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Using MIS 3e
Chapter 8
E-Commerce and Web 2.0
David Kroenke
Chapter Preview
Chapter has two major themes: e-commerce and Web 2.0.
1. E-commerce: Begin by discussing how companies use ecommerce and survey important e-commerce technology.
Conclude by discussing the role of e-commerce in supply chain
management.
2. Web 2.0: What it means, and what capabilities does it provide?
How do businesses use social networking, including groups and
applications. We’ll discuss three primary uses for Twitter in
commerce. After that, we’ll investigate user generated content
and discuss some of the risks of it and social networking as well.
Finally, we’ll wrap up with 2020.
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
8-2
Study Questions
Q1
How do companies use e-commerce?
Q2
Q3
What technology is needed for e-commerce?
How can information systems enhance supply chain
performance?
Why is Web 2.0 important to business?
How can organizations benefit from social networking?
How can organizations benefit from Twitter?
What are the benefits and risks of user-generated content
(UGC)?
2020?
Q4
Q5
Q6
Q7
Q8
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8-3
How Do Companies Use
E-commerce?
•
•
•
E-commerce is buying and selling goods and services over public
and private computer networks.
Merchant companies take title to the goods they sell.
Nonmerchant companies arrange for purchase and sale of goods
without owning or taking title to those goods.
Types of merchant and nonmerchant companies
Fig 8-1 E-Commerce Categories
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Types of Merchant E-Commerce
Companies
1. B2C transactions occur between a supplier and retail customer.
The supplier generally uses a Web storefront.
2. B2B transactions occur between companies.
3. B2G transactions occur between companies and governmental
organizations.
Fig 8-2 Example of Use of B2B, B2G, and
B2C
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Types of Nonmerchant
E-commerce Companies
1. Auctions match buyers and sellers using the e-commerce
version of standard auction where auction company
receives a commission on each product sold. eBay.com is
the best-known example.
2. Clearinghouse provides goods at a stated price, arranges
for delivery but never takes title to the goods. Company
receives a commission on each product sold. Amazon.com
is the best-known example.
3. Electronic exchanges are a type of clearinghouse similar
to a stock exchange. Company matches up buyers and
sellers and a transaction occurs. Exchange takes a
commission. Priceline.com is the best-known example.
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How Does E-Commerce Market
Efficiency?

E-Commerce improves market efficiencies in a variety of ways,
as this figure shows. Customers benefit from the first two,
disintermediation and increased price information. Businesses
benefit from increasing their knowledge of price elasticity.
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What Economic Factors Disfavor
E-Commerce?
1. Channel conflict
 Occurs when a manufacturer competes with its traditional retail
outlets by selling directly to consumer
2. Price conflict
 Occurs when a manufacturer sells directly to consumers and
undercuts retailers’ prices
3. Increased logistics expenses
 Occurs when a manufacturer must process thousands of smallquantity orders rather than a few large-quantity orders
4. Increased customer-service expenses
 Occurs when a manufacturer must begin dealing directly with
customers rather than relying on retailers’ direct relationships with
customers
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8-8
Study Questions
Q1
How do companies use e-commerce?
Q2
What technology is needed for e-commerce?
Q3
How can information systems enhance supply chain
performance?
Why is Web 2.0 important to business?
How can organizations benefit from social networking?
How can organizations benefit from Twitter?
What are the benefits and risks of user generated content
(UGC)?
2020?
Q4
Q5
Q6
Q7
Q8
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8-9
Three-tier Architecture
• Each tier relates to a particular class of computers
1. User tier uses personal computers and browser software
that requests and processes Web pages. Web page
documents are coded in HTML and are transmitted using
HTTP protocols.
2. Server tier uses Web server computers and processes
application programs that help manage HTTP traffic
between Web servers and users.
3. Database tier uses computers that run a DBMS to
process SQL requests for retrieving and storing data.
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Commerce Server and Web Farm
• Commerce server is part of server tier
 An application program that receives
requests from users via a Web server.
