Chapter 1 - Overview of Electronic Commerce

Learning Objectives
Upon completion of this chapter, you will be able to:
1. Define electronic commerce (EC) and describe its various categories.
2. Describe and discuss the content and framework of EC.
3. Describe the major types of EC transactions.
4. Describe the drivers of EC.
5. Discuss the benefits of EC to individuals, organizations, and society.
6. Discuss social computing.
7. Describe social commerce and social software.
8. Understand the elements of the digital world.
9. Describe some EC business models.
10. List and describe the major limitations of EC.
Section 1.1 Review Questions
1. Define EC and e-business.
Electronic commerce (EC) refers to using the Internet and intranets to purchase, sell, transport,
or trade data, goods, or services.
E-business refers to a broader definition of EC, not just the buying and selling of goods and
services, but conducting all kinds of business online such as servicing customers, collaborating
with business partners, delivering e-learning, and conducting electronic transactions within an
organization.

2. Distinguish between pure and partial EC.

EC can be either pure or partial depending on the nature of its three major activities: ordering
and payments, order fulfillment, and delivery to customers.

3. Define click-and-mortar and brick-and-mortar organizations.

Purely physical organizations (companies) are referred to as brick-and-mortar.
Click-and-mortar (click-and-brick) organizations are those that conduct some EC activities,
usually as an additional marketing channel.

4. Define electronic markets.

An online location where buyers and sellers conduct commercial transaction such as selling
goods, services, or information.

5. Define intranets and extranets.

An intranet is a corporate or government internal network that uses Internet tools, such as
Web browsers and Internet protocols. Another computer environment is an extranet, a
network that uses Internet technology to link intranets of several organizations in a secure
manner
Case 1.1: Net-a-Porter: Dress for Success
Questions
1. Why would you buy (or not buy) from Net-a-Porter?

Student opinions will vary, but may slant to no based on the high prices.

2. Watch the video “The Future of Shopping” (youtube.com/watch?v=_Te-NCAC3a4). How

would you integrate this development with Net-a-Porter?

These ideas could be integrated to decrease customer unease about purchasing without
physically examining.

3. List both the advantages and disadvantages of the Net’s physical stores?

The store allows for physical inspection, but increases costs and complexity.

4. It is said that the Net is playing a significant role in transforming how designers reach
customers. Explain why.

Opinions will vary, but it could be argued that designers can now go directly to consumers,
instead of going through distributors first.

5. Read the benefits of EC to customers (Sect. 1.3). Which ones are most relevant here?

The primary drivers appear to be cost reduction, social interaction and unique items.

6. What EC capabilities are helping the Net and its designers?

They benefit from global reach, supply chain improvements and the ability to innovate.

7. Analyze the competition in the high-end fashion market.

Student reports will vary, but may show great diversity in business models based on target
markets.

8. What is the importance of globalization in this case?

The business is able to sell internationally because of the EC tools used.

9. Imitators are springing up on all sides. Even eBay and Amazon.com are expanding their
fashion e-tailing efforts. What strategy do you suggest for the Net?

Student opinions will vary, but suggestions may include focusing on higher-end markets
consistent with the current model.

Section 1.2 Review Questions

1. List the major components of the EC framework.
The framework includes people, public policy, marketing and advertisement, support services,
and business partnerships.

2. List the major transactional types of EC.

The major types are:
 Business-to-Business (B2B)
 Business-to-Consumer (B2C)
 Business-to-Business-to-
 Consumer (B2B2C)
 Consumer-to-Business (C2B)
 Intrabusiness EC
 Business-to-Employees (B2E)
 Consumer-to-Consumer (C2C)
 Collaborative Commerce
 E-Government

3. Describe the major landmarks in EC history.

Student answers will vary, but will include:
 1970 – electronic money transfer
 1969 – Internet
 1990’s – WWW & B2C
 2000’s B2B focus
 2005 – Social commerce

4. List some EC successes and failures.

Student answers will vary.

Section 1.3 Review Questions

1. List the major drivers of EC.

 Benefits to Consumers
 Benefits to Organizations and Vendors
 Benefits to Society
 Technological Developments
  Capabilities of EC
 Expansion to Service Industries and Global Reach
 Help by Governments
 Emergence of Social Business and Economy
 Competition, Business Environment
 Innovative Business Models

2. List five benefits each to customers, organizations, and society.

Benefits to Consumers
 Inventory
 Ubiquity
 Self configuration
 Find bargains
 Real time delivery

Benefits to Organizations
 Global reach
 Cost reduction
 Facilitate problem solving
 Supply chain improvements
 Business always open

Benefits to Society
 Enable telecommuting
 More public services
 Improved homeland security
 Increased standard of living
 Close the digital divide

3. From your knowledge describe some technological developments that facilitate EC.

Student examples will vary, but may include increased bandwidth, multimedia and mobile
devices.

