Chapter 4. Enabling Commerce Using the Internet. Coca-Cola is using social media to connect with customers. 4-1

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1 Chapter 4 Enabling Commerce Using the Internet 4-1 Coca-Cola is using social media to connect with customers.

2 Learning Objectives Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace. 2. Explain the differences between extranets and intranets and show how organizations utilize these environments. 3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications. 4. Describe how people can participate in consumerto-consumer electronic commerce and explain the different forms of Internet marketing. 5. Describe emerging issues and trends in electronic commerce. 6. Explain different forms of electronic government.

3 Learning Objectives Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace. 2. Explain the differences between extranets and intranets and show how organizations utilize these environments. 3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications. 4.Describe how people can participate in consumerto-consumer electronic commerce and explain the different forms of Internet marketing. 5. Describe emerging issues and trends in electronic commerce. 6. Explain different forms of electronic government.

4 Electronic Commerce 4-4 Online exchange of goods, services, and money 2009: 3.7 percent of total retail revenue $134.9 billion in revenue

5 Most Common Types of E-Commerce Business-to-consumer (B2C) A person buys a book from Amazon.com. Business-to-business (B2B) Retailer like Eddie Bauer for procurement of inventory Business-to-employee (B2E) Employee uses the Web to change employee benefits. Consumer-to-consumer (C2C) One person purchases from another on ebay. 4-5

6 Other Types of E-Commerce Government-to-citizen (G2C) A person filing income taxes online. Government-to-business (G2B) Government purchases supplies using Internet-enabled procurement system. Government-to-government (G2G) Foreign government accessing U.S. federal regulations 4-6

7 Key Capabilities of the Web 4-7

8 Information Dissemination Firms across the world have access to customers. Economical medium for marketing products and services Increased geographical reach 4-8

9 Integration Integration of information via Web sites Real-time access to personalized information No time lag between company decisions and customers ability to access these 4-9

10 Example: Integration 4-10 Alaska Airlines customers can access their mileage program any time. Real-time link between company database and customer

11 Mass Customization 4-11 Meeting particular customers needs on a large scale Timbuk2.com Custom Messenger Bag Builder Customers create a virtual bag. Preference-tracking helps Timbuk2 in marketing efforts.

12 Interactive Communication 4-12 Immediate feedback between company and customers notifications Customer service online chat Best Buy Geek Squad 24-hour computer support

13 Transaction Support 4-13 Internet and the Web: Reduced transaction costs Enhanced operational efficiency Dell automated transaction support Cost savings per sale Disintermediation Reintermediation Reintroduction of middlemen Example: Orbitz.com

14 E-Commerce Business Strategies 4-14 Differentiated, based on levels of physical/virtual presence

15 Brick-and-Mortar Business Strategy 4-15 Physical locations only Traditional stores, no E-Commerce Limited geographical reach

16 Click-and-Mortar Business Strategy 4-16 Bricks-and-clicks business strategy Hybrid strategy Added complexity combining two different environments

17 Click-Only Business Strategy 4-17 Business conducted in cyberspace no physical location Price savings Difficulty with returns. Customers uncomfortable with online transactions

18 Example: Click-and-Mortar Company 4-18

19 Components of a Business Model A plan of how to achieve EC success 4-19

20 Typical Revenue Models for EC Most important ingredient of business model: 4-20 How will the firm earn revenue?

21 Learning Objectives Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace. 2. Explain the differences between extranets and intranets and show how organizations utilize these environments. 3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications. 4.Describe how people can participate in consumerto-consumer electronic commerce and explain the different forms of Internet marketing. 5. Describe emerging issues and trends in electronic commerce. 6. Explain different forms of electronic government.

22 Business-to-Business E-Commerce B2B involves exchanges between two or more businesses; these exchanges do not include end customers (consumers) Supply chain companies and processes moving product from suppliers of raw materials to suppliers of intermediate components, to final production, to the customer.

23 Supply Network 4-23 The farther out in the supply chain one looks, the more suppliers are involved, forming a supply network.

24 Electronic Data Interchange (EDI) Used prior to the introduction of the Internet EDI = computer computer communication (without human intervention) following standards: 4-24 UN Economic Commission (Europe), and American National Standards Institute. However: Use dedicated telecommunications networks ; therefore costly. Web-based EDI protocols are more economical.