 When the program receives a request, it
takes some action, like coordinating a
customer checkout process, and then
returns a response to the user via a Web
server.
• A Web farm is a facility that houses numerous
Web server computers.
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How Three-tier Architecture
Operates
Fig 8-5 Three-Tier Architecture
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Sample of Commerce Server
Pages: Product Offer Pages

Examples of Web pages on an e-commerce Web site
Fig 8-6(a) Sample of Commerce Server
Pages
Fig 8-6(b) Shopping Cart Page
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Hypertext Markup Language
(HTML)
• Language used to structure the layout of Web pages
• HTML includes these elements:
 Tags—notation that defines a data element
• <h2> and </h2> are tags that indicates that text will be
formatted as a level two heading.
 Hyperlinks
• Serve as pointers to other Web pages. They include a URL
for another document within same Web site or a different
Web site.
• http://www.prenhall.com/kroenke is a hyperlink to another
Web site.
 Attributes provide properties for tags. In the sample HTML
document on the next slide, the attribute href= provides the
value of the hyperlink that follows.
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HTML Document (Left) Rendered
(Right) Using Internet Explorer
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eXtensible Markup Language
(XML)
• HTML is workhorse for Web pages and
e-commerce sites.
• HTML is effective when one party is human.
But what if two computer programs want to
exchange data?
• HTML has major disadvantages that are
overcome with a different markup language
called XML.
• XML tutorial
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What’s Wrong with HTML?
1. HTML tags have no consistent meaning,
therefore are used inconsistently.
2. HTML has a fixed number of tags and no
way for users to define new ones.
3. HTML mixes format, content, and structure
rather than separating them.
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How Does XML Fix These
Problems?
• Provides superior means for computer programs to exchange
documents
• Requires content, structure, and format be separated into
different documents
• Document designers can create custom tags and specify
arrangement of tags in metadata.
• Metadata stored in XML schema document
• A computer program can read content document to find data
to process, it can reference a metadata document to verify
that content is correct and complete, and it can use a
formatting document to transform content into a particular
form that it needs.
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How Can Suppliers Use XML?
• Improve efficiency of operations of distributors and
suppliers
• REI prepares inventory count document according
to its own design. Browser checks design against
its XML Count_schema.
• REI shares its XML schema with its suppliers.
Suppliers can use Count_schema to validate
orders are from REI.
• Automates process of sending, receiving, and
validating order data
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How Can Industries Use XML?
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8-20
How Can Industries Use XML?
New Figure 8-8 here
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Study Questions
Q1
Q2
How do companies use e-commerce?
What technology is needed for e-commerce?
Q3
How can information systems enhance
supply chain performance?
Q4
Q5
Q6
Q7
Why is Web 2.0 important to business?
How can organizations benefit from social networking?
How can organizations benefit from Twitter?
What are the benefits and risks of user generated content
(UGC)?
2020?
Q8
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8-22
Generic Supply Chain
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REI Supply Chain Example
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Four Drivers of Supply Chain
Performance: Facilities, Inventory,
Transportation, and Information
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Information Influences Supply
Chain Performance Three Ways:
1. Purpose: transactional or informational?
2. Availability: ways in which information is shared
3. Means: methods used to transmit information
• E-commerce systems commonly use three-tier
architecture with HTML and XML. Increasingly such
systems are using SOA standards as means as well.
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How Does Supply Chain
Profitability Differ from
Organizational Profitability?
• Supply chain profitability is determined by calculating the
difference between revenue generated by a supply chain and
costs that all organizations in supply chain incur to obtain that
revenue.
• Maximum profit to a supply chain will not occur if each
organization in a supply chain maximizes its own profits in
isolation from other participants in supply chain.
• Usually, profitability of supply chain increases if one or more
organizations operate at less than its own maximum
profitability.
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What Is the Bullwhip Effect?
• Bullwhip effect occurs when variability in size and timing of orders increases at
each stage up chain.
 Distributors, manufacturers, and suppliers must carry larger inventories than
necessary to meet real demand because of large fluctuations in orders.
