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Introduction to Information Technology
2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
Chapter 9:
Electronic Commerce
Prepared by:
Roberta M. Roth, Ph.D.
University of Northern Iowa
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
9-1
Chapter Preview
 In this chapter, we will study:
Forms and uses of business-to-consumer
electronic commerce
Forms and uses of business-to-business
electronic commerce
New forms of EC
Technical and non-technical requirements
needed to make EC work
Legal and ethical issues associated with EC
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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E-Commerce / E-Business
 Electronic Commerce: buying and selling of
products, services and information via computer
networks, primarily the Internet
 Electronic Business: a broader definition that
includes
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buying and selling, plus
servicing customers
collaborating with business partners
conducting electronic transactions within an
organization
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Types of E-Commerce
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Business-to-business EC (B2B)
Collaborative commerce (c-commerce)
Business-to-consumer EC (B2C)
Consumer-to-businesses (C2B)
Consumer-to-consumer (C2C)
Intrabusiness (intraorganizational) commerce
Government-to-citizens (G2C) and others
Mobile commerce (m-commerce)
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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E-Commerce History and Scope
 History
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Began in the early 1970s (long before the Internet was open to
commercial use)
Limited to large businesses initially
Electronic Fund Transfer (EFT) and Electronic Data Interchange
(EDI)
 Scope Today Includes
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advertising
home banking
shopping in electronic stores and malls
buying stocks
finding a job
conducting an auction
collaborating electronically with business partners around the
globe
providing customer service
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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E-Commerce Framework
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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EC Benefits to Organizations
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Increased customer base:
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Reduced cost:
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Reach a large number of customers at little cost
Procure material and services from other companies at less cost
Allow lower inventories by facilitating “pull”-type supply chain management
Shorten marketing distribution channels and reduce marketing costs
Decrease the cost of creating, processing, distributing, storing, and
retrieving paper-based information
Lower telecommunications costs because the Internet is much cheaper than
value-added networks (VANs)
Reduced cycle time:
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Broaden markets
Find niche markets (e.g. www.dogtoys.com)
Procure material and services from other companies rapidly
Reduce the time between the outlay of capital and the receipt of products and
services
Helps small businesses compete against large companies
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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EC Benefits to Customers
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Choice
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Consumers can select from many vendors and many more products than they
could locate otherwise
Consumers can get customized products, from PCs to cars, at competitive or
bargain prices
Consumers can find unique products and collectors’ items through virtual
auctions that might otherwise require them to travel long distances to a
particular auction place at a specific time
Convenience
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Consumers can conduct online quick comparisons to find less expensive
products and services
Customers can shop or make other transactions 24 hours a day, year round,
from almost any location
Product information immediately available 24 hours a day, year round,
from almost any location
Consumers can interact with other consumers in electronic communities and can
exchange ideas as well as compare experiences
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
9-8
EC Benefits to Society
 Convenience
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Enables more individuals to work at home and to do less
traveling
 Access
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Allows some merchandise to be sold at lower prices - less
affluent people can buy more and increase their standard of
living
Enables people in less developed countries and rural areas to
enjoy products and services that otherwise are not
available to them
Facilitates delivery of public services, such as government
entitlements, reducing the cost of distribution and fraud, and
increasing the quality of the social services, police work, health
care and education
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Technical Limitations of EC
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A few technical challenges remain for organizations
wishing to conduct EC:
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Lack of universally accepted standards for quality, security, and
reliability
Insufficient telecommunications bandwidth
Still-evolving software development tools
Difficulties in integrating the Internet and EC software with some
existing (especially legacy) applications and databases
