Chapter 5 E-Business and E-Commerce



CHAPTER 7: Electronic Commerce: Applications and Issues

|Chapter Outline |

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

|Learning Objectives |

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.

|Teaching Tips and Strategies |

Most students will remember that 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 (online toy store) or (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 ? 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 , 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 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, 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 , 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:

| | |

|Reason |Number of companies* |

|Poor revenue, cost, and profit model |59 |

|No competitive advantage |55 |

|Lack of benefit to consumers |34 |

|Problems in organization and execution |15 |

|Ineffective warehouse management |8 |

|And fulfillment | |

|Firm’s Web site conflicted with existing |6 |

|Business partners | |

|*Note: for some companies, failure was attributed to more than |Source: Boston Consulting Group 2001 |

|one reason | |

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 , , and . 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.

|Review Questions |

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 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.

▪ Vertical exchanges connect buyers and sellers in a given industry.

▪ Horizontal exchanges connect buyers and sellers across many industries and are used mainly for MRO materials.

▪ Functional exchanges help businesses when needed services such as temporary help or extra office space are traded on an “as–needed” basis.

Section 7.4 … Before you go on…

1. List the various electronic payment mechanisms. Which of these mechanisms are most often used for B2B payments?

The following instruments are acceptable means of electronic payment: electronic credit cards, electronic checks, purchasing cards, electronic cash (stored-value money cards, smart cards, and person-to-person payments), and electronic bill presentation and payment. In B2B, electronic checks are most commonly used for payments.

2. What are micropayments?

Micropayments are small payments of a few dollars or less. Examples are coffee shop purchases and train or subway fares. Smart cards are ideal for making micropayments.

Section 7.5 … Before you go on…

1. List and explain some ethical issues in EC.

Many of the ethical issues related to IT apply also to EC. Four key issues are privacy, the human element, Web tracking, and disintermediation.

Privacy. Central issues are protecting the buyer’s identity and monitoring employee use of the Internet.

The human element. The implementation of EC broaches the issue of who is to control the selling process. Commissioned salespeople are accustomed to being in control of the flow of certain categories of information. EC sales can lead to dissatisfaction among sales personnel as customers bypass the salesperson and commissions become more distributed throughout the company.

Web tracking. Programs and “cookie” files raise myriad privacy concerns. These programs and files can be stored on your PC, organized by Web site, and then accessed every time you revisit that site.

Disintermediation. The use of EC may result in the elimination of some of a company’s employees as well as traditional intermediaries such as brokers and agents. This result is called disintermediation: “eliminating the intermediary.” The manner in which intermediaries, especially employees, are treated may raise ethical issues, such as how to handle their displacement.

2. Discuss the major legal issues of EC.

• Fraud on the Internet is a major concern, involving deception on the part of buyers and/or sellers.

• Among the major legal issues of EC are taxes and other fees. Federal, state, and local authorities are scrambling to obtain a share of the revenue created electronically. The problem is particularly complex for interstate and international commerce. For example, some people claim that the state in which a server is located deserves to receive some sales tax from an EC transaction. Other people contend that the state in which the seller is located deserves the entire sales tax.

• In addition to sales tax, there is a question about where (and, in some cases, whether) electronic sellers should pay business license taxes, income taxes, franchise fees, gross-receipts taxes, excise taxes, privilege taxes, and utility taxes. Moreover, how should tax collection be controlled?

• Domain name. Domain names cause problems when several companies that have similar names compete over a domain name that is not a registered trademark.

• Copyright. Intellectual property in EC, in its various forms, is protected by copyright laws and cannot be used freely.

• Other legal issues. Several other issues are emerging as challenges to the existing system.

• What are the rules for electronic contracting, and whose jurisdiction prevails when buyers, broker, and sellers are located in different states and/or countries?

• When are electronic documents admissible as evidence in the courts of law? What is the alternative if they are not?

• Liability of errors, malfunction of software, and theft and fraudulent use of data may be difficult to prove. How is such liability determined?

• What types of actions constitute misrepresentation? Where and when should you take legal action against misrepresentation?

• The use of multiple networks and trading partners makes the documentation of responsibility difficult. How is this problem overcome?

3. Describe buyer protection and seller protection in EC.

Buyer protection in EC is just a listing of tips for safe electronic shopping:

• Look for reliable brand names at sites like Walmart Online, Disney Online, and . (Make sure the sites are authentic before purchasing, perhaps by phoning the parent company.)