 Reduces overall profitability of supply chain
 Can be eliminated by giving all supply chain participants consumer-demand
information directly from retailers through interorganizational information
systems
Fig 8-13 The Bullwhip Effect
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8-28
Study Questions
Q1
Q2
Q3
How do companies use e-commerce?
What technology is needed for e-commerce?
How can information systems enhance supply chain
performance?
Q4
Why is Web 2.0 important to business?
Q5
Q6
Q7
How can organizations benefit from social networking?
How can organizations benefit from Twitter?
What are the benefits and risks of user generated content
(UGC)?
2020?
Q8
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8-29
What Is Web 2.0?
• Specific meaning of Web 2.0 is hard to pin down.
• Generally refers to a loose grouping of capabilities,
technologies, business models, and philosophies.
Comparison of Web 2.0 to traditional processing
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Software as a (Free) Service
(SaaS)
• Software as a Service, part of the Web 2.0 movement, changes
traditional thinking about how software is created, provided to
users, and used to create value.
• Its characteristics include:




Uses thin-client programs in browsers
Bulk of processing occurs on servers throughout the Internet
Companies rely on advertising or revenue rather than license fees.
Perpetual beta software because features and functions constantly
changing
 SaaS companies clash with traditional software vendors that rely on
traditional software programs to provide the bulk of their revenue.
 Relies on viral marketing. Users spread word about its virtues rather
than the company that provides it.
 More a Web 2.0-based site is used, the more value it attains
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Other Characteristics of Web 2.0
• Value of site increases with users and use
• Organic user interface and mashups
• Participation and ownership differences
 Traditional Web sites are about publishing
 Web 2.0 is about participation
 Traditional Web site lock down all legal rights to
content
 Web 2.0 sites lock down only some rights
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How Can Businesses Benefit from
Web 2.0?
•
•
•
Advertising is specific to user interests. Two popular programs from
Google are:
 AdWords in which advertisers pay for particular search words.
 AdSense in which Google inserts ads on a Web site that match
content on site. When someone clicks on the ad, Google pays
site owner a fee.
Providing social networking services that connect people with similar
interests
Providing mashups between a business and its partners which
combine content of their products. Watch a movie, see a piece of
jewelry you like, click on a link, and purchase the product.
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Study Questions
Q1 How do companies use e-commerce?
Q2 What technology is needed for e-commerce?
Q3 How can information systems enhance supply chain
performance?
Q4 Why is Web 2.0 important to business?
Q5 How can organizations benefit from social
networking?
Q6 How can organizations benefit from Twitter?
Q7 What are the benefits and risks of user generated content
(UGC)?
Q8 2020?
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Fundamentals of Social
Networking
• Social networking (SN)—interaction of
people connected by friendship, interests,
business association, or other common trait
and supported by Web 2.0 technology
• SN support N:M communication and social
collaboration
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Viral Marketing with SN
Traditional marketing at MRV
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News About You Registering for
MRV Trip Broadcast to Your
Friends
Social Network Marketing
at Majestic River Ventures
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You, Your Friends, Their Friends,
and so on Form a Relationship
with MRV’s SN
Viral Social Network
Marketing Possibility
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Sample Viral Social Network
Marketing Outcome
• Figure CE15-6
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How Can Businesses Utilize
Social Networking Groups?
• Types of SN groups
1. Public—anyone can find the group by
searching and anyone can join it.
2. Invitation—anyone can find the group by
searching, but he or she must be invited to join.
3. Private—the group cannot be found by
searching, and members must be invited to
join.
• Businesses can use SN groups to strengthen
relationships among customers and to create
possibility of viral marketing.
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How Can Businesses Utilize
Social Networking Groups?
• Traditional business communication is unreliable.
• SN communication is more reliable.
• Viral messaging reaches more people, faster,
cheaper, and more personal.
• MRV could expand its viral marketing by inducing
(viral hook) customers to get their friends to form a
relationship with MRV.
 Finding proper viral hook is critical
• Common ways companies form SN relationships
with customers are groups and applications.
