infrastructure)
Product/service information request
Purchase request
Payment or payment advice
Purchase fulfillment request
Purchase change request
Response to fulfillment request
Shipping notice
Payment approval

Electronic transfer of funds
Electronic transfer of funds
Shopper/Purchaser’s Bank
Payment remittance notice
Electronic transfer of funds
Transaction Handler’s Bank
(Automated Clearing House)
Seller/Supplier’s Bank
Electronic Markets
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Response to information request
Purchase acknowledgment
Shipping notice
Purchase/service delivery (if online)
Payment acknowledgment

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An interorganizational information system (IOS)
involves information flow among two or more
organizations.
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Its major objective is efficient routine transaction
processing, such as transmitting orders, bills, and
payments using EDI or extranets.
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Scope: An IOS is a unified system
encompassing two or several business partners.
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A typical IOS includes a company and its
suppliers and and/or customers.
Interorganization Information Systems

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Electronic data interchange (EDI)
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Extranets
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Electronic funds transfer (EFT)
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Integrated messaging systems
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Shared databases
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Electronically-supported supply chain
management
Types of Interorganizational Systems

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Business-to-business
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Business-to-customer
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Intra business transactions
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Others
Electronic
Commerce
Business to Business
Business to Customer
Intraorganizational
Other
Interorganizational
System
Business to Business
Classification of Electronic Commerce
Classification of EC by the Nature
of the Transactions
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Marketing
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Computer sciences
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Consumer behavior
and psychology
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Finance
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Economic
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Production/Logistic

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Management
information systems
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Accounting and
auditing
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Management
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Business law and
ethics
Electronic Commerce is
Interdisciplinary

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The Benefits of
Electronic Commerce
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Expands the marketplace to national and
international markets
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Decreases the cost of creating, processing,
distributing, storing and retrieving paper-based
information
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Allows reduced inventories and overhead by
facilitating “pull” type supply chain management
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The pull type processing allows for customization

of products and services which provides
competitive advantage to its implementers
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Benefits to Organizations

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Benefits to Organizations (cont.)
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Reduces the time between the outlay of capital
and the receipt of products and services
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Supports business processes reengineering
(BPR) efforts
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Lowers telecommunications cost - the Internet is
much cheaper than value added networks
(VANs)

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Benefits to Customers
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Enables customers to shop or do other
transactions 24 hours a day, all year round from
almost any location
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Provides customers with more choices
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Provides customers with less expensive products

and services by allowing them to shop in many
places and conduct quick comparisons
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Allows quick delivery of products and services in
some cases, especially with digitized products

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Benefits to Customers (cont.)
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Customers can receive relevant and detailed
information in seconds, rather than in days or
weeks
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Makes it possible to participate in virtual auctions
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Allows customers to interact with other
customers in electronic communities and
exchange ideas as well as compare experiences
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Electronic commerce facilitates competition,
which results in substantial discounts.

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Benefits to Society
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Enables more individuals to work at home, and to
do less traveling for shopping, resulting in less
traffic on the roads, and lower air pollution

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Allows some merchandise to be sold at lower
prices benefiting the poor ones
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Enables people in Third World countries and
rural areas to enjoy products and services which
otherwise are not available to them
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Facilitates delivery of public services at a
reduced cost,increases effectiveness, and/or
improves quality

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The Limitations of
Electronic Commerce
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Lack of sufficient system’s security, reliability,
standards, and communication protocols
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Insufficient telecommunication bandwidth
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The software development tools are still evolving
and changing rapidly
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Difficulties in integrating the Internet and electronic
commerce software with some existing
applications and databases
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Technical Limitations of Electronic Commerce

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Technical Limitations of
Electronic Commerce (cont.)
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The need for special Web servers and other
infrastructures, in addition to the network servers
(additional cost)
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Possible problems of interoperability, meaning
that some EC software does not fit with some
hardware, or is incompatible with some operating
systems or other components

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Non-Technical Limitations
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Cost and justification (35% of the
respondents)
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The cost of developing an EC in house can be
very high, and mistakes due to lack of experience,
may result in delays. There are many
opportunities for outsourcing, but where and how
to do it is not a simple issue. Furthermore, to
justify the system one needs to deal with some
intangible benefits which are difficult to quantify.

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Security and Privacy (17% of the respondents)
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These issues are especially important in the B2C area,
and security concerns are not truly so serious from a
technical standpoint. Privacy measures are constantly
improving too. Yet, the customers perceive these
issues as very important and therefore the EC industry
has a very long and difficult task of convincing
customers that online transactions and privacy are, in
fact, fairly secure.
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Lack of trust and user resistance (4%)
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Customers do not trust an unknown faceless seller,
paperless transactions, and electronic money. So
switching from a physical to a virtual store may be
difficult.
Non-Technical Limitations (cont.)

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Other limiting factors are:
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Lack of touch and feel online
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Many unresolved legal issues

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Rapidly evolving and changing EC
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Lack of support services
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Insufficiently large enough number of sellers
and buyers
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Breakdown of human relationships
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Expensive and/or inconvenient accessibility to
the Internet
Non-Technical Limitations (cont.)