Module 8

E-Commerce

Bidgoli, MIS, 11th Edition. © 2023 Cengage. All Rights Reserved. May not be scanned, copied or duplicated,
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 Learning Objectives

• Define e-commerce and describe its advantages,

disadvantages, and business models
• Explain the major categories of e-commerce
• Describe the five major activities of the business-to-consumer
e-commerce cycle
• Summarize the four major models of business-to-business e-
commerce
• Describe mobile-based and voice-based e-commerce
• Explain four supporting technologies for e-commerce
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 Defining E-Commerce (1 of 2)

• E-business
• All activities (e.g. online shopping, supply chain management) a
company performs for selling and buying products and services
using computers and communication technologies
• E-commerce
• Buying and selling goods and services over the Internet
• Builds on traditional commerce by adding the flexibility that
networks offer and the availability of the Internet
• Part of e-business

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 Defining E-Commerce (2 of 2)

• Business applications that use the Internet

• Buying and selling products and services
• Collaborating with other companies
• Communicating with business partners
• Gathering business intelligence on customers and competitors
• Providing customer service
• Supplying software updates and patches
• Offering vendor support
• Publishing and disseminating information

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 The Value Chain and E-Commerce (1 of 3)

• Value chain
• Concept introduced by Michael Porter in 1985
• Series of activities designed to meet business needs by adding
value (or cost) in each phase of the process
• E.g. a typical business designs, produces, markets, delivers, and
supports its products or services

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Exhibit 8.1 Michael Porter’s Value Chain

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 The Value Chain and E-Commerce (2 of 3)

• Primary activities:
• Inbound logistics
• Operations (processing raw materials into finished goods and
services)
• Outbound logistics
• Marketing and sales (identifying customer needs and generating
sales)
• Service (after-sales support to customers)
• Supporting activities
• Organizational infrastructure, human resource management,
technological development, and procurement
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 The Value Chain and E-Commerce (3 of 3)

• The Internet
• Increases the speed and accuracy of communication between suppliers,
distributors, and customers
• Low cost means companies of any size can participate in value chain integration
• E-commerce can enhance a value chain by offering new ways to
reduce costs or improve operations.
Examples:
• Using e-mail rather than regular mail to notify customers of upcoming sales can
reduce costs
• Selling to customers via the company Web site can generate new source of
revenue
• Offering online customer service can make products or services more appealing
to customers 8
 E-Commerce vs. Traditional Commerce

• Internet and telecommunication technologies play major role

in e-commerce
• No physical store for e-commerce
• Click-and-brick e-commerce
• Mix of traditional (retains the benefits of having physical store)
and e-commerce (capitalizes on the advantages of online
interaction with customers)

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 Table 8.1 E-Commerce vs. Traditional Commerce

Activity Traditional Commerce E-Commerce

Product information Magazines, flyers Web sites, online catalogs

Business communication Regular mail, phone calls E-mail

Check product availability Phone calls, faxes, and letters E-mail, Web sites, and extranets

Order generation Printed forms E-mail, Web sites

E-mail, Web sites, and electronic

Product acknowledgments Phone calls, faxes
data interchange (EDI)

Invoice generation Printed forms Web sites

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 Advantages and Disadvantages
of E-Commerce (1 of 3)
• Advantages
• Better relationships with suppliers, customers, business partners
• Price transparency (i.e. all trade at the same price)
• Round the clock and globe operations
• More information on potential customers
• Increasing customer involvement
• Improving customer service

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 Advantages and Disadvantages
of E-Commerce (2 of 3)
• Increasing flexibility and ease of shopping
• Increasing the number of customers
• Increasing opportunities for collaboration with business partners
• Increasing return on investment because inventory needs are
reduced
• Offering personalized services and product customization
• Reducing administrative and transaction costs

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 Advantages and Disadvantages
of E-Commerce (3 of 3)
• Disadvantages
• Bandwidth capacity problems (in certain parts of the world)
• Security issues
• Accessibility (not everybody is connected to the Web yet)
• Acceptance (not everybody accepts this technology)

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 E-Commerce Business Models

• To achieve profitability, e-commerce companies focus their operations in

different parts of the value chain
• Most widely used models:
• Merchant (uses Internet to transfer the old retail model to the e-
commerce world)
• Brokerage (brings sellers and buyers together on the Web and collects
transactions commissions between these parties)
• Advertising (extension of traditional advertising media)
• Mixed (generates revenue from more than one source)
• Informediary (sells the collected consumers & businesses information to
other companies for marketing purposes)
• Subscription (sells digital products or services to customers)
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Major Categories of E-Commerce

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 Business-to-Consumer (B2C) E-Commerce

• Companies sell directly to consumers

• Examples:
• Amazon.com (http://www.amazon.com)
• Taobao (http://www.taobao.com)
• Nike (http://www.nike.com.hk)

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 Business-to-Business (B2B) E-Commerce