• Search any unfamiliar selling site for the company’s address and phone and fax numbers. Call up and request information about the sellers from the employees.

• Check out the seller with the local Chamber of Commerce or Better Business Bureau. Look for seals of authenticity such as TRUSTe.

• Investigate how secure the seller’s site is by reading the posted privacy notice, and evaluate how well the site is organized (which might reflect how much effort the company has invested in its development and subsequent security).

• Examine the money-back guarantees, warranties, and service agreements.

• Compare prices to those in “on-ground” stores. Prices that are unrealistically low are too good to be true and suggest that some “catch” is involved.

• Ask friends what they know. Find testimonials and endorsements.

• Find out what your rights are in case of a dispute.

• Consult the National Fraud Information Center.

• Check for a listing of useful resources.

Seller protection includes authentication, nonrepudiation, and escrow services. These help protect against:

• consumers who refuse to pay or pay with bad checks.

• consumers who claim merchandise did not arrive.

• other sellers who use their name.

• the use of their unique words and phrases, slogans, and Web addresses by other sellers.

|IT’s About Business Questions |

IT’s About Business 7.1

Minecraft

1. Provide two specific examples of how electronic commerce enabled Persson’s business to be so successful.

- He set up a Web site where he sold his game.

- He then sold his company’s newest game through third-party stores such as iTunes.

2. Provide two specific examples of potential disadvantages that Persson might encounter by using electronic commerce.

- By selling his products through his own Web site, he could have had distribution problems due to the small size of his company.

- He could lose control of distribution.

IT’s About Business 7.2

Vending Goes Online

1. Provide two examples of how the technology added to the vending machines gives Treat America a competitive advantage.

- Consequently, the company installed a small device on the top of each machine that communicates with headquarters via a cellular connection. The device reports the amount of money in the machine at any given minute, the amount of product inventory remaining, whether the machine had been moved, or whether the door had been opened past business hours.

- Customers used less gas because they could check inventory online without having to drive to the machine to check quantities and then return to restock

2. Is this competitive advantage sustainable for any length of time? Why or why not? Support your answer.

It would depend on others entering the market. Questions that should be asked include whether the communications devices are proprietary or can easily be acquired by competitors.

IT’s About Business 7.3

Luxury Goods Turn to E-Commerce

1. Provide two specific examples of luxury shoppers’ requirements that a Web site could not provide.

- Shoppers want a guiding hand to replace the in-store salesperson.

- Shoppers need a signal as to which fashions are in style.

2. What are the features provided by online luxury retailers that overcome the problems you mentioned in Question #1?

- An interactive shopping fashion magazine publishes 52 weeks of editorial content each year in addition to its designer clothes sales operations.

- Burberry offered select pieces from its runway presentations for a limited time on its Web site just hours after its Fashion Week show.

- These companies have changed how the fashion industry works, allowing smaller brands that, unlike the better-known brands, do not have large retail outlets to sell older merchandise at a discount.

- These companies have democratized fashion, giving consumers everywhere access to the most exclusive brands at insider prices that shoppers could formerly get only in New York City.

IT’s About Business 7.4

Hong Kong’s Jockey Club in a Race

1. What competitive advantages does the Hong Kong Jockey Club already have in their competition with online betting Web sites?

The club, a nonprofit organization, enjoys a government-granted monopoly on horse racing and lotteries. In turn, it is Hong Kong’s single-largest taxpayer, accounting for approximately 8 percent of the government’s total revenue

2. Use specific examples to describe other measures that the Hong Kong Jockey Club might take to compete with online betting Web sites.

- Use the club’s solid reputation as Hong Kong’s only track operator to help build its online business because many gamblers may not trust unregulated Web sites.

- Work with other race courses to pool bets, thereby allowing the track to offer better odds.

|Discussion Questions |

1. Discuss the major limitations of e-commerce. Which of these limitations are likely to disappear? Why?

Many technical limitations will disappear with the universal acceptance of standards for software features, quality, and security. Bandwidth increases through the new Internet initiative will eliminate much of the current strain that is placed upon networks by multimedia EC applications. The use of asynchronous transfer mode (ATM) as an architecture for the new high-bandwidth environment will give a needed boost to Internet response time. Internet access will become more ubiquitous as service providers are consolidated and monthly fees are reduced. Discuss the anticipated implementation of Internet Protocol (IP) version six (IPv6) under TCP/IP and its potential to eliminate the current shortage of IP addresses.