Need for special Web servers in addition to the network servers
(added cost)
Expensive and/or inconvenient Internet accessibility for many
people
All of these will diminish over time
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Non-Technical Limitations of EC
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Legal and economic concerns:
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Many legal issues are yet unresolved
Lack of national and international regulations and standards
Difficulty in measuring benefits of EC and justifying EC
Insufficient number (critical mass) of sellers and buyers exists for
profitable EC operations
Cultural resistance:
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Distrust of the new: Many sellers and buyers are waiting for EC to
stabilize before they take part
Customer resistance to the change from a physical to virtual
stores
Perception that electronic commerce is expensive and unsecured,
so many do not want even to try it
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Business-to-Consumer EC
 Electronic Storefronts and Malls
 Electronic retailing can be conducted via solo
storefront or as a part of cybermall
 Issues of e-tailing
 May be channel conflict and conflict with
existing stores
 Difficult to fulfill large quantity of very small
orders
 Incorrect business model (advertising revenue
versus profitable sales)
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Business-to-Consumer EC (continued)
 Services Online
 Banking (www.sfnb.com)
 Securities trading (Schwab Online)
 Job markets (Monster Board)
 Travel (Expedia.com)
 Real estate (Realtor.com)
 Auctions (eBay.com)
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Business-to-Consumer EC (continued)
 Personalization – ability to customize product,
service, advertisement, or customer service
 B2C EC enables personalization at low cost
 Internet enables marketing research
 Questionnaires
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Usually involve some inducement
 Direct behavior observation
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Cookies or site tracking services
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Business-to-Consumer EC (continued)
 Use of intelligent agents
 Help customers determine what to buy
 Search for and compare vendor prices
 Collect information and develop customer profiles
 Online advertising
 Banners
• Keyword banners
• Random banners
 Direct email
 Pop-up windows
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Business-to-Consumer EC (continued)
 Advertising Approaches and Issues
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Permission marketing – offer incentives to consumers to receive
advertising
Viral (advocacy) marketing – online word of mouth advertising
(send this ad to a friend and get…)
Customizing ads – base ads on consumers’ profile
Interactive marketing – tailor ads based on stored customer
data
Attracting visitors to a site
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Making the top list of a search engine
Online events, promotions, and attractions
 Electronic catalogs / customized catalogs
 Coupons online
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Business-to-Consumer EC (continued)
 Providing Customer Service
 Help customer determine needs
 Help customer acquire product or service
 Support customer during ownership of
product or service
 Help customer dispose of product or service
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Business-to-Business EC
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Composes the majority of EC volume
Enables organizations to form electronic relationships
Covers all activities along the supply chain
Business Models:
 Sell-Side Marketplace
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Organizations sell products to other organizations
electronically.
 Buy-Side Marketplace
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Buyers post needs; sellers submit bids
 Electronic Exchanges
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Electronic marketplaces link many buyers and many sellers
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Business-to-Business EC (continued)
 Collaborative Commerce – non-
buying/selling activities between businesses
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Planning and scheduling
Design
New product information
Product content management
Order management
Sourcing and procurement
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
9-19
Electronic Commerce Innovations
 E-Government – deliver information and
public services to citizens and members of the
public sector
 M-Commerce – use of wireless devices to
deliver mobile e-commerce
 Consumer-to-consumer EC – direct
interaction facilitated by auctions, classifieds, and
bartering
 Intrabusiness EC – business units interact or
employees interact with employers
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Requirements
 Infrastructure – hardware, software, and networks
needed to conduct transactions, communicate, and
collaborate
 Electronic Payment Mechanisms
 Electronic checks
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Customer opens account with a bank
the customer e-mails an encrypted electronic check signed
with a digital signature
the merchant deposits the check in his or her account; money
is debited in the buyer’s account and credited to the seller’s
account
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Requirements
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Electronic Payment Mechanisms (continued)
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Electronic credit cards
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Unencrypted payments - the buyer e-mails her or his credit card
number to the seller on the Internet
