Information Systems: Creating

Business Value
by
Mark Huber, Craig Piercy, and Patrick McKeown

Chapter 7:
E-Commerce for Consumers
and Organizations
What We Will Cover:
 E-Commerce: An Overview
 The E-Commerce Difference
 E-Commerce for Consumers
 E-Commerce Between Organizations
 Student ROI (Return on Investment)

Your investment of time and effort in this course will result in

your being able to answer these questions:
1. What is e-commerce and how is it a part of today’s
economy?
2. How does e-commerce make a difference to
businesses and consumers?
3. How does e-commerce allow businesses to create
value for their consumers?
4. How do businesses use e-commerce to enhance the
products and services that they trade with business
partners, as well as to improve their supply chain
efficiency?
 What is e-commerce?
 E-commerce is the use of information systems, technologies, and
computer networks to carry out transactions in order to create or
support the creation of business value.
 Note that we do not say “to buy and sell over the Internet” in our
definition;
 do not want to restrict ourselves to just the Internet
 want to make our definition as general as possible, so we
concentrate on transactions which we discussed in Chapter 4
and 5 and computer networks which we discussed in Chapter 2
and Field Guide C.
 E-Commerce includes all types of computer networks and all types
of transactions including electronic funds transfers and EDI over
private networks as well as retail sales and wholesale exchanges
over public networks like the Internet
 E-commerce (cont.)

 Uneven penetration into areas of commerce

 Travel Industry versus Retail Clothing Industry
(clothing is trending upward)
 Most people think of e-commerce as electronic
shopping over the WWW or Business to
Consumer e-commerce (B2C - transactions in
hundreds of millions of dollars)
 However, Business to Business e-commerce
(B2B) transactions are valued in trillions of
dollars!
 Types of E-Commerce Transactions

Transaction Description Example Web sites

Business-to-consumer Online equivalent of retail store www.landsend.com,
(B2C) as well as other services www.overstock.com,
www.amazon.com

Business-to-business Electronic exchanges between www.manheim.com,

(B2B) companies www.boeing.com
Business-to- Online sales to government www.irs.gov,
government (B2G) agencies as well as online www.fedbizopps.gov,
payment of taxes App.mt.gov/bustax

Consumer-to- Electronic payment of taxes as www.irs.gov/individuals,

government (B2G) well purchasing licenses express.hsmv.state.fl.us
Consumer-to-consumer Use of online auctions like eBay www.ebay.com,
(C2G) or Yahoo! Auctions auctions.yahoo.com
E-Commerce and Products: Physical
and Electronic
 Products can be divided into two primary categories: physical
and electronic.
 Physical products include anything that requires an actual
shipment of a package to the buyer, eg, computer hardware.
 Electronic products can be received directly over the Internet or
other computer network, eg, computer software.
 E-commerce companies must have back-office elements to
handle order fulfillment and to handle returns for physical goods,
 Companies experienced in order fulfillment and returns have
tended to be successful in dealing with physical goods using E-
commerce.
 Types of E-Commerce Transactions and
Associated Goods
Transaction Example Physical Example Electronic Goods
Goods
B2C CD, DVD iTunes song, ring tones
B2B Office furniture Virus protection software,
databases
B2G Technical manuals, Document conversion from
regulations, and other hardcopy to XML/Web-based
printed information documents
C2G Printed and mailed Electronically filed income tax
income tax return or return or license application
license application
C2C Elvis PezTM, comic books Shareware program, self-
published e-book
Purchase of Physical Goods
Purchase of Electronic Products
 The “E-Commerce Difference”

 The use of computer networks, especially the Internet, to

carry out transactions between a variety of buyers and
sellers is creating a tangible “e-commerce difference” in our
economy, especially with regard to
 Technology
 Competition
 Strategy
 Over 1 billion potential customers around the world in the
marketspace due to increasing Internet access.
 Universal standards make it work the same way no matter
where in the world you might be.
Impact of E-commerce Technologies
on Business
E-Commerce Differences
 Innovative uses of the Internet have produced global
competition with sellers being able to reach any
potential buyer in the world.
 This is true for both the large retailers and for those
selling in niche market.
 Technology has increased information density—the
quality and quantity of information about products
and services.
 Customers can obtain product guides, reviews, and
prices from a myriad of Web sites creating business
challenges.
Mass Customization and
Personalization
 One response to information density is to create
business value based on a customization-oriented
approach to e-commerce.
 Two approaches to customization are: mass
customization and personalization.
 Mass customization is the ability to create custom
products or services on-demand, eg, Dell customers
can customize their PC.
 Personalization is a marketing message that a
business personalizes for each potential customer’s
interests based on searching, browsing, or buying
habits, eg, Amazon.com.
E-commerce and Competition
 E-commerce is having a dramatic effect on
competition between organizations in a
number of ways including:
 Reducing barriers to entry
 No one firm or person “owns” the entire market
 Enhanced collaboration/alliances
 Market niches multiply
 Changed marketplace drivers (forces that make
things happen in the market, e.g., consumer
preferences, number of suppliers a business can
choose from)
Business and E-commerce Strategy

