Introduction to E-Commerce Internet Technology Provides the Vehicle for E-Commerce Electronic Commerce is the buying, selling, and trading of goods on the Internet.
Introduction to E-Commerce Benefits of E-Commerce
Introduction to E-Commerce Shop-at-home convenience Detailed product information Customer controls transaction Simplified ordering Open 24/7/365 Improved Customer Service
Introduction to E-Commerce Elimination of Boundaries Direct to customer (no middleman) Expanded Markets
Introduction to E-Commerce Streamlined order processing Fewer errors in order entry Increased speed Lower marketing costs Cost Cutting
Introduction to E-Commerce Additional sales channel User fee income Advertising Income Lower marketing costs Higher Profits
Introduction to E-Commerce Security & privacy Scams & Fraud Down time & poor service Awkward design & functionality Lack of retail experience E-Commerce Challenges
Introduction to E-Commerce Where to Use E-Commerce • Value Chain Analysis • SWOT Analysis
Chapter 2 Technology Infrastructure: The Internet and the World Wide Web
Technology Overview • Computer networks and the Internet form the basic technology structure for electronic commerce. • The computers in these networks run such software as: • Operating systems, database managers, encryption software, multimedia creation and viewing software, and the graphical user interface
Packet-Switched Networks • A local area network (LAN) is a network of computers close together. • A wide area network (WAN) is a network of computers connected over a great distance. • Circuit switching is used in telephone communication. • The Internet uses packet switching • Files are broken down into small pieces (called packets) that are labeled with their origin, sequence, and destination addresses.
Routing Packets • The computers that decide how best to forward each packet in a packet-switched network are called ‘routers’. • The programs on these routers use ‘routing algorithms’ that call upon their ‘routing tables’ to determine the best path to send each packet. • When packets leave a network to travel on the Internet, they are translated into a standard format by the router. • These routers and the telecommunication lines connecting them are referred to as ‘the Internet backbone’.
Internet Protocols • A protocol is a collection of rules for formatting, ordering, and error-checking data sent across a network.
Internet Protocols • The open architecture has four key rules that have contributed to the success of the Internet. • Independent networks should not require any internal changes to be connected to the network. • Packets that do not arrive at their destinations must be retransmitted from their source network. • Router computers act as receive-and-forward devices; they do not retain information about the packets that they handle. • No global control exists over the network.
Internet Protocols • The Transmission Control Protocol (TCP) and the Internet Protocol (IP) are the two protocols that support the Internet operation (commonly referred to as TCP/IP). • The TCP controls the disassembly of a message into packets before it is transmitted over the Internet and the reassembly of those packets when they reach their destination. • The IP specifies the addressing details for each packet being transmitted.
IP Addresses • IP addresses are based on a 32-bit binary number that allows over 4 billion unique addresses for computers to connect to the Internet. • IP addresses appear in ‘dotted decimal’ notation (four numbers separated by periods).
Domain Names • To make the numbering system easier to use, an alternative addressing method that uses words was created. • An address, such as www.course.com, is called a domain name. • The last part of a domain name (i.e., ‘.com’) is the most general identifier in the name and is called a ‘top-level domain’ (TLD).
Web Page Delivery • Hypertext Transfer Protocol (HTTP) is the set of rules for delivering Web pages over the Internet. • HTTP uses the client/server model • A user’s Web browser opens an HTTP session and sends a request for a Web page to a remote server. • In response, the server creates an HTTP response message that is sent back to the client’s Web browser. • The combination of the protocol name and the domain name is called a uniform resource locator (URL).
Hypertext Markup Language • HTML is a simplified programming language that includes tags defining the format and style of text elements in a document.
HTML Tags • An HTML document contains both document text and elements. • Tags are codes that are used to define where an HTML element starts and (if necessary) where it ends. • In an HTML document, each tag is enclosed in brackets (<>). • A two-sided tag set has an opening tag and a closing tag.
HTML Links • Hyperlinks are bits of text that connect the current document to: • another location in the same document • another document on the same host machine • another document on the Internet • Hyperlinks are created using the HTML anchor tag.
HTML Editors • HTML documents can be created in any general-purpose text editor or word processor. • Sophisticated editors can create full-scale, commercial-grade Web sites with database access, graphics, fill-in forms, and display the Web page along with the HTML code. • Microsoft FrontPage and Macromedia Dreamweaver are examples of Web site builders.
