Electronic Commerce COMP3210

2. Electronic Commerce COMP3210 Session 1: An Introduction to Electronic Commerce Dr. Paul Walcott Department of Computer Science, Mathematics and PhysicsUniversity of the West Indies, Cave Hill CampusBarbados © 2007 Dr. Paul Walcott The Department of Computer Science Mathematics and Physics, University of the West Indies, Cave Hill Campus, Barbados

3. Session Objectives • Define e-commerce? • Compare and contrast the advantages and disadvantages of e-commerce • Compare and contrast the 1st and 2nd waves of e-commerce • Comprehend the categories of e-commerce?

4. Session Objectives Cont’d • Discuss the following: • Markets • Value chains • Transaction cost • Evaluate international electronic commerce issues

5. What is Commerce? • Traditional commerce may be defined as: • From Webster's Revised Unabridged Dictionary • Commerce : \Com"merce\, noun. The exchange or buying and selling of commodities; esp. the exchange of merchandise, on a large scale, between different places or communities; extended trade or traffic.

6. What is E-Commerce? Electronic commerce (e-commerce) is a general term for any type of business, or commercial transaction that involves the transfer of information across the Internet. This covers a range of different types of businesses from consumer-based retail sites, like Amazon.com, through auction and music sites like eBay or MP3.com, to business exchanges trading goods or services between corporations.

7. What is E-Commerce Cont’d? Electronic commerce is the use of electronic communication to do business. E-commerce is not about technology. It is not a new business. E-commerce is a method for companies to create and operate their business in new and efficient ways.1

8. What is E-Commerce Cont’d? Most fundamentally, e-commerce represents the realization of digital, as opposed to paper-based, commercial transactions between businesses, between a business and its consumers, or between a government and its citizens or constituent business.2

9. What isE-Commerce Cont’d? • In summary, e-commerce is the • use of electronic communication to do business • Specifically, the transfer of information (transactions), over the Internet • Some people use the term e-business to refer to all the categories of e-commerce • E.g. IBM defines e-business as: • The transformation of key business processes through the use of Internet technologies

10. From Traditional Commerce to E-commerce3 Sailing ships Opened avenues for trade between buyers and sellers. Ancient times (thousands of years ago) Printing press Steam engine Telephone

11. From Traditional Commerce to E-commerce Cont’d Electronic Funds Transfer (EFTs) Wire transfers - used by banks Businesses transfer electronic data- data not re-keyed- high implementation cost, thus excluded small businesses Electronic Data Interchange (EDI) Internet On-line shopping

12. Business Processes Suited to Certain Type of Commerce3 • E-commerce • Sale/purchase of books & CDs, travel services, investments and insurance services • Online delivery of software • Online shipment tracking

13. Business Processes Suited to Certain Type of Commerce Cont’d • A combination of E-commerce and Traditional Commerce • Sale/purchase of automobiles and residential real estate (e.g. do research online then buy from a dealer or real estate agent) • Online banking • Roommate matching service

14. Business Processes Suited to Certain Type of Commerce Cont’d • Traditional Commerce • Sale/purchase of impulse items for immediate use, high fashion jewelry and antiques (personal inspection required; prefer to touch, smell or examine closely) • Small denomination purchases and sales (since there is not yet a standard for transferring small amounts of money)

15. What are the Advantages of E-commerce?3 • Increases sales, decreases cost • Allows small businesses to have global customer base • Reduced cost through electronic sales enquires, price quotes and order taking • Provides purchasing opportunities for buyers (businesses can identify new suppliers and partners) • Increases the speed and accuracy of exchanged information, thus reduces cost

16. What are the Advantages of E-commerce Cont’d? • Business can be transacted 24 hours a day • The level of detail of purchase information is selected by user • Digital products can be delivered instantly • Tax refunds, public retirement and welfare support costs less when distributed over the Internet • Allows products and services to be available in remote areas, e.g. remote learning

17. What are the Disadvantages of E-commerce?3 • Inability to sell certain products (e.g. high cost jewelry and perishable foods; although supermarkets such as www.Tesco.com deliver perishable food items to your home) • The newness and evolution of the current technology • Many products require large sales volumes in order to be viable • This is a challenge for small island economies; in the Caribbean the CARICOM Single Market and Economy (CSME) might provide opportunities since it comprises some 14 million people (if Haiti is included – only 6 million if it is not) • http://www.ab.gov.ag/gov_v2/government/docs/csme/aboutcsme/background_info.html

