Subject Name Code Credit Hours

E-Commerce BBA2463

E-Commerce
BBA2463

Nepal Business College

Chapter 2-History of E-Commerce

Lecturer: Dibyesh Chand

Email:[email protected]
 Learning Outcomes
Agendaof the Session
-On completion of this chapter students will be able to:
• Development of telegraph, mail orders, call centres, EDI, web
businesses, network economy, real and virtualnetwork
• Economy scale offer vs. demand, Metcalfe‘s Law, dominant
enterprisemodel and cost model
 Lecture 2
Brief
History
Of
E-Commerce
Chapter 2 - E-Commerce Business
Model

2
 Chapter 2 - E-Commerce Business
Model
• A business model is the method of doing business by which a company can
sustain itself, that is, generate revenue.
• The business model spells out how a company makes money by specifying
where it is positioned in the value chain
• For our understanding, e-commerce can be defined as any form of business
transaction in which the parties interact electronically.
• A transaction in an electronic market represents a number of interactions
between parties
• For instance, it could involve several trading steps, such as marketing,
ordering, payment, and support for delivery
• An electronic market allows the participating sellers and buyers to exchange
goods and services with the aid of information technology
3
 Chapter 2 - E-Commerce Business
•
Model
E-commerce can be formally defined as technology-mediated exchanges
between parties (individuals, organizations, or both) as well as the
electronically-based intra- or inter-organizational activities that facilitate such
exchanges
• It is global.
• It favours intangible(untouchable) things - ideas, information, and
relationships.
• And it is intensely interlinked. These three attributes produce a new type of
marketplace and society
• In the new economy, companies are creating new business models and
reinventing old models. Reading the literature, we find business
models categorized in different ways.
4
 Chapter 2 - E-Commerce Business
• Presently, Model
there is no single, comprehensive and cogent taxonomy of Web business models that
one can point to.
• Although there are many different ways to categorize e-business models, they can be broadly
classified as follows
• E-Business models based on the relationship of Transaction Parties
1. B2C
2. B2B
3. C2C
4. C2B

• E-Business models based on the relationship of Transaction Types

1. Brokerage
2. Aggregator
3. Info-mediary
4. Community
5. Value chain
6. Advertising
5
 E-BM models based on relationship of Transaction Parties
1. Business - to - Customer (B2C)
2. Business to Business (B2B)
3. Consumer to Consumer (C2C)
4. Consumer to Business (C2B)

6
 Business - to - Customer (B2C)
• involves transactions between business organizations and consumers.

• It applies to any business organization that sells its products or services to consumers
over the Internet.

• These sites display product information in an online catalog and store it in a database

• The B2C model also includes services online banking, travel services, and health information
and many more as shown in figure below

7
 Business - to - Customer (B2C)
• Consumers are increasingly going online to shop for and purchase products,
arrange financing, arrange shipment or take delivery of digital products
such as software, and get service after the sale.
• B2C e-business includes retail sales, often called e-retail (or e-tail), and other
online purchases such as airline tickets, entertainment venue tickets, hotel
rooms, and shares of stock
• B2C e-business models include virtual malls, which are websites that host
many online merchants.
• Virtual malls typically charge setup, listing, or transaction fees to online
merchants, and may include transaction handling services and marketing
options
• Examples of virtual malls include excite.com, networkweb.com, amazon.com,
Zshops.com, and yahoo.com
8
 Business - to - Customer (B2C)
• Many people were very excited about the use of B2C on the Internet, because
this new communication medium allowed businesses and consumers to get
connected in entirely new ways.
• The opportunities and the challenges posed by the B2C e-commerce are
enormous.
• A large amount of investment has gone into this and many sites have either
come up or are coming up daily to tap this growing market

9
 Business - to - Customer (B2C)
• Some of the reasons why one should opt for B2C are:
 Inexpensive costs, big opportunities : Once on the Internet, opportunities are
immense as companies can market their products to the whole world without
much additional cost.
 Globalization : Even being in a small company, the Web can make you appear to be a
big player which simply means that the playing field has been levelled by e- business. The
Internet is accessed by: millions of people around the world, and definitely, they are all
potential customers
 Reduced operational costs : Selling through the Web means cutting down on
paper costs, customer support costs, advertising costs, and order processing costs
 Customer convenience : Searchable content, shopping carts. promotions, and
interactive and user-friendly interfaces facilitate customer convenience. Thus, generating
more business. Customers can also see order status, delivery status, and get their
receipts online
 Knowledge management : Through database systems and information management,
you can find out who visited your site, and how to create, better value for customers
10
Processes in B2C (How Does B2C Work?)
• B2C e-commerce is more than just an online
store.
• It really is about managing the entire process,
but just using technology as a tool for order
processing and customer support