Non-technical limitations include unresolved legal issues. Many buyers are unwilling to switch from “on-ground” stores to online, and there is a general lack of trust in Internet security. Many sellers and buyers are waiting for EC to stabilize before they participate in electronic transactions, and many product areas lack a sufficient number of sellers and buyers for profitable EC operations.

As experience accumulates and technology improves, the ratio of EC benefits to cost will increase, resulting in an even greater rate of EC adoption. Effective jurisprudence to address the myriad legal issues will likely improve as more cases are tried and law schools design curricula specific to EC.

2. Discuss the reasons for having multiple EC business models.

There are multiple EC business models because there are many ways to generate revenues via electronic commerce.

3. Distinguish between business-to-business forward auctions and buyers’ bids for RFQs.

Business-to-business auctions take place when several companies engage in bartering by selling their products or services to an exchange member. Instead of receiving cash, they receive trade dollars (credits). The transaction is much like a credit card transaction in that both involve the use of a plastic card and an authorization number requested by the seller for transactions over a specified amount. Other members of the trade exchange can then use the trade dollars earned. The trade dollar system simplifies the old cumbersome barter system that was limited to the exchange of products and services between two parties.

Buyer’s bids for RFQs involve the bidders entering prices and the highest bidder wining the available inventory at his or her price. Typically, the detailed list of all the product specifications, warranties, and so forth is included, and purchases are made using a credit card. is perhaps among the best examples of buyers’ bidding RFQs via the Web. Hundreds of thousands of different items are offered in several types of auctions.

4. Discuss the benefits to sellers and buyers of a B2B exchange.

Participants in B2B exchanges can reduce cycle trading time and costs as well as finding new markets and trading partners around the globe through the exchange.

5. What are the major benefits of G2C electronic commerce?

One of the major benefits of G2C EC is giving the people a chance to see what the government does everyday and to give feedback. For instance, any individual from any state can now contact his or her senators and representative with a couple mouse clicks.

6. Discuss the various ways to pay online in B2C. Which one(s) would you prefer and why?

B2C payments include electronic credit cards and electronic cash (stored value money cards, smart cards, person to person payments). Answers to the second part of the question will vary.

7. Why is order fulfillment in B2C considered difficult?

It is difficult to quickly find the products to be shipped, pack the products, deliver products purchased online to the customer quickly, collect payment, and handle returned goods.

8. Discuss the reasons for EC failures.

• incorrect revenue model

• lack of strategy and contingency funding

• inability to attract enough customers

• lack of funding

• channel conflict with distributors

• too much online competition in standard products

• poor order-fulfillment infrastructure

• lack of qualified management

9. Should Mr. Coffee sell coffee makers online? Hint: Take a look at the discussion of channel conflict in this chapter.

Channel conflict can be an issue with online sales for clicks-and-mortar organizations. However, to forego online sales entirely just because it poses a challenge may not be a wise decision.

10. In some cases, individuals engage in cybersquatting so that they can sell the domain names to companies expensively. In other cases, companies engage in cybersquatting by registering domain names that are very similar to their competitors’ domain names in order to generate traffic from people who misspell Web addresses. Discuss each practice in terms of its ethical nature and legality. Is there a difference between the two practices? Support your answer.

Cybersquatting refers to the practice of registering or using domain names for the purpose of profiting from the goodwill or the trademark that belongs to someone else. The Anti-Cybersquatting Consumer Protection Act (1999) permits trademark owners in the United States to sue for damages in such cases.

Some practices that could be considered cybersquatting are not illegal, although they may well be unethical. Perhaps the most common of these practices is “domain tasting.” Domain tasting lets registrars profit from the complex money trail of pay-per-click advertising. The practice can be traced back to the policies of the organization responsible for regulating Web names, the Internet Corporation for Assigned Names and Numbers (ICANN) (). In 2000, ICANN established the “create grace period,” a five-day period when a company or person can claim a domain name and then return it for a full refund of the $6 registry fee. ICANN implemented this policy to allow someone who mistyped a domain to return it without cost.

