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  1. E-Commerce An overview Patricia Kwan, LecturerMIS DepartmentCollege of BusinessSan Jose State

  2. Agenda What is E-Commerce? E-Business vs. E-Commerce E-Commerce in the U.S. E-Commerce categories Complementary and Supplementary Businesses Internet Business Models Requisite conditions for E-Commerce

  3. Agenda E-Commerce in Western Europe E-Commerce in Japan Case studies Successful companies Failed endeavors Observations, opportunities & challenges References & Readings

  4. E-Commerce? So Many Terms & Names! E-tailing? E-Community? E-Government? E-Business? E-Meeting? E-Marketplace? Virtual Store-front? Click-n-Mortar Store?

  5. What is E-Commerce? Electronic commerce (E-Commerce) is any transaction completed over a computer-mediated network that involves the transfer ofownership or rights to use goods or services. Examples of E-Commerce transactions include: An individual purchases a book on the Internet. A government employee reserves a hotel room over the Internet. A business calls a toll free number and orders a computer using the seller's interactive telephone system. A business buys office supplies on-line. A retailer orders merchandise using an Electronic Data Interchange (EDI) network or a supplier's extranet. An individual withdraws funds from an automatic teller machine (ATM). Source: U.S. Census Bureau report

  6. Computer-mediated Networks Computer-mediated networks are electronically linked devices that communicate interactively over network channels. Examples are: Computers Personal Digital Assistants (PDA) Internet-enabled (cellular) telephones Networks such as: Internet Intranets Extranets Electronic Data Interchange (EDI) networks Telecommunication networks Source:

  7. E-Commerce in the U.S. The introduction of the computer ~50 years ago, and rapid development and advancement in electronics, IT and communication technology over the past half century, and the quest for cost reduction, improved efficiencies, and higher profitability, resulted in significant changes in the U.S. society & economy: Business & government organizations: automation, towards paper-less offices process re-engineering “out-of-the-box” paradigm shift Individual consumers: accept usage of new technology assume availability of technology and infrastructure

  8. E-Commerce in the U.S. There is a broader “environment” affecting business activities: global competition interest rates laws and regulations social concerns industry traditions consumer preferences This “environment” has been evolving.

  9. E-Commerce in the U.S. Businesses use networks even more extensively to: conduct and re-engineer production processes streamline procurement processes reach new customers manage internal operations Consumers now routinely use computer networks to: identify sellers evaluate products and services compare prices exert market leverage

  10. Significant Events forE-Commerce in the U.S. 1984: ANSI X12 standard for Electronic Data Interchange (EDI) established itself as a reliable means to handle a large number of transactions. 13 October 1994: Adaptation of Marc Andreessen’s Mosaic into the Netscape browser, enabling the masses to easily get online. 27 May 1998: SBC Communications offered high- speed Asymmetrical Digital Subscriber Line (ADSL) service to > 200 communities throughout California. Source: E-commerce Times; 22 August 2002

  11. Significant Events forE-Commerce in the U.S. December surpassed the $1 billion mark in annual sales. AOL generated $1.2 billion in sales in 10 weeks of holiday shopping. 10 August 1999:The Red Hat IPO cemented Linux’ status. (Linux was created by Finnish graduate student, Linus Torvalds, in 1991) 13 August 1999: Napster founder Shawn Fanning indicated the number of users of the online music swap site quintupled (5X) in a week. Source: E-commerce Times; 22 August 2002

  12. Significant Events forE-Commerce in the U.S. 10 January 2000: Time Warner merged with AOL, leading to concerns over DRM (digital rights management) and the potential monopolistic power over content and its distribution. 7-8 February 2000: A series of coordinated assaults by computer hackers on Yahoo! Amazon,, and eBay. Although there were concerns over shopping online, the incident was accepted as merely a bump-in-the-road. 10 May 2000:TheU.S. House of Representatives voted to extend the moratorium on Internet-specific taxes for an additional five years. Source: E-commerce Times; 22 August 2002

  13. Significant Events forE-Commerce in the U.S. 18 May 2000:The UK-based online fashion retailer, boo,com, folded. Many more dot-com companies to follow in 2001, 2002, ending the high-technology stock market’s period of “irrational exuberance”. Google Inc. filed on IPO on April 30, 2004:IPO took place in August 2004, shedding some excitement in the hi-tech market since the dot-com bust. Source: E-commerce Times; 22 August 2002

  14. E-Commerce Categories

  15. E-Commerce Categories Business-to-Consumer (B2C): involves retailing products and services to individual consumers. (e.g. Business-to-Business (B2B): involves sales of goods and services among businesses. (e.g. for office supplies) Consumer-to-Consumer (C2C): involves consumers selling directly to consumers. (e.g.