11
 Processes in B2C (How Does B2C Work?)
1. Visiting the virtual mall :
– The customer visits the mall by browsing the online catalogue - a very organized
manner of displaying products and their related information such as price,
description, and availability.
– Finding the right product becomes easy by using a keyword search engine

2. Customer registers :
– The customer has to register to become part of the site's shopper registry.
– This allows the customer to use the shop's complete services.
– The customer becomes a part of the company's growing database and can use
the same for knowledge management and data mining

3. Customer buys products :

– Through a shopping cart system, order details, shipping charges, taxes,
additional
charges and price totals are presented in an organized wah.
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 Processes in B2C (How Does B2C Work?)
4. Merchant processes the order :
– The merchant then processes the order that is received from the previous stage

5. Credit card is processed :

– The credit card of the customer is authenticated through a payment gateway or a
bank.
– Other payment methods can be used as well, such as debit cards, prepaid cards,
or bank-to-bank transfers

6. Operations management :
– When the order is passed on to the logistics people, the traditional business
operations will still be used.
– Things like inventory management, total quality management, and project
management should still be incorporated even though it is an e-business
13
 Processes in B2C (How Does B2C Work?)
7. Shipment and delivery :
– The product is then shipped to the customer.
– The customer can track the order/delivery as virtual malls have a delivery tracking
module on the website which allows a customer to check the status of a particular
order

8. Customer receives :
– The product is received by the customer, and is verified.
– The system should then tell the firm that the order has been fulfilled

9. After-sales service :
– After the sale has been made, the firm has to make sure that it maintains a good
relationship with its customers.

14
 Business - to - Business (B2B)
• involves electronic transactions for ordering, purchasing, as well as other administrative
tasks between business houses.

• It includes trading goods, such as business subscriptions, professional

services, manufacturing, and wholesale dealings

• Sometimes in the B2B model, business may exist between virtual companies,
neither of which
may have any physical existence.

• In such cases, business is conducted only through the Internet. Eg amazon

2
 Advantages of Business - to - Business (B2B)
• Direct interaction with customers :
 This is the greatest advantage of e-business

• Focused sales promotion :

 This information gives authentic data about the likes, dislikes and preferences of
clients and thus helps the company bring out focused sales promotion drives
which arc aimed at the right audience.

• Building customer loyalty :

 It has been observed that online customers can be more loyal than other
customers if they are made to feel special and their distinct identity is recognized
and their concerns about privacy are respected.
 It has also been found that once the customers develop a binding relationship
with a site and its product, they do not like to shift loyalties to another site or
product
3
 Advantages of Business - to - Business (B2B)
• Scalability :
 This means that the Web is open and offers round-the-clock access.
 This provides an access never known before, to the customer.
 This access is across locations and time zones.
 Thus a company is able to handle many more customers on a much wider
geographical spread if it uses an e-business model

• Savings in distribution costs :

 A company can make huge savings in distribution, logistical and after-sales
support costs by using e-business models.
 Typical examples are of computer companies, airlines, and telecom
companies

• Note : Due to large number of transactions involved, B2B operations can be

too risky if e-business applications can not guarantee adequate quality of 4
service in terms of performance, availability and security
 Processes in B2B(How does B2B work)
• B2B interactions involve much more complexity than B2C.
• For instance, typical B2B transactions include, the following steps
– review catalogues, -- send PO to vendor
– identify specifications -- prepare invoice
– define requirements -- make payment
– post request for proposals (REP) -- arrange shipment
– review vendor reputation -- organize product inspection and reception
– select vendor
– fill out purchase orders (PO)
– send PO to vendor
– prepare invoice

5
 Consumer to Consumer(C2C)
• involves transaction between consumers.

• Here, a consumer sells directly to another consumer.

• eBay, bazee.com, hamrobazar are common examples of online auction Web sites that
provide a consumer to advertise and sell their products online to another consumer.