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Strengthening Relationships
Among Customers to Create Viral
Marketing Opportunities
• Invitation or private group




MRV could invite the customer to group for each river trip.
Place photos and videos of prior trips on Web site
Provide equipments lists, advice tips, weather forecasts
Start discussion lists among guides and group members before
trips
 Members could post pictures, videos, documents, reflections
• Create pubic version for alumni to share with friends
• Management use of SN: Groups of employees use SN to
build cohesion with their teammates.
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Strengthening Ties with
Social Networking
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How Can Businesses Utilize
Social Networking Applications?
Social networking application
 A computer program that interacts with and
processes information in a social network
 Examples:
• Survey Hurricane, a Facebook application created by
Infinistorm (www.infinistorm.com).
 Users who install that application on their page can
survey their friends on topics of interest.
• New York Times quiz
• Applications for buying and selling items, comparing
movies, and so on
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SN Applications Run on Servers
• When you run an application on a Facebook page,
Facebook passes your application request, via a
service, to application vendor’s server.
• Application service issues callbacks to Facebook
(or other SN vendors) to create friend requests,
find your existing friends, generate email, make
requests, poke your friends, or take other actions.
• Can collect data about you and your friends for
individualized marketing or for data mining
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8-45
MRV SN Application
• Figure 8-19
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SN Application vs. Web Sites
• Share many features and functions
• Why have SN?
 Depends on degree to which the application
requires a social graph
 Does application use or benefit from N:M
communication?
 Is there a need for social collaboration?
 Is there a need for feedback and iteration?
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8-47
Study Questions
Q1 How do companies use e-commerce?
Q2 What technology is needed for e-commerce?
Q3 How can information systems enhance supply chain
performance?
Q4 Why is Web 2.0 important to business?
Q5 How can organizations benefit from social networking?
Q6 How can organizations benefit from Twitter?
Q7 What are the benefits and risks of user generated content
(UGC)?
Q8 2020?
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8-48
Microblogs
• Hundreds of businesses are now using Twitter for
legitimate business purposes.
• Twitter is a microblog—a Web site where users
can publish their opinions.
• More people microblog than blog because it is less
intimidating. You don’t have space to spell well or
write a well constructed paragraph.
• Microblog competitors to Twitter are emerging.
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We Are All Publishers Now
• Microblogs make everyone a publisher.
Anyone can join, for free, and immediately
publish ideas, worldwide.
• Microblogging enables two-way publishing,
worldwide.
• Microblogging enables users with like
minded interests to find one another.
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How Can Businesses Benefit from
Microblogging?
• Three business applications have emerged so far:
1. Public Relations
• Product manager who’s excited about a
new use for his product. He can publish the
idea and a summary of instructions.
• Coaches can increase fan awareness by
blogging with insider details, how the
practice went, comments about the recent
game, and so forth.
• New public relations capability are
stressing existing institutions.
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How Can Businesses Benefit from
Microblogging?
2. Relationship Sales
 Pure sales pitches are ineffective when
microblogging. People stop following sources
that only publish ads and sales pitches. Instead,
people look for tweeters who offer something
they value such as advice, links to resources,
and interesting and thought-provoking opinions.
 Twitter Revolution: How Social Media and
Mobile Marketing is Changing the Way We Do
Business and Market Online. Warren Whitlock
and Deborah Micek. Xeno Press, 2008.
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How Can Businesses Benefit from
Microblogging?
3. Market Research
 Want to know what people think of
your product? Search Twitter to
find out.
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Study Questions
Q1 How do companies use e-commerce?
Q2 What technology is needed for e-commerce?
Q3 How can information systems enhance supply chain
performance?
Q4 Why is Web 2.0 important to business?
Q5 How can organizations benefit from social networking?
Q6 How can organizations benefit from Twitter?
Q7 What are the benefits and risks of user
generated content (UGC)?
Q8 2020?
