Electronic Commerce

Chapter 1
INTRODUCTION
Objectives
• Three waves of e-commerce
• What is e-commerce?
• E-commerce categories
• Advantages and disadvantages
• Economics and e-commerce
• International nature of e-commerce
Three waves of e-commerce
• First wave: 1995 – 2003
• e-commerce grew rapidly , called “boom”
• Followed by a rapid contraction, called “bust” (2000 – 2003)

• Second wave: 2004 – 2009

• Language translation and currency conversion were two big problems
• Using internal funds → E-Commerce grows more steadily.
• People obtain a broadband connection
• e-mail: used as an integral part of marketing and customer contact strategies.
• Online advertising.
• New approaches to the sale and distribution of digital products
• First-mover advantage strategy was replaced by the smart-follower strategy.

• Third wave: 2010 – 2015

 Waves of e-commerce
First wave Second waves

▪ Dominated by U.S. companies ▪ Global enterprises in many countries participating in electronic commerce
▪ Most electronic commerce Web sites in English ▪ Many electronic commerce Web sites available in multiple languages.
▪ Many new companies started with outside investor ▪ Established companies funding electronic commerce initiatives with their
money own capital.
▪ Slow Internet connections. ▪ Rapidly increasing use of broadband technologies for Internet connections
▪ Unstructured e-mail communication with customers ▪ Customized e-mail strategies are integral to customer contact.
▪ Reliance on simple forms of online advertising as main ▪ Use of multiple sophisticated advertising approaches and better integration
revenue source of electronic commerce with existing business processes and strategies.
▪ Widespread piracy due to ineffective distribution of ▪ New approaches to the sale and distribution of digital products
digital products.
▪ Rely on first-mover advantage to ensure success in all
▪ Realize that first-mover advantage leads to success only for some
types of markets and industries
companies in certain specific markets and industries

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Waves of e-commerce
E-Commerce characteristic Third wave

▪ International character ▪ Emergence of China, India, Brazil, and other countries as major
centers of electronic commerce activity.
▪ Languages ▪ English is no longer the dominant language on Web sites worldwide
▪ Funding ▪ Wide variety of funding sources available, including crowdsourcing.
▪ Connection technologies ▪ High bandwidth mobile telephone networks become an additional
important connection technology.
▪ Contact with customers
▪ Social networking tools are important additions to e-mail contact
▪ Advertising and Electronic
Commerce Integration ▪ Increasingly, advertising and marketing strategies are driven by
available online communication technologies.
▪ Distribution of digital
products ▪ Sale and distribution of digital products becomes commonplace
▪ First-Mover advantage ▪ First-mover advantage no longer seen as a key element in electronic
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Waves of e-commerce
• The first wave of e-commerce began in the 1990s, with the creation of
websites of brand manufacturers and retailers like Amazon. At this
stage, e-commerce was a novelty.
• The second wave of e-commerce began in the aughts, when most
consumers routinely used e-commerce.
• The third wave of e-commerce began in the 2010s, when retailers,
particularly e-commerce retailers, began to substitute their in-house
products for brand manufacturers' products, using the consumer
information advantage they had over the brand manufacturers.
• The fourth wave of e-commerce??? → DISCUSSION
What is e-commerce
• E-commerce: shopping on the World Wide Web
• E-business: includes other activities
• Definition from IBM: the transformation of key business processes
through the use of Internet technologies
• Business model: set of processes that combine to achieve a
company’s primary goal
What is e-commerce
• Business process: collection of related activities to produce a specific
service or product
• Primary (core) processes: create value directly (purchasing,
manufacturing, sales, etc.)
• Supporting processes: support core processes (accounting,
recruitment, technical support, etc.)
• Instead of copying business models, a wiser approach is to
improve/replace specific business processes
What is e-commerce
• Value chain: a chain of activities for a firm operating in a specific
industry
What is e-commerce

• Industry value chain: a chain of various

processes that are involved in producing
goods (and services), starting with raw
materials and ending with the delivered
product

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What is e-commerce
• SWOT (strengths, weaknesses, opportunities, threats) analysis:
Evaluating Business Unit Opportunities
 DISCUSSION
E-commerce categories
E-commerce categories
 DISCUSSION
Advantages & disadvantages
• Advantages
• Create virtual community
• For sellers
• Increase sales
• Decrease cost
• Increase reach and richness
• For buyers
• Increase purchasing opportunities
• Identify new suppliers and business partners
• Easier negotiating price and delivery terms
• Increase speed, information exchange accuracy
• Wider range of choices
Advantages & disadvantages
• Advantages
• For society
• Lower costs to issue:
• Electronic payments of tax refunds
• Public retirement
• Welfare support
• Secure and quick Internet transmission
• Fraud, theft loss protection
• Electronic payments easier to audit and monitor
• Reduced commuter-caused traffic, pollution due to telecommuting
• Products and services available in remote areas
Advantages & disadvantages
• Disadvantages
• Not all products & services suitable for e-commerce
• Technology and software issues
• Consumers resistant to change
• Cultural differences
• Conflicting laws
• These disadvantages will disappear when
• Advancing of technologies
• Buyers willing to buy through the Internet
 DISCUSSION
Advantages & disadvantages
• Products/services for e-commerce
Economics and e-commerce
• Economics: study of how people allocate scarce resources
• One way people do this is to participate in markets
• Most economists agree that markets are strong and effective
mechanisms for allocating scarce resources
• Transaction cost: total cost of a transaction
 DISCUSSION
Economics and e-commerce
• How companies are
formed?
 DISCUSSION
Economics and e-commerce
• Agency cost: the cost of using an agency
• Two components:
• The costs inherently associated with using an agent
• The costs of techniques used to mitigate the problems associated with using an agent

• Using e-commerce to reduce transaction cost and agency costs

Economics and e-commerce
• Law of diminishing returns: in all productive processes, adding
more of one factor of production, while holding all others constant,
will at some point yield lower per-unit returns
• Network effect: more people or organizations participate in a
network, the value of the network to each participant increases
• E-commerce can be used to create network effect
International nature
• Internet connects computers worldwide
• When companies use Web to improve business process they
automatically operate in global environment
• Key issues
• Trust
International nature
• Key issues
• Languages
• Culture
• Government
• Infrastructure