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MIS 301
Information Systems in Organizations
Dave Salisbury
[email protected] (email)
http://www.davesalisbury.com/ (web site)
What We Will Cover:
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E-Commerce: An Overview
The E-Commerce Difference
E-Commerce for Consumers
E-Commerce Between Organizations
Student ROI (Return on Investment)
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Your investment of time and effort in this course will
result in your being able to answer these questions:
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What is e-commerce and how is it a part of today’s
economy?
How does e-commerce make a difference to businesses and
consumers?
How does e-commerce allow businesses to create value for
their consumers?
How do businesses use e-commerce to enhance the
products and services that they trade with business
partners, as well as to improve their supply chain efficiency?
What is e-commerce?
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E-commerce is the use of information systems, technologies,
and computer networks to carry out transactions in order to
create or support the creation of business value.
Note that we do not say “to buy and sell over the Internet” in
our definition;
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do not want to restrict ourselves to just the Internet
want to make our definition as general as possible, so we
concentrate on transactions which we discussed in Chapter 4 and 5
and computer networks which we discussed in Chapter 2 and Field
Guide C.
E-Commerce includes all types of computer networks and all
types of transactions including electronic funds transfers and
EDI over private networks as well as retail sales and wholesale
exchanges over public networks like the Internet.
E-commerce (cont.)
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Uneven penetration into areas of commerce
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Travel Industry versus Retail Clothing Industry
(clothing is trending upward)
Most people think of e-commerce as electronic
shopping over the WWW or Business to Consumer
e-commerce (B2C - transactions in hundreds of
millions of dollars)
However, Business to Business e-commerce (B2B)
transactions are valued in trillions of dollars!
Types of E-Commerce Transactions
Transaction
Description
Example Web sites
Business-to-consumer
(B2C)
Online equivalent of retail
store as well as other services
www.landsend.com,
www.overstock.com,
www.amazon.com
Business-to-business
(B2B)
Electronic exchanges between
companies
www.manheim.com,
www.boeing.com
Business-togovernment (B2G)
Online sales to government
agencies as well as online
payment of taxes
www.irs.gov,
www.fedbizopps.gov,
App.mt.gov/bustax
Consumer-togovernment (C2G)
Electronic payment of taxes
as well purchasing licenses
www.irs.gov/individuals,
express.hsmv.state.fl.us
Consumer-toconsumer (C2C)
Use of online auctions like
eBay or Yahoo! Auctions
www.ebay.com,
auctions.yahoo.com
E-Commerce and Products: Physical
and Electronic
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Products can be divided into two primary categories: physical
and electronic.
Physical products include anything that requires an actual
shipment of a package to the buyer, eg, computer hardware.
Electronic products can be received directly over the Internet or
other computer network, eg, computer software.
E-commerce companies must have back-office elements to
handle order fulfillment and to handle returns for physical
goods,
Companies experienced in order fulfillment and returns have
tended to be successful in dealing with physical goods using Ecommerce.
Types of E-Commerce Transactions
and Associated Goods
Transaction
Example Physical Goods Example Electronic Goods
B2C
CD, DVD
iTunes song, ring tones
B2B
Office furniture
Virus protection software, databases
B2G
Technical manuals,
regulations, and other
printed information
Document conversion from hardcopy
to XML/Web-based documents
C2G
Printed and mailed income
tax return or license
application
Electronically filed income tax return
or license application
C2C
Elvis PezTM, comic books
Shareware program, self-published
e-book
Purchase of Physical Goods versus
Purchase of Electronic Products
Physical Goods
Electronic Products
The “E-Commerce Difference”
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The use of computer networks, especially the
Internet, to carry out transactions between a variety
of buyers and sellers is creating a tangible “ecommerce difference” in our economy, especially with
regard to
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Technology
Competition
Strategy
Over 1 billion potential customers around the world in
the marketspace due to increasing Internet access.
Universal standards make it work the same way no
matter where in the world you might be.
Impact of E-commerce Technologies
on Business
E-Commerce Differences
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Innovative uses of the Internet have produced global
competition with sellers being able to reach any
potential buyer in the world.
This is true for both the large retailers and for those
selling in niche market.
Technology has increased information density—the
quality and quantity of information about products
and services.
Customers can obtain product guides, reviews, and
prices from a myriad of Web sites creating business
challenges.
Mass Customization and
Personalization
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One response to information density is to create
business value based on a customization-oriented
approach to e-commerce.