• Involves electronic transactions between businesses

• In the form of electronic data interchange (EDI) and electronic
funds transfer (EFT)
• Make use of extranets effectively
• Fastest growing segment of e-commerce
• Uses:
• Purchase orders, invoices, inventory status, shipping logistics,
business contracts, and other operations
• Examples:
• Alibaba (http://www.alibaba.com) 17
 Consumer-to-Consumer (C2C) E-Commerce

• Involves business transactions between users

• E.g. consumers selling to other consumers via the Internet
• Online auction sites:
• eBay.com

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 Consumer-to-Business (C2B) E-Commerce

• Involves people selling products or services to businesses

• Example:
• Service for creating online surveys for a company to use
• Search for sellers of a product and services
• Priceline.com

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 Government and Nonbusiness E-Commerce

• Many government and other nonbusiness organizations are

using e-commerce applications which are broadly called e-
government (or just “e-gov”)
• Categories:
• Government-to-citizen (G2C): tax filing and payments
• Government-to-business (G2B): license applications and
renewals
• Government-to-government (G2G): disaster assistance and crisis
response
• Government-to-employee (G2E): e-training
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 Nonbusiness organizations

• Universities
• E.g. many universities use Web technologies for online classes,
registration, and grade reporting
• Nonprofits
• E.g. using e-commerce applications for fund-raising activities
• Political and social organizations
• E.g. political forum

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 Organizational or Intrabusiness E-Commerce

• Involves e-commerce activities that take place inside an

organization (typically via the intranet)
• These e-commerce activities can include:
• Exchange of goods, services, or information among employees
• Conducting training programs and offering human resource
services
• Supporting activities in Porter’s value chain
• E.g. human resources department supports personnel involved in
producing and distributing the company’s products

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B2C E-Commerce Cycle (1 of 2)

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 B2C E-Commerce Cycle (2 of 2)

• Five major activities are involved in conducting B2C e-commerce:

• Information sharing (e.g. B2C e-commerce company can use Web sites,
online catalogs, e-mail, etc. to share information with its customers)
• Ordering (e.g. Customers can use electronic forms or e-mail to place
orders)
• Payment (e.g. Customers have a variety of payment options such as credit
cards, e-checks, and e-wallets)
• Fulfillment (e.g. delivery address verification and digital warehousing
which maintains digital products on storage media until they are delivered)
• Service and support (e.g. product updates, online surveys, help desks, and
secure transactions)

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 B2B E-Commerce: A Second Look

• B2Bs use the following additional technologies extensively:

• Intranets
• Extranets
• Virtual private networks (VPN)
• Electronic data interchange (EDI)
• Electronic funds transfer (EFT)
• Improves supply chain management among business partners
• Lowers production costs and improves accuracy
• By eliminating many labor-intensive tasks (e.g. creating invoices and
tracking payments manually)
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 Major Models of B2B E-Commerce

• Three major types of B2B e-commerce models, based on who

controls the marketplace:
• Seller  (1) seller-side marketplace model
• Buyer  (2) buyer-side marketplace model
• Intermediary (third-party)  (3) third-party exchange
marketplace model
• A fourth model called trading partner agreements
• (4) facilitates contracts and negotiations among business
partners

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 (1) Seller-Side Marketplace

• Most popular B2B model

• Sellers who cater to specialized markets come together to create a
common marketplace for buyers
• E-procurement
• Enables employees in an organization to order and receive supplies
and services directly from suppliers
• Often have purchase-approval procedures that allows users to
connect only to company-approved e-catalogs that give employees
pre-negotiated prices
• Major vendors of e-commerce and B2B solutions include I2
Technologies, IBM, Oracle, and SAP
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 (2) Buyer-Side Marketplace

• Used by large corporations

• A buyer, or a group of buyers, opens an electronic marketplace
• Invites sellers to bid on announced products or requests for quotation
(RFQs)
• Buyers can:
• Manage the procurement process more efficiently
• Lower administrative costs
• Implement uniform pricing
• Establishes new sales channel that increase the market presence and
lower the cost of each side
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 (3) Third-Party Exchange Marketplace

• Controlled by a third party (not sellers & buyers)

• Marketplace generates revenue from the fees charged for
matching buyers and sellers
• Usually active in vertical (focuses on a specific industry or
market) or horizontal (focuses on a specific function or
business process and automate this function or process for
different industries) market
• Offer suppliers a direct channel of communication to buyers
through online storefronts
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 (4) Trading Partner Agreements

• Automate negotiating processes and enforce contracts between

participating businesses
• Business partners can send and receive bids, contracts, and other
information needed when offering and purchasing products and
services
• Enables customers to submit electronic documents (e.g. electronic
contracts and trading partner agreements) via the Internet that
previously required hard copies with signatures
• Using XML for e-commerce data exchange
• Accepting an electronic trading agreement binds the parties to all its
terms and conditions
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 Mobile Commerce

• Mobile commerce (m-commerce)