6
 Consumer to Consumer(C2C)
• However, it is essential that both the seller and the buyer must register with
the auction site.
• While the seller needs to pay a fixed fee to the online auction house to sell
their products, the buyer can bid without paying any fee.
• The site brings the buyer and seller together to conduct deals.

7
 Consumer to Business(C2B)
• involves a transaction that is conducted between a consumer and a business
organization.
• It is similar to the B2C model, however, the difference is that in this case the
consumer is the seller and the business organization is the buyer

8
 Consumer to Business(C2B)
• In this kind of a transaction, the consumers decide the price of a particular
product rather than the supplier.
• This category includes individuals who sell products and services to
organizations.
• For example, monster.com, upwork.com, merojob.com is a Web site on which
a consumer can post his bio-data for the services he can offer.
• Any business organization that is interested in deploying the services of the
consumer can contact him and then employ him, if suitable.

9
 E-BM models based on relationship of Transaction Types
• Based on transaction type, different types of E-Business models can be
identified as :
1. Brokerage Model
2. Aggregator Model
3. Infomediary Model
4. Community Model
5. Value Chain Model
6. Advertising Model

• These transaction types/models take place in a variety of ways.

• Moreover, any organization may combine one or two of these as part of its
web business strategy

2
 Brokerage Model
• Brokers are market-makers: they bring buyers and sellers together
and facilitate transactions.
• Brokers play a frequent role in B2B, B2C, or C2C markets.
• Usually a broker charges a fee or commission for each transaction it
enables.
• The formula for fees can vary depending on context.
• Brokerage models include
– Marketplace Exchange : offers a full range of services covering the transaction
process, from market assessment to negotiation and fulfillment . Some examples
are [Orbitz, ChemConnect]
– Buy/Sell Fulfillment : takes customer orders to buy or sell a product or service,
including terms like price and delivery. Some examples are [CarsDirect,
Respond.com] 3
 Brokerage Model
• Brokerage models include
– Auction Broker : conducts auctions for sellers (individuals or merchants). Broker
charges the seller a listing fee and commission scaled with the value of the
transaction. Auctions vary widely in terms of the offering and bidding rules. Some
examples are [eBay]
– Transaction Broker : provides a third-party payment mechanism for buyers and
sellers to settle a transaction. Some examples are [PayPal, Escrow.com]
– Search Agent : a software agent or "robot" used to search-out the price and
availability for a good or service specified by the buyer, or to locate hard to find
information
– Virtual Marketplace : or virtual mall, a hosting service for online merchants
that charges setup, monthly listing, and/or transaction fees. It may also provide
automated transaction and relationship marketing services. Some examples are
[zShops and Merchant Services at Amazon.com]

4
 Aggregator Model
• It is an e-commerce business model where a firm (that does not produce or
warehouses any item) collects (aggregates) information on goods and/or services
from several competing sources at its website.
• The firm's strength lies in its ability to create an 'environment' which draws visitors to
its website, and in designing a system which allows easy matching of prices and
specifications.
• Aggregator model includes:
– Virtual Merchant : this is a business that operates only from the web and offers
either traditional or web specific goods and services. The method of selling may be
listing price or auction. Some example includes [Amazon, eToys]
– Catalog Merchant : Catalog business is a migration of mail order to web-based order
business.
– Bit Vendor : This is the merchant that deals strictly in digital products and services in
its purest form
– Subscription model : the users have to pay for the access of the site. High value
added
Consumer Reports,
content should Netflix, Lynda
be essential etc]
for subscription model. Some examples are [IEEE journal,5
 Infomediary
• Data about consumersModel
and their consumption habits are valuable, especially
when that information is carefully analyzed and used to target marketing
campaigns.
• Independently collected data about producers and their products are useful to
consumers when considering a purchase.
• Some firms function as infomediaries (information intermediaries) assisting
buyers and/or sellers understand a given market.
• Infomediary model includes :
– Advertising Networks : feed banner ads to a network of member sites, thereby
enabling advertisers to deploy large marketing campaigns. Ad networks collect
data about web users that can be used to analyze marketing effectiveness.
– Audience Measurement Services : online audience market research agencies.