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8-54
Common Types of UGC and
Discusses Their Business
Applications
•
•
•
•
•
•
•
•
Ratings and surveys
Opinions
Customer stories
Discussion groups
Wikis
Blogs
Video
Crowdsourcing specialty (Spore-create creator)
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Benefits of UGC
• SN users are three times more likely to trust peers’
opinions over advertiser claims.
• Increases loyalty to company site and brand loyalty
• Increases brand involvement, interaction, intimacy,
influence
• Discussion groups share advice and assistance.
• Provides useful information for product marketing
and development
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UGC Applications
• Figure 8-21
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Crowdsourcing
• Crowdsourcing organizations involve their users in the design
and marketing of their products.
• For example, as shown in Figure 8-24, shoe startup company
RYZ (ryzwear.com) sponsors shoe design contests to help it
understand which shoes to create and how to market those
designs.
• Crowdsourcing combines social networking, viral marketing,
and open-source design, saving considerable cost while
cultivating customers.
• With crowdsourcing, the crowd performs classic in-house
market research and development and does so in such a way
that customers are being set up to buy.
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Design by Crowdsourcing
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UGC Videos
• YouTube is famous for hosting UGC videos
provided as bait for advertising. Finally,
some sites include UGC as part of the
product. The magazines Fine Woodworking
and Wooden Boat both include UGC video
as part of their product offerings
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Impact of UGC
• Increases conversion rates
• Conversion rates are higher for products with lessthan-perfect reviews than for products with no
reviews at all.
• UGC to post answers to questions, articles, best
practices, blogs, code samples, and other
resources
• Return rates fall dramatically as number of product
reviews increases
• Videos provide bait for advertising
• Some sites include UGC as part of the product
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Risks of Using Social Networking
and User-Generated Content?
•
•
•
•
•
Junk and crackpots
Inappropriate content
Unfavorable reviews
Mutinous movements
Dependency on SN vendor
 Vulnerable to reliability and performance
 Vendor may own content
 Vendor may remove site
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Study Questions
Q1
Q2
Q3
Q4
Q5
Q6
Q7
Q8
How do companies use e-commerce?
What technology is needed for e-commerce?
How can information systems enhance supply chain
performance?
Why is Web 2.0 important to business?
How can organizations benefit from social networking?
How can organizations benefit from Twitter?
What are the benefits and risks of user generated content
(UGC)?
2020?
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2020?
• Expect that technology will enable voice and video
to be integrated into social networking.
• Speak your tweets and have a program translate
your voice message into text? Jott.com already
offers a limited version of that service.
• Tweet your video? 12Seconds.TV
• What will social networking do to management?
• What will microblogging do to employee evaluation
and compensation?
• What will happen to language? Writing skills?
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Ethics Guide: Hiding the Truth?
• Is it unethical to post a false picture or false information about
yourself on Facebook?
• Is it unethical for you to encourage your employees to write
positive reviews about MRV?
• One of those clients writes a poor review of your firm because
of a bad experience. Is it ethical for you to delete that review
from your site?
• You think you were wrongly terminated by MRV. To get even,
you use Facebook to spread rumors to your friends (many of
whom are river guides) about the safety of MRV trips. Are
your actions unethical? Are they illegal?
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Ethics Guide: Hiding the Truth?
• One employee invites his MySpace friends to a
party at which he shows photos of prior rafting
trips. On the way to the party, one of the friends
has an automobile accident and dies. His spouse
sues Majestic. Should you be held accountable?
Does it matter if you knew about the presentation?
Would it matter if you had not encouraged your
employees to be creative?
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Ethics Guide: Hiding the Truth?
• You create a Facebook account for someone
you’ve known for many years and have dozens of
photos of, some of which were taken at parties and
are unflattering and revealing. You post those
photos along with critical comments that she made
about clients or employees. Most of the comments
were made when she was tired or frustrated, and
they are hurtful, but because of her wit, also
humorous. You send friend invitations to people
whom she knows, many of whom are the target of
her biting and critical remarks. Are your actions
unethical?
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Guide: Blending the Personal and
the Professional
• Many businesses are beginning to use social networking
sites like Facebook, MySpace, and Twitter for professional
purposes.
