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E- Business, Ninth Edition

E- Business
Ninth Edition

Chapter 1
The Second Wave of Global E-Business
E- Business, Ninth Edition

Learning Objectives
In this chapter, you will learn about:
What electronic commerce is and how it has
evolved into a second wave of growth
Why companies concentrate on revenue models
and the analysis of business processes instead of
business models when they undertake electronic
commerce initiatives
How economic forces have created a business
environment that is fostering the second wave of
electronic commerce
E- Business, Ninth Edition

Learning Objectives (contd.)

How businesses use value chains and SWOT
analysis to identify electronic commerce
opportunities
The international nature of electronic commerce and
the challenges that arise in engaging in electronic
commerce on a global scale

E- Business, Ninth Edition

Electronic Commerce: The Second

Wave
Electronic commerce history

Mid-1990s to 2000: rapid growth

Dot-com boom followed by dot-com bust
2000 to 2003: overly gloomy news reports
2003: signs of new life
Sales and profit growth return
Electronic commerce growing at a rapid pace
Electronic commerce becomes part of general economy

2008 general recession

Electronic commerce hurt less than most of economy

Second wave underway

E- Business, Ninth Edition

Electronic Commerce and Electronic

Business
Electronic commerce

Shopping on the Web

Businesses trading with other businesses
Internal company processes
Broader term: electronic business (e-business)

Electronic commerce includes:

All business activities using Internet technologies
Internet and World Wide Web (Web)
Wireless transmissions on mobile telephone networks

Dot-com (pure dot-com)

Businesses operating only online
E- Business, Ninth Edition

Categories of Electronic Commerce

Business-to-consumer (B2C)
Consumer shopping on the Web

Business-to-business (B2B): e-procurement

Transactions conducted between Web businesses
Supply management (procurement) departments
Negotiate purchase transactions with suppliers

Business processes
Using Internet technologies to support organization
selling and purchasing activities

Consumer-to-consumer (C2C)
Business-to-government (B2G)
E- Business, Ninth Edition

FIGURE 1-1 Elements of electronic commerce

E- Business, Ninth Edition

Categories of Electronic Commerce

(contd.)
Elements of electronic commerce
Relative sizes of elements
Rough approximation

Dollar volume and number of transactions

B2B much greater than B2C

Number of transactions
Supporting business processes greater than B2C and
B2B combined

E- Business, Ninth Edition

Categories of Electronic Commerce

(contd.)
Activity
Task performed by a worker in the course of doing his
or her job
May or may not be related to a transaction

Transaction: exchange of value

Purchase, sale, or conversion of raw materials into
finished product
Involves at least one activity

Business processes
Group of logical, related, sequential activities and
transactions
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Categories of Electronic Commerce

(contd.)
Web helping people work more effectively
Telecommuting (telework)

Consumer-to-consumer (C2C)
Individuals buying and selling among themselves
Web auction site

C2C sales included in B2C category

Seller acts as a business (for transaction purposes)

Business-to-government (B2G)
Business transactions with government agencies
Paying taxes, filing required reports

B2G transactions included in B2B discussions

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FIGURE 1-2 Electronic commerce categories

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12

The Development and Growth of

Electronic Commerce
People engaging in commerce:
Adopt available tools and technologies

Internet
Changed way people buy, sell, hire, organize
business activities
More rapidly than any other technology

Electronic Funds Transfers (EFTs)

Wire transfers
Electronic transmissions of account exchange
information
Uses private communications networks
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The Development and Growth of

Electronic Commerce (contd.)
Electronic Data Interchange (EDI)
Business-to-business transmission
Computer-readable data in standard format

Standard transmitting formats benefits

Reduces errors
Avoids printing and mailing costs
Eliminates need to reenter data

Trading partners
Businesses engaging in EDI with each other
EDI pioneers (General Electric, Sears, Wal-Mart)
Improved purchasing processes and supplier
relationships
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The Development and Growth of

Electronic Commerce (contd.)
EDI pioneers problem
High implementation cost
Expensive computer hardware and software
Establishing direct network connections to trading
partners or subscribing to value-added network

Value-added network (VAN)

Independent firm offering EDI connection and
transaction-forwarding services
Ensure transmitted data security
Charge fixed monthly fee plus per transaction charge

Gradually moved EDI traffic to the Internet

Reduced EDI costs
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The Dot-Com Boom, Bust, and Rebirth

1997 to 2000 irrational exuberance
12,000 Internet-related businesses started
$100 billion of investors money
5,000+ companies went out of business or acquired

2000 to 2003
$200 billion invested
Fueled online business activity growth rebirth
Online B2C sales growth continued more slowly

2008-2009 recession
B2C and B2B increasing growth rates continue
Driving force: people with Internet access increasing
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FIGURE 1-3 Actual and estimated online sales in B2C and B2B categories
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17

