Chapter 1

Overview of Electronic Commerce

 Learning Objectives
1. Define electronic commerce (EC) and describe its
various categories.
2. Describe and discuss the content and framework of EC.
3. Describe the major types of EC transactions.
4. Describe the drivers of EC.
5. Discuss the benefits of EC to individuals, organizations,
and society.
6. Discuss social computing.
7. Describe social commerce and social software.
8. Understand the elements of the digital world.
9. Describe some EC business models.
10. List and describe the major limitations of EC.
 StarBucks
• https://venturebeat.com/2012/06/12/starbucks-
digital-strategy/

• [Digital] has been an essential part of how we build

our brand and connect with our customers…
there’s been such a seismic shift [in our interactions
with customers] that we needed to pull it all
together and make it a priority,” Brotman
 Electronic Commerce:
Definitions and Concepts
• Defining Electronic Commerce
o *Electronic commerce (EC)
• commerce as describing: only buying and selling
transactions conducted between business partners. If this
definition of commerce is used, the term electronic commerce
would be fairly narrow.
• Defining E-Business
• *E-business: not just the buying and selling of goods
and services, but conducting all kinds of business online
such as servicing customers, collaborating with business
partners, delivering e-learning, and conducting
electronic transactions within an organization.
Electronic Commerce: Definitions
and Concepts (cont.)
• Brick-and-Mortar
• Pure vs. Partial EC organizations are old-
depends upon the economy organizations
degree of digitization (corporations) that
(the transformation perform most of their
from physical to business off-line, selling
digital) of:
physical products by
1. the product (service)
sold; means of physical
2. the process; and for agents
3. the delivery agent (or
digital intermediary)

© Prentice Hall 2004 5

Electronic Commerce: Definitions
and Concepts (cont.)
• Electronic market (e-
• Virtual (pure-play) marketplace) online
organizations marketplace where
conduct their buyers and sellers meet
business activities to exchange goods,
solely online
services, money, or
• Click-and-mortar information
organizations
conduct some EC
activities, but do their
primary business in
the physical world

© Prentice Hall 2004 6

Electronic Commerce: Definitions
and Concepts (cont.)
• Interorganizational • Intraorganizational
information systems information systems
(IOSs) allow routine enable EC activities
transaction to go on within
processing and individual
information flow organizations
between two or
more organizations

© Prentice Hall 2004 7

Dimensions of Electronic
Commerce

© Prentice Hall 2004 8

 Classification, and
Content
• Two major types of e-commerce:
o business-to-consumer (B2C) : online transactions are made
between businesses and individual consumers
o business-to-business (B2B): businesses make online transactions
with other businesses
o intrabusiness EC: EC conducted inside an organization (e.g., business-
to-employees B2E)

© Prentice Hall 2004 9

Figure 1.1 E-commerce as percent of total value: (2005–2014)
(Source: census.gov/content/dam/Census/library/publications/2016/econ/e14-estats.pdf, accessed Marc
A Framework for Electronic Commerce
 The Electronic Commerce Field: Growth,
Content, Classification, and a Brief History
• Classification of EC by the Nature of the
Transactions and the Relationships Among
Participants
o *Business-to-Business (B2B)
o *Business-to-Consumer (B2C)
o *Business-to-Business-to-Consumer (B2B2C)
o *Consumer-to-Business (C2B)
o *Intrabusiness EC
o *Business-to-Employees (B2E)
o *Consumer-to-Consumer (C2C)
o *Collaborative Commerce
o *E-Government
Categories of Transactions in
E-Commerce
 A Brief History of EC
• 1970s: innovations like electronic funds transfer
(EFT)—funds routed electronically from one
organization to another (limited to large
corporations)

• electronic data interchange (EDI)—

electronically transfer routine documents
(application enlarged pool of participating
companies to include manufacturers, retailers,
services)

• interorganizational system (IOS)—travel

reservation systems and stock trading

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A Brief History of EC (cont.)
• 1969 U.S. government experiment—the Internet
came into being initially used by technical
audience of government agencies, academic
researchers, and scientists

• 1990s the Internet commercialized and users

flocked to participate in the form of dot-coms,
or Internet start-ups

• Innovative applications ranging from online

direct sales to e-learning experiences

© Prentice Hall 2004 15

A Brief History of EC (cont.)
• Most medium- and large-sized organizations
have a Web site
• Most large U.S. corporations have
comprehensive portals
• 1999 the emphasis of EC shifted from B2C to
B2B
• 2001 the emphasis shifted from B2B to B2E,
c-commerce, e-government, e-learning, and
m-commerce
• EC will undoubtedly continue to shift and
change

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A Brief History of EC (cont.)
• EC successes • EC failures
o Virtual EC companies o 1999, a large number of EC-
• eBay dedicated companies began
• VeriSign
to fail
• AOL o EC’s days are not numbered!
• Checkpoint • dot-com failure rate is declining
sharply
o Click-and-mortar • EC field is experiencing
• Cisco consolidation
• General Electric • most pure EC companies, are
expanding operations and
• IBM generating increasing sales
• Intel (Amazon.com)
• Schwab
• https://www.youtube.com/watc
h?v=eGyhA-DIYvg

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 The Future of EC
• In 2018, an estimated 1.8 billion people
worldwide purchased goods online.

• Ecommerce sales on websites, login-portals and

marketplaces grew past $1 trillion for the first time in 2018.

• The number of internet users in 2018 is 4.021 billion, up 7

percent year-on-year. The number of social media users in
2018 is 3.196 billion, up 13 percent year-on-year.

