E-commerce Notes

AGENDA


INTRODUCTION TO E-COMMERCE

Section I

E-Buisness: Distributing, buying, selling and marketing products and services over electronic systems.

E-business for commercial transactions Involves supply chain management, e-marketing, online marketing, EDI.

Uses electronic technology such as:

- Internet
- Extranet/Intranet
- Protocols



Business Opportunity


The Internet revolutionized ways of doing business. Entrepreneurs found ways to exploit market failures and earn economic rents. New businesses were created that were not feasible earlier. The new economy poses threats to old economy firms that do not wish to adapt. The transformation is still in process. The evolution continues
What is a web-based business
Business that uses the WWW to fulfill it’s business process
Four basic business processes:
- information dissemination
- data capture
- promotions and marketing
- transacting with stakeholders


Business objectives interact with web based applications

E-commerce vs. E-business


E-commerce is about doing business electronically

E-commerce conducting financial transactions electronically

E-business is conducting business on the Internet
E-business is the transformation of business processes through the Internet.



Information dissemination
Can publish relevant information
Can be used in crisis mode
Identifying worst case scenarios and providing details

Data capture

Collect information about customers

Two methods:

- manual input
- automated

Promotions and Marketing

1. 
   Banner advertising
   
2. Affiliate programs
   
3. Registration with directories
   
4. Traditional marketing
   
5. Transacting with stakeholders
   
   • 
     Can display products and services
     
   • Cross-selling can be implemented
     
   • Can customize website
     
   • Can react to competition
     
   • Can improve relationship
     

Key Drivers of E-commerce Technological – degree of advancement of telecommunications infrastructure Political – role of government, creating legislation, funding and support Social – IT skills, education and training of users Economic – general wealth and commercial health of the nation Key Drivers of E-business Organizational culture- attitudes to R&D, willingness to innovate and use technology. Commercial benefits - impact on financial performance of the firm Skilled/committed workforce- willing and able to implement and use new technology. Requirements of customers/suppliers - in terms of product and service Competition - stay ahead of or keep up with competitors. Appeal of E-commerce Lower transaction costs - if an e-commerce site is implemented well, the web can significantly lower both order-taking costs up front and customer service costs Larger purchases per transaction - Amazon offers a feature that no normal store offers Integration into the business cycle

• 
  People can shop in different ways.
  
• The ability to build an order over several days
  
• The ability to configure products and see actual prices
  
• The ability to easily build complicated custom orders
  
• The ability to compare prices between multiple vendors easily
  
• The ability to search large catalogs easily
  

Larger catalogs Improved customer interactions - company. Limitations of E-commerce To organizations: lack of security, reliability, standards, changing technology, pressure to innovate, competition, old vs. new technology To consumers: equipment costs, access costs, knowledge, lack of privacy for personal data, relationship replacement. To society: less human interaction, social division, reliance on technology, wasted resources, JIT manufacturing. Technical limitations

• There is a lack of universally accepted standards for quality, security, and reliability.
  
  
• The telecommunications bandwidth is insufficient.
  
• Software development tools are still evolving.
  
• There are difficulties in integrating the Internet and EC software with some existing (especially legacy) applications and databases.
  
• Special Web servers in addition to the network servers are needed (added cost).
  
• Internet accessibility is still expensive and/or inconvenient
  
  
  Old Economy Firms
  
  Brick and Mortar companies need to adopt to the new economy
  
  - Create a new Internet company.
  - Create a new subsidiary.
  - Invest in an Internet competitor.
  - Buy the technology from a consultant.
  - Work with other firms to create an exchange.
  - Integrate with suppliers and or customers.
  
  Old Economy Firms
  
  
  Failure of old economy companies to adopt may result in:
  
  - Loss of market share.
  - Inability to meet new economy competitors´prices.
  - Reduced profits and cash flows.
  - Inability to raise new financing.
  - Loss of control in an acquisition by a new economy firm.
  