6
 Infomediary
• Model
Infomediary model includes :
– Incentive Marketing : customer loyalty program that provides incentives to
customers such as points or coupons for making purchases from associated
retailers. Data collected about users is sold for targeted advertising.
– Metamediary : facilitates transactions between buyer and sellers by providing
comprehensive information and services, without being involved in the actual
exchange of goods or services between the parties

7
 Community Model
• The ability of the community model is based on user loyalty.
• Users have a high investment in both time and emotion.
• Revenue can be based on the sale of ancillary products and services or
voluntary contributions; or revenue may be tied to contextual advertising and
subscriptions for premium services.
• The Internet is inherently suited to community business models and today this
is one of the more fertile areas of development, as seen in rise of social
networking
• Community Model includes :
– Open Source : software developed collaboratively by a global community of
programmers who share code openly. Some examples are [Red Hat, Linux, PHP]

8
 Community Model
• Community Model includes :
– Open Content : openly accessible content developed collaboratively by a global
community of contributors who work voluntarily. [Wikipedia]
– Public Broadcasting : user-supported model used by not-for-profit radio and
television broadcasting extended to the web. A community of users support the
site through voluntary donations. [The Classical Station (WCPE.org)]
– Social Networking Services : sites that provide individuals with the ability to
connect to other individuals along a defined common interest (professional,
hobby, romance). Social networking services can provide opportunities for
contextual advertising and subscriptions for premium services. [Facebook,
Instagram, twitter etc]

9
 Value Chain Model
• Value chain selling is supported through two business models: demand chain
and a supply chain.
• E-Commerce supports the transactions through both the demand
chain business model and supply chain business model
• Products, goods, services, or information are delivered through the parties of
the value chain from producers to end users.
• A value chain also has relationship and administrative aspects, that is, you can
manage the relationship of the partners or enterprises in your value chain, as
well as offer some administrative services to those parties
• As a result, value chain business models must manage the two sides of their
businesses: their customers and direct sales, and their channel partners
and suppliers. Each requires its own management channels and practices
10
 Advertising Model
• The web advertising model is an extension of the traditional media broadcast
model.
• The broadcaster, in this case, a web site, provides content (usually, but not
necessarily, for free) and services (like email, IM, blogs) mixed with
advertising messages in the form of banner ads.
• The banner ads may be the major or sole source of revenue for the
broadcaster.
• The advertising model works best when the volume of viewer
traffic is large or
highly specialized.
• Advertising model includes :
– Portal : usually a search engine that may include varied content or services. A
high volume of user traffic makes advertising profitable and permits further
11
diversification of site services. Some common examples are [Google, Yahoo!]
 Advertising Model
• Advertising model includes :
– Classifieds : list items for sale or wanted for purchase. Listing fees are common,
but there also may be a membership fee. [Monster.com, Craigslist]
– User Registration : content-based sites that are free to access but require users
to register and provide demographic data. Registration allows inter-session
tracking of user surfing habits and thereby generates data of potential value in
targeted advertising campaigns.
– Contextual Advertising / Behavioral Marketing : For example, a browser
extension that automates authentication and form fill-ins, also delivers advertising
links or pop-ups as the user surfs the web. Contextual advertisers can sell
targeted advertising based on an individual user's surfing activity

12
 E-Commerce Business/Revenue
• Model
In business, revenue typically consists of the total amount of money received
by the company for goods sold or services provided during a certain time
period. Therefore, revenue models are a part of the business model.
• Many online companies generate revenues from multiple income streams such
as advertising, subscription, marketing etc.
• There are five revenue models.
1. Advertising Revenue Model
2. Subscription Revenue Model
3. Transaction Fee Revenue Model
4. Sales Revenue Model
5. Affiliate Revenue Model

13
 Advertising Revenue Model
• Generally, there is always a
commission charged to
advertisers to put up their
advertisements in a well
known online marketing
platform.
• This is the classic principle
that is being followed for the
business categorized for the
Advertising Revenue model.
• They take advantage of the
huge traffic who regularly
visit the chosen platform to
shop around, see the ad and
get redirected to the actual
site
14
 Advertising Revenue Model
• Business following the
Advertising Revenue Model
presents an indirect way of
earning revenue through a
digital platform and the
conventional ways of putting up
ads generally include display
marketing that includes a super
banner, wallpaper, skyscraper or
rectangular ads
• Google Adsense are the most
trending and reliable options
that allow you to place your ads
through the Google Search
engine allowing you to bring
your business website to the top
of the search results when
searched with the related
keywords 15
 Subscription Revenue Model
• You must have heard of Netflix, Amazon Prime, YouTube Premium, etc who will
let you enjoy their unlimited services.
• These eCommerce business models charge their users or rather subscribers based
on a certain interval of time (daily, monthly or annual) to avail their services.
• The service offerings of these companies generally include music, videos, TV
channels, magazines, special services, etc. which is offered to the subscribers for a
price to watch/listen or get the latest edition

