Introduction to E-

Commerce
Topic Objectives
At the end of this topic, you should be able to do the following:
Define e-commerce and describe how it defers from e-
business
Describe the unique features of e-commerce technology
and how they are relevant to business
Describe the major types of e-commerce and explain
how they differ from each other
Describe the factors that were thought to be critical
success factors in E-Commerce I, and explain why these
factors did not contribute to the success of e-commerce
Describe the characteristics of E-Commerce II
Describe the three major themes used to help
understand e-commerce
What is E-Commerce
Definition of E-Commerce
The use of the Internet and the Web to carry out digitally
enabled commercial transactions
Key words
digitally enabled transactions
Business transactions carried out digitally
For the most part, transactions occur over the Internet
using World Wide Web
commercial transactions
Involve the exchange of value (such as money) across
organizational boundaries in return for products and/or
services
Note: without exchange of value, commerce do not occur
Other Definitions of E-
Commerce
Kalakota and Whinston say we should look at e-
commerce from 4 perspectives:
Communications perspective
Business process perspective
Service perspective
Online perspective
Each of these perspectives can provide value
(benefits) to business organizations adopting e-
commerce as a means of doing business
 Definition of E-Commerce
Perspective Definition
Communications Delivery of information, production/services, or
payments over electronic means
Internet facilitate exchange between buyers and
sellers
Business process Use of ICT to automation of business
transactions and work flow
Helps reduce transaction cost
Service Use of ICT to cut service cost BUT improving
quality of goods and increasing the speed of
service delivery
Online Capability of buying and selling products and
services on the Internet
Pure verses Partial E-
Commerce

E-commerce businesses range from using web

sites to display electronic product catalogs to
having almost 100% of business operations
digitised.
Business profit is NOT related to the degree of
digitalness
The pure-ness or digital-ness of an e-commerce
business is not a measure of how successful a
business is or will be
The level of digital-ness is a choice of business
strategy (a choice management makes)
Pure plays (fully digital companies) have their own
unique sets of problems compared to brick and
mortar (traditional, physical stores) companies
Pure verses Partial E-
Commerce
Level of digital-ness can be measured by
the following business dimensions:
Product / service (is the product sold
digitized?)
Agent (does the business have any physical
stores its customers can shop at?)
Delivery process (is the product sold or
service provided delivered through the
Internet?)
Pure verses Partial E-
Commerce
Degree of digitization
Dimension Digital Physical

Product sold Software, music, electronic Books, flowers,

Magazine toys, cars, clothes

Delivery Product or service can be Courier, postal,

Process downloaded from the internet truck
Business processes are highly Business processes
automated are manually done
Agent Physical presence is not Brick and mortar,
important; Customers do not physical retail
need to know where the shop is outlet

Choi, et al., 1997

Dimensions of Electronic
Commerce

Pure
Digital EC
Product

Digital
Process
Brick and
Physical Mortar
Product Physical
Process
Physical Digital
Agent Agent
Business and Commerce
Commerce refers to the exchange of goods and
services (by sellers) and money (by buyers)
Commerce activities are a subset of business
activities;
Business organizations have to carry out other activities
not directly related to commerce (such as HRM and
building maintenance)

Business
Brick and Mortar Business Approach
Traditional brick and mortar companies implement the
following business strategies:
Mass-marketing strategy
use of newspapers, TV and radio to advertise to the general
public (not to a narrow, targeted market segment)
Sales force driven process
Sales persons have to physically go out and sell
Customers seen as passive targets of advertisement
campaigns and branding blitz
One way communication (businesses send information and
customers read information)
Customers are trapped by social and geographical
(physical) boundaries
Businesses have a limited market area to sell their products
and services
Customers have a limited market area to look for products
and services they want to purchase
Brick and Mortar Business Approach
Information Asymmetry