Domain tasters exploit this policy by claiming Internet domains for five days at no cost. These domain names frequently resemble those of prominent companies and organizations. The tasters then jam these domains full of advertisements that come from Google and Yahoo!. Because this process involves zero risk and 100 percent profit margins, domain tasters register millions of domain names every day – some of them over and over again. Experts estimate that registrants ultimately purchase less than 2 percent of the sites they sample. In the vast majority of cases, they use the domain names for only a few days to generate quick profits.

|Problem-Solving Activities |

1. Assume you are interested in buying a car. You can find information about cars at numerous Web sites. Access five of them for information about new and used cars, financing, and insurance. Decide what car you want to buy. Configure your car by going to the car manufacturer’s Web site. Finally, try to find the car from . What information is most supportive of your decision-making process? Write a report about your experience.

Student responses will vary about their individual experiences online.

2. Compare the various electronic payment methods. Specifically, collect information from the vendors cited in the chapter and find more with . Pay attention to security level, speed, cost, and convenience.

Student responses will vary depending on which vendor sites they visit.

3. Conduct a study on selling diamonds and gems online. Access such sites as , , , , and .

a. What features are used in these sites to educate buyers about gemstones?

Several sites have “education” links with comprehensive information about how to evaluate and select gems.

b. How do these sites attract buyers?

A very powerful way to find these sites is by simply keying in “diamonds” to Yahoo and Google, several of the sites appear at the top of the list.

c. How do these sites increase trust for online purchasing?

These sites have enhanced security features, making visitors to the site more comfortable with the prospect of doing business with them.

d. What customer service features do these sites provide?

In addition to financing and insurance, some of the sites provide options to design your own jewelry and tell your marriage proposal stories.

4. Access . What is NACHA? What is its role? What is the ACH? Who are the key participants in an ACH e-payment? Describe the “pilot” projects currently underway at ACH.

NACHA is an electronic payments system organization that includes more than 11,000 financial institutions. ACH is an automated clearing house. The key participants in the ACH e-payment process are financial institutions.

One of the pilots is the DCT Pilot. The following description is from the organization’s Web site.

“Today, depository financial institutions that receive image or paper check deposits from their customers may clear them through image exchange with Paying Banks that are image enabled and with which exchange agreements exist. If check images cannot be exchanged, the Collecting Bank must present either the original paper check or a substitute check/Image Replacement Document (IRD) for payment. Image exchange volume is showing rapid growth, but many financial institutions expect that a significant number of paper clearings will remain by 2009. With thousands of Paying Banks unable to accept images for presentment, billions of checks are still processed by exchanging paper.

The DCT Pilot will help determine what role the ACH Network can play in facilitating the clearing and settlement of low-value consumer paper checks as the industry searches for further cost savings and product enhancements in this period of convergence.”

5. Access . Identify at least five different ways it generates revenue.

Students should list items such as selling links to advertisers and memberships to sports fans.

6. Access . Examine its offerings, and try some of them. What type of electronic commerce is this? How does this Web site generate revenue?

This B2C site generates its revenue from sponsor advertising and subscriptions. Professionals in various areas, such as Human Resources, can subscribe and set up testing and results tracking for groups of employees.

7. Access . Prepare a list of all the services the company provides. Identify its revenue model.

This site provides many services including recipes, meal plans and meal delivery, and support plans.

8. Access . Identify its revenue sources.

Revenues are generated by business partner advertising on this Web site, which provides suggestions and advice for wedding planning.

9. Access . Identify its revenue model. What are the risks of giving this Web site your credit and debit card numbers, as well as your bank account number?

This revenue model includes marketing and revenues from partner advertising. They sell any type of financial product as well as provide references to financial planners, investment brokers, and setting up financial plans.

Account numbers would be risky to give out, even though it has the TRUSTe Seal. Account numbers can be easily stolen, which is just too risky.

|Web Activities |

Students will visit various sites and respond per directions with their experiences.

1. Access the Stock Market Game Worldwide (). You will be bankrolled with $100,000 in a trading account every month. Play the game and relate your experiences with regard to information technology.

Each result will be unique

2. Enter . Identify the site’s capabilities. Look at the site’s private trading room. Write a report. How can such a site help a person who is making a purchase?

This is an extensive B2B site with many different products. Using this intermediary for contact and purchase is a safeguard in the same way as eBay and PayPal.

3. Enter . Explore the site. Why is the site so successful? Could you start a competing one? Why or why not?

This site is successful because it provides users with a consolidated view of area restaurants around campuses that accept online payments for deliveries and payments.

5. Enter , go to “desktops,” and configure a system. Register to “my cart” (no obligation). What calculators are used there? What are the advantages of this process as compared with buying a computer in a physical store? What are the disadvantages?