E-commerce has changed business strategy.

A strategy is a broad-based formula for how a
business is going to compete, what its goals
should be, and what plans and policies will be
needed to carry out those goals.1

1Michael Porter “What is Strategy”, Harvard Business Review, November 1996, pp. 69-84.
 E-commerce Strategy
 An e-commerce strategy is a general formula for how a business is
going to use computer networks and information systems to
compete in a global marketplace.
 To build an e-commerce strategy requires two views of an
organization’s strategy: what is wants to do (conceptual) and how it
will do it (technology strategy).
 One strategy being used by many companies is customer
relationship management which enables them to create one-to-one
marketing experiences for their customers.
 Other e-commerce strategies include virtual showrooms, increased
channel choices, wider component choice, and use of mobile
technology.
 Mobile commerce is the use of laptops, mobile telephones, and
personal digital assistants to connect to the Internet and Web to
conduct many of the activities associated with e-commerce.
 Benefits and Limitations of B2C E-commerce for
Consumers1

Benefits Limitations
Lower prices Delay in receiving physical products, plus
Shop 24/7 shipping
Greater searchability In areas without high-speed Internet service,
Shorter delivery times for digital slow download speeds.
products
Security and privacy concerns, especially
Sharing of information with other
with rise of phishing.
consumers
Improved customer service Inability to touch, feel, or even smell products
prior to the purchase.
Unavailability of micropayments for purchase
of small-cost products.

1Some but not all of these were taken from E. Turban, et. al., Electronic Commerce: A Managerial Prospective 2002,
Prentice-Hall: Upper Saddle River, NJ, pp. 26-28.
Benefits and Limitations of B2C E-commerce for
Businesses1

Benefits Limitations
Expansion of marketplace to global  Increased competition due to global
proportions. marketplace.
Cheaper electronic transactions.
Ease of comparison between competing
Greater customer loyalty through products drives prices down.
customized Web pages and 1-to-1
marketing. Customers want specific choices and will
Expansion of niche marketing not accept substitutes.
opportunities. Customers control flow of information
Direct communications with instead of companies.
customers through Web site,
resulting in better customer service.
E-commerce Business Models
 A business model defines how a company will meet
the needs of its customers while making a profit.
 An e-commerce business model is a business model
appropriate for conducting business via electronic
networks.
 The next three slides list and give examples of e-
commerce business models (Source: adapted from
Michael Rappa,
http://digitalenterprise.org/models/models.html.
E-commerce Business Models (cont.)1

Business Model Description Examples Comments

Brokerage Brokers bring buyers eBay, Priceline, PayPal There are many types of
and sellers together for brokerage models in all types
a fee. of e-commerce.

Advertising An extension of the Yahoo!, Netscape, There are many different

traditional media CNN.com, Google types of advertising, but all
broadcasting model in depend on a large volume of
which ads appear on viewer traffic.
Web sites.

Merchant Sell products, both Amazon.com, Commonly referred to as e-

physical and electronic, LandsEnd.com, tailers, merchants can use
to consumers Walmart.com, iTunes, pure e-commerce or a
and many others combination (click and
mortar).

1Adapted from Micheal Rappa, http://digitalenterprise.org/models/models.html.

E-commerce Business Models (cont.)1

Business Model Description Examples Comments

Manufacturer Make and sell Dell, IBM, Products can be

Direct products directly to Microsoft, McAfee purchased (PCs), leased
customer (anti-virus (servers), or licensed
products) (software).

Affiliate Affiliate Web sites Amazon.com fees Can also include banner
are paid a fee when to affiliate Web ad exchange between
purchases come sites affiliated sites as well as
through them. revenue-sharing.

