Coca-Cola is using social media to connect with customers.liush/BDSS/valacich_ist5_pp_04.pdfExplain...

Chapter 4Enabling Commerce Using the Internet

Coca-Cola is using social media to connect with customers.

Learning Objectives

1. Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace.

2. Explain the differences between extranets and intranets and show how organizations utilize these environments.

3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications.

4. Describe how people can participate in consumer-to-consumer electronic commerce and explain the different forms of Internet marketing.

5. Describe emerging issues and trends in electronic commerce.

6. Explain different forms of electronic government.

Learning Objectives

4.Describe how people can participate in consumer-to-consumer electronic commerce and explain the different forms of Internet marketing.

IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall8/28/2012IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall8/28/2012

Electronic Commerce4-4

Online exchange of goods, services, and money 2009: 3.7 percent of total retail revenue $134.9 billion in revenue

Most Common Types of E-Commerce4-5

Business-to-consumer (B2C) A person buys a book from Amazon.com.

Business-to-business (B2B) Retailer like Eddie Bauer for procurement of inventory

Business-to-employee (B2E) Employee uses the Web to change employee benefits.

Consumer-to-consumer (C2C) One person purchases from another on eBay.

Other Types of E-Commerce4-6

Government-to-citizen (G2C) A person filing income taxes online.

Government-to-business (G2B) Government purchases supplies using Internet-enabled

procurement system.

Government-to-government (G2G) Foreign government accessing U.S. federal regulations

Key Capabilities of the Web4-7

Information Dissemination4-8

Firms across the world have access to customers.

Economical medium for marketing products and services

Increased geographical reach

Integration4-9

Integration of information via Web sites

Real-time access to personalized information

No time lag between company decisions and customers’ ability to access these

Example: Integration4-10

Alaska Airlines customers can access their mileage program any time. Real-time link

between company database and customer

Mass Customization4-11

Meeting particular customers’ needs on a large scale

Timbuk2.com Custom Messenger Bag

Builder Customers create a

virtual bag.

Preference-tracking helps Timbuk2 in marketing efforts.

Interactive Communication4-12

Immediate feedback between company and customers E-mail notifications Customer service online

Best Buy Geek Squad 24-hour computer

support

Transaction Support4-13

Internet and the Web: Reduced transaction costs Enhanced operational

efficiency

Dell—automated transaction support Cost savings per sale Disintermediation

Reintermediation Reintroduction of

middlemen Example: Orbitz.com

E-Commerce Business Strategies4-14

Differentiated, based on levels of physical/virtual presence

Brick-and-Mortar Business Strategy4-15

Physical locations only Traditional stores, no E-Commerce Limited geographical reach

Click-and-Mortar Business Strategy4-16

Bricks-and-clicks business strategy

Hybrid strategy

Added complexity combining two different environments

Click-Only Business Strategy4-17

Business conducted in cyberspace—no physical location Price savings Difficulty with returns. Customers uncomfortable with

online transactions

Example: Click-and-Mortar Company4-18

Components of a Business Model4-19

A plan of how to achieve EC success

Typical Revenue Models for EC4-20

Most important ingredient of business model: How will the firm earn revenue?

Learning Objectives

Business-to-Business E-Commerce

B2B involves exchanges between two or more businesses; these exchanges do not include end customers (consumers).

Supply chain—companies and processes moving product from suppliers of raw materials to suppliers of intermediate components, to final production, to the customer.

Supply Network4-23

The farther out in the supply chain one looks, the more suppliers are involved, forming a supply network.

Electronic Data Interchange (EDI)4-24

Used prior to the introduction of the Internet

EDI = computer–computer communication (without human intervention) following standards:

UN Economic Commission (Europe), and

American National Standards Institute .

However:

Use dedicated telecommunications networks ; therefore costly.

Web-based EDI protocols are more economical.

Exchanging Organizational Data Using Extranets4-25

Extranet a private part of the Internet,

cordoned off from ordinary users, and

enables two or more firms to use the Internet for EDI purposes.

One of the best ways for organizations to gain a positive return on their technology-based investments

Example: Boeing’s extranet involves over 1000 authorized business partners.