Two approaches to customization are: mass
customization and personalization.
Mass customization is the ability to create custom
products or services on-demand, eg, Dell customers
can customize their PC.
Personalization is a marketing message that a
business personalizes for each potential customer’s
interests based on searching, browsing, or buying
habits, eg, Amazon.com.
E-commerce and Competition
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E-commerce is having a dramatic effect on
competition between organizations in a
number of ways including:
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Reducing barriers to entry
No one firm or person “owns” the entire market
Enhanced collaboration/alliances
Market niches multiply
Changed marketplace drivers (forces that make
things happen in the market, e.g., consumer
preferences, number of suppliers a business can
choose from)
Business and E-commerce Strategy
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E-commerce has changed business strategy.
A strategy is a broad-based formula for how a
business is going to compete, what its goals should
be, and what plans and policies will be needed to
carry out those goals.1
1Michael
Porter “What is Strategy”, Harvard Business Review, November 1996, pp. 69-84.
E-commerce Strategy
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An e-commerce strategy is a general formula for how a business
is going to use computer networks and information systems to
compete in a global marketplace.
To build an e-commerce strategy requires two views of an
organization’s strategy: what is wants to do (conceptual) and
how it will do it (technology strategy).
One strategy being used by many companies is customer
relationship management which enables them to create one-toone marketing experiences for their customers.
Other e-commerce strategies include virtual showrooms,
increased channel choices, wider component choice, and use of
mobile technology.
Mobile commerce is the use of laptops, mobile telephones, and
personal digital assistants to connect to the Internet and Web to
conduct many of the activities associated with e-commerce.
Benefits and Limitations of B2C Ecommerce for Consumers
Benefits
Lower prices
 Shop 24/7
 Greater searchability
 Shorter delivery times for digital
products
 Sharing of information with other
consumers
 Improved customer service
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Limitations
Delay in receiving physical products, plus
shipping
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In areas without high-speed Internet service,
slow download speeds.
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Security and privacy concerns, especially with
rise of phishing.
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Inability to touch, feel, or even smell
products prior to the purchase.
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Unavailability of micropayments for purchase
of small-cost products.
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Benefits and Limitations of B2C Ecommerce for Businesses
Benefits
Expansion of marketplace to global
proportions.
 Cheaper electronic transactions.
 Greater customer loyalty through
customized Web pages and 1-to-1
marketing.
 Expansion of niche marketing
opportunities.
 Direct communications with
customers through Web site,
resulting in better customer service.
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Limitations
Increased competition due to global
marketplace.
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Ease of comparison between competing
products drives prices down.
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Customers want specific choices and will
not accept substitutes.
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Customers control flow of information
instead of companies.
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Potential for channel conflict. (NOTE: THIS
POINT IS THE ONLY CHANGE ADDED BY
SALISBURY TO THIS SLIDE.
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E-commerce Business Models
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A business model defines how a company will
meet the needs of its customers while making
a profit.
An e-commerce business model is a business
model appropriate for conducting business via
electronic networks.
The next three slides list and give examples
of e-commerce business models (Source:
adapted from Michael Rappa,
http://digitalenterprise.org/models/models.ht
ml.
E-commerce Business Models (cont.)1
Business
Model
Description
Examples
Comments
Brokerage
Brokers bring
buyers and sellers
together for a fee.
eBay, Priceline,
PayPal
There are many types of
brokerage models in all
types of e-commerce.
Advertising
An extension of the
traditional media
broadcasting model
in which ads
appear on Web
sites.
Yahoo!,
Netscape,
CNN.com,
Google
There are many different
types of advertising, but all
depend on a large volume
of viewer traffic.
Merchant
Sell products, both
physical and
electronic, to
consumers
Amazon.com,
LandsEnd.com,
Walmart.com,
iTunes, and
many others
Commonly referred to as etailers, merchants can use
pure e-commerce or a
combination (click and
mortar).
1Adapted
from Micheal Rappa, http://digitalenterprise.org/models/models.html.
E-commerce Business Models (cont.)1
Business
Model
Description
Examples
Comments
Manufacturer
Direct
Make and sell
products directly
to customer
Dell, IBM,
Microsoft, McAfee
(anti-virus
products)
Products can be
purchased (PCs), leased
(servers), or licensed
(software).
Affiliate
Affiliate Web sites
are paid a fee
when purchases
come through
them.
Amazon.com fees
to affiliate Web
sites
Can also include banner
ad exchange between
affiliated sites as well as
revenue-sharing.