  Benefits and Challenges of E-commerce
  Benefits
  
  
  • Persistent connection with customers
    
  • New value for customers
    
  • Access to new customers
    
  • Scalability
    Challenges
    • Cannibalization
      
    • Channel conflict
      
    • Customer confusion
      
    • Investor confusion
      
    Section IIOrigin and Need of E-Commerce Started as a US government project in 1969. The purpose was to create a net that can function even if one center is destroyed in a military attack. - “Hub and spokes” can be useless if the hub is destroyed. - Network can continue to be functional even if some nodes are destroyed, as long as information can pass through other nodes. Effective in 1971 with computers on both coasts of the US. In 1980’s Personal computers or terminals were connected to a server. The server was a mainframe, or connected to a mainframe computer. The mainframe was connected to another mainframe of the company in another location via dedicated lines. Only large companies could afford the expense and investment in equipment.Forces Shaping the Digital Age Forces Shaping the Digital Age Digitalization & Connectivity Intranets : connect people within a company. Extranets : connect a company with its suppliers, distributors, and outside partners. Internet : connects users around the world. Definitions Internet: A collection of computers that speak a common language – protocol Intranet: - Private version of the Internet - Main purpose to share company information and computing resources among employees. Extranet: - Private network that users outside the company can access - Requires security and privacy - Collaborate with other companies Forces Shaping the Digital Age New Types of Intermediaries: Direct selling via the Internet bypassed existing intermediaries (disintermediation). “Brick-and-mortar” firms became “click-and-mortar” companies. As a result, some “click-only” companies have failed. Forces Shaping the Digital Age Customization and Customerization: With customization, the company custom designs the market offering for the customer. With customerization, the customer designs the market offering and the company makes it. History of E-commerce EC applications first developed in the early 1970s - Electronic funds transfer (EFT) Limited to: - Large corporations - Financial institutions - A few other daring businesses History of E-commerce Enlarged pool of participants to include: - Manufacturers - Retailers - Service providers Electronic data interchange (EDI)—electronic transfer of documents: - Purchase orders - Invoices - E-payments between firms doing business History of E-commerce EC Successes - Pure online eBay VeriSign AOL Checkpoint - Click-and-mortar GE IBM Intel Schwab EC Failures - E-tailors began to fail in 1999 - This does not mean that EC’s days are numbered - Large EC companies like Amazon.com are expanding but success or failure is not certain E-commerce Today The Internet allows big businesses to act like small ones and small businesses to act big. The challenge to businesses is to make transactions not just cheaper and easier for themselves but also easier and more convenient for customers and suppliers. It’s more than just posting a nice looking Web site with lots of cute animations and expecting customers and suppliers to figure it out. Web-based solutions must be easier to use and more convenient than traditional methods if a company hopes to attract and keep customers. Business and Technological Dimensions of E-Commerce Section III Dimensions of E-Commerce Ubiquity: E-Commerce available every where at all times – at work/home/on way. It liberates market from physical boundaries unlike traditional commerce. It has created a market space. Business Significance: Ubiquity reduces transaction cost of participation. It saves cognitive energy [ Mental effort reqwuired to comptete a task. Global Reach: E-Commerce permits commercial transaction to cross cultural & national boundaries far more conveniently and cost effectively. Size of E-commerce market= Size of world’s online population. Measure of Reach: Total No. of users or customers e-business can obtain. In traditional commerce reach is local/regional. E-Commerce is commerce enabled across cultural & national boundaries without modifications. Market Space: Includes potentially billions of consumer & millions of business world wide. Universal Standards- E-Commerce has universal standards shared by all nations. This lowers market entry cost. Reduces search cost Creates a single world wide market space where price and product description inexpensively displayed. “Price discovery becomes faster” Easy & Speedy to find all supplier,prices,delivery terms of specific product any where in the world. In traditional commerce standards differ from one nation to the next. Richness: Information richness refers to complexity and content of a message. In traditional market possibility to provide face to face service. However larger the audience reach less rich was message. E-commerce improves richness through Audio,Video,Text messages. Interactivity: Provides two way communication between merchant and consumer. Portals provide face to face experience. Business Significance: Consumers are engaged in a dialog similar to traditional commerce. Makes customer participate in the process. Information Density: Increase in total amount of information available to all. Reduction in information