Benefits of Extranets

Information Timeliness and Accuracy Cost effective, global medium for distributing proprietary

information

Central management of documents

Technology Integration Cross-platform—Web protocols mitigate differences in platforms,

operating systems, and so on.

Low Cost–High Value Low training needs; most employees know how to use the Web. Automate business transactions

Reduce processing costs

Achieve shortened cycle times

Reduce errors

Extranet System Architecture4-27

Internet-based application

Use of firewalls and Virtual private networks (VPN) to provide secure information transmission

Firewalls to secure proprietary information

Extranet Applications4-28

Portals—access points for business partners.

Supplier Portals

Single buyer andmultiple suppliers

HP Supplier Portal

Customer Portals

Single supplier and multiple buyers

MyBoeingFleet

B2B Marketplaces4-29

Operated by third-party vendors

Allow many buyers and many suppliers to interact

Some operate within a vertical market (industry-specific); for examples: steellink.com

paperindex.com

fibre2fashion.com

Some are not industry-specific Alibaba.com

Business-to-Employee Electronic Commerce4-30

Business-to-employee (B2E) electronic commerce Internet based private network using Web

technologies Boeing Intranet serves more than 200,000 employees. More than 1 million pages

Intranet—Used to facilitate secured transmission of proprietary information within companies.

Intranets offer similar benefits as extranets.

Intranet System Architecture4-31

Internet-based application

Use of firewalls and Virtual Private Networks (VPN) to secure information transmission

Intranet Applications

Training Boeing’s Quality eTraining program

Personalized Intranet Pages Employee see only content that pertains to his or her job.

Real-Time Access to Information Less complicated to manage, update, distribute, and access

corporate information

Improve employee productivity Online Entry of Information Paper-base human resourced form:$20–$30 Web-based human resourced form:$2–$4

Collaboration Timely communication of business activities

Intranet Collaboration Using Groupware

Two dimensions of categories:1. Synchronous vs.

asynchronous

2. Face-to-face vs. distributed

Electronic meeting systems (EMS)

Lotus Notes

Award-winning groupware application

Millions of users worldwide

Collaboration Using Videoconferencing

Desktop videoconferencing PC, Web-cam, high-speed Internet

Videoconferencing software Skype, Gizmo, Yahoo! Messenger, Windows Live Messenger

Dedicated videoconferencing Within conference rooms

Highly realistic

Expensive

Learning Objectives4-36

Use of Internet Technologies4-37

Characteristics of the Internet, intranet, and extranet

B2B and B2E rely on extranet and intranet. Internet provides an opportunity for B2C

commerce.

Stages of B2C E-Commerce4-38

Web sites range from passive to active.

E-Tailing4-39

Selling goods and services online Click-and-mortar Walmart.com

Click only Amazon.com

Virtual company Priceline.com

Reverse pricing vs. menu-driven pricing

E-Tailing Benefits4-40

Product benefits Unlimited number and variety of products Easier comparison shopping

Examples: AllBookstores, BizRate, or SideStep

Place benefits Anywhere, anytime Purchasing on global scale

Price benefits Higher inventory turnover rate No expenditures for physical retail space

The Long Tail4-41

Traditional stores Focus on mainstream

needs Target the average

customer Example: Blockbuster

E-Tailers Can focus on niche

markets Example: Netflix

E-Tailing Drawbacks4-42

Product delivery drawbacks Delay between product order and delivery

Except for products that can be downloaded

Direct product experience drawbacks Lack of sensory information

Smell, taste, feel

Lack of the social element Cannot replace going to the mall with friends

Attracting and Retaining Online Customers4-43

Basic rule of commerce Offer valuable products/services at fair prices

Additional e-commerce rules1. The Web site should offer something unique.2. The Web site must be aesthetically pleasing.3. The Web site must be easy to use and fast.4. The Web site must motivate people to visit, stay,

and return.5. You must advertise your presence on the Web.6. You should learn from your Web site.

E-Banking4-44

Financial institutions offer: Online banking

Management of credit card, checking, and savings accounts

Electronic bill pay Bill payment online

Online investing Growing in popularity

Extensive use of Internet for obtaining financial information

Learning Objectives

C2C E-Commerce4-46

C2C commerce has always been present. Bartering, auctions, tendering

Seventeen percent of American adults have sold online.