The Second Wave of Electronic

Commerce
Four waves based on the Industrial Revolution
First and second wave characteristics
Regional scope
First wave: United States phenomenon
Second wave: international

Start-up capital
First wave: easy to obtain
Second wave: companies using internal funds

Internet technologies used

First wave: slow and inexpensive (especially B2C)
Second wave: broadband connections
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The Second Wave of Electronic

Commerce (contd.)
First and second wave characteristics (contd.)
Internet technology integration
First wave: bar codes, scanners
Second wave: Radio Frequency Identification (RFID)
devices, smart cards, biometric technologies

Electronic mail (e-mail) use

First wave: unstructured communication
Second wave: integral part of marketing, customer
contact strategies

Revenue source
First wave: online advertising (failed)
Second wave: Internet advertising (more successful)
E- Business, Ninth Edition

19

The Second Wave of Electronic

Commerce (contd.)
First and second wave characteristics (contd.)
Digital product sales
First wave: fraught with difficulties (music industry)
Second wave: fulfilling available technology promise
Mobile telephone based commerce (mobile
commerce or m-commerce)
Smart phone technology enabling mobile commerce
Web 2.0: making new Web business possible

Business online strategy

First wave: first-mover advantage
Second wave: businesses not relying on first-mover
advantage
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FIGURE 1-4 Key characteristics of the first two waves of electronic commerce
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21

Business Models, Revenue Models,

and Business Processes
Business model
Set of processes combined to achieve company goal
of yielding profit

Electronic commerce first wave

Investors sought Internet-driven business models
Expectations of rapid sales growth, market dominance

Saw copying of successful dot-com business

models
Michael Porter argued business models did not exist

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Business Models, Revenue Models,

and Business Processes (contd.)
Instead of copying model, examine business
elements
Streamline, enhance, replace with Internet technology
driven processes

Revenue model used today

Specific collection of business processes
Identify customers
Market to those customers
Generate sales

Helpful for classifying revenue-generating activities

Communication and analysis purposes
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Focus on Specific Business Processes

Companies think in terms of business processes

Purchasing raw materials or goods for resale

Converting materials and labor into finished goods
Managing transportation and logistics
Hiring and training employees
Managing business finances

Identify processes benefiting from e-commerce

technology
Uses of Internet technologies
Improve existing business processes, identify new
business opportunities, adapt to change
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Role of Merchandising
Merchandising
Combination of store design, layout, product display
knowledge

Salespeople skills
Identify customer needs
Find products or services meeting needs

Merchandising and personal selling

Difficult to practice remotely

Web site success

Transfer merchandising skills to the Web
Easier for some products than others
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Product/Process Suitability to
Electronic Commerce

FIGURE 1-5 Business process suitability to type of commerce

Classifications
Depend on available technologies current state
Change as new e-commerce tools emerge
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Product/Process Suitability to
Electronic Commerce (contd.)
Commodity item: well suited to e-commerce selling
Product or service hard to distinguish from same
products or services provided by other sellers
Features: standardized and well known
Price: distinguishing factor

Consider products shipping profile

Collection of attributes affecting how easily that
product can be packaged and delivered
Note value-to-weight ratio
DVD: good example
Expensive jewelry: high value-to-weight ratio
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Product/Process Suitability to
Electronic Commerce (contd.)
Easier-to-sell products have:
Strong brand reputation (Kodak camera)
Appeal to small but geographically diverse groups

Traditional commerce
Better for products relying on personal selling skills

Combination of electronic and traditional commerce

Business process includes both commodity and
personal inspection items

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Advantages and Disadvantages of

Electronic Commerce
E-commerce increases sales and decreases costs
Virtual community: gathering of people online
Using Web 2.0 technologies

E-commerce buyer opportunities

Increases purchasing opportunities
Identifies new suppliers and business partners
Efficiently obtains competitive bid information
Easier to negotiate price and delivery terms

Increases speed, information exchange accuracy

Wider range of choices available 24 hours a day
Immediate access to prospective purchase information
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Advantages and Disadvantages of

Electronic Commerce (contd.)
Benefits extend to general society welfare
Lower costs to issue and secure:
Electronic payments of tax refunds
Public retirement
Welfare support

Provides faster transmission

Provides fraud, theft loss protection
Electronic payments easier to audit and monitor

Reduces commuter-caused traffic, pollution

Due to telecommuting

Products and services available in remote areas

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Disadvantages of Electronic Commerce

Poor choices for electronic commerce
Perishable foods and high-cost, unique items

Disadvantages will disappear when:

E-commerce matures
Becomes more available to and accepted by general
population

Critical masses of buyers become equipped, willing to

buy through Internet
Online grocery industry example

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Disadvantages of Electronic Commerce