Community
Based on user
loyalty because of
high investment of
time and emotion.
Apple computers,
Red Hat software
Revenue is generated
through sale of ancillary
products or voluntary
contributions
1Adapted
from Micheal Rappa, http://digitalenterprise.org/models/models.html.
E-commerce Business Models (cont.)1
Business
Model
Description
Examples
Comments
Subscription
Users are charged
fee to subscribe to
service to service
or information
source
Classmates,
Highbeam
(articles),
Netscape Radio,
AOL
Subscription may be for
premium services;
advertising model may
be combined with this
model
Infomediary
Provides data on
consumers and
consumption habits
DoubleClick,
NetRatings,
Edmunds
Usually aimed at helping
businesses rather than
consumers
Coopetitive
Enable competitors
to cooperate on a
Web site
AutoTrader.com,
VRBO.com
Usually aimed at
individuals or small
businesses that cannot
attract customers to
their own Web site.
1Adapted
from Micheal Rappa, http://digitalenterprise.org/models/models.html.
E-commerce Web site Purpose
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The purpose of an e-commerce website is another
way to understand businesses’ e-commerce business
models.
No matter how good the business model, it will not
generate a profit if not associated with a Web site
that brings in customers or at least visitors.
There are eight commonly accepted types of Web
sites: portal, search engine, Browse or search and
buy, sales support, information service, auction,
travel, and special interest or services.
A number of these match up with multiple business
models.
Web Sites Classified By Purpose
Web Site Type
Purpose
Example
Business Model
Portal
A gateway to many
other Web sites
Netscape.com,
Yahoo!, MSN
Advertising,
Affiliate
Search Engine
Finds Web sites that
Google, Yahoo,
contain a word or phrase MSN, DogPile
Browse or search
and buy
Sell goods and services
Dell, LandsEnd,
iTunes
Merchant,
Infomediary,
Manufacturer
Direct,
Coopetitive
Sales Support
To provide information
on a product before or
after the sale
Microsoft, BMW,
McAfee, Cingular
Community,
Infomediary
Advertising,
Affiliate,
Infomediary
Web Sites Classified By Purpose
(Cont.)
Web Site Type
Purpose
Example
Business Model
Information
Service
To provide news,
information, commentary,
and so on.
USAToday,
Highbeam, Rivals,
Edmunds
Subscription,
Community,
Affiliate
Auction
Facilitate sales between
third parties
eBay, Priceline,
PayPal
Brokerage
Travel
Sell travel tickets and tours
Delta, Travelocity,
Orbitz, HotWire
Merchant,
Brokerage,
Coopetitive
Special Interest
or Services
Provide information,
product sales and support,
and contacts between
visitors
DogVent, Microsoft
support groups,
Google Groups
Community,
Merchant,
Affiliate,
Infomediary,
Advertising
B2B e-commerce: E-Commerce
Between Organizations
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Doing business with other organizations (B2B) is by
far larger than with consumers (B2C).
It is also quite different in terms of the scope of the
purchases and the complexity involved in them—
especially in the decision making required to make a
purchase.
For example, while you buy one PC, a company may
buy thousands.
Interorganizational systems (IOS) are the information
systems that handle the information flow between
trading partners.
Comparing B2C to B2B
Process
Individual
Business Organization
Decision to
purchase
Made based on own
needs
Made based on the organization’s needs
which are a combination of many
different departmental and individual
needs
Decision
where to buy
Made after own
research into market
Made through a systematic process that
involves considering what each vendor
can provide the organization in terms of
setup, networking, and so on.
Number of
Items
One
Many
Actual
Purchase
Buy computer online
or in person with
personal credit card
Buy computers only after significant
negotiations over price and terms with
vendor
Payment
Pay credit card bill
with personal check
Pay by company check only after assuring
that all computers have been delivered
and setup by vendor
B2B Transactions
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B2B transactions can be divided into two types: spot
buying and strategic sourcing.
In spot buying, purchases are made at market
prices from an unknown seller.
Companies often use spot buying to purchase
commodities, i.e., uniform in quality differing only in
price like gasoline, paper, and cleaning supplies.
In strategic sourcing, prices are set through
negotiation in a long-term relationship with a
company known to the buyer.
A company’s large-scale computer purchases often
result from strategic sourcing.
B2B Business Models
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Strategic sourcing is often carried out through a one-to-one
business model, but company-centric and exchange models are
also used.