25 Exchanging Organizational Data Using Extranets Extranet a private part of the Internet, cordoned off from ordinary users, and enables two or more firms to use the Internet for EDI purposes. One of the best ways for organizations to gain a positive return on their technology-based investments Example: Boeing s extranet involves over 1000 authorized business partners. 4-25

26 Benefits of Extranets Information Timeliness and Accuracy Cost effective, global medium for distributing proprietary information Central management of documents Technology Integration Cross-platform Web protocols mitigate differences in platforms, operating systems, and so on. Low Cost High Value Low training needs; most employees know how to use the Web. Automate business transactions Reduce processing costs Achieve shortened cycle times Reduce errors 4-26

27 Extranet System Architecture 4-27 Internet-based application Use of firewalls and Virtual private networks (VPN) to provide secure information transmission Firewalls to secure proprietary information

28 Portals access points for business partners. Supplier Portals Single buyer and multiple suppliers HP Supplier Portal Customer Portals Single supplier and multiple buyers MyBoeingFleet Extranet Applications 4-28

29 B2B Marketplaces 4-29 Operated by third-party vendors Allow many buyers and many suppliers to interact Some operate within a vertical market (industry-specific); for examples: steellink.com paperindex.com fibre2fashion.com Some are not industryspecific Alibaba.com

30 Business-to-Employee Electronic Commerce 4-30 Business-to-employee (B2E) electronic commerce Internet based private network using Web technologies Boeing Intranet serves more than 200,000 employees. More than 1 million pages Intranet Used to facilitate secured transmission of proprietary information within companies. Intranets offer similar benefits as extranets.

31 Intranet System Architecture 4-31 Internet-based application Use of firewalls and Virtual Private Networks (VPN) to secure information transmission

32 Intranet Applications Training Boeing s Quality etraining program Personalized Intranet Pages Employee see only content that pertains to his or her job. Real-Time Access to Information Less complicated to manage, update, distribute, and access corporate information Improve employee productivity Online Entry of Information Paper-base human resourced form:$20 $30 Web-based human resourced form:$2 $4 Collaboration Timely communication of business activities 4-32

33 Intranet Collaboration Using Groupware Two dimensions of categories: 1. Synchronous vs. asynchronous 2. Face-to-face vs. distributed Electronic meeting systems (EMS) 4-33

34 Lotus Notes 4-34 Awardwinning groupware application Millions of users worldwide

35 Collaboration Using Videoconferencing 4-35 Desktop videoconferencing PC, Web-cam, high-speed Internet Videoconferencing software Skype, Gizmo, Yahoo! Messenger, Windows Live Messenger Dedicated videoconferencing Within conference rooms Highly realistic Expensive

36 Learning Objectives Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace. 2. Explain the differences between extranets and intranets and show how organizations utilize these environments. 3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications. 4.Describe how people can participate in consumerto-consumer electronic commerce and explain the different forms of Internet marketing. 5. Describe emerging issues and trends in electronic commerce. 6. Explain different forms of electronic government.

37 Use of Internet Technologies 4-37 Characteristics of the Internet, intranet, and extranet B2B and B2E rely on extranet and intranet. Internet provides an opportunity for B2C commerce.

38 Stages of B2C E-Commerce Web sites range from passive to active. 4-38

39 E-Tailing Selling goods and services online Click-and-mortar Walmart.com Click only Amazon.com Virtual company Priceline.com Reverse pricing vs. menu-driven pricing 4-39

40 E-Tailing Benefits 4-40 Product benefits Unlimited number and variety of products Easier comparison shopping Examples: AllBookstores, BizRate, or SideStep Place benefits Anywhere, anytime Purchasing on global scale Price benefits Higher inventory turnover rate No expenditures for physical retail space

41 The Long Tail 4-41 Traditional stores Focus on mainstream needs Target the average customer Example: Blockbuster E-Tailers Can focus on niche markets Example: Netflix

42 E-Tailing Drawbacks 4-42 Product delivery drawbacks Delay between product order and delivery Except for products that can be downloaded Direct product experience drawbacks Lack of sensory information Smell, taste, feel Lack of the social element Cannot replace going to the mall with friends

43 Attracting and Retaining Online Customers 4-43 Basic rule of commerce Offer valuable products/services at fair prices Additional e-commerce rules 1. The Web site should offer something unique. 2. The Web site must be aesthetically pleasing. 3. The Web site must be easy to use and fast. 4. The Web site must motivate people to visit, stay, and return. 5. You must advertise your presence on the Web. 6. You should learn from your Web site.