Traditional brick and mortar companies

make use of information asymmetry
to create profits
information asymmetry occurs when the
seller has more relevant market information
than the buyer in a transaction
The seller can take advantage of the buyer
because she knows more than the buyer
about actual costs, actual quality of the
product, different categories of a product,
profit margins, price offered by other
retailers
Brick and Mortar Business Approach
Information Asymmetry

With the use of Internet, (theoretically)

buyers can surf the Internet, do comparison
shopping (compare prices between different
sellers)
Buyers can make use of informediaries and
transaction brokers to help find the sellers
offering the product at the best price
Therefore, with the use of the Internet,
information asymmetry (theoretically)
can be minimized
Unique Features of E-
Commerce
Businesses can make use of the unique
features (capabilities) of the Internet and the
World Wide Web when conducting e-commerce
There are seven unique features of e-
commerce technology
Ubiquity
Global reach
Universal standards
Richness
Interactivity
Information density
Personalization / customization
Unique Features of E-Commerce
Ubiquity
The Internet makes it possible for commerce to
be carried out from anywhere, and at any time
Transactions can take place any place where Internet
access is available
Buyers and sellers do NOT have to meet at a
common physical place to interact, exchange goods
and services and make payments
Wireless devices will allow buyers and sellers to
interact on the move and not fixed to specific
locations (e.g. on the bus, in the car, at a restaurant,
sitting in an airplane)
Unique Features of E-Commerce
Ubiquity
Traditionally, a market is associated with a
physical place (e.g. supermarket, wholesale
market, pasar malam, pasar tani)
With e-commerce, markets have evolved to
marketspace (instead of marketplace) since
buyers and sellers transact in cyberspace
(Internet)
Internet reduces the limitations of temporal (time)
Commercial transactions can take place 24 hours a day
and 7 days a week
Internet reduces the limitations of geographical
locations (place)
Unique Features of E-Commerce
Ubiquity

E-commerce reduces transaction costs

(administrative cost) of doing business
Automation through e-commerce will help
reduce transaction costs of making phone
calls, faxing business documents, confirming
orders, filing sales records and sending bills
and sales receipts
Reduction of transaction costs may lead
to the following:
Increase profit margin (benefit to sellers)
Reduced retail price (benefit to buyers)
Unique Features of E-Commerce
Ubiquity

E-commerce also reduces cognitive

energy (mental effort) to carry out
business transaction
Making purchasing decisions are easier
because information is readily available in
the Internet
Comparison shopping (comparing prices,
comparing product characteristics of different
brand names) can be done by surfing the Net
Buying a product or service is also easier
done online (by a click of a button)
Unique Features of E-Commerce
Global Reach

The Internet permits commercial

transactions to cross cultural and national
boundaries far more conveniently and cost
effectively than in the past
E-commerce can help increase the reach of
a business
Reach can be defined as a measure of the
number of users or potential customers an
e-business can get
E-commerce can help businesses reach
potential customers living anywhere in the
world as long as there is Internet access
Unique Features of E-Commerce
Global Reach

Brick and mortar companies rely on

customers that live or work within a
limited physical area surrounding the
physical shop
Advertisements
Internet offer business the ability to
advertise online to customers around
the world
Television, radio and newspapers can
reach a specific region, and at best the
entire (one) country
Unique Features of E-Commerce
Universal Standards
The strength of e-commerce technologies is
that it employ technical universal standards
(TCP/IP) that are readily and widely adopted by
all countries in the world
Not true with telephones, radio and television
Television signals, for example, are different between
some countries
Many electronic products manufactured for Japanese
consumers cannot be used outside Japan
Having universally accepted standards helps
businesses to reduce market entry costs
because buyers and business partners do not
need to buy special equipment or software to
use the Internet to carry out business
transactions
Unique Features of E-Commerce
Universal Standards

