Introduction to E-Commerce

Dr. Panagiotis Kanellis Arthur Andersen, Business Consulting Email: panagiotis.kanellis@gr.arthurandersen.com Evangelia Kopanaki National and Kapodistrian University of Athens, Dept of Informatics Email: evik@di.uoa.gr
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In the latest of a string of bad news for ONLINE RETAILERS, Amazon.com reported its biggestever net loss, of $323m, in the fourth quarter of 1999; for the year as a whole, its net loss was $720m
-The Economist, February 4 2000

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What is E-Commerce?
The Electronic Support of one or more phases of a
commercial transaction OR electronic buying & selling

Electronic Commerce is a way to improve the exchange of goods, services, information, and knowledge between organizations through the use of networked enabled technologies.
Source: Electronic Commerce: A Firmwide Perspective
San Jose, July 98

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Business-to-Consumer

E-Commerce: A Critical Analysis

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Business-to-Customer E-Commerce
Involves:

Electronic Retailing Home Banking On-line Banking On-line advertising and marketing Stock Brokerage On-line publishing (electronic books and newspapers) Virtual Universities Video-on-demand
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Retailing over the Web: Promises

Attractive new medium

Low cost compared to physical shops

Savings can be passed on to consumers as discounts

Convenient for customers and vendors User friendly

Global Market just a click away

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Buying a shirt
Cost per shirt Producer Wholesaler Retailer Consumer $52.72

Producer

Wholesaler

Retailer

Consumer

$41.34

Producer

Wholesaler

Retailer

Consumer

$20.45

Source: Wigand, R.T. and Benjamin, R.I. (1999)

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Success Stories

Amazon.com online book sales

virtual shelves hold 2.5m books disintermediation of travel agents

Airline tickets (EasyJet)

Music CDs (CDNow) IT products (Dell and Compaq) Supermarkets (Tesco and Walmart)

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The Transaction Cycle

Information
company and product marketing, public relations, advertising detailed catalogue with prices

Order

and Payment Delivery After sales service

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Electronic Catalogues
A Buyer wants:

A Seller wants:

search capabilities

fast updates marketing capabilities to attract new to capture customer integration with internal

shopping basket
order & payment personalization

customers

special offers
relevant information on:

information

product features availability, delivery time

systems
payment, distribution
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Strange Behaviour
Considerable investment in web sites Soaring stock prices for Internet firms BUT Little evidence of profitability 75% of E-Commerce initiatives fail Little sign of global e-commerce or e-cash Failure of electronic malls

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Cant judge a book by its cover

Infinite no. of web sites

overload many poorly designed and structured poor quality/out of date information good sites are costly to develop and maintain but how many are frequent and expert buyers affluent American male surfers are not buyers

Infinite no. of users

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Searching
Sellers use customer preferences for targeted

marketing Customers broadcast desired product requirements allowing different vendors to offer bids
Problems of getting customers to the site

Limitation of Web search engines Privacy Issues Assumes Web expertise Issues of trust
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Difficulty in locating and comparing stores

Promotion and Advertising

Revenue opportunity from advertising

Facilitates joint promotions

But Web discounts and special offers (fairly uncommon)

Has yet to mature New medium constrained by size of screen Need careful design
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Products Information
Offers detailed up-to-date information

on a wide range of products fast updates personalization

But
Poor product coverage

Customer cannot interact with product Little product Information Needs search engine/careful structuring
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Online Ordering Remains Rare

Fast, global, 24-hour service

Potential to provide help with product selection and ordering, service information, auctions, shopping basket But No help with product selection Long load times Remains rare in practice inappropriate for some industries problems with international trading lacks personal touch

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Online Settlement

Advantages of immediate payment and

availability of terms and conditions widespread availability of credit cards possibility of online distribution

But Suffers from

security worries inappropriate payment systems

Like ordering, still uncommon

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After Sales Service

Opportunity to capture customer information and provide value-added services Opportunity for push marketing for new products and upgrades FAQs and feedback forms common But User profiling and user groups rare Need to address privacy issues

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Ease of Use
An attractive site is likely to gain customers

a poorly designed site will damage a firms reputation and sales

Need for multiple languages

Navigation problems, navigation guidance Need for Information Problems of screen limitations, excessive graphics, inconsistent design

Trade off: simplicity vs. functionality

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Need to Understand Shopping

As a leisure activity As a social/family activity Provides exercise and sensory stimulation Provides status and authority

personal service and haggling

Provides opportunity to examine goods Part of identity construction

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Shopping in Greece

Greece is suburban; people live near shops

Shopping areas and centres are safe Local phone calls are not free Perceptions of conventional mail order:

if goods are not in the shops, they are faulty

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Retailing Reconsidered
Instead of a huge open global retail market, the Web is more likely to emphasise: Information provision Niche markets Private Networks (intranets/extranets)

wholesale & collaboration

New (information-based) products

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Business-to-Business

E-Commerce and the Wired Organization

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Issues to Address
What are the IOS? Where did they come from? What are the underlying technological requirements?

Internet-EDI Vs VAN-EDI

Organisational, Interorganisational, Managerial issues

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Interorganisational Information Systems (IOS)

Information systems that cross organisational boundaries

A computer-based Information System that facilitates the exchange of information electronically using telecommunications between different organisations computer systems.