44 E-Banking 4-44 Financial institutions offer: Online banking Management of credit card, checking, and savings accounts Electronic bill pay Bill payment online Online investing Growing in popularity Extensive use of Internet for obtaining financial information

45 Learning Objectives Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace. 2. Explain the differences between extranets and intranets and show how organizations utilize these environments. 3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications. 4.Describe how people can participate in consumerto-consumer electronic commerce and explain the different forms of Internet marketing. 5. Describe emerging issues and trends in electronic commerce. 6. Explain different forms of electronic government.

46 C2C E-Commerce C2C commerce has always been present Bartering, auctions, tendering Seventeen percent of American adults have sold online.

47 Forward auction E-Auctions Sellers post goods or services for sale. Buyers bid on these items. Highest bid wins. Reverse auction Buyers post a request for quote (RFQ). Seller proposes a bid. Lowest seller bid wins. This is frequently in B2B e-commerce. 4-47

48 E-Auction Fraud E-auctions marred with more fraud than any other Internet activity. E-auctions represent 45 percent of all Internet fraudrelated complaints. Average loss: $724 Types of e-auction fraud: Bid luring Reproductions Bid shielding Shipping fraud Payment failure Nonshipment 4-48

49 Search Marketing Types of Internet Marketing For Google or other search engines; search optimization Display Ads Static and interactive banners; videos Marketing Replacing direct mail; low cost Social Media Facebook, Twitter Mobile Marketing Audi built a game for the iphone Pricing Models e.g., pay-per-click 4-49

50 Search Marketing Search marketing will continue to have the largest share of interactive marketing spend VanBoskirk (2009)

51 Search advertising Also called sponsored search Pay to ensure a spot on top of search results page Example: Google AdWords Bid for being listed in sponsored search results Placement depends on relevance Pay-per-click Can get costly Search Advertising 4-51

52 Search Engine Optimization 4-52 Position within search results based on complex formula Tips: Have other pages link to one s site Keep updating content Include key words

53 Impression-based Pricing Model This is based on the number of times the page containing an ad is viewed. Performance-based This is more direct, such as pay-per-click. Metrics click-through rate conversion rate 4-53 Click fraud manually or automatically inflating the click-through rate.

54 Learning Objectives Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace. 2. Explain the differences between extranets and intranets and show how organizations utilize these environments. 3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications. 4.Describe how people can participate in consumerto-consumer electronic commerce and explain the different forms of Internet marketing. 5. Describe emerging issues and trends in electronic commerce. 6. Explain different forms of electronic government.

55 C2B EC Relatively new phenomenon Consumers sell to businesses Stock photo sites such as Crowdsourcing Blurry line between C2B and B2B 4-55

56 M-Commerce 4-56 Electronic transactions using wireless mobile devices Mobile networks Wireless Switched public network Smart phones High-speed data transfer Always-on connectivity

57 M-Commerce Applications 4-57

58 Location-Based M-Commerce Highly personalized mobile services Based on location GPS functionality Bluetooth e911 Federal mandate Correct routing of emergency calls GPS specifies location within 50 meters Phone locator Location of family members cell phones Alerting system when child leaves a certain area 4-58

59 Location-Based Services 4-59 Next big thing: cell phone social networking Example: Facebook Gowalla

60 Key Drivers of M-Commerce 4-60 Growth of consumer interest in adoption of the Internet and e-commerce Real-time transfer of data over 3G and 4G cellular networks Always-on connectivity M-commerce market in the United States grew from $396 million to $1.2 billion from 2008 to 2009.

61 Mobile Entertainment 4-61 Slingbox Acts as a personal media server Placeshifts television content to any Internet-enabled device Television signal received at the user s house Relayed over the Internet to be accessed from anywhere

62 Securing Payments in the Digital World 4-62 Eleven million consumers became victims of identity theft. Security concerns lead shoppers to frequently abandon their shopping carts. More than 1/2 of shopping carts are abandoned. Need for secure forms of online payment

63 Credit and Debit Cards Customer Verification Value (CVV2) Three-digit code on the back of a card Added to combat fraud in online purchases Not included in the magnetic strip information Code used for authorization by bank 4-63

64 Conducting Safe Transactions Online Use a secure browser with the latest encryption capabilities. 2. Check the site s privacy policy. 3. Read and understand refund and shipping policies. 4. Keep personal information private. 5. Give payment information only to those you know and trust. 6. Keep records of online transaction. 7. Review your monthly credit card and bank statements.

65 Payment Services 4-65 Online transactions without sharing private information with actual seller Payment service keeps information secure. PayPal (owned by ebay) Can send and receive money if you have an account. Google Checkout Linked with Google search Users can see if merchants offer this option.