International Nature of Electronic Commerce • Companies with established reputations • Often create trust by ensuring that customers know who they are • Can rely on their established brand names to create trust on the Web • Customers’ inherent lack of trust in “strangers” on the Web • Logical and to be expected
Language Issues • To do business effectively in other cultures • Must adapt to culture • Researchers have found that • Customers are more likely to buy products and services from Web sites in their own language • Localization • Translation that considers multiple elements of local environment
Culture Issues • Important element of business trust • Anticipate how the other party to a transaction will act in specific circumstances • Culture • Combination of language and customs • Varies across national boundaries • Varies across regions within nations
Infrastructure Issues • Internet infrastructure includes • Computers and software connected to Internet • Communications networks over which message packets travel • Organization for Economic Cooperation and Development’s (OECD) • Statements on Information and Communications Policy • Deal with telecommunications infrastructure development issues
Infrastructure Issues (Continued) • Flat-rate access system • Consumer or business pays one monthly fee for unlimited telephone line usage • Contributed to rapid rise of U.S. electronic commerce • Targets for technological solutions • Paperwork and processes that accompany international transactions
Revenue Models • Revenue model of selling goods and services on the Web • Based on mail order catalog revenue model that predates the Web Spiegel • Mail order or catalog model • Proven to be successful for wide variety of consumer items • Web catalog revenue model • Taking the catalog model to the Web
Computers and Consumer Electronics • Apple, Dell, Gateway, and Sun Microsystems • Have had great success selling on the Web • Dell • Created value by designing entire business around offering high degree of configuration flexibility to its customers
Books, Music, and Videos • Retailers using the Web catalog model to sell books, music, and videos • Among the most visible examples of electronic commerce • Jeff Bezos • Formed Amazon.com • Jason and Matthew Olim • Formed online music store they called CDnow • Used the Web catalog revenue model
Luxury Goods • People are still reluctant to buy through a Web site • Web sites of Vera Wang and Versace • Constructed to provide information to shoppers, not to generate revenue • Web site of Evian • Designed for a select, affluent group of customers
Clothing Retailers • Lands’ End • Pioneered idea of online Web shopping assistance with its Lands’ End Live feature in 1999 • Personal shopper • Intelligent agent program that learns customer’s preferences and makes suggestions • Virtual model • Graphic image built from customer measurements
Flowers and Gifts • 1-800-Flowers • Created online extension to its telephone order business • Chocolatier Godiva • Offers business gift plans on its site
Digital Content Revenue Models • Firms that own intellectual property • Have embraced the Web as a new and highly efficient distribution mechanism • Lexis.com • Provides full-text search of court cases, laws, patent databases, and tax regulations • ProQuest • Sells digital copies of published documents
Advertising-Supported Revenue Models • Broadcasters provide free programming to an audience along with advertising messages KOMOKING • Success of Web advertising hampered by • No consensus has emerged on how to measure and charge for site visitor views • Stickiness of a Web site: ability to keep visitors and attract repeat visitors • Very few Web sites have sufficient visitors to interest large advertisers
Web Portals • Web directory • A listing of hyperlinks to Web Pages • Portal or Web portal • Site used as a launching point to enter the Web • Almost always includes a Web directory and search engine • Example: Yahoo, AOL, Altavista
Advertising-Subscription Mixed Revenue Models • Subscribers • Pay a fee and accept some level of advertising • Typically subjected to much less advertising • Used by • The New York Times and The Wall Street Journal
Advertising-Subscription Mixed Revenue Models (continued) • Business Week • Offers some free content at its Business Week onlinesite • Requires visitors to buy subscription to Business Week print magazine
Fee-for-Transaction Revenue Models • Businesses offer services and charge a fee based on number or size of transactions processed PayPal • Disintermediation • Removal of an intermediary from value chain • Reintermediation • Introduction of a new intermediary
Fee-for-Service Revenue Models • Fee based on value of service provided • Services • Range from games and entertainment to financial advice • Online games • Growing number of sites include premium games in their offerings • Site visitors must pay to play these premium games
Fee-for-Service Revenue Models (Continued) • Concerts and films • As more households obtain broadband access to the Internet • Companies are providing streaming video of concerts and films to paying subscribers • Professional Services • State laws • One of the main forces preventing U.S. professionals from extending their practices to the Web
Revenue Models in Transition • Subscription to Advertising-Supported Model • Microsoft founded its Slate magazineWeb site • An upscale news and current events publication • Charged annual subscription fee after a limited free introductory period • Was unable to draw sufficient number of paid subscribers • Now operated as an advertising-supported site
Advertising-Supported to Advertising-Subscription Mixed Model • Salon.com • Operated for several years as an advertising-supported site • Now offers optional subscription version of its site • Subscription offering • Motivated by company’s inability to raise additional money from investors
Advertising-Supported to Fee-for-Services Model • Xdrive Technologies • Opened its original advertising-supported Web site in 1999 • Offered free disk storage space online to users • After two years, was unable to pay costs of providing the service with the advertising revenue generated • Later switched to a subscription-supported model
Advertising-Supported to Subscription Model • Northern Light • Founded in August 1997 as a search engine with a twist • Revenue model • Combination of advertising-supported model plus a fee-based information access service • January 2002 • Converted to a new revenue model that was primarily subscription supported