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 The Electronic Commerce Field: Growth,
Content, Classification, and a Brief History
o The Google Revolution
During its early years, EC was impacted by companies such as
Amazon.com, eBay, AOL, and Yahoo!. However, since 2001 no
other company has probably had more of an impact on EC than
Google
o Cyber Monday, Single Day
o Social Commerce
• F-Commerce
o EC Failures
 Drivers and Benefits of
E-Commerce
• The Drivers of E-Commerce
o The Major Drivers of EC
• The Benefits of E-Commerce
o Opportunities for Entrepreneurs
o EC as a Provider of Efficiency, Effectiveness,
and of Competitive Advantage

o NET-A-PORTER: DRESS FOR SUCCESS

• https://www.youtube.com/watch?v=Xm2ENjtpIBQ
• https://www.youtube.com/watch?v=1zLMlpQ6_l0
• https://www.youtube.com/watch?v=M2RHl4DBSHY

• The Future of Shopping: https://www.youtube.com/watch?v=_Te-

NCAC3a4
Effect of Digital Economy
Globalization Digitization

Wars
Fraud

Organizations
Speed

Markets
Opportunities

Business Information
models overload and
and intelligent
processes search
Innovation
Obsolescence
 E-Commerce 2.0: From Social
Commerce to Virtual Worlds
• Social Business : “an organization that has put in
place
• the strategies, technologies and processes to
systematically
• engage all the individuals of its ecosystem
• (employees, customers, partners,
• suppliers) to maximize the co-created value.”*
• Social Computing
• *Web 2.0
• *Social Media
o The Difference between Social Media and Web 2.0
• Social Networks and Social Network Services
 The Digital and Social Worlds:
Economy, Enterprises, and Society

• *The Social Business (Enterprise)

o The Social Business Forum
o IBM’s Approach
o *Social Business by Design
• The Digital Revolution and Society
o Disruptive Impacts
o *The Social Customer
The Social Customer
Sharing Economy
Sharing Economy
 Structure of Business
Models
• Business model:
• A method of doing business by
which a company can generate
revenue to sustain itself

© Prentice Hall 2004 27

The Major Components of a
Business Model
 Structure of Business Models (cont.)
• Revenue model:
• Description of how the company or an EC project
will earn revenue:
o Sales
o Transaction fees
o Subscription fees
o Advertising
o Affiliate fees
o Other revenue sources

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 Structure of
Business Models (cont.)
• Value proposition:

• The benefits a company can derive from using EC

o search and transaction cost efficiency
o complementarities
o lock-in
o novelty
o aggregation and interfirm collaboration

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Exhibit 1.4: Common
Revenue Models

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Typical Business Models
in EC
1. Online direct marketing
2. Electronic tendering systems
3. Tendering (reverse auction): model in
which a buyer requests would-be sellers
to submit bids, and the lowest bidder
wins
4. Name your own price: a model in which
a buyer sets the price he or she is willing
to pay and invites sellers to supply the
good or service at that price
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 Typical Business
Models in EC (cont.)
5. Affiliate marketing: an arrangement
whereby a marketing partner (a business,
an organization, or even an individual)
refers consumers to the selling company’s
Web site
6. Viral marketing: word-of-mouth marketing
in which customers promote a product or
service to friends or other people

© Prentice Hall 2004 33

 Typical Business
Models in EC (cont.)
7. Group purchasing: quantity purchasing that
enables groups of purchasers to obtain a discount
price on the products purchased
8. SMEs: small to medium enterprises
9. Online auctions
10. Product and service customization
11. customization: creation of a product or service
according to the buyer’s specifications
12. Electronic marketplaces and exchanges

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 Typical Business
Models in EC (cont.)
13. Information brokers
14. Bartering
15. Deep discounting
16. Membership
17. Supply chain improvers
18. Business models can be independent or
they can be combined amongst
themselves or with traditional business
models

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 Benefits of EC
Benefits to organizations
• Global reach • Rapid time-to-market
• Cost reduction • Lower communication
costs
• Supply chain
improvements • Efficient procurement
• Extended hours: 24/7/365 • Improved customer
relations
• Customization
• Up-to-date company
• New business models
material
• Vendors’ specialization
• No city business permits
and fees

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 Benefits of EC (cont.)
Benefits to consumers
• Ubiquity • Participation in
• More products and auctions
services • Electronic
• Cheaper products communities
and services • “Get it your way”
• Instant delivery • No sales tax
• Information
availability

© Prentice Hall 2004 37

 Benefits of EC (cont.)
• Benefits to
society
o Telecommuting
o Higher standard
of living
o Hope for the poor
o Availability of
public services

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Limitations of EC

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 Barriers of EC
• User authentication
• Security and lack of public key
• Trust and risk infrastructure
• Lack of qualified • Organization
personnel • Fraud
• Lack of business • Slow navigation on the
models Internet
• Culture • Legal issues

© Prentice Hall 2004 40

 Managerial Issues
1. Why is B2B e-commerce so essential and
successful?
2. Which EC business model should I
choose?
3. How can we exploit social commerce?
4. What are the top challenges of EC
today?
 Summary
1. Definition of EC and description of its
various categories.
2. The content and framework of EC.
3. The major types of EC transactions.
4. The drivers of EC.
5. Benefits of EC to organizations,
consumers, and society.
6. E-commerce 2.0 and social media.
 Summary
7. Describe social commerce and social
software.
8. The elements of the digital world.
9. The major EC business models.
10.Limitations of e-commerce.