66 Legal Issues in EC Taxation The Internet Tax Freedom Act (1998) Internet Tax Nondiscrimination Act (2004) Internet sales treated as mail-order sales No sales taxes paid in states where the company has no presence 4-66 Arguments for and against Ecommerce Taxation:

67 Legal Issues in EC Digital Rights Management 4-67 Technological solution that allows publishers to control their digital media Entertainment industry: DRM allows copyright holders to minimize sales losses by preventing unauthorized duplication. Critics: publishers are arbitrary on how they enforce DRM, and infringe on existing consumer rights. Digital watermark: an electronic version of physical watermarks placed on paper currency to prevent counterfeiting.

68 Learning Objectives Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace. 2. Explain the differences between extranets and intranets and show how organizations utilize these environments. 3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications. 4.Describe how people can participate in consumerto-consumer electronic commerce and explain the different forms of Internet marketing. 5. Describe emerging issues and trends in electronic commerce. 6. Explain different forms of electronic government.

69 E-Government 4-69 Providing information about public services To citizens To organizations To other governmental agencies 1998 Government Paperwork Elimination Act

70 Government-to-Citizens 4-70 Interactions between the government and its constituents IRS e-filing Grants.gov e-voting initiatives

71 Government-to-Business 4-71 Relationships between businesses and the government E-procurement Forward auctions Businesses buy surplus government equipment AuctionRP.com Online application for export licenses

72 Government-to-Government 4-72 Interactions between countries Regulations.gov Export.gov Interactions between different levels of government

73 End of Chapter Content 4-73

74 Managing in the Digital World: Businesses Get Social 4-74 Social media are no longer just being used by private individuals. Businesses are racing to establish and promote themselves within social media networks. It is costly in time and money. Nevertheless, many large companies see the value of social media. This is often handled through the marketing department.

75 WHEN THINGS GO WRONG Apple Versus Adobe 4-75 Apple has been a champion of popularizing the mobile Web (iphone, ipod, ipad). But Apple products cannot display Adobe Flash content due to proprietary reasons. Flash is used by many of Apple s competitors. Flash is used in YouTube and many advertisements. Apple cites security and performance concerns. Steve Jobs criticized Flash and encouraged its abandonment in open standards. Adobe announced: It will discontinue providing Flash substitutes for Apple platforms. It is distributing free Google Android-powered phones to employees.

76 POWERFUL PARTNERSHIPS YouTube s Steve Chen and Chad Hurley Former PayPal employees Went online in million videos a day 9.1 million users Sold to Google for $1.76 billion Hurley studied design at U. Pennsylvania Chen studied computer science at U. Illinois 4-76

77 ETHICAL DILEMMA Monitoring Productive Employees You have zero privacy; get over it (Scott McNeely, CEO of Sun Microsystems) Use of company provided Internet connection can be legally monitored American Management Association survey (2007): 66% of employers monitor employee s Internet use. 65% use software to block access to certain Web sites. 45% monitor key strokes. 43% review and retain employee s. 73% use automatic monitoring technology. 84% of the companies disclose the practices to the employees. 30% fired employees for Internet misuse. 28% fired employees for abuse. 4-77

78 NET STATS Who Is Subsidizing Web Content? 4-78 Top Internet advertisers by category Top 5 advertisers (2009) 1. Scottrade: $30 million 2. Sprint Wireless: $21 million 3. TD Ameritrade $18 million 4. Scottrade Stock Brokerage: $17 million 5. Seroquel XR: $10 million

79 COMING ATTRACTIONS Smart Phones of the Future 4-79 Microsoft patent Smart Interface System for Mobile Communications Devices Turn a smart phone into a full-blown computer by plugging into a docking station. Apple s approach Integrate more functions into the iphone Front-facing video camera User recording and editing of high-definition videos Increased customizability Touch screens, faster Bluetooth, GPS, more memory, faster data transmission, complex applications, artificial intelligence

80 Human-Powered Search Engines: ChaCha 4-80 Free search service for mobile phones Guides read, then answer questions Guides must apply and be trained Technology learns from guides answers ChaCha has answered over 500 million questions since its launch. 10 million users per month ChaCha introduced a new Facebook app in February 2010.

81 INDUSTRY ANALYSIS Retailing Systems have improved brick-and-mortar experience. Computerized Point of Sale (POS) Bar code scanners Inventory control Emerging RFID (Radio frequency identification) technology Smart shelves Smart dressing rooms Pay by fingerprint (via fingerprint scanners) Pay by mobile phone Near Field Communication (NFC) 4-81

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