By getting access to sellers throughout the

world, buyers can enjoy two benefits:
Reduced search cost because buyers can search
easily products they want to buy from sellers located
all over the world
Simpler and faster price discovery because buyers
can search easily products they want to buy at the
price they are willing to pay, and terms and conditions
they like
Definition
Search cost is the costs of searching for suitable
product
Price discovery is the price agreed between the buyer
and seller
 Unique Features of E-Commerce
Richness of Information
richness of information can be defined as a
measure of the information that is transmitted
based on multiple information cues (words,
posture, facial expressions, gestures,
intonations), immediate feedback, and the
personal touch
Daft and Lengel (1986) defined information
richness as the ability of information to change
understanding within a time intervalcan
overcome different frames of reference or clarify
ambiguous issues to change understanding in a
timely manner are considered rich.
 Unique Features of E-Commerce
Richness of Information
Traditional markets provide richness of
information by offering physical, personalised,
face-to-face services to attract customers
Before the development of e-commerce, there
was a trade-off between market reach and
richness of information
With e-commerce, the trade-off is significantly
reduced because the Internet offer businesses
increased market reach without losing richness of
information
Customers from far away countries can get
rich information (in multiple forms such as
text, pictures, graphs, video, audio) from
businesses employing e-commerce
Unique Features of E-Commerce
Richness of Information
Richness of Information

Before e-commerce, we have to

sacrifice reach to improve richness
of information

Reach
Unique Features of E-Commerce
Interactivity

Internet technology allows for two-way

communication between seller and
consumer
Chatting, voice over IP, instant messaging, SMS
and e-mail can be used by buyers and sellers to
communicate with each other
Television, radio and newspaper do not offer
interactivity like the Internet and the Web
Television, for example, is a one-way
communication system where viewers cannot
talk back
Unique Features of E-Commerce
Information Density

Information density can be defined as

the total amount and quantity of
information available to all market
participants
Information technology
reduces the cost of information collection,
storage, processing and communications
Increases the currency, accuracy and
timeliness of information
Unique Features of E-Commerce
Information Density

Information density improves price and cost

transparency
Price transparency refers to the ability of customers
to find out the variety of prices in the market
Cost transparency refers to the ability of customers to
find out the cost sellers pay for products
Price and cost transparency can help buyers to
identify the best price for the product or service
they want to purchase
Unique Features of E-Commerce
Information Density

Information density offers benefits to the

sellers. The more sellers know about
customers, the better able for them to
implement price discrimination
Price discrimination takes place when a seller sells
products or services at different prices to different
buyers (depending on the buyers willingness to pay)
If a seller knows a particular buyer is willing to pay a
higher price for her product, she will set the price
higher for that one buyer; the same product may be
sold at a lower price to another customer who is not
willing to pay a higher price
Unique Features of E-Commerce
Personalization and Customization

Personalization refers to targeting marketing

messages to specific individuals by adjusting the
message to a persons name, interests, and past
purchases
Customization refers to designing and producing the
delivered products or services based on the buyers
preferences or prior purchase behaviour
To personalise marketing messages and customising
products and services requires the business to collect
and use information about their customers
Businesses can make use of many software
applications that can collect and analyse detailed
customer information to be used for personalisation
and customisation
Types of E-Commerce
There are a variety of e-commerce and many
ways to categorise e-commerce
Below are the major types of e-commerce
differentiated by the nature of the market
relationship who is selling to whom
B2C (business to consumer)
B2B (business to business)
C2C (consumer to consumer)
P2P (peer to peer)
M-commerce (mobile commerce)
Types of E-Commerce
Type Name Description
B-2-C Business to Consumers Online businesses selling to
individual consumers
B-2-B Business to Business Online businesses selling to
other businesses
C-2-C Consumer-to-consumer Consumers selling to other
consumers
P-2-P Peer-to-peer Use of peer to peer
technology, which enables
Internet users to share files
M-Commerce Mobile commerce Use of wireless digital
devices to enable
transactions on the Web
Driving Forces of Electronic
Commerce
Market and economic Strong competition in the marketplace
Global economy
pressures
Regional trade agreements
Low labor cost in some countries

