Traditional commerce

• Commerce is a negotiated exchange of valuable

objects or services between at least two parties
and includes all activities that each of the parties
undertakes the complete the transaction.

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Technology and commerce
• In order to understand how technology can aid
commerce we need to understand traditional
commerce.
• Once we have identified what activities are
involved in traditional commerce, we can
consider how technology can improve them.
• Note that technology does not always improve
commerce. Knowing when technology will
NOT help is also useful.

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 Views of commerce
Commerce can be viewed from at least two
different perspectives:
1. The buyer’s viewpoint
2. The seller’s viewpoint

Both perspectives will illustrate that commerce

involves a number of distinct activities, called
business processes.

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The Buyer’s perspective

From the buyer’s perspective, commerce involves

the following activities:
1. Identify a specific need
2. Search for products or services that will satisfy
the specific need
3. Select a vendor
4. Negotiate a purchase transaction including
delivery logistics, inspection, testing, and
acceptance
5. Make payment
6. Perform/obtain maintenance if necessary

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The Seller’s perspective

From the sellers’ perspective, commerce involves

the following activities:
1. Conduct market research to identify customer
needs
2. Create a product or service to meet those needs
3. Advertise and promote the product or service
4. Negotiate a sales transaction including delivery
logistics, inspection, testing, and acceptance
5. Ship goods and invoice the customer
6. Receive and process customer payments
7. Provide after sales support and maintenance

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 Business processes
Business processes are the activities involved in
conducting commerce.

Examples include:
• Transferring funds
• Placing orders
• Sending invoices
• Shipping goods to customers

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 E-commerce
We will define e-commerce as the use of electronic
data transmission to implement or enhance any
business activity.

When used appropriately, electronic transmission

can save both time and money.

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 What is eCommerce?

In its broadest definition, eCommerce is digitally enabled

commercial transactions between and among organizations
and individuals.
 Digitally enabled means, for the most part, transactions
that occur over the Internet and World Wide Web(“Web”)
 Commercial transactions involve the exchange of value
(e.g. money) across organizational or individual
boundaries in return for products and services.

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Impact of e-commerce
E-commerce is changing the way traditional
commerce is conducted:
• Technology can help throughout the process
including promotion, searching, selecting,
negotiating, delivery, and support.
• The value chain is being reconfigured.

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Value chain analysis
A way of looking at the activities of an industry
or organization.
• Primary activities
Costs are directly allocated to a product
• Support activities
Costs are associated with the overall operation
of the organization

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Example: Figure 1-12

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E-commerce Categories3
 There are five general e-commerce
categories:
 Business to Consumer (or B2C) e-commerce
 Business to Business (or B2B) e-commerce
(sometimes called e-procurement)
 Business processes that support buying and
selling activities
 Consumer-to-consumer (or C2C) e-commerce
 Business-to-government (or B2G) e-commerce

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B2C e-commerce
 Description
 Businesses sell products or services to
individual customers (consumers)
 Example
 Walmart.com sells merchandise to
consumers through its Web site
 Web site
 www.walmart.com

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B2B E-commerce
 Description
 Businesses sell products or services to
other businesses
 Example
 Grainger.com sells industrial supplies to
large and small businesses through its
Web site
 Web site
 www.grainger.com
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Business Processes that
Support Buy/Sell Activities
 Description
 Businesses and other organisations maintain and
use information to identify and evaluate customers,
suppliers and employees (and to support buying,
selling hiring, planning and other activities). More
and more this information is being shared
 Example
 Dell Computer uses secure internet connections to
share current sales and forecasts with suppliers who
use it to plan their production, therefore they deliver
the right quantities of components at the right time

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C2C e-commerce
 Description
 Participants in an online marketplace can buy
and sell goods with each other
 Example
 Consumers and businesses trade with each
other on eBay.com
 Web site
 www.ebay.com

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B2G e-commerce
 Description
 Business sell goods or services to
governments and government agencies
 Example
 Cal-Buy portal for businesses that want
to sell online to the State of California
 Web site
 www.pd.dgs.ca.gov/calbuy/default.htm

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E-commerce Categories
Example
 You are a computer manufacturing company
who performs the following activities on the
Internet:
 Sells computers to individuals (B2C)
 Purchases parts (e.g. hard drives, power supplies
etc.) from a supplier (B2B)
 Hires staff, manage customer accounts, advertise,
etc. (Business processes)
 Sells computers to the Government to be used in
schools (B2G)
 On eBay.com individuals buy and sell this brand of
computers (C2C)
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Components of eCommerce

Major components of eCommerce:

1. B2B – Business to Business. Largest segment with
about $700B of all total $12 Trillion in 2001(est)
 Types include inter-business exchanges, e-
distributors, B2B service providers,
matchmakers and infomediaries
2. B2C – Business to Consumer. Much smaller with on
$65B in 2001(est).
 Buzzwords: Internet pureplay-located only on
the web. Clicks and Mortar-both web and
physical location.
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Components of eCommerce

Major components of eCommerce (continued):

1. C2C – Consumer to Consumer. Individuals selling
to each other through online market maker
(eBay.com). Estimated at $5B in 2001.
2. P2P – Peer to Peer. Allows iNet users to share files
and resources directly without having to go thru a
central web server. Napster is the most prevalent
example.
3. M-Commerce – Mobile commerce. Use of wireless
digital devices (Palm Pilots, cell phones) to conduct
transactions. Just emerging but expected to grow
rapidly. 20
Unique Features of
eCommerce Technology

The features the set eCommerce Technology apart from

others used in traditional commerce are:
1. Ubiquity – internet/web technology is available
everywhere: at work, home and elsewhere via mobile
devices.
 Marketplace extended beyond traditional boundaries
 Customer convenience increased, costs reduced.

