e-commerce Lecture 1 Assistant T./Adeeb M.

Al-qershi

LEARNING OBJECTIVES

In this chapter, you will learn:

• What electronic commerce is and how it has evolved in three waves of development
• Why companies concentrate on revenue models and the analysis of business processes
instead of business models when they undertake electronic commerce initiatives
• How to identify opportunities for and barriers to electronic commerce initiatives
• How economic forces have led to the development and continued growth of electronic
commerce
• How businesses use value chains and SWOT analysis to identify electronic commerce
opportunities
• How the international nature of electronic commerce affects its growth and development

Introduction

Electronic commerce began in the United States and for many years was conducted primarily
through English-language Web sites. As you will learn in this chapter, that has changed
dramatically in recent years. Since 2013, China has been the leader in online retail sales, with a
growing proportion of those sales being made on smartphones rather than computers.
With a population of 1.4 billion, some 650 million of whom have an Internet connection of some
kind, China is the world’s largest potential online market.

Recent studies have identified the Chinese as especially active Internet users, with more than
90 percent reporting that they go online two to four times a day. Combined with an overall
upward trend in economic growth in the country, current and projected online retail sales are
expected to continue their recent upward trends. Although Chinese buyers do use U.S.-based
sites such as Amazon(Note: This typeface indicates a corresponding link to a related Web page
in the book’s Web Links. Google’s URL is http://www.amazon.com) and eBay, they are also
frequent users of domestic sites with well-developed brand awareness such as JD.com and
Tmall.

The differences between Chinese and U.S. online shoppers do not stop at the different
languages they use. Chinese online buyers are more highly influenced by and want to consult
online reviews far more often than shoppers elsewhere. They also like to discuss potential
purchases with others online to a greater degree. These cultural characteristics have led to the
development of independent online review sites and in sellers such as Nike becoming active
participants in Chinese chat and messaging sites such as Sina Weibo and WeChat.

In the major cities, shoppers are buying branded luxury goods and big-ticket items such as cars;
while in smaller towns, consumers are more price-conscious and looking to find deals on
everyday goods. Distribution and delivery can be tricky in parts of China that do not have well-
developed.

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e-commerce Lecture 1 Assistant T./Adeeb M. Al-qershi

The Evolution of Electronic Commerce

the business phenomenon that we now call electronic commerce has had an interesting
history. From humble beginnings in the mid-1990s, electronic commerce grew rapidly
until 2000, when a major downturn occurred prompting endless news stories describing
how the “dot-com boom” had turned into the “dot-com bust.” Between 2000 and
2003, many industry observers were writing obituaries for electronic commerce. Just
as the unreasonable expectations for immediate success had fueled unwarranted high
expectations during the boom years, overly gloomy news reports colored perceptions
during this time.
Beginning in 2003, electronic commerce began to show signs of a profound rebirth.
Companies that had survived the downturn were not only seeing growth in sales again,
but many of them were showing profits for the first time. As the economy grew, electronic
commerce also grew, but at a faster pace than the overall economy. Thus, electronic
commerce gradually became a larger part of the total economy.
In the general economic recession that started in 2008, electronic commerce suffered
far less than most of the economy. Looking back from today’s perspective, we can see that as
the general economy has expanded and contracted, electronic commerce has consistently
expanded more in the good times and contracted less in the bad times than other economic
sectors. This section defines electronic commerce and describes its evolution from a novelty
to its current place as an important component of global business activity.

Electronic Commerce and Electronic Business

To many people, the term “electronic commerce” means shopping on the part of the
Internet called the World Wide Web (the Web).
electronic commerce (or e-commerce) activities:
1- businesses trading with other businesses and internal processes
2- buying,
3- selling,
4- hiring,
5- planning, and other activities.
Some people use the term electronic business (ore-business) when they are
talking about electronic commerce in this broader sense.
For example, IBM defines electronic business as “the transformation of key business
processes through the use of Internet technologies.” Most people use the terms “electronic
commerce” and “electronic business” interchangeably. In this book, the term electronic
commerce (or e-commerce) is used in its broadest sense and includes all business
activities that use Internet technologies.

Internet technologies
include
1- the Internet,
2- the World Wide Web, and other technologies such as
3- wireless transmissions on mobile telephone networks.
Companies that operate only online are sometimes called dot-com or pure dot-
com businesses to distinguish them from companies that operate in physical
locations (solely or together with online operations); however, online business
activity has become so integrated with everyday life in much of the world that few
people worry aboutthese distinctions any longer.
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e-commerce Lecture 1 Assistant T./Adeeb M. Al-qershi

Categories of Electronic Commerce

or business processes is a useful and commonly accepted way to define online business.

e-commeric Catagories

B2B B2C C2C B2G

consumer-to-consumer, and business- to-government. The three categories that are most commonly
used are:
• Consumer shopping on the Web, often called business-to-consumer(or B2C)
• Transactions conducted between businesses on the Web, often
called business-to-business (or B2B)
• Business processes in which companies, governments, and other organizations
use Internet technologies to support selling and purchasing activities
Businesses often have
entire departments devoted to negotiating purchase transactions with their suppliers.
These departments are usually named supply management or procurement. Thus, B2B
electronic commerce is sometimes called e-procurement.

Relative Size of Electronic Commerce Elements

Figure 1-1 shows the two main types of electronic commerce as subsets of the overall
business processes in which a company might engage. The figure presents a rough
approximation of the relative sizes of these three elements (B2C commerce, B2B
commerce, and overall business processes). In terms of dollar volume and number of
transactions, B2B electronic commerce is much greater than B2C electronic commerce.
However, the number of business processes that are conducted using online technologies

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e-commerce Lecture 1 Assistant T./Adeeb M. Al-qershi

is far greater than the number of all B2C and B2B transactions combined.

