Chapter 5 E-Business and E-Commerce

Chapter 7: Electronic Commerce: Applications and Issues (4th edition) Page 2

CHAPTER 7: Electronic Commerce: Applications and Issues

7.1 Overview of E-Business and E-Commerce

7.2 Business-to-Consumer (B2C) Electronic Commerce

7.3 Business-to-Business (B2B) Electronic Commerce

7.4 Electronic Payments

7.5 Ethical and Legal Issues in E-Business

1.  Describe the six common types of electronic commerce; provide specific personal examples of how you have used or could use B2C, C2C, G2C, and mobile commerce; and offer a specific example of B2B and G2B.

2.  Discuss the five online services of business-to-consumer electronic commerce, provide a specific example of each service, and state how you have used or would use each service.

3.  Describe the three business models for business-to-business electronic commerce, and provide a specific example of each model.

4.  Describe the four types of electronic payments, provide a specific example of each one, and explain whether you would use each type.

5.  Illustrate the ethical and legal issues relating to electronic commerce with two specific examples of each issue, and describe how you would respond or react to the four examples you have provided.

Most students will remember that Amazon.com was the first online book retailer. Students might remember that eBay was the first auction company. To initiate a discussion, you might ask students if they have heard of companies such as Etoys.com (online toy store) or Pets.com (online pet store).

Ask students to explain what the Web sites have in common. The answers will vary, but the point is that both of the companies mentioned no longer operate as an e-business. Ask the students to speculate as to the reasons for these companies’ failures. Some of the reasons are:

·  The business models were all wrong.

Some of the businesses were never going to make money from Day 1. For instance: Did anyone estimate how much it was going to cost to mail a 50-lb. bag of dog food from Pets.com? Or the more obvious question: Is the customer willing to pay the postage?

·  Individuals tend to overestimate the demand for a new technology.

When e-commerce became prominent during the mid-1990s, consumers and companies alike thought that this new phenomenon was going to change business forever. With the launch of Etoys.com, many analysts predicted the demise of Toys ‘R Us as we know it. Brick-and-mortar companies were in serious trouble; no longer would people go to stores and buy items, because they could save time by shopping it online. The brick-and-mortar stores immediately launched a counterattack by creating their own online stores. Racing to acquire a piece of the brick-and-mortar firms’ market share, internet companies without strong business plans rushed to the Internet to try to get the first mover advantage. Brick-and-mortar companies were forced to spend billions of dollars on these ventures only to find that operating an Internet company involves substantial expenses, such as warehouse costs, distribution costs, advertising costs, and logistics. Some experts contend that it costs more to run an Internet Web site than it does a brick-and-mortar retail operation. In addition, some consumers would never want to buy items online or are incapable of buying items online.
Most of the dire predictions of the demise of the brick-and-mortar companies never came true. Toys ‘R Us is still here (and they created an alliance with Amazon.com to distribute their toys; they are no longer in the Internet retail business); and Walmart is still the leading department store, with Target/Kohl’s a close second. Meanwhile, Etoys.com and many other dotcoms are distant memories. So, what went wrong? Are the Internet entrepreneurs, stockholders, and venture capitalists idiots? Maybe it’s how we as humans overrate technology (Casey, 2001).

·  Brick-and-mortar stores will no longer exist because of the costs savings involved with being a 100% online store (less overhead, no physical store, etc.).

This type of thinking is reversing itself. The trend now is for brick-and-mortar stores to add an online component. When we look at the failure of bestbuy.com, the literature tells us that the most significant reason for their failure was warehouse cost. Safeway/Kroger in certain cities offers online grocery services for a fee. Unlike Webvan, which invested millions of dollars in warehouses, Safeway/Kroger utilized their physical store location to distribute groceries to customers who wished to order online. This type of strategy may improve the likelihood of online profitability.

To wrap up this chapter you might discuss, “What will the future of e-commerce be?” This tends to get students excited. Some possible suggestions for where e-commerce is heading are in this chapter: online job ads, market research, online payments, and ethical aspects of e-commerce.

According to Boston Consulting Group (2001) the reason for e-commerce failures, 1999-2000, were:

This table illustrates that a major reason for dotcom failures was poor business models. Many e-commerce companies were launched with the mentality, “If we build it, they will come and make us rich.”

Do all of these reasons mean that e-commerce cannot be successful? That is not what the data indicate. E-commerce has changed the way companies do business and the way we as consumers interact with companies. Business models are evolving to make e-commerce more profitable. Customers benefit by being able to access a vast number of products and services, around the clock. The major benefit to society is the ability to easily and conveniently deliver information, services, and products to people in cities, rural areas, and developing countries. Despite all these benefits, EC has some limitations, both technological and non-technological, that have impeded its growth and acceptance. Technological limitations include the lack of universally accepted security standards and expensive accessibility. Non-technological limitations include the perceptions that EC is insecure, has unresolved legal issues, and lacks a critical mass of sellers and buyers. As time passes, these limitations, especially the technological ones, will lessen or be overcome.

Typical e-commerce business models are based on marketing – a commission for getting the word out. Others are based on exchanges or auctions, and still others are based on membership fees for some type of service.

The trend currently is for companies that have brick-and-mortar operations to extend to the Internet and to use the competitive advantages these companies have created to forge ahead with e-Commerce. A clicks-and-mortar strategy is perceived to work better, because customers can enjoy the advantages of both channels.

Introduce the students to social networking sites such as facebook.com, linkedin.com, and classmates.com. What is the business model of each site? Why are these sites able to survive and attract so much attention? They make money from the visits and traffic, and they provide premium services for paying customers. Introduce the Crest Whitestrips marketing promotion – would that be possible without a Facebook site? Viral marketing – or word of mouth - is a strategy many companies use to get out their message.