E-Auctions4-47

Forward auction Sellers post goods or services for sale.

Buyers bid on these items.

Highest bid wins.

Reverse auction Buyers post a request for quote (RFQ).

Seller proposes a bid.

Lowest seller bid wins.

This is frequently in B2B e-commerce.

E-Auction Fraud4-48

E-auctions marred with more fraud than any other Internet activity. E-auctions represent 45 percent of all Internet fraud-

related complaints. Average loss: $724

Types of e-Auction fraud: Bid luring Reproductions Bid shielding Shipping fraud Payment failure Nonshipment

Types of Internet Marketing

Search Marketing For Google or other search engines; search optimization

Display Ads Static and interactive banners; videos

E-mail Marketing Replacing direct mail; low cost

Social Media Facebook, Twitter

Mobile Marketing Audi built a game for the iPhone

Pricing Models – e.g., pay-per-click

Search Marketing4-50

Search marketing will continue to have the largest share of interactive marketing spend.

VanBoskirk (2009)

Search Advertising4-51

Search advertising Also called sponsored

search

Pay to ensure a spot on top of search results page

Example: Google AdWords

Bid for being listed in sponsored search results

Placement depends on relevance

Pay-per-click

Can get costly

Search Engine Optimization4-52

Position within search results based on complex formula

Tips: Have other pages link to

one’s site Keep updating content Include key words

Pricing Model

Impression-based This is based on the number of times the page containing an ad

is viewed.

Performance-based This is more direct, such as pay-per-click.

Metrics— click-through rate

conversion rate

Click fraud—manually or automatically inflating the click-through rate.

Learning Objectives

C2B EC

Relatively new phenomenon

Consumers sell to businesses

Stock photo sites such as www.shutterstock.com

Crowdsourcing

Blurry line between C2B and B2B

M-Commerce4-56

Electronic transactions using wireless mobile devices Mobile networks Wireless Switched public network

Smart phones High-speed data transfer “Always-on” connectivity

M-Commerce Applications4-57

Location-Based M-Commerce4-58

Highly personalized mobile services

Based on location GPS functionality

Bluetooth e911 Federal mandate Correct routing of emergency calls GPS specifies location within 50 meters

Phone locator Location of family members’ cell phones Alerting system when child leaves a

certain area

Location-Based Services4-59

Next big thing: cell phone social networking

Example: Facebook Gowalla

Key Drivers of M-Commerce4-60

Growth of consumer interest in adoption of the Internet and e-commerce

Real-time transfer of data over 3G and 4G cellular networks “Always-on” connectivity

M-commerce market in the United States grew from $396 million to $1.2 billion from 2008 to 2009.

Mobile Entertainment4-61

Slingbox Acts as a personal media server

“Placeshifts” television content to any Internet-enabled device

Television signal received at the user’s house

Relayed over the Internet to be accessed from anywhere

Securing Payments in the Digital World4-62

Eleven million consumers became victims of identity theft.

Security concerns lead shoppers to frequently abandon their shopping carts.

More than 1/2 of shopping carts are abandoned.

Need for secure forms of online payment

Credit and Debit Cards4-63

Customer Verification Value (CVV2) Three-digit code on the back of a card

Added to combat fraud in online purchases

Not included in the magnetic strip information

Code used for authorization by bank

Conducting Safe Transactions Online4-64

1. Use a secure browser with the latest encryption capabilities.

2. Check the site’s privacy policy.

3. Read and understand refund and shipping policies.

4. Keep personal information private.

5. Give payment information only to those you know and trust.

6. Keep records of online transaction.

7. Review your monthly credit card and bank statements.

Payment Services4-65

Online transactions without sharing private information with actual seller

Payment service keeps information secure. PayPal (owned by eBay)

Can send and receive money if you have an e-mail account.

Google Checkout Linked with Google search Users can see if merchants offer this option.