Societal and Changing nature of workforce

environmental Government deregulations
pressures Increased importance of ethical and
legal issues

Technological Rapid technological obsolescence

pressures Information overload
Rapid decline in technology cost
verses performance ration
Growth of the Internet and the
Web
Growth of the Internet
Measured by
number of Internet host computers
(growth rate of 45% per year)
Radio took 38 years to achieve 30% share
Television took 17 years to achieve 30% share
Internet/Web took 7 years to achieve 30%
share
World Wide Web made Internet
commercially popular
Growth of the Internet and the
Web
World Wide Web allows us to create web
pages using a language called HTML
(hypertext Markup Language)
Web pages can display information in
the form of text, graphics, animation,
video, audio
There has been an exponential growth of
web content since 1993
Approx 7 million new web pages a day
Origins and Growth of E-
Commerce
Examples of attempts to employ information systems to
conduct e-commerce before the adoption of the Internet
and the Web
Electronic data interchange (EDI)
EDI is an inter-organizational system that allows for
efficient transfers of business documents (such as invoice,
sales orders, purchase requisition forms) between
business organizations
Electronic fund transfer (EFT)
EFT is an inter-organizational system that allows for
efficient transfers of funds electronically between banks
Videotext systems
Videotext systems make use of television screens to
display text messages
Limitations on the Growth of B-2-
C E-commerce
Below are examples of factors slowing down the
adoption of e-commerce
There are still many people without computers (with
Internet access) in their homes
Computers (with Internet access) are still considered
expensive to many people
It takes skill and experience to efficiently surf and look
for information through the Internet
There is still a persistent cultural attraction of physical
markets and traditional shopping experiences
There is still a persistent global inequality limiting
access to telephones and PCs (especially in the rural
areas)
E-Commerce I
E-Commerce I
A period of explosive growth in e-commerce,
beginning in 1995 and ending in 2000
It was thought (at that time) commerce will
improve because of e-commerce;
improvements will happen due to the
following:
Disintermediation of middlemen
Friction free markets will emerge
Commerce will be fueled by the network effect
E-Commerce I (1995-2000)
Forces Shaping this Era