• Every business social function is a business function, so even
sharing photos and pages of work softball team begins to blur
the personal–professional boundary.
• Our work is portable and always on—and judged by results,
not hours logged. In a work universe like that, the lines sort of
slowly and inevitably blur…
• You should be careful if you’re in the introductory months of a
new job.
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GUIDE: Interorganizational Information
Exchange
• Basic guidelines for participating in business meetings with
people in other firms:
 Apply stronger limits on your conversation than when you
meet with employees in your own firm
 Assume that whatever you say to an employee of another
company could be general knowledge in your industry the
next day
 Reveal exactly what you must and no more
 Have a clear and common understanding of the purpose
of the meeting
 Understand your organization’s policy concerning
nondisclosure agreements before the meeting starts
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GUIDE: Interorganizational Information
Exchange
 Stick to the purpose of the meeting. Avoid conversations
about your company or about third parties that do not
relate to the meeting topic.
 There is simply no reason, other than carelessness or
stupidity, to discuss topics with another company that do
not relate to the matter at hand.
 Don’t embarrass yourself or the employees of the other
company by discussing in a public place anything other
than the weather
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Active Review
Q1
Q2
Q3
Q4
Q5
Q6
Q7
Q8
How do companies use e-commerce?
What technology is needed for e-commerce?
How can information systems enhance supply chain
performance?
Why is Web 2.0 important to business?
How can organizations benefit from social networking?
How can organizations benefit from Twitter?
What are the benefits and risks of user generated content
(UGC)?
2020?
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
8-71
Case Study 8: You, Inc.
• Interorganizational information systems enable small
businesses to avoid time and expense of building
infrastructure, thus reducing capital requirements and
shortening time to market.
• People often pay more for new items on eBay than they
would pay if they shopped for bargains on Internet.
• There is often an inefficiency in flow of price information
among eBay users.
• Using the Internet, you find sources for motorcycle parts.
Sourcing is a typical supply-chain activity; and by using the
Internet, you have avoided hiring someone else to do this
work for you.
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Case Study 8: You, Inc.
• You search for sites that offer products you want, have free
shipping, and (if possible) you do not need to pay taxes.
• When you find an item offered at a bargain price, you set up
an auction for that item on eBay.
• You have not yet purchased the item; you just know where
you can buy it.
• Set a price and terms of auction so whatever price the item
sells, you will make some profit
• You download pictures of item from your vendor and copy
those photos into your auction.
• Your only financial exposure if the item does not sell is the
cost of the auction.
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Case Study 8: You, Inc.
•
•
•
•
The item sells.
You then buy it from the vendor.
Pay for it using PayPal or a credit card
Have vendor ship the item directly to your customer, a
process called drop shipping.
• If you pay with a credit card, it is possible you will receive
payment from your customer before you pay for the item you
sold.
• Because the item is new, and because you sell only highquality items, all service and support are handled by
manufacturer.
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Case Study 8: You, Inc.
Review This Scenario in Terms of Porter’s Value Chain Model
Primary value chain activities
•You did market research, but you outsourced all of the data-gathering
activities to eBay, PriceGrabber, and so on.
•Set up the auction on eBay, and thus outsourced the sales infrastructure
to eBay
•Did product-sourcing yourself with considerable help from the Internet
•Outsourced all inventory, operations, and shipping activities to vendor
•If customer pays before you pay your credit card, you can even earn
interest on customer’s money.
• Outsourced service and support to manufacturer
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Case Study 8: You, Inc.
Support activities
• Avoided building infrastructure, you have only one part-time
employee, yourself; you have no payroll or other
compensation needs.
• Want insurance? If you sell enough using eBay you can buy
life and medical insurance from eBay at attractive terms.
• Accounting: eBay, PayPal, credit card company, and vendor
do most of the work. All you do is maintain records to track
your income for tax reporting. You can even pay your taxes
online.
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permission of the publisher. Printed in the United States of America.
Copyright © 2011 Pearson Education, Inc.
Publishing as Prentice Hall
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