16
 Transaction Fee Revenue Model
• The eCommerce business following the transaction fee revenue model charges a
fee to a seller for every transaction made through them.
• They are the payment companies that provides the payment gateway service to
other eCommerce business platforms.
• Generally, the profit is derived through enabling or executing transactions

17
 Transaction Fee Revenue Model
• The operator provides a platform for the eCommerce marketplace through which the
transaction can be completed.
• Now, the necessary steps include registering of the vendor and the operator so that
the identities are kept intact that may later be required for a business.

18
 Sales Revenue Model
• This is the most commonly followed eCommerce business model where wholesalers
and retailers sell their product over the internet intending to reach out to a larger
target audience.

• often competitive in comparison to the actual store price.

• The business following the online sales model often comes with marketplaces as
common entry points that allow them to deal with various product vendors allowing
them to grow the marketplace and therefore earn more

19
 Affiliate Revenue Model
• is a revenue model which deals with a business that follows the principle of
commission.
• Merchants and vendors partner up with well-known eCommerce platforms
to advertise and sell their product giving them a percentage of the profit as a
commission.

• An affiliate marketing is a well-known way of inviting as well as driving quality

leads
into their business.

20
 Affiliate Revenue Model
• The process basically works as a link that is hyperlinked to the affiliate and is
archived on a host platform that gets regular traffic.
• Any user who clicks to the affiliate link is redirected to their website where the
product or service is cataloged.
• The affiliate or the merchant thus pays an agreed commission to the host
operator
who’s carrying the link for every traffic driven

21
Impact of Various Technologies in evolution of E-Commerce

Understanding the evolution of these technologies helps us grasp

the historical context of e-commerce. The progression from
telegraph to virtual networks illustrates the continuous
development of communication and transactional tools, shaping the
landscape of digital commerce we experience today. Each
technology has contributed to the efficiency, accessibility, and
globalization of e-commerce, reflecting the dynamic nature of
technological evolution.
3
Impact of Various Technologies in evolution of E-Commerce

1. Telegraph:
- Evolution:
- Invented in the 1830s by Samuel Morse and Alfred Vail.
- Rapid expansion of telegraph lines, connecting cities and eventually
continents.
- Transmitted messages using Morse code, a system of dots and dashes.

- Impact on E-commerce:
- Accelerated business transactions by providing near-instantaneous
communication.
- Enabled businesses to coordinate transportation, manage inventory, and
make decisions in real-time.
- Laid the foundation for the global connectivity essential for modern e-
commerce. 3
Impact of Various Technologies in evolution of E-Commerce

2. Mail Orders:
- Evolution:
- Emerged in the late 19th century as a way for consumers to purchase
goods remotely.
- Catalogs were distributed to potential buyers, who could then place orders
via mail.
- Impact on E-commerce:
- Pioneered the concept of remote shopping, providing access to a wider
range of products.
- Set the stage for direct-to-consumer models that form the basis of
contemporary e-commerce.

3
Impact of Various Technologies in evolution of E-Commerce

3. Call Centers:
- Evolution:
- Emerged in the mid-20th century as telephone technology advanced.
- Initially used for customer service and later expanded to include sales and
support functions.

- Impact on E-commerce:
- Provided a direct communication channel between businesses and
customers.
- Enabled personalized customer support, order processing, and issue
resolution, laying the groundwork for customer-centric e-commerce practices.

3
Impact of Various Technologies in evolution of E-Commerce

4. Electronic Data Interchange (EDI):

- Evolution:
- Developed in the 1960s and 1970s as a standardized electronic format for
exchanging business documents.
- Facilitated the automation of business-to-business (B2B) transactions.

