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CHAPTER 1

OVERVIEW OF ELECTRONIC COMMERCE

Learning Objectives

Electronic commerce: Definition and concepts

The electronic commerce field: Classification, content, and history Electronic commerce business models
The benefits, limitations, and impacts of electronic commerce

Electronic Commerce: Definitions and Concepts


Defining Electronic Commerce EC is the process of buying, selling, transferring, or exchanging goods, services, or information via computer networks, mostly the internet and intranets.

Business process: From a business process perspective, EC is doing business electronically by implementing business process over electronic networks, thereby substituting information for physical business process. Service: From a service perspective, EC is a tool that addresses the desire of governments, firms, consumers, and management to cut service costs while improving the quality of customer service and increasing the speed of service delivery.

Electronic Commerce: Definitions and Concepts

Learning: From a learning perspective, EC is an enabler of online training and educations in schools, universities, and other organizations. Collaborative: From a collaborative perspective, EC is the framework for inter and intraorganizational collaboration. Community: From a community perspective, EC provides a gathering place for community members to learn, transact, and collaborate. The most popular type of community is social networks.

Electronic Commerce: Definitions and Concepts


Other EC concepts: EC can take several forms depending on the degree of digitization of: 1. The product sold 2. The process 3. The delivery method

If there is no digital dimension, we consider the situation as traditional commerce.


If there is at least one digital dimension, we consider the situation as partial EC. If all the dimensions in a transaction are digital, we consider the situation as pure EC.

Classification of EC by the Nature of Transactions and Interactions


A common classification of EC is by the nature of the transactions or the relationship among the participants. Following are major types of EC

B2B B2C e-tailing B2B2C C2B Intrabusiness EC B2E C2C

A Brief History of EC

EC applications were first developed in the early 1970s with innovations such as electronic funds transfer (EFT).

Then came EDI (electronic data transfer), a technology used to electronically transfer routine documents.
EDI later expanded from financial institutions to manufacturers, retailers, services, and many other businesses. In 1990 a major milestone in the development of EC was the introduction of world wide web (www). This allowed companies to have presence on the internet with both text and photos. In 1999 the emphasis of EC shifted from B2C to B2B. In 2001 from B2B to B2E. In 2005, social networks started to receive quite a bit of attention.

The Future of EC
The predictions about the future size of EC, provided by respected analysts such AMR Research, Jupiter Media, and Forrester, vary. According to: Jupiter Media (2006), online retail (B2C) spending will increase from $81 billion in 2005 to $144 billion in 2010.

Forrester Research (2006), online sales reached $176 billion in 2005 and were expected to grow to $211 billion in 2006. Lashinsky (2006), despite the failures of individual companies, the total volume of EC has been growing by 15 to 20 percent every year.

Electronic Commerce Business Models


A method of doing business by which a company can generate revenue to sustain itself. A revenue model outlines how the organization or the EC project, will generate revenue.

The major revenue models are: Sales: Companies generate revenue from selling merchandise.
Transaction

fees: A company receives a commission based on the volume of transactions made.

Electronic Commerce Business Models

Subscription fees: Customers pay a fixed amount, usually monthly, to get some type of service. Adverting fees: Companies charge a fixed others for allowing them to place a banner on their sites. Affiliate fees: Companies receive commissions for referring customers to others web sites.

Other revenue sources: Companies allow people to play free games or to watch a sports compilation in real time for free

Electronic Commerce Business Models


Typical EC models Following are the five most common models: Online direct marketing: The most obvious model is that of selling products or services online. Electronic tendering system: Large organizations buyers, private or public, usually make large-volume or large-value purchases through a tendering system, also known as reverse auction. Electronic marketplaces and exchanges: Stock exchange.

Electronic Commerce Business Models

Viral marketing: According to viral marketing model, an organization can increase brand awareness or even generate sales by inducing people to send influencing messages to other people.

Social networking: Many companies are deriving commercial benefits from social networking.

The Benefits of Electronic Commerce


EC provides benefits to organizations, individual customers, and society. These benefits are: Benefits to organizations

Global reach Cost reduction Facilitate easy problem solving Supply chain improvements Business always open Customization Lower communication costs Improved customer service and relationship Up-to-date company material Low cost of distribution Provide competitive advantage

The Benefits of Electronic Commerce

Benefits to consumers

Ubiquity (can shop any time from any place) More products to choose Customized products Cheaper products Instant delivery Information availability Electronic socialization Find unique items

Limitations of Electronic Commerce

Technological limitations

Lack of universal standards for quality, security, and reliability. The telecommunication bandwidth is insufficient, especially for videos and graphics. Special web servers are needed in addition to the network servers, which add to the cost of EC. Internet accessibility is still expensive or inconvenient for some people. Order fulfillment of large-scale B2C requires special automated warehouses.

Limitations of Electronic Commerce

Non-technological Limitations

Lack of trust in EC and in sellers hinders buying. People do not yet trust paperless, faceless transactions. National and international government regulations sometimes get in the way. Some customers like to feel and touch products. Also, customers are resistant to the change from shopping at a physical store to a virtual store. Online fraud is increasing. In many cases, the number of sellers and buyers that are needed for profitable EC operations is insufficient.