CS5038 The Electronic Society

1. CS5038 The Electronic Society • 1. Overview of Electronic Commerce • Background • Definitions • Perspectives • Variations • Business Models • Pressures on businesses • Responses of businesses • The Networked Business • Benefits • Problems • Also look at 2. Retailing (next) and then 3. Customers

2. General Business Terminology • Transactions : Exchange of goods, services, information, money. • Supply Chain: entire system (directly) concerned with getting products and services from a supplier to a customer. • Business process: tasks undertaken by business in producing goods and services • Broker: middleman who helps facilitate transaction • Tendering: process of bidding to provide a good or service.

3. Firms and Profits • Most firms basically try to maximize profits (in some overall sense) • Revenue = inflow of money or other capital • Cost = outflow of money or capital • Profit = revenue – cost • Two basic ways to increase profits. • Various strategies to achieve this.

4. Specialization • ``One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head: to make the head requires two or three distinct operations: to put it on is a particular business, to whiten the pins is another ... and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which in some manufactories are all performed by distinct hands, though in others the same man will sometime perform two or three of them.” • Adam Smith An Inquiry into the Nature and Causes of the Wealth of Nations, 1776.

5. Transaction Costs • Firms have internal and external trans. costs • This picture is taken from http://en.wikipedia.org/wiki/File:Market-Hierarchy-Model.png , Creative Commons License, Source/Author: Achim Grochowski.

6. The Value of Information • Information can have a value • Know-how, intellectual property, … • Customer data • … • Broker often makes money by using information that it would be difficult or expensive for others to get. • Asymmetric information: Sometimes different participants in a market have different amounts of information about each other. • Car dealer vs. customer • Insurance company vs. customer (buyer has more)

7. E-Commerce Definitions • E-commerce : Any kind of transaction done, partly, or completely, over a (computer and telecommunications) network • The term `E-commerce’ also refers to the processes used by participants in such transactions.

8. Intrabusiness (organisational) e-Commerce • Internal to organisation, intranet: e.g. • Between business units • From businees to employees • Between employees

9. Interorganisational Information System (IOS) • Used to share information between organisations. Used for collaborative commerce. • Often used to improve efficiency of supply-chain • E.g. when vendor of some product starts to run low in stock IOS can share that information back to the suppplier, who can then ship more stock. • Electronic Data Interchange (EDI) standards

10. E-commerce Types Business-to-business (B2B): online transactions (e.g. purchases) with other businesses. Business-to-consumer (B2C): online transactions between businesses and consumers. Business-to-employee (B2E): information and services made available to employees online (subset of intrabusiness). Consumer-to-consumer (C2C): online transactions between consumers

11. E-commerce Types • Consumer-to-Business (C2B): consumers seek sellers or sell services to organisations. • Price comparison websites • Sites for freelancers: http://www.elance.com/ , http://www.guru.com/ , http://www.peopleperhour.com/ • Affiliate schemes: say, a link from a consumer’s web-page to an online retailer, and the consumer gets rewarded either per-click or per-sale.

12. E-commerce Types Peer-to-Peer (P2P) – direct transactions without middlemen. E.g. consumers exchange games, DivX videos, MP3 music Government-to-Citizens (G2C) – government provides services and information to citizens Example: http://dvlaregistrations.direct.gov.uk/

13. E-commerce Types • Exchange: a system to host buyers and sellers. Often has: dynamic pricing, matching of services. • Examples: • http://www.adpdsi.co.uk/uk/ • Exchange-to-Exchange (E2E) – system to connect exchanges • If complicated supply chain, probably need to interact, build-systems to deal with multiple exchanges.