18. What are the Disadvantages of E-commerce Cont’d? • A large capital investment is required to startup and run e-commerce initiatives • Difficulty in integrating current databases and transaction processing systems (legacy systems) into e-commerce solutions • Cultural and legal obstacles • Transmission of credit card information • Some consumers’ resistance to change • E-commerce legislation is not well developed and is often unclear • Shipping profile • Products with a low value-to-weight ratio that can not be efficiently packed and shipped are unsuitable for e-commerce (use traditional commerce)

19. The 1st Wave of E-commerce3 • The 1st wave was from the mid 1990s to 2003 • During the dot-com boom over $100 billion was invested and a rapid growth of e-commerce was seen (mid-1990s – 2000) • The dot-com bust occurred in 2000 • This was followed by the gloom years, 2000 – 2003 (however, during this time over $200 billion was invested in e-commerce)

20. Characteristics of the 1st Wave • It was primarily a U.S. phenomenon • Web pages were in English • Internet technologies were slow and inexpensive (e.g. dial-up lines) • Bar codes and scanners used to track parts (B2B and Business processes) • Email, tool for unstructured communication • On-line advertising main revenue source

21. The 2nd Wave of E-commerce • Beginning in 2003 e-commerce showed new signs of life • Companies like Amazon.com (books), and eBay.com (auctions) who survived the downturn were beginning to show profits • Continuous growth of B2C sales: 20-30% each year since 2000

22. Characteristics of the 2nd Wave • International scope - sellers do business in many countries and languages • Faster connections (x20 faster), broadband at home (although more expensive) • Radio frequency ID devices (are used to track packages) and smart cards • Fingerprint readers and retina scanners (biometric technologies) used for tracking (physical security) • Email is now an integral part of marketing

23. Characteristics of the 2nd Wave Cont’d • E-commerce is an integral part of marketing and customer contact strategy • Some categories of on-line advertising, e.g. employment services (job want ads) have replaced traditional advertising outlets • Some problems however include: • Language conversions • Currency conversions

24. E-commerce Categories3 • There are five general e-commerce categories: • Business to Consumer (or B2C) e-commerce • Business to Business (or B2B) e-commerce (sometimes called e-procurement) • Business processes that support buying and selling activities • Consumer-to-consumer (or C2C) e-commerce • Business-to-government (or B2G) e-commerce

25. B2C e-commerce • Description • Businesses sell products or services to individual customers (consumers) • Example • Walmart.com sells merchandise to consumers through its Web site • Web site • www.walmart.com

26. B2B e-commerce • Description • Businesses sell products or services to other businesses • Example • Grainger.com sells industrial supplies to large and small businesses through its Web site • Web site • www.grainger.com

27. Business Processes that Support Buy/Sell Activities • Description • Businesses and other organisations maintain and use information to identify and evaluate customers, suppliers and employees (and to support buying, selling hiring, planning and other activities). More and more of this information is being shared • Example • Dell Computer uses secure internet connections to share current sales and forecasts information with suppliers who use it to plan their production. • As a result they deliver the right quantities of components at the right time

28. C2C e-commerce • Description • Participants in an online marketplace can buy and sell goods from each other • Example • Consumers and businesses trade with each other on eBay.com • Web site • www.ebay.com

29. B2G e-commerce • Description • Business sell goods or services to governments and government agencies • Example • Cal-Buy portal for businesses that want to sell online to the State of California • Web site • www.pd.dgs.ca.gov/calbuy/default.htm

30. E-commerce Categories Example • You are a computer manufacturing company who performs the following activities on the Internet: • Sells computers to individuals (B2C) • Purchases parts (e.g. hard drives, power supplies etc.) from a supplier (B2B) • Hires staff, manage customer accounts, advertise, etc. (Business processes) • Sells computers to the Government to be used in schools (B2G) • On eBay.com individuals buy and sell this brand of computers (C2C)

31. Relative Sizes of E-commerce Categories3 Business processes that support buy/sell activities B2B e-commerce B2C e-commerce

32. Relative Sizes of E-commerce Categories Cont’d

33. Relative Sizes of E-commerce Categories Cont’d • At the end of 2006 actual B2C sales revenue in the US was US$219 billion4 • However, in the same period the B2C sales revenue in Europe was US$133 billion5 • E-Commerce in Europe is currently dominated by the UK, Germany and France (72% total online sales) • Annual growth of 25% is expected over the next 4 years5