Community Based on user loyalty Apple computers, Revenue is generated

because of high Red Hat software through sale of ancillary
investment of time and products or voluntary
emotion. contributions

1Adapted from Micheal Rappa, http://digitalenterprise.org/models/models.html.

 E-commerce Business Models (cont.)1

Business Description Examples Comments

Model

Subscription Users are charged Classmates, Subscription may be for

fee to subscribe to Highbeam premium services;
service to service or (articles), Netscape advertising model may be
information source Radio, AOL combined with this model

Infomediary Provides data on DoubleClick, Usually aimed at helping

consumers and NetRatings, businesses rather than
consumption habits Edmunds consumers

Coopetitive Enable competitors AutoTrader.com, Usually aimed at

to cooperate on a VRBO.com individuals or small
Web site businesses that cannot
attract customers to their
own Web site.

1Adapted from Micheal Rappa, http://digitalenterprise.org/models/models.html.

 E-commerce Web site Purpose

The purpose of an e-commerce website is another way to

understand businesses’ e-commerce business models.
No matter how good the business model, it will not generate
a profit if not associated with a Web site that brings in
customers or at least visitors.
There are eight commonly accepted types of Web sites:
portal, search engine, Browse or search and buy, sales
support, information service, auction, travel, and special
interest or services.
A number of these match up with multiple business models.
 Web Sites Classified By Purpose

Web Site Type Purpose Example Business Model

Portal A gateway to many Netscape.com, Advertising,

other Web sites Yahoo!, MSN Affiliate
Search Engine Finds Web sites that Google, Yahoo, Advertising,
contain a word or MSN, DogPile Affiliate,
phrase Infomediary
Browse or search Sell goods and Dell, LandsEnd, Merchant,
and buy services iTunes Infomediary,
Manufacturer
Direct, Coopetitive
Sales Support To provide Microsoft, BMW, Community,
information on a McAfee, Cingular Infomediary
product before or after
the sale
 Web Sites Classified By Purpose (Cont.)

Web Site Type Purpose Example Business Model

Information To provide news, USAToday, Subscription,

Service information, commentary, Highbeam, Rivals, Community,
and so on. Edmunds Affiliate
Auction Facilitate sales between eBay, Priceline, Brokerage
third parties PayPal
Travel Sell travel tickets and tours Delta, Travelocity, Merchant,
Orbitz, HotWire Brokerage,
Coopetitive
Special Interest Provide information, DogVent, Microsoft Community,
or Services product sales and support, support groups, Merchant,
and contacts between Google Groups Affiliate,
visitors Infomediary,
Advertising
B2B e-commerce: E-Commerce
Between Organizations
 Doing business with other organizations (B2B) is by
far larger than with consumers (B2C).
 It is also quite different in terms of the scope of the
purchases and the complexity involved in them—
especially in the decision making required to make a
purchase.
 For example, while you buy one PC, a company may
buy thousands.
 Interorganizational systems (IOS) are the information
systems that handle the information flow between
trading partners.
 Comparing B2C to B2B
Process Individual Business Organization
Decision to Made based on own needs Made based on the organization’s needs which
purchase are a combination of many different departmental
and individual needs

Decision where Made after own research into Made through a systematic process that involves
to buy market considering what each vendor can provide the
organization in terms of setup, networking, and
so on.

Number of One Many

Items

Actual Buy computer online or in Buy computers only after significant negotiations
Purchase person with personal credit over price and terms with vendor
card