(contd.)
Additional problems

Calculating return on investment

Recruiting and retaining employees
Technology and software issues
Cultural differences
Consumers resistant to change
Conflicting laws

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Economic Forces and Electronic

Commerce
Economics
Study how people allocate scarce resources
Through commerce and government actions

Commerce organizations participate in markets

Potential sellers come into contact with buyers
Medium of exchange available (currency or barter)

Organization hierarchy (flat or many levels)

Bottom level includes largest number of employees
Pyramid structure

Transaction costs
Motivation for moving to hierarchically structured firms
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Transaction Costs
Total costs a buyer and seller incur
While gathering information and negotiating
purchase-and-sale transaction
Includes:
Brokerage fees and sales commissions
Cost of information search and acquisition

Sweater dealer example (Figure 1-6)

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FIGURE 1-6 Market form of economic organization

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35

Markets and Hierarchies

Coases analysis of high transaction costs
Hierarchical organizations formed
Replace market-negotiated transactions
Strong supervision and worker-monitoring elements

Sweater example (Figure 1-7)

Oliver Williamson (extended Coases analysis)

Complex manufacturing, assembly operations
Hierarchically organized, vertically integrated

Manufacturing innovations increased monitoring

activities efficiency and effectiveness
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FIGURE 1-7 Hierarchical form of economic organization

Strategic business unit (business unit)

One particular combination of product, distribution
channel, and customer type

Exception to hierarchy trend

Commodities
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Using Electronic Commerce to Reduce

Transaction Costs
Electronic commerce
Change vertical integration attractiveness
Change transaction costs level and nature

Example: employment transaction

Telecommuting
May reduce or eliminate transaction costs

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Network Economic Structures

Neither market nor hierarchy
Strategic alliances (strategic partnerships)
Coordinate strategies, resources, skill sets
Form long-term, stable relationships with other
companies and individuals
Based on shared purposes

Strategic partners
Come together for specific project or activity
Form many intercompany teams
Undertake variety of ongoing activities
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Network Economic Structures (contd.)

Network organizations
Well suited to information-intensive technology
industries
Sweater example
Knitters organize into networks of smaller organizations
Specialize in styles or designs

Electronic commerce makes such networks easier to

construct and maintain
Will be predominant in the near future

Manuel Castells predicts economic networks will

become the organizing structure for all social
interactions
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40

FIGURE 1-8 Network form of economic organization

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41

Network Effects
Activities yield less value as consumption amount
increases
Law of diminishing returns
Example: hamburger consumption

Networks (network effect)

Exception to law of diminishing returns
More people or organizations participate in network
Value of network to each participant increases

Example: telephone

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Using Electronic Commerce to Create

Network Effects
E-mail account example
Provides access to network of people with e-mail
accounts
If e-mail account is part of smaller network
E-mail generally less valuable

Internet e-mail accounts

Far more valuable than single-organization e-mail
Due to network effect

Need way to identify business processes

Evaluate electronic commerce suitability
For each process
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Identifying Electronic Commerce

Opportunities
Focus on specific business processes
Break business down
Series of value-adding activities
Combine to generate profits, meet firms goal

Commerce conducted by firms of all sizes

Firm
Multiple business units owned by a common set of
shareholders or company

Industry
Multiple firms selling similar products to similar
customers
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Strategic Business Unit Value Chains

Value chain
Organizing strategic business unit activities to design,
produce, promote, market, deliver, and support the
products or services
Michael Porter includes supporting activities
Human resource management and purchasing

Strategic business unit primary activities

Identify customers, design, purchase materials and
supplies, manufacture product or create service,
market and sell, deliver, provide after-sale service and
support
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Strategic Business Unit Value Chains

(contd.)
Strategic business unit primary activities (contd.)
Importance depends on:
Product or service business unit provides
Customers

Central corporate organization support activities

Finance and administration
Human resource
Technology development

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FIGURE 1-9 Value chain for a strategic business unit

Left-to-right flow
Does not imply strict time sequence
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Industry Value Chains

Examine where strategic business unit fits within
industry
Porters value system
Describes larger activities stream into which particular
business units value chain is embedded
Industry value chain refers to value systems

Delivery of product to customer

Use as purchased materials in its value chain

Awareness of businesses value chain activities

Allows identification of new opportunities
Useful way to think about general business strategy
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FIGURE 1-9 Value chain for a

strategic business unit
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SWOT Analysis: Evaluating Business

Unit Opportunities
SWOT analysis
Strengths, weaknesses, opportunities, and threats

Consider all issues systematically

First: look into business unit
Identify strengths and weaknesses

Then: review operating environment

Identify opportunities and threats presented

Take advantage of opportunities

Build on strengths
Avoid threats
Compensate for weaknesses
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FIGURE 1-11 SWOT analysis questions