They include all aspects of using networked computers for business purposes including office automation, electronic mail, corporate intranets, extranets, Web and EDI systems for document exchange and purchasing

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Changing Business Environment

Complex

turbulent business environment Increased Competition, Change and Uncertainty Organisational Responses

cost reduction core competency/outsourcing improved logistics improved quality & customer service improved flexibility and speed of response
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Changing Technological Environment

Improved & standardized ICT Cheaper, deregulated telecommunications

(Internet, ISDN, Cable TV, wireless)

Growth in organisational IS

experience and maturity

Changing role of IS

more strategic and infrastructural

CSCW (Computer Supportive Co-operative Work); email; Video-conferencing

IS for coordination

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Electronic Data Interchange (EDI)

The electronic interchange of formatted data between computer applications using agreed message standards

Preceded Web-based Electronic Commerce Is appropriate for the exchange of structured business documents

Links suppliers, customers and banks

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orders, invoices, delivery notes

Components

Organizations

e.g. trading partners, suppliers

(Reliable 3rd-party) networks (VANs) Software

EDI translator bridging; message passing; security store & forward / store & collectbatch formats; product codes
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Message standards

Paper-based processes...
order

Notify Manufacturer
Data Entry - order

or

Customer

Notify Customer
Data Entry - invoice

invoice

Manufacturer

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EDI
Supplier Retailer
CRP, Purchase order, purchase order change,

Payment
authorization

Purchase order acknowledgement, invoices

Electronic Transfer of funds

Retailers Bank

Suppliers Bank
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Tactical Benefits

Improved Communication

speed; accuracy

Cost savings

stock reduction decrease co-ordination costs; relatively cheap transmission no rekeying; less paper-handling; fewer errors
Reduce cycle times Increase responsiveness to customers
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Improve customer service

Strategic Benefits

Improved trading relationships

vehicle for collaboration

Improved logistics

JIT (Just-In-Time Manufacturing) QR (Quick Response) ECR (Efficient Consumer Response)

Competitive gains

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Internal Problems
Slow growth of international standards Proliferation of competing standards Problems of integration with the internal processes/systems

Incompatibility of different VANs Reorganization of processes

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Interorganisational Problems

Impacts trading relationships

Interdependence and domination hub-and-spoke arrangements EDI becomes a requirement to trade Hubs gain more than spokes Initiators of the IOS project ( or powerful organisations) gain more than non-initiators (or smaller trading partners)
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Inequitable sharing of costs and benefits

Little chance of sustainable advantage

Coercion through Fordnet

Ford locked their suppliers into a proprietary network

expensive, inconvenient, no supplier influence

Produced a coercive trading relationship whereby Ford tried to extend their computer systems into suppliers premises Fordnet chrystalised power imbalance This is not sustainable, since Ford changes to Odenet

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Tescos use of EDI

Very competitive market

price, quality, service & range

Hub & spoke network with suppliers Exclusion of small suppliers, unable to implement EDI Growth by message type

suppliers stock availability; self billing etc.

Considerable efficiency gains Closer relationship with suppliers

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Small Businesses (SMEs) & EDI

SMEs traditionally lack:

expertise to set up and use technology expertise to realize the benefits of integration the necessary capital for equipment the market power to set favorable standards enough willing partners

normally remain the spokes

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The use of the Internet in B2B E-commerce (1)

Low cost of installation

Public network: provides ubiquitous access Platform independent Facilitates inter-organisational transactions that are not EDI-based Enables small suppliers to participate in business transactions

Problems
Security and Reliability

Does not provide VANs services

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The use of the Internet in B2B E-commerce (2)

Internet-based EDI

VAN providers are now offering Internet-based services

Suppliers use the Web to access information provided by their customers - not EDI-based communication

XML Vs EDI
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TESCOs Internet-based information Exchange

TESCOs ECR trial: beginning of 1998

The TESCOs Internet-based Information Exchange:

shares electronic point of sale data, as well as stock, promotions and new product information with suppliers. Suppliers may also gain access to a directory of stores, people and news and can give feedback. TESCO monitors the performance of suppliers. TESCO offers interchange links to smaller suppliers

After 2 years 60m pounds have already been saved by

improving replenishment through better promotion

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SMEs & Internet/Web

Internet/Web offers

expanded market coverage/market share access to information, ideas and R&D facilitation of collaboration time & cost efficiency cheap technology & public open standards opportunity for creativity mechanism for implementing EDI

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Dangers of the Internet for SMEs

SMEs still lack:

the design, marketing and technical skills needed to implement and operate an effective web site the management skills required the credibility of a household name

Internet only delivers a limited market Much depends on the industry context

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Putting It All Together

Difficult global socio-political environment

Business challenges Strategic Response IOS & management methodologies Organisational change

The important issues are not only technological but also (inter)organisational, managerial and social

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Key Managerial Issues

How could an organization transform its structure and

processes so as to function more effectively in the economy? How does an organization creates and maximizes value in the e-conomy?
How should we build and manage the organizational

IT infrastructure for the e-conomy?

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Organizational Transformation
Strategy

Structure and Processes

People

Information Technology

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In Summary

Reengineer your company Reexamine your old business model The buyer always wins Hold your customers hand Consider outsourcing No web site is an island Create an online sense of community
Source: Business Week
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