Payment Pay credit card bill with Pay by company check only after assuring that all
personal check computers have been delivered and setup by
vendor
B2B Transactions
 B2B transactions can be divided into two types: spot
buying and strategic sourcing.
 In spot buying, purchases are made at market
prices from an unknown seller.
 Companies often use spot buying to purchase
commodities, i.e., uniform in quality differing only in
price like gasoline, paper, and cleaning supplies.
 In strategic sourcing, prices are set through
negotiation in a long-term relationship with a
company known to the buyer.
 A company’s large-scale computer purchases often
result from strategic sourcing.
B2B Business Models
 Strategic sourcing is often carried out through a one-to-one
business model, but company-centric and exchange models are
also used.
 In the one-to-one business model, two companies form a
trading relationship with neither company dominating the
relationship.
 In the company-centric business model, a company is either
a seller to many companies (one-to-many) or a buyer from many
companies (many-to-one).
 The single company dominates the market and controls the
information systems that supports the transactions. Electronic
data interchange (EDI) or an extranet is often used to link
trading partners.
 E-procurement is often the name for B2B e-commerce in the
many-to-one business model.
Company Centric Business Model
Exchange Model
 In the exchange business model, many
companies use an exchange to buy and sell
from each other through spot-buying
transactions.
Types of Exchanges
 Exchanges can be cooperative ventures among the
companies or it can be run by a larger company that
profits from the transactions.
 Exchanges can be classified as vertical or horizontal
with vertical exchanges meeting the needs of a single
industry.
 Horizontal exchanges deal with products and
services that all companies need.
 From an e-commerce point-of-view, exchanges are
often Web sites that buyers and sellers post their
needs and offerings.
 Services in B2B E-Commerce
 Just as services are an important part of B2C e-commerce, they are also an
important part of B2B e-commerce.
Service or Electronic Comments
Product
Software The ability to buy a site license online and then download
one copy, which they then burn on CDs, reduces
organizations’ cost and time in procuring software.

Leasing Companies can use e-commerce to negotiate the original

lease price and to dispose of them at the end of the lease.

Travel Travel is a big item with companies that have more than one
office or distant customers, so using e-commerce to provide
less expensive travel can save money
Services in B2B E-Commerce (cont.)

Service or Electronic Comments

Product
Insurance Companies must insure their buildings, people, vehicles,
and so on, and using e-commerce to find better insurance
coverage can mean lower costs for the company.

Banking As with consumers, businesses must pay their bills. They

must also accept payments from customers. Moving
banking online reduces the cost of writing and depositing
checks as well as making the transfer of funds much
easier.

Stock trading As a part of their overall financing process, businesses will

often buy and sell other stock as well as their own. Online
trading makes this possible for much lower transaction
fees.

Financing Businesses often need to raise capital through debt and a

number of services now make it possible to do this online
for lower transaction fees.
 Using B2B e-commerce and IOS to Improve
Supply Chain Efficiency

 A supply chain is a network of facilities and distribution

options that performs the functions of procurement of
materials, transformation of these materials into
intermediate and finished products, and the distribution
of these finished products to customers.1
 Procurement is a big part of the supply chain and using
e-commerce for e-procurement has resulted in money
savings.
 To see why, we first need to understand the traditional
procurement process.

1 “An Introduction to Supply Chain Management”, Ram Ganeshan Terry P. Harrison,

http://lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html
 Traditional Procurement Process

 In the traditional procurement process, there are five

steps involving three elements—purchase order,
invoice, and receipt of goods:
1. Purchase order (PO) to vendor
2. Goods to buyer along with bill of lading (BOL)
3. Upon receipt of goods and BOL, signed copy of BOL
returned to vendor and receipt of goods is filed
4. Vendor sends invoice to buyer
5. Buyer’s accounting department compares PO to receipt of
goods and invoice. If there is a match, buyer pays the
vendor.
Traditional Procurement Process
Interorganizational Systems (IOS)
 An interorganizational system (IOS) is a
networked information system used by two or
more separate organizations to perform a
joint business function.1
 EDI
 Extranets

1Cash,J. I. Jr., F. W. McFarlan, J. L. McKenney, and L. M. Applegate. 1994.

Corporate information systems management: text and cases. 4th ed. Homewood, IL: Irwin, p. 339.
Using E-commerce to Improve the
Procurement Process
 An interorganizational system (IOS) is a networked
information system used by two or more separate organizations
to perform a joint business function.1
 EDI: uses private networks to allow the exchange of structured
information between two computer applications with a minimum
of human involvement.
 Even though often overshadowed by newer technology, EDI
remains the engine behind the majority of e-commerce
transactions worldwide. It is, however, too expensive for most
small businesses.
 Extranets: collaborative networks that use Internet technology to
link businesses with their customers. Security measures keep
data secure and XML is used to transfer the data.
 An extranet can be thought of as two connected intranets.
Extranets
 Comparing EDI and Extranets
EDI Extranet
Security More secure due to use Less secure then EDI
of private network due to use of Internet

Cost More costly due to use of Less costly because it

proprietary software and uses existing networks
private networks and Internet apps
Flexibility Less flexible—proprietary More flexible because
software limits use based on Internet;
greater customization
Trend Gradually being replaced Gaining wider
by extranet-based apps acceptance due to
lower costs
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