- Impact on E-commerce:
- Streamlined supply chain processes by automating the exchange of orders,
invoices, and other documents.
- Enhanced efficiency, reduced errors, and paved the way for seamless digital
transactions.

3
Impact of Various Technologies in evolution of E-Commerce

5. Web Businesses:
-Evolution:
- The World Wide Web became publicly accessible in the early 1990s.
- E-commerce websites emerged, allowing businesses to showcase and sell
products online.

- Impact on E-commerce:
- Revolutionized retail by providing a platform for online transactions.
- Enabled global reach, 24/7 accessibility, and diverse product offerings.

3
Impact of Various Technologies in evolution of E-Commerce

6. Network Economy:
-Evolution:
- The concept of the network economy emerged in the late 20th century.
- Focus on the value created through networks of interconnected individuals,
businesses, and technologies.

- Impact on E-commerce:
- Emphasized the importance of relationships and collaboration in business.
- E-commerce platforms leveraged network effects, fostering user
communities and enhancing customer engagement.

3
Impact of Various Technologies in evolution of E-Commerce

7. Real and Virtual Networks:

-Evolution:
- Real networks involve physical connections, such as telegraph wires and
fiber-optic cables.
- Virtual networks refer to digital connections facilitated by the internet.

- Impact on E-commerce:
- Real networks laid the groundwork for physical infrastructure, enabling the
transmission of data.
- Virtual networks, especially the internet, formed the backbone of modern e-
commerce, connecting buyers and sellers worldwide.

3
Economy of Scale in E Commerce
-Explanation:
- Economy of scale refers to the cost advantages that businesses can achieve
as they increase production or scale their operations.
- In e-commerce, as the volume of transactions, users, and data increases,
the average cost per transaction often decreases.
- Large e-commerce platforms can negotiate better deals with suppliers,
benefit from lower transaction costs, and spread fixed costs over a larger user
base.
- Impact on E-commerce:
- Enables larger e-commerce players to offer competitive prices and a broader
range of products/services.
- Facilitates the growth of online marketplaces, attracting both consumers
and sellers.
- Challenges smaller businesses to find niche markets or leverage other
unique selling propositions to compete effectively.
3
Metcalfe's Law in E-commerce:
-Explanation:
- Metcalfe's Law states that the value of a network is proportional to the
square of the number of connected users in that network.
- In the context of e-commerce, the more users a platform has, the more
valuable it becomes. This is because each user adds potential connections,
transactions, and interactions.
- Impact on E-commerce:
- Larger user bases enhance the attractiveness of e-commerce platforms,
creating network effects.
- The exponential growth in value occurs as more users join, leading to a
positive feedback loop.
- E-commerce businesses strive to build and maintain a critical mass of users
to maximize the benefits of Metcalfe's Law.

3
Dominant Enterprise Model in E-commerce:
-Explanation:
- The dominant enterprise model in e-commerce refers to the presence of a
few major players or dominant enterprises that wield significant market
influence.
- This dominance can be in terms of market share, brand recognition, or
technological infrastructure.
- Examples include Amazon, Alibaba, and other major e-commerce platforms
that have established themselves as leaders in the industry.
- Impact on E-commerce:
- Dominant enterprises often set industry standards and influence market
trends.
- Smaller businesses may face challenges in competing directly and must find
ways to differentiate or specialize.
- The dominance of key players can lead to concerns about market
concentration and the potential for anti-competitive behavior.
3
Cost Model in E-commerce:
-Explanation:
- The cost model in e-commerce involves understanding the various expenses
associated with running an online business.
- Costs may include website development, maintenance, marketing, logistics,
customer service, and technology infrastructure.
- Different e-commerce models (B2C, B2B, C2C) may have distinct cost
structures.
- Impact on E-commerce:
- Efficient cost management is critical for the sustainability and profitability of
e-commerce businesses.
- Economies of scale can lead to lower average costs per transaction, but
businesses must also manage fixed and variable costs effectively.
- Innovations in technology, logistics, and supply chain management can
impact the overall cost structure of e-commerce operations.

3
Understanding these concepts is crucial for anyone involved in or

studying e-commerce. Recognizing the economic principles at play,

the impact of network effects, the dynamics of dominant players, and

the intricacies of cost structures allows for a more comprehensive

understanding of the complexities within the e-commerce industry.