Legal Issues in EC—Taxation4-66

The Internet Tax Freedom Act (1998) Internet Tax Nondiscrimination Act (2004) Internet sales treated as mail-order sales No sales taxes paid in states where the company

has no presence

Arguments for and against Ecommerce Taxation:

Legal Issues in EC—Digital Rights Management4-67

Technological solution that allows publishers to control their digital media

Entertainment industry: DRM allows copyright holders to minimize sales losses by preventing unauthorized duplication.

Critics: publishers are arbitrary on how they enforce DRM, and infringe on existing consumer rights.

Digital watermark: an electronic version of physical watermarks placed on paper currency to prevent counterfeiting.

Learning Objectives

E-Government4-69

Providing information about public services To citizens To organizations To other governmental

agencies

1998—Government Paperwork Elimination Act

Government-to-Citizens4-70

Interactions between the government and its constituents IRS—e-filing

Grants.gov

e-voting initiatives

Government-to-Business4-71

Relationships between businesses and the government E-procurement Forward auctions

Businesses buy surplus government equipment

AuctionRP.com

Online application for export licenses

Government-to-Government4-72

Interactions between countries Regulations.gov

Export.gov

Interactions between different levels of government

End of Chapter Content

Managing in the Digital World: Businesses Get Social

Social media are no longer just being used by private individuals.

Businesses are racing to establish and promote themselves within social media networks.

It is costly in time and money.

Nevertheless, many large companies see the value of social media.

This is often handled through the marketing department.

WHEN THINGS GO WRONG

Apple Versus Adobe

Apple has been a champion of popularizing the mobile Web (iPhone, iPod, iPad).

But Apple products cannot display Adobe Flash content due to proprietary reasons.

Flash is used by many of Apple’s competitors. Flash is used in YouTube and many advertisements.

Apple cites security and performance concerns. Steve Jobs criticized Flash and encouraged its abandonment in open

standards.

Adobe announced: It will discontinue providing Flash substitutes for Apple platforms.

It is distributing free Google Android-powered phones to employees.

POWERFUL PARTNERSHIPS

YouTube’s Steve Chen and Chad Hurley4-76

Former PayPal employees

Went online in 2005 30 million videos a day 9.1 million users Sold to Google for

$1.76 billion Hurley studied design

at U. Pennsylvania Chen studied

computer science at U. Illinois

ETHICAL DILEMMA

Monitoring Productive Employees4-77

“You have zero privacy; get over it” (Scott McNeely, CEO of Sun Microsystems)

Use of company provided Internet connection can be legally monitored

American Management Association survey (2007): 66% of employers monitor employee’s Internet use.

65% use software to block access to certain Web sites.

45% monitor key strokes.

43% review and retain employee e-mails.

73% use automatic e-mail monitoring technology.

84% of the companies disclose the practices to the employees.

30% fired employees for Internet misuse.

28% fired employees for e-mail abuse.

NET STATS

Who Is Subsidizing Web Content?

Top Internet advertisers by category

Top 5 advertisers (2009) 1. Scottrade: $30 million

2. Sprint Wireless: $21 million

3. TD Ameritrade $18 million

4. Scottrade Stock Brokerage: $17 million

5. Seroquel XR: $10 million

COMING ATTRACTIONS

Smart Phones of the Future4-79

Microsoft patent—Smart Interface System for Mobile Communications Devices Turn a smart phone into a full-blown computer by plugging

into a docking station.

Apple’s approach Integrate more functions into the iPhone

Front-facing video camera

User recording and editing of high-definition videos

Increased customizability Touch screens, faster Bluetooth, GPS, more memory, faster

data transmission, complex applications, artificial intelligence

Human-Powered Search Engines: ChaCha

Free search service for mobile phones Guides read, then answer questions Guides must apply and be trained Technology “learns” from guides’ answers ChaCha has answered over 500 million questions

since its launch. 10 million users per month ChaCha introduced a new Facebook app in February

INDUSTRY ANALYSIS

Retailing4-81

Systems have improved brick-and-mortar experience. Computerized Point of Sale (POS) Bar code scanners Inventory control

Emerging RFID (Radio frequency identification) technology

“Smart” shelves “Smart” dressing rooms

Pay by fingerprint (via fingerprint scanners) Pay by mobile phone

Near Field Communication (NFC)

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