In the one-to-one business model, two companies form a
trading relationship with neither company dominating the
relationship.
In the company-centric business model, a company is either a
seller to many companies (one-to-many) or a buyer from many
companies (many-to-one).
The single company dominates the market and controls the
information systems that supports the transactions. Electronic
data interchange (EDI) or an extranet is often used to link
trading partners.
E-procurement is often the name for B2B e-commerce in the
many-to-one business model.
Company Centric Business Model
Exchange Model
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In the exchange business model, many
companies use an exchange to buy and sell
from each other through spot-buying
transactions.
Types of Exchanges
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Exchanges can be cooperative ventures among the
companies or it can be run by a larger company that
profits from the transactions.
Exchanges can be classified as vertical or horizontal
with vertical exchanges meeting the needs of a single
industry.
Horizontal exchanges deal with products and services
that all companies need.
From an e-commerce point-of-view, exchanges are
often Web sites that buyers and sellers post their
needs and offerings.
Services in B2B E-Commerce
Just as services are an important part of B2C e-commerce, they
are also an important part of B2B e-commerce.
Service or
Electronic
Product
Comments
Software
The ability to buy a site license online and then download
one copy, which they then burn on CDs, reduces
organizations’ cost and time in procuring software.
Leasing
Companies can use e-commerce to negotiate the original
lease price and to dispose of them at the end of the lease.
Travel
Travel is a big item with companies that have more than one
office or distant customers, so using e-commerce to provide
less expensive travel can save money
Services in B2B E-Commerce (cont.)
Service or
Electronic
Product
Comments
Insurance
Companies must insure their buildings, people, vehicles, and so
on, and using e-commerce to find better insurance coverage can
mean lower costs for the company.
Banking
As with consumers, businesses must pay their bills. They must
also accept payments from customers. Moving banking online
reduces the cost of writing and depositing checks as well as
making the transfer of funds much easier.
Stock trading
As a part of their overall financing process, businesses will often
buy and sell other stock as well as their own. Online trading
makes this possible for much lower transaction fees.
Financing
Businesses often need to raise capital through debt and a
number of services now make it possible to do this online for
lower transaction fees.
Using B2B e-commerce and IOS to
Improve Supply Chain Efficiency
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A supply chain is a network of facilities and
distribution options that performs the functions of
procurement of materials, transformation of these
materials into intermediate and finished products,
and the distribution of these finished products to
customers1.
Procurement is a big part of the supply chain and
using e-commerce for e-procurement has resulted in
money savings.
To see why, we first need to understand the
traditional procurement process.
1 “An
Introduction to Supply Chain Management”, Ram Ganeshan Terry P. Harrison,
http://lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html
Traditional Procurement Process
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In the traditional procurement process, there are
five steps involving three elements—purchase order,
invoice, and receipt of goods:
1. Purchase order (PO) to vendor
2. Goods to buyer along with bill of lading (BOL)
3. Upon receipt of goods and BOL, signed copy of BOL
returned to vendor and receipt of goods is filed
4. Vendor sends invoice to buyer
5. Buyer’s accounting department compares PO to receipt of
goods and invoice. If there is a match, buyer pays the
vendor.
Traditional Procurement Process
Using E-commerce to Improve the
Procurement Process
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An interorganizational system (IOS) is a networked information
system used by two or more separate organizations to perform
a joint business function.1
EDI: uses private networks to allow the exchange of structured
information between two computer applications with a minimum
of human involvement.
Even though often overshadowed by newer technology, EDI
remains the engine behind the majority of e-commerce
transactions worldwide. It is, however, too expensive for most
small businesses.
Extranets: collaborative networks that use Internet technology
to link businesses with their customers. Security measures keep
data secure and XML is used to transfer the data.
An extranet can be thought of as two connected intranets.
1Cash,
J. I. Jr., F. W. McFarlan, J. L. McKenney, and L. M. Applegate. 1994.
Corporate information systems management: text and cases. 4th ed. Homewood, IL: Irwin, p. 339.
Extranets
Comparing EDI and Extranets
EDI
Extranet
Security
More secure due to use of
private network
Less secure then EDI due
to use of Internet
Cost
More costly due to use of
proprietary software and
private networks
Less costly because it
uses existing networks
and Internet apps
Flexibility
Less flexible—proprietary
software limits use
More flexible because
based on Internet;
greater customization
Trend
Gradually being replaced by
extranet-based apps
Gaining wider acceptance
due to lower costs