Some researchers define a fourth category of electronic commerce, called consumer to-
consumer (or C2C), which includes individuals who buy and sell items among
themselves. For example, C2C electronic commerce occurs when a person sells an item
through a Web auction site to another person. In this book, C2C sales are included in
the B2C category because the person selling the item acts much as a business would for
purposes of the transaction.
Finally, some researchers also define a category of electronic commerce called
business-to-government (or B2G); this category includes business transactions with
government agencies, such as paying taxes and filing required reports. An increasing
number of states have Web sites that help companies do business with state government
agencies. In this book, B2G transactions are included in the discussions of B2B electronic
commerce. Figure 1-2 summarizes these five categories of electronic commerce.

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e-commerce Lecture 1 Assistant T./Adeeb M. Al-qershi

Early Electronic Commerce

Although the Web has made online shopping possible for many businesses and
individuals, in a broader sense, electronic commerce has existed for many years. Since
the mid-1960s, banks have been using electronic funds transfers (EFTs, also called
wire transfers), which are electronic transmissions of account exchange information
over private communications’ networks.

Businesses have also used a form of electronic commerce, known as electronic

data interchange, for many years. Electronic data interchange (EDI)occurs when one
business transmits computer-readable data in a standard format to another business.
In the 1960s, businesses realized that many of the documents they exchanged were
related to the shipping of goods; for example, invoices, purchase orders, and bills
of lading. These documents included the same set of information for almost every
transaction.

One problem that EDI pioneers faced was the high cost of implementation. Until the
late 1990s, doing EDI meant buying expensive computer hardware and software and then
either establishing direct network connections (using leased telephone lines) to all trading
partners or subscribing to a value-added network. A value-added network (VAN)is an

independent firm that offers connection and transaction-forwarding services to buyers

and sellers engaged in EDI. Before the Internet came into existence as we know it today,
VANs provided the connections between most trading partners and were responsible
for ensuring the security of the data transmitted. EDI continues to be a large portion of
B2B electronic commerce and is growing steadily every year in number of transactions
and dollar volume. You will learn more about EDI, VANs, and new B2B transaction

Waves of electronic Commerce

1- The First Wave of Electronic Commerce, 1995–2003 The first wave of electronic
commerce was characterized by its rapid growth, often called a “boom,” which
was followed by a rapid contraction, often called a “bust.”
Between 1997 and 2000, more than 12,000 Internet-related businesses were started
with more than $100 billion of investors’ money.
The Internet technologies used in the first wave, especially in B2C commerce, were
slow and inexpensive.

2- The Second Wave of Electronic Commerce, 2004–2009

The increase in broadband connections in homes is a key element in the B2C component of
the second wave. The increased use of home Internet connections to transfer large audio
and video files is generally seen as the reason large numbers of people spent the extra
money required to obtain a broadband connection during the second wave. The increased
speed of broadband not only makes Internet use more efficient, but it also can alter the
way people use the Web.

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e-commerce Lecture 1 Assistant T./Adeeb M. Al-qershi

3- The Third Wave of Electronic Commerce, 2010–Present

In 2010, a number of factors came together to start a third wave in the development of
electronic commerce. Some of these factors include:
• A critical mass of mobile users with powerful devices (smartphones and tablets) that, for the
first time, allowed them to interact online with businesses along with proliferation of high-speed
mobile phone networksthroughout the world that provide useful connections among users and
companies
• An increase in electronic commerce activity, both domestic and acrossborders, in developing
countries, especially those with large populationssuch as China, India, and Brazil
• Widespread participation in social networking platforms combined with businesses’ increased
willingness to use them for advertising, promotion, and sales
• Increased online participation by smaller businesses in sales, purchasing,and capital-raising
activities
• Highly sophisticated analysis of the large amounts of data that companies collect about their
online customers
• Increased integration of tracking technologies into B2B electronic commerce and the
management of business processes within companies

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e-commerce Lecture 1 Assistant T./Adeeb M. Al-qershi

EMERGENCE OF MOBILE COMMERCE

Since about 2001, industry analysts have been predicting the emergence of mobile
telephone-based commerce (often called mobile commerce or m-commerce)every
year. And year after year, they were surprised that the expected development of mobile
commerce did not occur. The limited capabilities of mobile telephones were a major
impediment.

In the third wave of electronic commerce, mobile commerce finally took off with the
increasingly widespread use of mobile phones that allow Internet access and smartphones.
Smartphones are mobile phones that include a Web browser, a full keyboard, and an
identifiable operating system that allows users to run various software packages. These
phones are available with usage plans that include very high or even unlimited data
transfers at a fixed monthly rate.

Another technological development was the introduction of tablet computers. These

handheld devices are larger than a smartphone but smaller than a laptop computer. Most
tablet computers (and smartphones) can connect to the Internet through a wireless phone
service carrier or a local wireless network. This flexibility is important, especially if the
wireless data plan restricts the amount of data that can be downloaded. The availability
of these devices and the low cost of Internet connectivity have made mobile commerce
possible on a large scale for the first time.

WIDESPREAD SOCIAL NETWORKING

The Web 2.0 technologies that enabled part of the growth in electronic commerce that
occurred in the second wave will play a major role in the third wave. For example, social
networking sites such as Facebook and micro blogging technologies such as Twitter can be
used to engage in social commerce.

Social commerce is the use of interpersonal connections online to promote or sell

goods and services. Because a handheld device connected to the Internet can put a user
online virtually all the time, businesses can use online social interactions to advertise,
promote, or suggest specific products or services. Although sales traceable directly to
social commerce activities are estimated to be about $20 billion per year, most industry
analysts believe that the effect of these activities on overall online business is much
greater.