Section 7.1 Before you go on…

1. Define e-commerce, and distinguish it from e-business.

Electronic commerce (EC) describes the buying and selling of products, services, and information via computer networks, primarily the Internet. The term electronic business attempts to expand the definition of EC to include servicing customers, collaborating with business partners, and conducting electronic transactions within an organization. This book uses the term electronic commerce in its broadest scope, as basically equivalent to e-business.

2. Differentiate among B2C, B2B, C2C, and B2E electronic commerce.

Business-to-consumer EC involves companies selling directly to consumers over the Internet. A company that has been specifically created to do business on the Internet may engage in business-to-consumer sales, or an existing company may open its own online business. Business-to-business EC occurs when two or more businesses make transactions electronically. Consumer-to-consumer EC occurs when consumers transact business over sites such as eBay.com that enable them to sell goods or services directly to other consumers or to other auction sites. Finally, business-to-employee EC occurs when an organization uses EC internally to provide information and services to its employees such as training, discounted insurance, travel packages, and tickets to events.

3. Define e-government.

E-government is the use of Internet technology in general and e-commerce in particular to deliver information and public services to citizens, public employees, business partners, and suppliers. It is also an efficient way to do business within the government.

4. Discuss forward and reverse auctions.

A forward auction is used by sellers as a selling channel to many potential buyers. The buyers competitively bid on the item until the auction closes with the highest bidder winning. In reverse auctions, the buyer, usually an organization, seeks to buy a product or service, and suppliers submit bids. Generally, the lowest bid wins.

5. Identify some benefits and limitations of e-commerce.

Benefits

o  It makes national and international markets more accessible

o  It lowers the costs of processing, distributing, and retrieving information

o  Customers are able to access products and services around the clock

o  The major benefit to society is the ability to easily and conveniently deliver information, services, and products to people in cities, rural areas, and developing countries

Limitations

o  Lack of universally accepted security standards

o  Insufficient bandwidth

o  Expensive accessibility

o  Unresolved legal issues

o  Perception of being insecure

o  Lacking in critical mass of sellers and buyers

Section 7.2… Before you go on…

1. Describe electronic storefronts and malls.

Electronic storefronts provide consumer and businesses access to electronic retailing, usually by way of an online electronic catalog. Referred to as solo storefronts, these businesses maintain their own Internet name and Web site and may be extensions of physical stores. An electronic mall, also know as a cybermall, is a collection of individual shops under one Internet address. The basic idea of an electronic mall is the same as that of a regular shopping mall—to provide a one-stop shopping place that offers many products and services.

2. Discuss various types of online services; for example, cyberbanking, securities trading, job searches, and travel services.

Students will describe the features of various online services, including the benefits of convenience, fast response, security, confidence, easy and effective search, accurate and up-to-date information, and transaction tracking.

3. Discuss online advertising, its methods, and its benefits.

Online advertising is an attempt to disseminate information by way of the Internet in order to influence a buyer-seller transaction. Online advertising can be customized to make it media-rich, dynamic, and interactive. Online ads can efficiently use the convergence of text, audio, graphics, and animation, and they can be interactive and targeted to specific interest groups and/or individuals. Among the benefits of online advertising is that ads can be updated any time at minimal cost. In addition, online ads can reach a very large number of potential buyers all over the world. Further, online ads are sometimes cheaper than print, radio, and television ads. Finally, the use of the Internet itself is growing very rapidly, and more viewers are moving to the Internet at the expense of TV. Thus, the audience for online advertising is steadily increasing.

4. Identify the major issues relating to e-tailing.

·  Channel conflict – Regular distributors may be alienated when a company decides to sell directly online. Companies need to recognize this problem and possibly find a way to restructure distributor relationships.

·  Conflicts within clicks-and-mortar organizations – conflict between the existing organization and the ‘clicks’ side, resulting in disagreements on pricing, resource allocation, and logistics services.

·  Order fulfillment and logistics –Filling very small orders to many customers and correctly handling returns are difficult tasks.

·  Viability and risk of online e-tailers – It is very easy to enter into e-tailing, but difficult to stay afloat due to heavy competition and problems associated with order fulfillment and demand forecasting.

·  Appropriate revenue models – basing e-tailing success on advertising revenues has not proved to be viable.

5. What are spamming, permission marketing, and viral marketing?

Spamming is the indiscriminate distribution of electronic ads without the receiver’s permission. Spamming can be done via email or pop-up/pop-under ads. Spam often contains objectionable content as well as advertising. Most computer users are inundated by spam and try to reduce the flow by blocking and filtering software. By contrast, in permission marketing, senders ask recipients’ permission to receive online advertising and email. Users can select in and easily select out. Viral marketing refers to online “word-of-mouth” marketing. It relies on people to forward messages to friends, suggesting that they “check this out.”

Section 7.3 … Before you go on…

1. Briefly differentiate between the sell-side marketplace and the buy-side marketplace.

The sell-side marketplace is a B2B model in which organizations sell to other organizations from their own private e-marketplace and/or from a third-party site. Electronic catalogs and forward auctions are used extensively. This marketplace is similar to B2C, except the customer is another organization rather than an individual.

The buy-side marketplace is a B2B model in which organizations buy needed products or services from other organizations electronically. This marketplace often uses a reverse auction environment.

2. Briefly differentiate among vertical exchanges, horizontal exchanges, and functional exchanges.

Exchanges are e-marketplaces in which there are many sellers and many buyers; entry is open to all. Exchanges are frequently owned and operated by third parties or by a consortium of the major businesses in the industry. Participants in exchanges can reduce cycle trading time and costs, and they can find new markets and trading partners around the globe through the exchange.