  16. Complementary & Supplementary Businesses

  17. Complementary & Supplementary Businesses

  18. Complementary & Supplementary Businesses

  19. Internet BusinessModels Virtual Storefront: Sells goods, services on-line (e.g. [B2C] Content Provider: Provide digital content such as digital news, music, photographs, or video over the Internet (e.g. [B2C] Information broker: Provide info on products, pricing, etc. (e.g. [B2B, B2C] Transaction Broker: buyers view rates, terms from various sources (e.g. E* [B2C]

  20. Internet BusinessModels Online Marketplace: Buyers and sellers meet, search for products, display products, and establish prices for products. Exchange: Industry-specific marketplace (e.g. [B2B] Auction: Electronic clearinghouse where products, prices, change in response to demand (e.g. [B2B, B2C, C2C] Reverse Auction: Buyer sets price, submits to multiple sellers (e.g. [B2C]

  21. Example: Auction

  22. Example: Reverse Auction

  23. Internet BusinessModels Online Service Provider: Provides online service to individuals and businesses (e.g. [B2B, B2C] Virtual Community: Provides online meeting place where people with similar interests can communicate and find useful information (e.g. [B2C] Portal: Provides initial point of entry to the World Wide Web along with other specialized (sometimes personalized) content and other services (e.g., [B2C]

  24. Example: Virtual Community

  25. Example: Portal

  26. Requisite Conditions forE-Commerce

  27. Requisite Conditions forE-Commerce Information Technology (IT) and Communication infrastructure Socio-economic environment Financial and legal environment Banking and Financial Support, electronic payment systems Laws concerning consumer rights, privacy, taxation, etc.

  28. IT & Communication Infrastructure Hardware Servers, Supercomputers, Personal Computers (PC), Workstations, Personal Digital Assistants (PDA), Smart phones, etc. Storage: ROM, RAM, Disc, tape, etc. Networks: Twisted Wire, Coaxial Cable, Fiber Optics/Optical networks, Wireless Transmission (e.g. microwave, satellite) Private Branch Exchange (PBX), Wide Area Networks (WAN), Local Area Network (LAN), etc.

  29. IT & Communication Infrastructure Software Operating Systems (OS): e.g. Windows, Linux, Unix, etc. Middleware: e.g. IBM WebSphere, BEA WebLogic Application Software packages: e.g. Enterprise Resource Planning (ERP), Supply Chain Management, Internet browsers, etc. Databases: e.g. Oracle 9i, IBM DB2, etc.

  30. Socio-economic Environment Socio-economic environment Technology infrastructure readiness Research & development by government, academia, & private businesses Cost, availability, and support Lifestyle: Awareness, acceptance and usage of IT and communication technologies Equity & Accessibility Motivation / Perceived benefits: social, quality of life economical

  31. Financial & Legal Environment Banking & financial support systems Credit card usage Large payments - Electronic Funds Transfer services Small payments (e.g. < US $1.00) Rules, Regulations & Ethics Information Privacy & Rights Intellectual Property Rights Accountability & Liability

  32. Based on E-Commerce in Europe: Results of the pilot surveys carried out in 2001 in the following countries: • Austria • Portugal • Finland • Sweden • United Kingdom • Norway • Belgium • France E-Commerce in Western Europe Denmark Germany Greece Spain Ireland Italy Luxembourg The Netherlands Source:

  33. E-Commerce in Western Europe Business Enterprises: 92% have computers 36% have intranets (internal networks based on Internet standards) 19 % use EDI 68% have access to the World Wide Web 46% use ISDN (narrowband) connections; 14% uses broadband (e.g. xDSL) Perceived barrier to using the Internet: lack of security (66%) lack of perceived benefits (40%) 18% using E-Commerce to make sales 5% use B2B marketplace to make purchases Source:

  34. E-Commerce in Western Europe Consumers: 38% of households have access to the Internet Netherlands (64%) Sweden (61%) Denmark (59%) Finland (50%) 72% of Internet households use normal telephone line; 16% use ISDN line Barrier to Internet use: technical reasons lack of interest 33+% of Internet users buy products or services online variations based on social and demographic characteristics Men, age 25 to 39, are most active Source:

  35. E-Commerce in Japan Although the dot-com bubble has burst just as it did in the U.S., Japan is leading the world in adopting wireless Internet. 20 million users in Japan NTT DoCoMo’s i-mode (based on HTML) service has ~14 million subscribers B2C E-Commerce ~$1.6 billion, or 0.1% of total household consumption, in 1999 hindered by: low penetration of PCs in households high cost of Internet access low penetration of credit cards concerns about sending credit card numbers over the Internet Source:

  36. E-Commerce in Japan B2B E-Commerce ~$110 billion in 1999 (projected to be $180 billion in 2000, compared to $450 billion for the U.S.) Large companies use EDI heavily Large trading companies are developing e-marketplaces SMEs (Small and Medium-sized Enterprises), which account for 99% of Japanese firms, in 1998: 35% have LAN 4% had Enterprise Resource Planning (ERP) systems Government policies Promoting E-Commerce since 1995 addressing regulatory issues such as privacy, security and consumer protection agreement to lower NTT access charges should help lower barrier to Internet adoption Source:

  37. Case Studies Amazon eBay e-Steel Exchange WebVan Mercata

  38. B2C: Virtual online retailer selling items including books, music, DVDs, videos, electronics, software, video games and home improvement products. Founded in June 1995; originally as an on-line bookstore Headquartered in Seattle, Washington ~7,800 employees No. 1 retailer on the Internet with over 47 million purchasing customers annual sales of $3,122.4 M Source: SALOMON SMITH BARNEY Date: Oct 2, 2002

  39. B2C: Founder andCEO: Jeffrey P. Bezos International site: Canada, United Kingdom, Japan, Germany, France Despite’s success in generating a visible brand and substantial sales, it has yet to generate a profit.

  40. C2C: Provider of Internet marketplace for the sale/auction of goods and services by individuals and businesses Founded in 1995 by Pierre Omidyar Headquartered in San Jose, California 2,560 employees World’s largest and most popular person-to-person trading community on the Internet: 49.7 million registered users Annual sales of $748.8 M owns an 80%+ market share of consumer and small business listings and total consumer-to-consumer transactions Source: SALOMON SMITH BARNEY Date: Oct 2, 2002

  41. C2C: CEO: Meg Whitman Operating in 10 countries (except Japan) Completed acquisition of PayPal (provider of electronic payment services) on 3 October 2002 Recently added fixed-price transactions option Five-pronged growth plan: users, categories, geographies, pricing formats and end-to-end transaction services

  42. B2B: e-STEEL Exchange An advanced, online global marketplace for steel; a neutral, negotiation-based e-Commerce exchange for both buyers and sellers throughout the $700 billion world-wide steel industry Founded in September 1998; began operation in September 1999 Headquartered in New York City, New York Privately held company ~160 employees Source:

  43. B2B: e-STEEL Exchange CEO: Scott Prince Founder: Michael Levin Membership is FREE, and is open to all qualified steel buyers and sellers. There are >1,300 members. Seller is charged a fixed transaction fee of 0.875% of the value of the transaction. No charge to buyer. Source:

  44. B2B: e-STEEL Exchange On 13 November 2001, e-STEEL Corporation changed its name to NewWave Technologies Inc. To provide innovative Business Interactions Management solutions that bring organizations, people, and business activities online in real-time. To focus on licensed business-process software for a variety of inter-enterprise functions that support the supply chain. Will continue to operate the e-STEEL exchange marketplace for the global steel industry Source:

  45. Failed E-Commerce Endeavors WebVan On-line grocery store Founded by Louis Borders (co-founder of the very successful Borders bookstore chain) Took first grocery order on 2 June 1999 in the San Francisco Bay Area By June 2000, expanded into Atlanta, Sacramento Dallas, Los Angeles, San Diego, Seattle, Portland and Orange County Ceased all operations on 9 July 2001

  46. Failed E-Commerce Endeavors Mercata Buy-by-group e-tail site Founded by Tom Van Horn in May 1999 Backed by Microsoft co-founder Paul Allen Granted first patent covering group buying business methods in August 2000 Closed it doors on 31 January 2001

  47. Observations, Opportunities & Challenges • IT and communication technologies as tools for business • IT and communication technologies giving rise to • New business forms (models), new businesses • New lifestyles • Channel conflicts in conducting business • Disintermediation (e.g. travel agencies) • Re-intermediation (e.g. insurance information broker)

  48. Observations, Opportunities & Challenges • Technology hurdles • Equity and accessibility of the Internet • 24 X 7 availability, reliability • High performance servers and networks • Legal issues • Domestic & international laws governing E-Commerce • Tax & tariffs • Consumer Rights • Liability & Responsibility • Security & Privacy • Personal information • Financial information

  49. References & Readings Hands-out (case studies, articles) E-Commerce Times ( Line 56, The E-Business Executive Daily ( E-Commerce (2002)by Kenneth C. Laudon and Carol Guercio Traver E-Business Advisor ( U.S. Department of Commerce/E-Commerce Statistics ( E-Commerce in Europe: Results of the pilot surveys carried out in 2001( Japan E-Commerce Report(