Each student will have a customized result and should submit findings.

6. Enter and , and find their services. Prepare a report.

Both sites are online payment processors, clearing-houses for check processing. Students will expand and add their own observations.

7. Access various travel sites such as , , , , and . Compare these Web sites for ease of use and usefulness. Note differences among the sites. If you ask each site for the itinerary, which one gives you the best information and the best deals?

Each Web site offers something unique, and these offers can vary as promotions are launched. Travelocity and Orbitz offer similar interface and services. Sidestep offers a search engine for obtaining data from multiple travel vendor sites. Pinpoint is a tool for getting local companies within a given location. The last site is useful for business planning, whereas the others are travel-related sites.

8. Access and answer the musical taste and personality survey. When you have finished, click on Results and see what your musical tastes say about your personality. How accurate are the findings about you?

Students should take the survey, report on their score, and discuss with other students how accurately the survey assessed their real personalities.

|Team Assignments |

1. Assign each team to one industry vertical. An industry vertical is a group of industries in the “same” business, such as financial services, insurance, healthcare, manufacturing, retain, telecommunications, pharmaceuticals and chemicals, and so on. Each team will find five real-world applications of the major business-to-business models listed in the chapter. (Try success stories of vendors and EC-related magazines.) Examine the problems they solve or the opportunities they exploit.

2. Have teams investigate how B2B payments are made in global trade. Consider instruments such as electronic letters of credit and e-checks. Visit and examine their services to small and medium size enterprises (SMEs). Also, investigate what Visa and MasterCard are offering. Finally, check Citicorp and some German and Japanese banks.

|Closing Case |

eBay Finds a Way into China

The Problem

By 2010 the number of Chinese Internet users had grown to 457 million. In 2005, e-commerce in China amounted to $2 billion; by 2010, that number had increased to $76 billion. The Chinese market is simply too vast for any company to ignore.

eBay is just one of many foreign e-commerce companies seeking to expand into China. For example, Groupon () announced the launch of a Chinese version of its group buying service, teaming up with Tencent Holdings (), an instant messaging operator that is China’s largest Internet company. Russia’s Digital Sky Technologies invested $500 million in 360buy (), a Chinese online retailer.

In 2003, eBay paid $150 million to purchase EachNet, at that time China’s top e-commerce Web site. eBay later invested an additional $100 million in the operation, but a combination of management mistakes – for example, not giving enough power to local executives – and intense competition from local competitor Taobao () crippled the business. By 2006, eBay gave up and folded eBay EachNet into a joint venture with Tom Online (). Taobao, which, unlike eBay, does not charge commissions, has maintained its lead.

The Solution

Although eBay is no longer trying to challenge Taobao, the company does have a plan for China. The plan is to link Chinese entrepreneurs and exporters to eBay consumers located elsewhere. Their strategy centers on sellers such as Tang Fengyan. In 2007, Tang started her own dress business. She found eBay an ideal medium for selling her $50 cocktail and rockabilly swing dresses. In 2010 alone, her sales totaled $700,000. Although eBay has minimal presence inside China, Tang does not mind, because she is looking to attract global customers. To reach them, eBay makes the most sense for her.

eBay searched for segments of the Chinese electronic commerce market that were not dominated by Taobao’s boss, Jack Ma, and his Alibaba Group (). Taobao is dominant in China but has little consumer reach outside the country. Alibaba, a site connecting small and midsize importers and exporters worldwide, does not cater much to consumers. eBay saw an opening and quickly moved in. The company now has 150 service agents catering to Chinese sellers. In 2010, eBay launched a service, together with China Post and the U.S. Postal Service, to provide a way for foreign buyers to track their China purchases and also to allow sellers on the mainland to offer free shipping.

The Results

Thanks to its new business model and exporters like Tang Fengyan, eBay now operates a successful business in China. Transactions from China and Hong Kong on eBay and its PayPal unit amounted to $4 billion in 2010, making China eBay’s fifth-largest market behind the United States, Germany, Britain, and South Korea.

Despite this success, eBay continues to be concerned with Alibaba. In 2010, Alibaba launched a service called AliExpress that makes it easier for Chinese-based companies to sell to consumers outside China.

Questions

1. Research the reasons (besides the one listed in the case) why eBay was unsuccessful when it purchased EachNet.

Based on their research, students will come up with various reasons for eBay’s success issues with EachNet.