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FIGURE 1-12 Results of Dells SWOT analysis

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52

International Nature of Electronic

Commerce
Internet connects computers worldwide
When companies use Web to improve business
process:
They automatically operate in global environment

Key international commerce issues

Trust
Culture
Language
Government
Infrastructure

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Trust Issues on the Web

Important to establish trusting relationships with
customers
Rely on established brand names

Difficult for online businesses

Anonymity exists in Web presence
Banking example: browsing sites pages
Difficult to determine bank size or how well established

Business must overcome distrust in Web strangers

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FIGURE 1-13 This classic cartoon from The New Yorker illustrates
anonymity on the Web
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Language Issues
Business must adapt to local cultures
Think globally, act locally
Provide local language versions of Web site
Customers more likely to buy from sites translated
into own language
50 percent of Internet content in English
Half of current Internet users do not read English
By 2015: 70% of e-commerce transaction will involve at
least one party outside of the United States

Languages may require multiple translations

Separate dialects
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Language Issues (contd.)

Large site translation may be prohibitive
Decided by corporate department responsible for
page content

Mandatory translation into all supported languages

Home page
All first-level links to home page

High priority pages to translate

Marketing, product information, establishing brand

Use translation services and software

Human translation: key marketing messages
Software: routine transaction processing functions
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Cultural Issues
Important element of business trust
Anticipating how the other party to a transaction will
act in specific circumstances

Culture
Combination of language and customs
Varies across national boundaries, regions within
nations
Personal property concept
Valued in North America and Europe (not Asia)

Cultural issue example

Virtual Vineyards (now Wine.com)
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Cultural Issues (contd.)

Subtle language and cultural standard errors
General Motors Chevrolet Nova automobile
Baby food in jars in Africa

Select icons carefully

Shopping cart versus shopping baskets, trolleys
Hand signal for OK: obscene gesture in Brazil

Dramatic cultural overtones

India: inappropriate to use cow image in cartoon
Muslim countries: offended by human arms or legs
uncovered
White color (purity versus death)
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Cultural Issues (contd.)

Online business apprehension
Japanese shoppers unwillingness to pay by credit

Softbank
Devised a way to introduce electronic commerce to a
reluctant Japanese population

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60

Culture and Government

Online discussion inhospitable to cultural
environments
Government controls in some cultures
Unfettered communication not desired
Unfettered communication not considered acceptable
Denounced Internet material content

Unrestricted Internet access forbidden

Filter Web content

Regularly reviews ISPs and their records

Impose language requirements
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Culture and Government (contd.)

Internet censorship
Restricts electronic commerce
Reduces online participant interest levels

China
Wrestling with issues presented by the growth of the
Internet as a vehicle for doing business
Created complex set of registration requirements and
regulations governing any business engaging in
electronic commerce
Regularly conducts reviews of ISPs and their records

Strong cultural requirements finding their way into the

legal codes that govern business conduct
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Infrastructure Issues
Internet infrastructure
Computers and software connected to Internet
Communications networks message packets travel

Infrastructure variations and inadequacies exist

Outside United States
Government-owned industry
Heavily regulated

High local telephone connection costs

Affect buying online behavior

International orders: global problem

No process to handle order and paperwork
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Infrastructure Issues (contd.)

Business face challenges posed by variations and
inadequacies in the infrastructure supporting the
Internet throughout the world
Local connection costs
Inability to handle order

Freight forwarder
Arranges international transactions shipping and
insurance

Customs broker
Arranges tariff payment and compliance
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Infrastructure Issues (contd.)

Bonded warehouse
Secure location
Holds international shipments until customs
requirements or payments satisfied

Handling international transactions paperwork

Annual cost: $800 billion
Software automates some paperwork
Countries have own paper-based forms, procedures
Countries have incompatible computer systems

See Figure 1-14: complex information flows

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FIGURE 1-14 Parties involved in a typical international trade transaction

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66

Summary
Electronic commerce
Application of new Internet and Web technologies
Helps individuals, businesses, other organizations
conduct effective business

Adopted in waves of change

First wave ended in 2000
Second wave focuses on improving specific business
processes

Technology improvements
Create new products and services
Improved promotion, marketing, delivery of existing
offerings
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Summary (contd.)
Technology improvements (contd.)
Improve purchasing and supply activities
Identify new customers
Operate finance, administration, human resource
management activities more efficiently
Reduce transaction costs
Create network economic effects
Leads to greater revenue opportunities

Electronic commerce
Fits into markets, hierarchies, networks
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Summary (contd.)
Value chains
Occur at business unit, industry levels

Value chains and SWOT analysis

Tools to understand business processes
Analyze suitability for electronic commerce
implementation

Key international commerce issues

Trust
Culture and language
Government
Infrastructure

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