collection/storage/processing /reduces costs. Increase in accuracy, timeliness of information. Provides price transparency/cost transparency Advantageous for merchant as able to segment market for different types of goods Personalization & Commercialization Personalized Messages to individuals/groups Customization as per customer need. Great deal of consumer information available to all most no cost. E-Commerce Framework – Business Models Section IV E-commerce Today The Internet is the perfect vehicle for e-commerce because of its open standards and structure. No other methodology or technology has proven to work as well as the Internet for distributing information and bringing people together. It’s cheap and relatively easy to use it as a medium for connecting customers, suppliers, and employees of a firm. No other mechanism has been created that allow organizations to reach out to anyone and everyone like the Internet. E-Business in the Digital Age Involves the use of electronic platforms to conduct company business. Web sites for selling and customer relations Intranets for within-company communication Extranets connecting with major suppliers and distributors Marketing Strategy in the Digital Age Front end systems Direct user interface with business processes Accessible via WWW Front-end systems: - e-CRM - e-marketing - e-services - e-marketplace - e-auction E-Commerce in the Digital Age More specific than e-business. Involves buying and selling processes supported by electronic means, primarily the Internet. Includes: e-marketing e-purchasing (e-procurement) E-Marketing in the Digital Age The marketing side of e-commerce. Includes efforts to communicate about, promote, and sell products and services over the Internet. E-purchasing is the buying side of e-commerce. It consists of companies purchasing goods, services, and information from online suppliers. Benefits of E-commerce To consumers: 24/7 access, more choices, price comparisons, improved delivery, competition To organizations: International marketplace (global reach), cost savings, customization, reduced inventories, digitization of products/services To society: flexible working practices, connects people, delivery of public services Benefits to Consumers Benefits to Organizations Benefits to Society E-commerce and Organizations Organizations that undertake e-commerce do so from two possible starting points: - new online organizations - traditional established organizations Factors for success: - first-mover advantage - differentiation in the marketplace - flexibility and agility in the electronic marketspace Seven dimensions of E-commerce Strategy Technology Leadership Involves more than hardware and software Seven major areas: - strategy: focus upon alignment and planning - structure: focus upon becoming an e-organization - systems: technology integration - staffing: developing a strong pool of skills - skills: developing the necessary knowledge - style: add value to customers - shared values: must build value to the organization Service Leadership Established strategies of customer still apply Internet service strength derived from providing additional information to the customer Internet provides a low-cost, high-quality service channel with a global reach Call centre strategy must be defined E-mail interface channel must be defined Brand Leadership Branding strength comes from being a first mover Brand reinforcement is a continuous task Brand positioning can be defined using the Internet service value chain Brand followers need to reposition as quickly and effectively as possible Four brand E-commerce as the Networked Economy The Three Approaches to Strategy Understanding the terminologies Business Model : A set of planned activities designed to result in a profit in a marketplace Business Plan: Document that describes a form’s business model An E-commerce business model –Business model that aims to use and leverage unique qualities of the Internet and world wide web/ Key Ingredients of a Business Model Eight Key ingredients are: a. Value proposition b. Revenue Model c. market Opportunity d. Competitive Environment e. Competitive advantage f. Market Strategy g. Organizational Development h. Management Team a. Value Proposition Value Proposition defines how a company’s product or service fulfills the needs of customer Why will customer choose to do business from your firm rather then any other firm? What you will provide what other firms do not? Many companies develop their value proposition based on current market condition nd trends. Consumer increasing reliance on delivery services was surely a trend for kozmo.com Key for successful value proposition Personalization & Customization of product offering Reduction of product search cost Reduction of price discovery cost Facilitation of Transaction by Managing product delivery b. Revenue Model A firms revenue model describes how the firm will earn revenue, produce profits and produce a superior return on invested capital Function of a business organization is to generate profit and to produce return on invested capital that exceeds alternative investment. E.G Retailer earn by selling computer . His profit constitute return on invested capital which should be greater then merchant could obtain else where by investing in real estate or putting in savings. Popular revenue models
    Advertising Model
    Subscription Model
    Transaction Fee Model
    Sale Model
    Affilate Model
    