Disintermediation
Disintermediation refers to the displacement of
market middlemen who traditionally are
intermediaries between producers and consumers
E-commerce offers producers an efficient way to sell
their products directly to consumers (through online
stores)
By selling directly to consumers, consumers are able
to buy products at lower prices while producers can
sell at a higher price than what they normally charge
wholesalers
E-Commerce I (1995-2000)
Forces Shaping this Era
Friction-free commerce
Friction-free markets are markets with high efficiencies in
facilitating buyers and sellers to transact
Friction in markets are caused by significant cost in
transactions
Friction-free markets can be achieved given the following
conditions:
Information on market condition is equally distributed among
sellers and buyers
transaction costs are low because of efficient use of
telecommunication technology and automation
prices can be dramatically adjusted to reflect actual demand
due to improved access to information
intermediaries are few as producers sell directly to buyers
unfair competitive advantages are eliminated due to improved
access to information (by both buyers and sellers)
E-Commerce I (1995-2000)
Forces Shaping this Era
First movers
A first mover is a firm that is first to market a product
or at a particular area; being the first allows the
business to quickly gain market share
Once a business has acquired a sizable share of the
market, it is difficult to penetrate the market (for
example, it is difficult to sell a new cola soft drink
because Coca Cola and Pepsi have a strong hold on
the cola market)
During E-commerce Era I, it was believed that
becoming a first mover is very important because
once a first mover has captured a large portion of the
market, it would be very difficult to compete against
them
E-Commerce I (1995-2000)
Forces Shaping this Era
Network Effect
Network effect occurs when the value of a product or
service is dependent on the number of customers
already owning and using that product or service
The purchase of a product by one customer will
indirectly benefit all other customers who own similar
products
For example
When more people buy mobile phones, the more useful
is our mobile phone because now we can phone more
people
The more people who have MMS function in their mobile
phones, the more valuable is the MMS function
The more people who have fax machines the more
useful is a fax machine
E-Commerce II
E-Commerce II started with the crash in stock
market values of E-Commerce I companies
beginning in January 2001
Telecommunications industry
had built excess capacity in high-speed fiber optic
networks
Price wars leading to inability to pay for debts incurred in
building high speed networks
There were less sales growth than anticipated
Early adopters of e-commerce began to realize e-
commerce was not easy to implement
Dot.com companies were over valued and they could
not live up to the revenues expected
E-Commerce II
During Era II, sales growth for B2C increased at 45% to 55%
per year
There are significant revenue generated from consumers who
purchase from brick and mortar shops but received valuable
product information through web sites (these kinds of sales is
called Internet influenced commerce)
Friction free commerce not fully realized because
Prices are not necessarily less than found in the brick and mortar
stores
Information asymmetries are still being created by sellers
Information overload (too much information) has not helped to
reduce market friction
Although search costs have fallen, logistic, settlement costs are still
high
Consumers fail to purchase online due to uncertainties and lack of
trust of online facilities
E-Commerce II
Intermediaries have not disappeared
the reverse has happed introduction of new forms of
intermediaries (called re-intermediation)
First movers advantage very small
First movers are displaced by fast followers
Many first movers have closed down because they could not
realise their predicted advantages
The overall costs of doing business on the Internet is
high
The cost of customer acquisition and retention is very high
Acquiring and operating the technology for e-commerce is
expensive
Site design and maintenance costs are high
Warehouses for fulfillment (are just as high as brick and
mortar companies)
 Comparing E-Commerce I and II
Predictions of what will happen

E-Commerce I E-Commerce II
Technology driven Business driven
Revenue growth emphasis Earnings and profits emphasis
Venture capital financing Traditional financing
Ungoverned Stronger regulation and governance
Entrepreneurial Large traditional firms
Disintermediation Strengthening intermediaries
Perfect markets Imperfect markets, brands, network
effects
Pure online strategies Mixed click and bricks strategies
First movers strategies Strategic follower strength
Understanding E-Commerce
Dimensions of e-commerce
Technology
Basic understanding of technologies that make e-
commerce possible
Computer technology
Telecommunications technology
Internet and WWW
Business
Understand new ways of implementing business
transactions
Redefining functions of markets
Nature of producing and selling digitized products
Understanding E-Commerce
Dimensions of e-commerce
Society
Difficulty of protecting digitized intellectual property
Exploiting individual rights to privacy to improve
customer service
E-commerce contributing to digital divide
Evaluate whether e-commerce can improve quality
of life
Government responsibility to regulate rights and
responsibilities of businesses, consumers and
society
Approach to Learning E-Commerce
Technical approaches

Below are technical concerns in e-commerce

Choosing the right hardware architecture
Deciding on the type and combination of software
applications on the Internet to be used
Identifying ways of using Internet services to carry out
tactical plans
Need to manage network traffic to improve response
time
Building secure web site to ensure business reputation
and trust of online customers
Designing intranets and extranets to integrate internal
information systems with e-commerce systems
Approach to Learning E-Commerce
Behavioral approaches

E-commerce has raised many behavioural

concerns when businesses adopted this
new channel of doing business
The challenge of encouraging shoppers to shop online
Businesses need to understand the behavior of online
shoppers and Internet users to identify ways of
increasing online purchases
The social impact of the digital divide
Businesses, government and society has to deal with
new ethical issues ranging from protecting individual
privacy, intellectual property rights and ensuring
quality of life of individuals in society
End of Notes

Please read again the objectives

of this topic and do a self-check to
determine if you have met the
objectives outlined