Introduction to E-commerce

Module-I
Lecture –I
Arvind Banger
Assistant Professor
Department of Management

Copyright © 2004 Pearson Education, Inc. Slide 1-1

E-commerce Defined
 E-commerce involves digitally enabled
commercial transactions between and among
organizations and individuals
 Digitally enabled transactions include all
transactions mediated by digital technology
 Commercial transactions involve the exchange of
value across organizational or individual
boundaries in return for products or services
What is E-business?
 E-business (electronic business) is the
conducting of business on the Internet, not only
buying and selling but also servicing customers
and collaborating with business partners.
 The processes and tools that allow an
organization to use Internet-based technologies
and infrastructure, both internally and
externally, to conduct day to day business
process operations.
 Stands for electronic business and refers to any
kind of sales, services, purchasing or commerce
on the Internet.

 A new-tech jargon word used more for marketing

than for technical description. Most commonly it
broadly refers to conducting business over the
Internet (email and web) by communicating and
perhaps transacting (buying and selling) with
customers, suppliers, and business partners.
 What is E-business?

Web
Universal Access
Standards

e-business
Using internet technologies to
transform key business processes

IT
Data
Applications

e-business = Web + I/T Core business processes

Reliability, security

and availability
E-commerce vs. E-business
 Debate among consultants and academics about
meanings and limitations of terms e-commerce
and e-business
 We use the term e-business to refer primarily to
the digital enablement of transactions and
processes within a firm, involving information
systems under the control of the firm
 E-business does not include commercial
transactions involving an exchange of value across
organizational boundaries
The Difference between E-commerce
and E-business
Why Study E-commerce
 E-commerce technology is different and more
powerful than any of the other technologies that
we have seen in the past century.
 E-commerce has challenged much traditional
business thinking
 E-commerce has a number of unique features that
help explain why we have so much interest in e-
commerce
Seven Unique Features of E-commerce
Technology and Their Significance
 Is ubiquitous (available everywhere, all the time)
 Offers global reach (across cultural/national boundaries)
 Operates according to universal standards (lowers market entry
for merchants and search costs for consumers)
 Provides information richness (more powerful selling
environment)
 Is interactive (can simulate face-to-face experience, but on global
scale)
 Increases information density (amount and quality of information
available to all market participants)
 Permits personalization/customization
Seven Unique Features of E-commerce Technology
Types of E-commerce
Classified by nature of market relationship
 Business-to-Consumer (B2C)
 Business-to-Business (B2B)
 Consumer-to-Consumer (C2C)
 Business –to-Administration ( B2A)
Classified by type of technology used
 Peer-to-Peer (P2P)
 Mobile commerce (M-commerce)
 E-Commerce types:

C2C B2B
B2C

CONSUMERS BUSINESS

ADMINISTRATION
What is Consumers to Consumers (C2C) ?

Abbreviation for consumer-to-consumer commerce; that is, commerce

with no middle business people The most notable examples are Web-
based auction and classified as sites. Most large venues for such
models (for example, eBay and Classifieds2000) are quickly
permeated by consumers who participate so actively and regularly that
they become small businesses for them.
 C2C stands for consumer to consumer electronic commerce. The
Internet has facilitated new types of C2C although it is important
to note that this kind of commerce -- in the form of barter, yard
sales, flea markets, swap meets, and the like -- has existed since
time immemorial. Notably, most of the highly successful C2C
examples using the Internet actually use some type of corporate
intermediary and are thus not strictly "pure play" examples of
C2C.
Consumer-to-Consumer (C2C) E-
commerce
 Provides a way for consumers to sell to each other,
with the help of an online market maker
 eBay most well-known example
 Estimated that size of C2C commerce will reach
$15 billion by 2004
 What is Business to Business (B2B) ?
B2B stands for "business-to-business," as in businesses doing business
with other businesses. The term is most commonly used in connection
with e-commerce and advertising, when you are targeting businesses as
opposed to consumers.
On the Internet, B2B (business-to-business), is the exchange of
products, services, or information between businesses. B2B is e-
commerce between businesses. B2B Communication using XML over
HTTP B2B - the basics
Business-to-business electronic commerce (B2B) typically takes the
form of automated processes between trading partners and is performed
in much higher volumes than business-to-consumer (B2C) applications.
Business-to-Business (B2B)
E-commerce
 Involves businesses focusing on selling to other
businesses
 Largest form of e-commerce ($800 billion in
2002)
 Two primary business models within B2B:
 Net marketplaces (includes e-distributors, e-
procurement companies, exchanges and
industry consortia)
 Private industrial networks (includes single
firm networks and industry-wide networks)
What is Business to Consumers (B2C) ?
Refers to businesses selling products or services to end-user
consumers.
B2B stands for transaction activities involving two business entities
(business-to-business transaction). B2C stands for transaction
activities involving a business and a consumer (business-to-consumer
transaction).
Electronic commerce comprises commercial transactions, involving
both organisations and individuals. From the technical point of view
e-commerce is the processing and transmission of digitised data. E-
commerce decreases the distance between producers and consumers.
Consumers can make their purchase without entering a traditional
shop.
Business-to-Consumer (B2C) E-commerce
 Involves online businesses attempting to reach
individual consumers
 In 2002, total B2C revenues were about $72-$78
billion
 Many types of business models within this
category including online retailers, content
providers, portals, transaction brokers, service
providers, market creators and community
providers
What is Business to Administration (B2A) ?

Short for business-to-administration, also known as e-government.