    Advertising Model: Website that offers its user content, services /products and also provides a forum for advertisements and recieves fees from advertisers
    
    Website with great traffic are able to earn good through this model
    
    Subscription Model
    A company offers its users content or services and charges a subscription fee for access to some or all of its offerings
    
    While implementing such model web publisher needs to be sure content offered is percieved as high- value added premium offering not readily available else where.
    
    E.G ieee.org,Sportline.org
    
    Transaction Fee Model
    A company receives a fee for enabling or executing a transaction
    
    
    Sales Revenue Model
    A company derives revenue by selling goods ,information or services to customer
    Affiliate Revenue Model
    A company steer business to an affiliate receive a referral fee or percentage of the revenue from any resulting sales.
    c. Market opportunity
    Market opportunity refers to the company’s intended marketspace and the overall financial opportunities available to the firm in the
    marketspace.
    
    Revenue potential in each of the market niches where you hope to compete.
    
    
    d. Competitive Environment
    Competitive Environment refers to other companies operating in the same markespace selling similar products
    
    Competitors can be
    a. Direct Competitors: companies selling products very similar and are in same market segment e.g. Priceline, hotwired.com both sell discount airline tickets are direct competitors as their products are substitute for each other.
    
    b. Indirect competitors: Companies that are in different industries but still compete indirectly e.g. automobile manufacturers and airline companies operate in different industry but they still compete indirectly as they offer consumers alternate means of transport
    e. Competitive Advantage
    Competitive Advantage is achieved by a firm when it can produce a superior product and/or bring the product to a market at a lower price them most of the competitors.
    Firms compete on scope. Some develop global markets where as other national or regional market.
    
    Firms achieve competitive advantage when they have some how been able to obtain favorable terms from suppliers, shippers or sources of labor. [Existence of ASSYMETRY]
    E.g
    firm has more experience more loyal employees as compared to the competitors
    
    Firm has a patent or product that others cannot imitate or access
    
    First Mover Advantage: Company is the first mover. It is first in the marketplace with a serviceable product/service. First movers develop a loyal falling or a unique interface that is difficult to imitate.
    
    “Asymmetry exist whenever one participant in a market has more resources than other participants permitting them to com to market with better products faster then competitors some times at lower price”
    
    
    
    
    Unfair Competitive Advantage
    Some Competitive Advantage are called unfair as they occur when one firm develops advantage based on a factors that other firms cannot e.g. brand name. brands are built upon loyalty, trust, reliability and quality. Once obtained are difficult to copy or imitate and they permit firms to change premium prices of their products.
    
    Real market places are imperfect. In perfect market place there are no competitive advantage or asymmetries
    
    Companies can leverage their competitive advantage to achieve more advantage in surrounding markets
    
    f. Market strategy
    The plan you put together that details exactly how you intend to enter a new market and attract new customers.
    
    g. Organizational Development
    Describes how the company will organize the work that needs to be accomplished
    
    Work is divided into functional departments such as production, shipping, marketing, customer support and finance.
    
    Jobs within these functional areas defined and then recruitment begins for specific job titles and responsibilities
    h. Management Team
    Employees of the company responsible for making the business model work
    
    A strong management team gives a model instant credibility to outside investors, immediate market specific knowledge and experience in implementing business plans.
    A strong management team able to change the model and redefine the business as it becomes necessary.
    E-Commerce Models
    Section V
    
    Distinct Categories of E-Commerce
    B2B Business Models
    1. Marketplace/Exchange(B2B hub)
    a. horizontal e.g. e-steel.com
    helps bringing buyers and sellers together to reduce procurement costs for specific industry
    revenue model: transaction fee
    
    b. vertical: e.g. tradeOut.com Same as horizontal except specific types of product or service
    
    
    
    2. E-Distributor: ”Connecting business directly with other business”
    e.g. www.Grainger.com :Grainger works with more than 3,000 suppliers to provide customers with access to more than 1 million products from categories including:
    Adhesives, Electrical, Fasteners, Fleet & Vehicle Maintenance, Hand Tools Hardware, Janitorial & Painting, Lighting
    
    Revenue model : Sales of goods
    
    3. B2B service provider: Support companies through online services
    a. Traditional: Supports companies through online business services
    Revenue model : Sales of services
    
    b. Application service provider : Rents Internet-Based Software application to the businesses
    Revenue model : rental fees
    
    
    
    
    
    
    4. Infomediary
    
    a. Audience Broker: Gathers information about consumer and use it to help advertisers find the most appropriate audience e.g. DoubleClick.net
    Revenue Model: sale of information
    
    b. Lead Generator: gathers customer data and use it to direct vendors to customers e.g. AutoByTel.com
    
    Revenue Model: Referral fee
    
    5. Match maker :Helps businesses find what they want and need on web.
    Revenue Model: Transaction fee
    E.g. Bharatmatrimony.com,shaadi.com
    
    
    
    B2C Model
    
    Business to Consumer (B2C) refers to exchanges between business and consumers, activities tracked are consumer search, frequently asked questions and service and support.
    