14. Electronic Commerce Process Terms • EC defined from these perspectives: • Communications • E-delivery: Goods, services, information, payments • Business process • Automate business transactions and workflow • Service • Cut service costs, improve quality and speed • Online • Buying, selling and other services on internet • Collaborations • Inter- and intraorganisational • Community • Gather to learn, transact, communicate

15. Variations • Pure vs. Partial EC: based on the degree of digitisation of • Product • Process • Delivery agent • Traditional commerce: all dimensions are physical • Pure EC: all dimensions are digital • Partial EC: all other possibilities include a mix of digital and physical dimensions

16. Dimensions of E-Commerce Prentice Hall, 2002

17. Variations (2) • Internet vs. Non-Internet EC: • VANs – value added network (hosted service that acts as intermediary between business partners) • LANs – local area network • Vending Machine • Click and Mortar

18. Business Models A method of doing business by which a company can generate revenue to sustain itself. • Name your price – priceline.com • Find the best price – hotwire.com • Dynamic brokering – getthere.com • Affiliate marketing – amazon.com • Electronic tendering systems – gxs.com • Online auctions – ebay.com • Customization and personalization – dell.com • Electronic marketplaces and exchanges – e-steel.com • Supply chain improvers • Collaborative commerce Where is the company positioned in the value chain?

19. Rappa’s Business Models http://www.digitalenterprise.org/models/models.html • Brokerage – exchange, trading community, aggregator • Advertising – portals, sponsorship banners • Infomediary • Recommender - users provide recommendations on products, e.g. http://www.epinions.com • Registration - session tracking of users, allows greater targeting of advertising, e.g. http://www.nytimes.com • Merchant - retail • Manufacturer – eliminate middleman • Affiliate – online referrals for commission • Community – voluntary contributors, regular visitors • Subscription – high value content • Many companies changed to subscription models in last two years • Utility – pay by byte

20. Example: ORBIS Corp. TRANSFORM Prentice Hall, 2002

21. Market / Economy Strong competition Global economy Regional trade agreements (NAFTA) Low labor cost in some countries Frequent changes in markets Increased power of consumers Major Business Pressures Society / Environment Changing nature of workforce (De)regulation of services Shrinking subsidies Ethical and legal issues Social responsibility of E-bus. Rapid political changes Technology Rapid technological obsolescence Increase innovations and new technologies Information overload Rapid decline in technology cost vs. performance ratio

22. Organizational Responses • Strategic systems (e.g. FedEx tracking system) – strategic advantage • Continuous improvement efforts • Customer Relationship Management (CRM) – maximum value proposition to customer – online help, product information, tools • Total Quality Management (TQM) - ongoing refinements in response to continuous feedback • Business process reengineering (BPR) - major innovations • Business Alliances • Virtual Corporation: legal and taxation status allows multiple businesses to work together under one umbrella. Often temporary. • Keiretsu - Long term alliance of manufacturers, suppliers and finance corporations • Cooperation in E-markets – purchasing consortia

23. IT Support • Various possible benefits: • Reducing cycle time (=business process time) and time to market • Improved opportunities for collaborative work • Improvements to supply-chain: speed and efficiency • Mass customization

24. Technology: Intranet • Intranet • (Internal) corporate network • LAN (Local Area Network) • WAN (Wide …) • Uses Internet technology • Open, flexible connectivity • Limited to authorised employees • Secure behind firewall • Much on the following slides on Portals and Intranet Architecture come from a lecture by Paul Chan: http://www.icua.us/student/aec/3aec71.ppt

25. Architecture of an Intranet

26. Technology: Extranet • Extranet: • Links intranets in different locations, from approved partners, vendors, suppliers, etc. • Uses Internet technology • Security required – Virtual Private Network (VPN) • Information travels through encrypted tunnels between Intranets

27. The Networked Business: Internet, Intranet, Extranet

28. Enterprise (Corporate) Portals • Corporate (enterprise) portal—a gateway for entering a corporate Web site, enabling communication, collaboration, and access to company information • Provide single-point access to specific enterprise information and applications available on: • Internet • Intranets • Extranets • Companies may have separate portals for outsiders and for insiders