B2A is the idea that government agencies and businesses can use
central Web sites to conduct business and interact with each other
more efficiently than they usually can off the Web. Find Law is an
example of a site offering B2A services -- a single place to locate
court documents, tax forms and filings for many different local, state
and federal government organizations
Peer-to-Peer (P2P) E-commerce
 Uses peer-to-peer technology, which enables
Internet users to share files and computer
resources without having to go through a central
Web server
 Napster most well-known example until put out of
business for copyright infringement
 Today, Kazaa is the leading P2P software
network, although also under attack for copyright
infringement
M-commerce
 Use of wireless digital devices such as cell phones
and handheld devices to enable transactions on the
Web
 Most widely used in Japan and Europe (especially
Finland)
 Expected to grow rapidly in U.S. over the next
five years.
Growth of the Internet
 The Internet is a worldwide network of computer networks built
on common standards
 Internet was first created in 1960s
 Today is world’s largest network, connecting over 500 million
computers worldwide
 Services include the Web, e-mail, file transfers, etc.
 Can measure growth of Internet by looking at number of Internet
hosts with domain names:
 In January 2003, there were 170 million Internet hosts with
domain names, up from 70 million in 2000
 Growing at about 50% a year
The Growth of the Internet, Measured by Number of
Internet Hosts with Domain Names
Growth of the Web
 Web is the most popular service on the Internet
 Developed in early 1990s
 Provides access to Web pages -- documents
created with HTML
 Can include text, graphics, animations, music,
videos
 Web content in form of Web pages has grown
exponentially, from over 2 billion pages in 2000 to
over 6 billion pages in 2003
The Growth of Web Content
Origins and Growth of E-commerce
 Precursors to e-commerce include
 Baxter Healthcare (in 1970s, used telephone-based
modems to reorder supplies; in 1980s, became a PC-
based remote order entry system)
 Electronic Data Interchange (EDI) standards developed
in 1980s; permitted firms to exchange commercial
documents and conduct digital commercial transactions
across private networks
 French Minitel (1980s videotext system; still in use
today)
 None of these precursor system had functionality of
Internet
Origins and Growth of E-commerce
 For our purposes, we will date the
beginning of e-commerce to 1995
 First banner advertisements - October
1994
 First sales of banner ad space - early 1995
 Since then, has been fastest growing form
of commerce in U.S.
Technology and E-commerce in
Perspective
 First, the Internet and Web are just two of a long list of
technologies, such as automobiles and radio, that have
followed a similar historical path:
 Creation of business models designed to leverage the
technology and explosive early growth, followed by
retrenchment and then a long-term successful
exploitation of the technology by larger established
firms
 Second, although e-commerce has grown explosively,
eventually its growth will cap as it confronts its own
fundamental limitations.
E-commerce I and E-commerce II
 E-commerce I: A period of explosive growth and
extraordinary innovation; key concepts developed and
explored
 Begins in 1995, ends in March 2000 when stock market
valuations for dot.com companies begin to collapse
 Thousands of dot.com companies formed, backed by
over $125 billion in financial capital
 E-commerce II: Characterized by a reassessment of e-
commerce companies and their value
 Begins in January 2001; ongoing
The Visions and Forces Behind E-
commerce 1: 1995-2000
 For computer scientists:
 A vindication of the vision of a universal
communications and computing environment
 Belief that Internet should not be controlled by
government, and remain free for all
 For economists:
 Vision of a perfect Bertrand market and friction-free
commerce, characterized by low transaction costs, low
search costs, price transparency, low menu costs,
dynamic pricing, disintermediation, and elimination of
unfair competitive advantages
The Visions and Forces Behind E-
commerce I: 1995-2000 (cont’d)
 For entrepreneurs, their financial backers and marketing
professionals, e-commerce represented an extraordinary
opportunity to return far above normal returns on
investment based on:
 Worldwide access to consumers
 New marketing communications technologies that were
universal, inexpensive and powerful
 Ability to segment market
 First mover advantages – by building in switching costs
 Network effects
E-commerce II: 2001-2007
 Crash in stock market values for e-commerce companies
throughout 2000 marks end of E-commerce I period
 Reasons for crash:
 Run-up in technology stocks due to enormous
information technology capital expenditure of firms
rebuilding their internal business systems to withstand
Y2K
 Telecommunications industry had built excess capacity
in high-speed fiber optic networks
 1999 Christmas season provided less sales growth that
anticipated and demonstrated e-commerce was not easy
(eToys.com)
 Valuations of dot.com and technology companies had
risen so high supporters were questioning whether
earnings could justify the prices of the shares.
E-commerce Today: Successes and
Failures
 E-commerce I a stunning technological success
 E-commerce I a mixed success from a business perspective
 Many visions developed during E-commerce I not fulfilled
 Economists’ visions of “friction-free” commerce and
Bertrand model of extreme market efficiency not
entirely realized
 Entrepreneurs and venture capitalists’ visions have not
materialized exactly as predicted either
Predictions for the Future
 Technology of e-commerce will continue to propagate
through all commercial activity
 E-commerce prices will rise to cover the real cost of doing
business on Web and pay investors reasonable rate of
return
 E-commerce margins and profits will rise to levels more
typical of all retailers
 In B2C and B2B, traditional Fortune 500 companies will
play growing and dominant role
 Number of successful pure online companies will decline
and most successful e-commerce firms will adopt mixed
“clicks and bricks” strategies
 Growth of regulatory activity worldwide