    Examples: Amazon, Yahoo and Charles Schwab & Co
    
    Business Model
    
    Portal
    a. Horizontal/General
    E.g. yahoo.com, AOL.com,MSN.com
    Offer integrated package of service and such as search, news,e-mail, chat, music downloads, video streaming and calendars. Seeks to be a user’s home base.
    
    Revenue model: Advertising/Subscription/transaction
    b. Vertical/Specialized (vortal):
    
    E.g. iBoats.com
    Offers services and products to specialized marketspace.
    
    
    E-Tailer
    Virtual Merchant e.g. Amazon.com “Online version of retail store where customer shop any hour day or night”
    Revenue model: Sales of Good
    
    Clicks and Mortar e.g. Walmart.com “Online distribution channel for company that also has physical stores”
    Revenue model: Sales of Good
    
    Catalog Merchant e.g. LandsEnd.com, IndiaMart.com: Online version of direct mail catalog.
    Revenue model: Sales of Good
    
    Online Mall e.g. Fashionmall.com: Online version of mall.
    Revenue model: Sales of Good,Transaction fees
    
    Manufacturer Direct e.g Dell.com :Online sakes made directly by manufacturer.
    Revenue model: Sales of Good, Transaction fees
    
    
    
    
    
    
    
    
    Content Provider
    Information and entertainment providers such as newspapers, sports site and other online sources that offer customers up-to-date news and special interest ,how to guidance and tips for information sales
    Revenue model: Advertising, Subscription fees, affiliate referral fees
    
    Howitworks.com,CNN.com
    
    
    Transaction Broker
    E.g. E-Trade.com, Monster.com
    
    Processors of online sales transactions such as stock brokers and travel agents that increase customer’s productivity by helping them get things done faster and more cheaply.
    Revenue Model: Transaction fee
    
    Market Creator: Auctions and other forms of dynamic pricing.
    E.g. ebay.com,Priceline.com
    Web based businesses that use internet technology to create markets that bring buyers and sellers together.
    
    Revenue Model: Transaction fee
    
    
    Service Provider: Companies that make money by selling service rather then product.
    
    E.g. xDrive.com [Obtain online storage to back up your valuable files. Protect your files with Xdrive's free online storage.]
    myCFO.com [Wealth management]
    
    Revenue model: Transaction fee
    
    Community Provider: Sites where individuals with particular interests, hobbies and common experience can come together and compare notes.
    Revenue model: Advertising, subscription, affilate network.
    E.g. About.com,iVillage.com
    
    Distinct Categories of E-Commerce (cont’d)
    Convergence of e-Commerce Categories
    Types of e-Marketers
    Click-Only Companies
    Reasons for dot.com Failures
    Poor research or planning.
    Relied on spin and hype instead of marketing strategies.
    Spent too heavily on brand identities.
    Devoted too much effort to acquiring new customers instead of building loyalty.
    Click-and-Mortar Companies
    Most established companies resisted adding Web sites because of the potential for channel conflict and cannibalization.
    Many are now doing better than click-only companies.
    Reasons:
    Trusted brand names and more resources
    Large customer bases
    More knowledge and experience
    Good relationships with suppliers
    Can offer customers more options
    Setting Up for E-Marketing Online Marketing
    Setting up for E-Marketing
    Corporate websites
    Build goodwill and relationships; generate excitement
    Marketing websites
    Engage consumers and attempt to influence purchase
    Website design
    7 C’s of effective website design
    
    Creating websites
    Placing online ads and promotions
    Creating or using Web communities
    Using E-mail
    Setting up for E-Marketing
    Online forms of ads and promotions
    Banner ads/tickers
    Skyscrapers
    Content sponsorships
    Microsites
    Viral marketing
    Future of online ads
    
    Creating websites
    Placing online ads and promotions
    Creating or using Web communities
    Using E-mail
    Web Advertising
    Banner ads: allows for more targeted advertising
    
    
    Pop-up ads: pop-under ads are displayed in a separate browser window beneath your main browser window
    and remain there until you close them
    
    
    