Encrypted payments - credit card details encrypted for security
Electronic cash in PC
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bank provides special software to consumer
customer buys “electronic money” from the bank through software
the bank sends electronic money note to this customer, endorsing it
with a digital signature
the money is stored on the buyer’s PC and can be spent in any
electronic store that accepts e-cash
the software is also used to transfer the e-cash from the buyer’s
computer to the seller’s computer
the seller either deposits the e-cash in a bank or uses the e-cash to
make purchases elsewhere
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Requirements
 Electronic Payment Mechanisms (continued)
 Electronic payment cards with e-cash
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Credit cards using magnetic strips
Card holds information about prepaid cash which can be
used to make payments
 Smart cards
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Cards with microprocessors can hold much more information
 Person-to-person payment systems
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Transfer of funds between individuals (PayPal)
 EFT
 Electronic wallets
 Purchasing cards
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Requirements
 Security
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Authentication - assurance regarding the identity of the parties
who are involved in the deal
Integrity - assurance that data and information (orders, reply to
queries, and payment authorization) are not accidentally or
maliciously altered or destroyed during transmission
Non-repudiation - Protection against the customer’s
unjustifiable denial of placing an order; buyer needs protection
against the vendor denial of shipment, or sending wrong order
Privacy - many customers want their identity to be undisclosed
Safety - assurance that it is safe to provide a credit card number
on the Internet
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Requirements
 Security (continued)
 Encryption - a process of making messages indecipherable
except by those who have an authorized decryption key
• Single-key encryption
• Public/private key encryption
• Public key infrastructure
 Electronic Certificates
 Secure Socket Layer (SSL)
 Secure Electronic Transaction Protocol (SET)
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Requirements
 Order Fulfillment
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Find, assemble, and pack product
Ship product to customer
Collect customer payment
Arrange for returns if needed
Provide on-going support (e.g.,
animated assembly instructions)
 EC is a ‘pull’ operation – hard to forecast
demand and prepare to fulfill orders
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Issues
 Buyer Protection
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look for reliable brand names at sites like Wal-Mart Online, Disney
Online, and Amazon.com
search any unfamiliar selling site for company’s address and phone and
fax number
check out the seller with the local Chamber of Commerce and/or Better
Business Bureau
investigate how secure the seller’s site is by reading the posted privacy
notice, and evaluate how well the site is organized
examine the money-back guarantees, warranties, and service
agreements
compare prices to those in regular stores (suspect the too cheap sites)
ask friends what they know about the vendor
find out what your rights are in case of a dispute
consult the National Fraud Information Center
check www.consumerworld.org for a listing of useful resources
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
9-27
Electronic Commerce Issues
 Seller Protection
 Need protection against consumers who refuse to pay
or pay with bad checks and buyers’ claims that the
merchandise did not arrive
 Need protection against the use of their name by
others as well as use of their unique words and phrases,
slogans and Web address
 Need legal recourse against customers who download
copyrighted software and/or knowledge and sell it to
others
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
9-28
Electronic Commerce Issues
 Ethics
 Privacy
• most electronic payment systems know who the
buyers are; therefore, it may be necessary to
protect the buyers’ identity
 Web Tracking
• by using sophisticated software it is possible to
track individual movements on the internet
 Disintermediation
• the use of EC may result in the elimination of some
of a company’s employees as well as brokers and
agents
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
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Electronic Commerce Issues
 Legal Concerns
 Domain Names
• several companies that have similar or same
names (in different countries) compete over a
domain name that is not a registered trademark
 Taxes and Other Fees
• Federal, state, and local taxing authorities are
trying to figure out how to impose taxes on
Internet sales
 Copyright
• intellectual property is protected by copyright laws
and cannot be used freely
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
9-30
Chapter Summary
 B2C EC encompasses e-tailing, auctions, and
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online services
B2C EC provides numerous marketing and
advertising opportunities and challenges
B2B EC has the highest volume, and provides
several business models
Payment mechanisms and security are critical EC
issues
EC introduces many legal and ethical concerns
Introduction to Information Technology, 2nd Edition
Turban, Rainer & Potter
© 2003 John Wiley & Sons, Inc.
9-31
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Introduction to Information Technology, 2nd Edition
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© 2003 John Wiley & Sons, Inc.
9-32