2. eBay has gained a competitive advantage by providing a service for Chinese exporters. Is this a sustainable competitive advantage? Why or why not? Support your answer.

Students will have different opinions based on what they find in Question #1.

|Glossary |

auction A competitive process in which either a seller solicits consecutive bids from buyers or a buyer solicits bids from sellers, and prices are determined dynamically by competitive bidding.

banners Electronic billboards, which typically contain a short text or graphical message to promote a product or a vendor.

brick-and-mortar organizations Organizations in which the product, the process, and the delivery agent are all physical.

business-to-business electronic commerce (B2B) Electronic commerce in which both the sellers and the buyers are business organizations.

business-to-consumer electronic commerce (B2C) Electronic commerce in which the sellers are organizations and the buyers are individuals; also known as e-tailing.

business-to-employee electronic commerce (B2E) An organization using electronic commerce internally to provide information and services to its employees.

business model The method by which a company generates revenue to sustain itself.

buy-side marketplace B2B model in which organizations buy needed products or services from other organizations electronically, often through a reverse auction.

channel conflict The alienation of existing distributors when a company decides to sell to customers directly online.

clicks-and-mortar organizations Organizations that do business in both the physical and digital dimensions.

consumer-to-consumer electronic commerce (C2C) Electronic commerce in which both the buyer and the seller are individuals (not businesses).

cyberbanking Various banking activities conducted electronically from home, a business, or on the road instead of at a physical bank location.

cybersquatting Registering domain names in the hope of selling them later at a higher price.

digital wallet (e-wallet) A software component in which a user stores secured personal and credit card information for one-click reuse.

disintermediation Elimination of intermediaries in electronic commerce.

e-government The use of electronic commerce to deliver information and public services to citizens, business partners, and suppliers of government entities, and those working in the public sector.

e-procurement Purchasing by using electronic support.

e-wallets (see digital wallets)

electronic business (e-business) A broader definition of electronic commerce, including buying and selling of goods and services, and also servicing customers, collaborating with business partners, conducting e-learning, and conducting electronic transactions within an organization.

electronic commerce (e-commerce) The process of buying, selling, transferring, or exchanging products, services, or information via computer networks, including the Internet.

electronic mall A collection of individual shops under one Internet address.

electronic marketplace A virtual market space on the Web where many buyers and many sellers conduct electronic business activities.

electronic payment systems Computer-based systems that allow customers to pay for goods and services electronically, rather than writing a check or using cash.

electronic retailing (e-tailing) The direct sale of products and services through storefronts or electronic malls, usually designed around an electronic catalog format and/or auctions.

electronic storefront The Web site of a single company, with its own Internet address, at which orders can be placed.

exchange (see public exchange)

forward auctions An auction that sellers use as a selling channel to many potential buyers; the highest bidder wins the items.

group purchasing The aggregation of purchasing orders from many buyers so that a volume discount can be obtained.

mobile commerce (m-commerce) Electronic commerce conducted in a wireless environment.

multichanneling A process in which a company integrates its online and offline channels.

permission marketing Method of marketing that asks consumers to give their permission to voluntarily accept online advertising and e-mail.

person-to-person payments A form of electronic cash that enables the transfer of funds between two individuals, or between a individual and a business, without the use of a credit card.

pop-up ad An advertisement that is automatically launched by some trigger and appears in front of the active window.

pop-under ad An advertisement that is automatically launched by some trigger and appears underneath the active window.

public exchanges (or exchanges) Electronic marketplace in which there are many sellers and many buyers, and entry is open to all; it is frequently owned and operated by a third party.

reverse auction An auction in which one buyer, usually an organization, seeks to buy a product or a service, and suppliers submit bids; the lowest bidder wins.

sell-side marketplace B2B model in which organizations sell to other organizations from their own private e-marketplace and/or from a third-party site.

smart cards A card that contains a microprocessor (chip) that enables the card to store a considerable amount of information (including stored funds) and to conduct processing.

spamming Indiscriminate distribution of e-mail without the receiver’s permission.

stored-value money card A form of electronic cash on which a fixed amount of prepaid money is stored; the amount is reduced each time the card is used.

viral marketing Online word-of-mouth marketing.

virtual bank A banking institution dedicated solely to Internet transactions.

virtual organizations Organizations in which the product, the process, and the delivery agent are all digital; also called pure-play organizations.

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