    
    Skyscrapers: An advertisement on a Web site that is vertically oriented on the page and larger than the
    typical banner ad
    
    
    
    
    
    
    Web Advertising
    Interstitials: are usually full-page ads displayed while a user is in transit from one page to another, triggered by code included in the link
    
    
    
    
    
    
    
    Setting up for E-Marketing
    Web communities allow members with special interests to exchange views
    Social communities
    Work-related communities
    Marketers find well-defined demographics and shared interests useful when marketing
    
    Creating websites
    Placing online ads and promotions
    Creating or using Web communities
    Using E-mail
    Setting up for E-Marketing
    E-mail marketing
    Key tool for B2B and B2C marketing
    Clutter is a problem
    Enriched forms ofe-mail attempt to break through clutter
    Spam is a problem
    
    Creating websites
    Placing online ads and promotions
    Creating or using Web communities
    Using E-mail
    Value Chains in Electronic Commerce
    Section VI
    The value chain.
    The value chain for a personal computer manufacturer.
    Each value chain process consists of sub-processes.
    Efficiency and Effectiveness
    Objective: reduce operating costs
    Efficiency gains
    Within individual processes
    Across the value chain
    Efficiency-based competitive advantage
    Hidden from public view
    Relatively easy to sustain
    The organizational pyramid.
    Before computers, companies organized along functional lines.
    Functional groups exchanged paperwork.
    Early computer applications supported a single function.
    
    A manual payroll system.
    Payroll was done manually until at least the late 1950s.
    Automating selected processes made payroll more efficient.
    Automate expensive processes first
    Compile payroll
    Prepare (print) paychecks
    Automate remaining manual processes next
    Record timesheets
    Objective—process optimization.
    Islands of automation.
    Other functional groups
    Sales
    Accounting
    Purchasing
    Inventory
    Production
    Independent freedom
    Office political base
    Sub-optimization
    The competitive advantage model.
    Competition forced
    Information sharing
    Integration across value chain
    Including legacy applications
    Incompatibilities
    Hardware, software, and data
    Data redundancy was a major problem
    Same data value on multiple files
    Independently maintained
    Values differed
    Data formats differed
    Solution – central database
    New Approaches to System Development
    Information system planning
    Elevated to strategic level
    Information technology infrastructure
    Basic blueprint for technology integration
    Enterprise data model (EDM)
    Business process reengineering
    Process improvements in context
    Problem – legacy applications
    Partitioning Order Entry
    Client
    Display online order form
    Display order acknowledgement
    Error-check form data
    Server
    Record order
    Read quantity on hand
    Access A/R
    Validate stock
    Check credit
    A two-tier client/server application.
    Maintenance problem
    Multiple copies of software on multiple clients
    Development problem
    Multiple client platforms
    A three-tier client/server application.
    Enterprise application integration.
    Objective: coordinate all applications, databases, and info technologies.
    
    
    
    
    Enterprise resource planning (ERP)
    Means of implementing the EAI principle
    Virtual Value Chain
    Digital picture of value chain
    Coordinate and monitor processes
    Organizational (not local) efficiency
    Applications
    Mirror or replace physical processes
    Data mining
    Web Services
    Application server software
    A server for middleware
    Scalable platform
    Application service provider (ASP)
    Intermediary that supplies applications
    Including mission-critical applications
    Management service provider (MSP)
    Intermediary that manages IT services
    Corporate Intranets
    Private corporate network
    Uses standard Internet protocols
    TCP/IP
    HTML and HTTP
    Browser and Web server
    Internet and intranet differences
    Intranet is smaller in scope
    Intranet limited to organization’s employees
    Some examples of groupware.
    E-mail
    Scheduling and calendars
    Whiteboarding
    Chat rooms and bulletin boards
    Video conferencing
    Electronic meetings
    Document management
    Workflow management
    Collaborative writing
    Group decision support systems
    Typical enterprise portal services.
    Structured data management
    Unstructured data management
    Content management
    Information filtering
    Search capabilities
    
    Collaboration
    User administration
    Expense account management
    Ordering supplies
    Security
    Personalization
    
    Geographically Dispersed Value Chains
    Value chain more complex
    Options
    Secure private network
    Value added network
    Public network (e.g., Internet)
    Virtual private network
    Security
    Firewalls
    User identification
    Authentication