• Using handheld devices, such as smart phones to conduct business
transactions (e.g. online stock trade)
• Supporting technologies for m-commerce:
• Wireless wide-area networks and 3G/4G networks
• Short-range wireless communication technologies (e.g. Wi-Fi,
WiMAX, Bluetooth & RFID)
• Examples:
• iPhone apps
• Google mobile services (www.android.com/)

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 Voice-Based E-Commerce

• Rely on voice recognition and text-to-speech technologies

• Speak the name of the Web site or service to access
• Use voice commands to search a database
• Can conduct business using e-wallets (e.g. storing financial
information, customer’s address, driver’s license number)
• Security features for voice-based e-commerce
• Call recognition (calls placed from specific mobile devices)
• Voice recognition (match a specific voice pattern)
• Fixed shipping address (can’t be changed by voice commands)
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 E-Commerce Supporting Technologies

• Electronic payment systems (EPS)

• Web marketing
• Mobile marketing
• Search engine optimization (SEO)

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 Electronic Payment Systems (1 of 2)

• Electronic payment
• Money or scrip that is exchanged only electronically
• Involves use of the Internet, computer networks, and digitally stored
value systems (e.g. Payment cards)
• Payment cards:
• Credit cards, debit cards, charge cards and smart cards
• Smart cards
• Credit card sized
• Contain an embedded microprocessor chip for storing important
financial and personal information
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 Electronic Payment Systems (2 of 2)

• Other types of electronic payments:

• E-cash (works with a smart card to recharge the amount of cash
stored on the chip electronically)
• E-check (electronic version of a paper check for high security online
transactions)
• E-wallets (stores personal and financial information such as credit
card numbers, passwords, and PINs)
• PayPal (users with a valid e-mail address can set up an account and
use it for secure payments of online transactions, using their credit
cards or bank accounts)
• Micropayments (for very small payments on the Web; e.g. for
advertisers to pay for cost per view or cost per click) 35
 Web Marketing (1 of 2)

• Uses the Web and its supporting technologies to promote goods and
services
• List of terms:
• Ad impression  one user viewing one ad
• Banner ads  clicking a banner ad displays a short marketing
message or transfers the user to another site
• Click  opportunity a user to click a URL or a banner ad
• Cost per thousand (CPM)  the cost per thousand ad impressions
• Cost per click (CPC)  the cost of every click on an ad
• Click-through rate (CTR)  number of clicks of an ad divided by total
impression bought
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 Web Marketing (2 of 2)

• Cookie  information a Web sites stores on the user’s hard drive so

that it can be remembered for a later visit
• Hit  every element of a Web page is counted as a hit to a server
• Meta tag  provides information about a Web page, such as keywords
that represent the page content
• Page view (PV)  one user viewing one Web page
• Pop-up ads  opens a new window to display ads
• Pop-under ads  opens a new window hidden under the active window
• Splash screen  a Web page displayed when the user first visits the site
• Spot leasing  search engines offer space that companies can
purchase for advertising purposes
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 Mobile Marketing

• Popular mobile marketing strategies

• App-based marketing
• In-game mobile marketing
• Location-based marketing
• QR codes
• Mobile search ads
• Mobile image ads
• SMS (Short Message Service) and MMS (Multimedia Messaging
Service)

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 Search Engine Optimization (SEO)

• Helps a Web site receive a high ranking in the search results, thus improving
the volume or quality of traffic
• Some companies offer SEO service
• Editing a site’s contents and HTML code to increase its relevance to specific
keywords
• Recommendations for optimizing a Web site:
• Keywords  a few keywords that best describe the Web site
• Page title  must reflect the site and its content accurately
• Inbound links  get people to comment on your Web site, using one of
your top keywords
• Content  update Web content regularly
• Links to others  develop relationships with other Web sites 39
 Summary

• Michael Porter’s value chain, compared e-commerce with

traditional commerce
• Major e-commerce business models
• Main categories of e-commerce
• B2C e-commerce business cycle
• B2B e-commerce business models
• Mobile and voice e-commerce
• Supporting technologies
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 Key Terms

•E-Business •Trading Partner Agreements

•Business-to-Consumer •Voice-Based E-Commerce
•Business-to-Business •E-Cash
•Consumer-to-Consumer •E-Check
•Consumer-to-Business •E-Wallets
•E-Government •Web Marketing
•E-Procurement •Cookie
•Seller-Side Marketplace •Meta tag
•Buyer-Side Marketplace •Mobile Marketing
•Third-Party Exchange Marketplace •Search Engine Optimization

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 Key Concepts
• Value Chain is series of activities designed to meet business needs
by adding value (or cost) in each phase of the process.
• E-Commerce
• Buying and selling goods and services over the Internet
• Builds on traditional commerce by adding the flexibility that networks
offer and the availability of the Internet
• Part of e-business
• Mobile Commerce uses handheld devices, such as smart phones
to conduct business transactions
• Electronic Payment is a transaction in which money or scrip exchanged,
only electronically.

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Reviewed
Exercise

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