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Unique Features of eCommerce Technology
(continued)

2. Global Reach – the technology reaches across national

boundaries, around the earth.
Commerce enabled across cultural and national boundaries
seamlessly.
 Potential customer reach extended.
 Reduces barriers to markets.

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Unique Features of eCommerce Technology
(continued)

3. Universal standards – there is one set of technology

standards, namely internet standards.
 Promotes technology adoption
 Reduces costs of adoption

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Unique Features of eCommerce Technology
(continued)

4. Richness – Video, Audio, graphical and text messages

are possible.
 Integration to a more powerful marketing message
and customer experience

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Unique Features of eCommerce Technology
(continued)

5. Interactivity – the technology allows active user

involvement.
 Consumers engage in dynamic dialog
 Experience adjusted to the individual based on
responses.
 Customer becomes co-participant in the process of
delivering goods to the market.

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Unique Features of eCommerce Technology
(continued)

6. Information Density - the technology reduces

information costs and increase quantity and quality.
 Information processing, storage and communication
costs drop dramatically.
 Accuracy and timeliness improve greatly.
 Information becomes plentiful, cheap and accurate.

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Unique Features of eCommerce Technology
(continued)

7. Personalization/Customization – the technology reaches

allows personalized messages to be delivered to
individuals as well as groups.
Commerce enabled across cultural and national
boundaries seamlessly.
 Potential customer reach extended.
 Reduces barriers to markets.

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Fundamental Business Goals

The fundamental goal of a business is to earn a profit.

Performing business processes in the most efficient way
possible furthers this goal.

Firms are increasingly interested in eCommerce because

it can help increase profits.

All the advantages of eCommerce can be summarized in

one statement:
eCommerce can Increase Sales and Decrease Costs.

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Examples of eCommerce
Enabling Business Goals

Increase Revenues
A company is able, through publishing its catalogs
online, to reach more customers for the same costs as
printing and mailing its catalogs. (LL Bean)
Decrease Costs
The same company can provide more timely product
information by updating its catalog online, than by
mailing its catalog four times a year.

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Well-suited for eCommerce

Business processes that are well-suited for electronic

commerce:
• Sale/purchase of new books and CDs
• Online delivery of software
• Advertising and promotion of travel services
• Online tracking of shipments
The business processes that are especially well-
suited
to eCommerce include Commodity items.
A Commodity is a product or service that has
become so standardized and well-known that buyers
cannot detect a difference in the offerings of various
sellers and decide to buy based on price. 30
 Best for Traditional Commerce

Business processes that are well-suited to traditional

commerce:

 Sale/purchase of high fashion clothing

 Sale/purchase of perishable food products
 Small-denomination transactions
 Sale of expensive jewelry and antiques
Exceptions?

In general, products that buyers prefer to touch, smell,

or otherwise closely examine are difficult to sell using
eCommerce.
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Questionable cases

Would eCommerce or traditional commerce work

best for the following activities?

• Sale/purchase of rare books

• Browsing through new books
• Sale/purchase of shoes
• Sale/purchase of collectibles (trading cards,
plates, etc.)

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Combinations of both

Some business processes can be handled well using

a combination of electronic and traditional methods:

 Sale/purchase of automobiles
 Online banking
 Roommate-matching services
 Sale/purchase of investment/insurance products
Consumers can research products online and make final
transactions in person.
In any business problem it is good practice to weigh the
advantages and disadvantages of a particular approach.
Evaluating the application of eCommerce technology is no
Different. 33
Advantages of eCommerce

For the seller:

 Increases sales/decreases cost.
 Makes promotion easier for smaller firms.
 Can be used to reach narrow market segments.

For the buyer:

 Makes it easier to obtain competitive bids
 Provides a wider range of choices
 Provides an easy way to customize the level of
detail in the information obtained
 Allows anonymity and less pressure to buy.

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Advantages of eCommerce II

In general:

 Increases the speed and accuracy with which

businesses can exchange information.

 Electronic payments (tax refunds, paychecks, etc.)

cost less to issue and are more secure.

 Can make products and services available in

remote areas.

 Enables people to work from home, providing

scheduling flexibility.
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Disadvantages of eCommerce
 Some business processes are not suited to
eCommerce, even with improvements in
technology.

 Many products and services require a critical

mass of potential buyers (e.g. online grocers).

 Costs and returns on eCommerce can be

difficult to quantify and estimate.

 Cultural impediments: People are reluctant to

change in order to integrate new technology.

 The legal environment is unclear and full of

conflicting laws; regulation has not kept up. 36