29. Corporate Portal as a Gateway to Information

30. Corporate Portal Framework

31. Need technological protocols to facilitate e-commerce. Currently include: TCP/IP: The Internet Protocol Suite. The standard computer networking protocol stack for exchanging packets of data across an unreliable network. HTTP: web-browser makes requests, possibly for resources (web-pages etc.), and web-server responds. SSL (and TLS): cryptographic protocols for sending encrypted messages over internet. HTTPS: a secure version of HTTP. Basically, HTTP combined with SSL. Interoperability & Protocols

32. XML: Extensible Markup Language. Standard, machine-readable data format. Basis for other technologies including RSS, SOAP, … and modern versions of Office, OpenOffice, iWork. SOAP: Simple Object Access Protocol. Standard for exchanging structured information (e.g. XML) across network. JavaScript: a programming language (not Java). AJAX: Asynchronous JavaScript and XML. Group of technologies used for interactive web applications. Execution on both the client and server sides. HTML and CSS for presentation of static components. JavaScript executes on client for dynamic components and interactivity. HTTP or HTTPS used to send to or request data (possibly XML) from server, or for server to execute some program (possibly JavaScript). Interoperability & Protocols

33. To Organizations Expands the marketplace Decreases the cost (less paper) Pull-type supply chain management Customisation = competitive advantage Less time between outlay of capital and receipt of products and services Supports BPR efforts Benefits of E-Commerce To Consumers Open 24 hours a day More choices Better prices Quick delivery Product information in seconds Interact with other consumers Facilitates competition To Society Work at home  less traveling  less traffic and pollution Lower prices benefit less affluent people Third world and rural areas access products otherwise unavailable Public services at a reduced cost and improved quality

34. Problems With E-Commerce (A) • Technical Problems • Insufficient telecommunication bandwidth • Difficult to integrate Internet EC software with some existing applications and databases • Additional cost of infrastructure • Software development tools are still evolving • Standards (security, reliability, communication) are still evolving • Interoperability problems. • Cost Problems • Developing EC in house can be expensive and may result in delays. • Difficult to justify - intangible benefits are difficult to quantify. • E.g. customer relationship management (CRM). • Non-technical problems can be more serious…

35. Problems With E-Commerce (B) • Other limiting factors • Switch from physical to virtual store may be difficult, expensive • Lack of touch and feel online • Channel conflict • Unresolved legal issues • Rapidly evolving and changing EC • Lack of support services • Insufficiently large number of sellers and buyers • Expensive and/or inconvenient accessibility to the Internet. • Security, Privacy and Trust • B2C - Hard to convince customers that online transactions are secure • Customers do not trust: • Unknown sellers, Paperless transactions, Electronic money

36. Legal Issues: Tax • In USA, one driving force behind early e-store success was lower tax • Because of a tax loophole, sales tax (VAT) was not charged on e-commerce sales • Automatically gave price advantage to e-commerce sites!

37. Legal Issues: Intl E-Commerce • In theory, e-commerce means sites can sell globally • In practice, difficult because of different tax rules, regulations, customs, etc • More common to set up subsidiaries in different countries, as Amazon has done • Lack of global legal/regulatory framework hinders ecommerce

38. Social Problems With E-Commerce • What if, • Information aggregated by companies about consumers is used to the advantage of companies, but not the consumers • There is not fair competition • It enables cartels to form • Prices for consumers go up • The company claims to be operating in a different jurisdiction, and does not submit to regulation or law • Avoids tax (even whilst professing not to be `doing evil’) • http://en.wikipedia.org/wiki/Double_Irish_Arrangement • Does not re-invest in country in which revenue is generated • ?

39. Summary • Definitions – B2C, B2B, B2E • Perspectives – communications, business process, services • Variations – Pure v. partial • Business Models and Rappa’s models • Pressures on businesses – market, technology, society • Responses of businesses – BPR, alliances, IT support • The Networked Business - Internet, Intranet, Extranet • Benefits – organisations, consumers, society • Problems – technical and non-technical