34. Economic Forces • Economics is the study of how people allocate scare resources • Resources are allocated through: • Commerce (markets) • Government actions (e.g. taxes)

35. Markets • A market is a place where sellers can come into contact with buyers and a medium of exchange (e.g. currency) is available (e.g. the stock market) • Some hierarchal organisations (companies) however, due to high transaction cost, choose to replace supplier markets with its own hierarchal structure for creating the product. This is called vertical integration • E.g. Thomson Financial, a financial software provider, purchased the financial data supplier Datastream ICV

36. Hierarchical Organisations (Firms)

37. Transaction Costs • Transaction costs are the total costs that a buyer and seller incur as they gather information and negotiate a purchase/sale transaction • Transaction costs are the main reason for vertical integration (Ronald Coase) • Businesses can use e-commerce to reduce transaction costs (e.g. telecommuting rather than physical commuting to allow global employment opportunities)

38. Transaction Costs Example • Transaction costs incurred by a sweater dealer when purchasing from independent sweater knitters: • Cost of identifying independent knitters • Cost of site visit to negotiate purchase price, arrange delivery and inspection of sweaters • Costs incurred by knitters: • Knitting tools and yarn purchase

39. Network Economic Structures • Many businesses operate in an economic structure that is neither market or hierarchical • These businesses form, long-term, strategic alliances with other companies who share common goals and strategies • These alliances may occur over the Internet – which are called virtual companies • Teams complete a project or activity then dissolve • New teams are creating as required

40. Value Chains • A value chain is a way to organise the activities that a business undertakes to design, produce, promote, market, deliver and support the products or services it sells • There are several types of value chains including: • Business unit value chains • Industry value chains

41. Strategic Business Unit Value Chains • A strategic business unit is a particular combination of product, distribution channel and customer type (large firms often break down their business into these units) • The value chain for a strategic business unit includes: • Primary activities (the activities that the strategic business unit undertakes • Support activities (such as human resource management and purchasing)

42. Manufacturer Value Chain Primary activities After sales service & support Manufacture product or create service Design deliver Purchase materials and supplies Identify customers Market & sell Support activities Technology development Finance & admin HR

43. Primary Activities • Identify new customers, and sell new services to existing customers (research & surveys) • Design – from concept to manufacturing • Purchase materials and supplies – includes contracts, vendor selection, monitoring quality and delivery timeliness • Manufacture product or create service –transform materials and labour into finished products

44. Primary Activities Cont’d • Market and sell – advertising, promoting, managing sales staff, pricing and monitoring sales • Deliver – store, deliver distribute and ship final product – warehousing, consolidating freight, selecting shippers and monitoring delivery timeliness • Provide after-sale service and support – promote relationship with customer, e.g. installing, maintaining, testing, repairing, and warranties

45. Primary Activities Cont’d • If a strategic business unit provides a service then the value chain will include a “Provide service” activity instead of “Manufacture activity”

46. Support Activities • Each business unit must also undertake support activities that provide the infrastructure for the primary activities: • Finance and administration – accounting, paying bills, borrowing, compliance with laws • Human resources – recruiting, hiring, training, compensation and benefits • Technology development – improves the product or service, including basic and applied research and development, process improvement and field tests of maintenance procedures

47. Industry Value Chains • Industry value chains describes the larger stream of activities into which a particular business unit’s value chain is embedded • When a business unit delivers a product to a customer the customer might use the product as purchased materials in its value chain • By examining how other business units in the industry value chain conduct their business, cost reduction and product improvement may result

48. Industry Value Chain Example • A value chain for a wooden chair: • Logger cuts down tree • Sawmill converts logs to lumber • Lumberyard provides selection of lumber • Chair manufacture assembles chair • Furniture retailer markets and sells chair • Consumer purchases and uses chair • Landfill or recycler disposes of chair

49. SWOT Analysis3 • SWOT analysis is used to analyse and evaluate business opportunities • SWOT is an acronym for: • Strengths • Weaknesses • Opportunities • Threats

50. SWOT Analysis Cont’d • An analyst examines the business unit to determine strengths and weaknesses • Then examines the business environment to identify opportunities and threats