4. Identify additional benefits to society.

Examples include increased telecommuting, additional services, increased security, and

increased standards of living.

Section 1.4 Review Questions

1. Define social computing and list its characteristics.

Social computing refers to a computing system that involves social interactions and behaviors.
2. Define Web 2.0 and list its attributes.

Web 2.0 is the second generation of Internet-based tools and services that enables users to easily
generate content, share media, and communicate and collaborate, in innovative ways.

3. Define social networks.

A popular definition is that social media involves user generated online text, image, audio, and video
content that are delivered via Web 2.0 platforms and tools.

4. Describe the capabilities of social network services (SNSs).

SNSs also provide basic support tools for conducting different activities and allow many vendors to
provide Apps. Social networks are people oriented. For example, a 15-year-old Filipino singer named
Pempengco and Justin Bieber were discovered on YouTube. Initially, social networks were used solely
for social activities.

5. Describe Facebook. Why is it so popular?

Provide and host a Web space for people to build their homepages for free. It also allows users to easily
communicate with their social networks.

6. What is an enterprise social network?

A Business-oriented social networks.

7. Define social commerce.

E-commerce activities that are conducted in social networks by using social software

Section 1.5 Review Questions

1. Define the digital revolution and list its components.

The digital revolution is upon us. We see it every day at home and work, in businesses, schools,
hospitals, on the roads, in entertainment, and even wars.

 economy
 enterprises
 society

2. List the characteristics of the digital economy.

• Many digitizable products – books, databases, magazines, information, electronic games, and software
– are delivered over a digital infrastructure anytime, anywhere in the world, interconnected by a global
grid (see Bisson et al. 2010). We are moving from analog to digital, even the media is going digital (TV as
of February 2009).
• Information is transformed into a commodity.
• Financial transactions are now digitized and chips are embedded in many products (e.g., cameras,
cars). Knowledge is codified.
• Work and business processes are organized in new and innovative ways.
• Disruptive innovation is occurring in many industries (see Manyika et al. 2014 and Daugherty 2014).

3. What is the social economy?

The social economy is the growth of economic importance of social networking and seocail
commerce applications.

4. Define a digital enterprise and relate it to social business.

It usually refers to an enterprise, such as Amazon.com, Google, Facebook, or Ticketmaster, which uses
computers and information systems to automate most of its business processes.

5. Describe the social enterprise.

An organization that has put in place the strategies, technologies and processes to systematically engage
all the individuals of its ecosystem (employees, customers, partners, suppliers) to maximize the co-
created value.

6. Compare traditional and digital enterprises.

The digital enterprise is a new business model that uses IT to gain competitive advantage by increasing
employee productivity, improving efficiency and effectiveness of business processes, and better
interactivity between vendors and customers.

7. Describe the digital society.

The final, and perhaps most important, element of the digital world is people and the way they work
and live. Clearly, the digital revolution has changed almost any activity one can think of – work, play,
shopping, entertainment, travel, medical care, education, and much more. Just think about your digital
phone, camera, TV, car, home, and almost anything else.

8. Describe how EC technologies can disrupt industries.

Student examples will vary.

9. Describe the social customer.

Social customers (sometimes called digital customers) are usually members of social networks who
share opinions about products, services, and vendors, do online social shopping, and understand their
rights and how to use the wisdom and power of social communities to their benefit.
Section 1.6 Review Questions
1. What is a business model? Describe its functions and properties.

A business model describes the manner in which business is done to generate revenue and create value.
Several different EC business models are possible, depending on the company, the industry, and so on.

2. Describe a revenue model and a value proposition. How are they related?

A revenue model specifies how the organization, or an EC project, will generate revenue. A value
proposition refers to the benefits, including the intangible ones that a company hopes to derive from
using its business model. In theory a business with a firm value proposition should be able to convert
that need into revenue.

3. Describe the following business models: direct marketing, tendering system, electronic exchanges,
viral marketing, and social networking/commerce.

Online direct marketing. The most obvious EC model is that of selling products or services online
Electronic tendering systems. Large organizational buyers usually make large-volume or large-value
purchases through a tendering (bidding) system
Electronic marketplaces and exchanges. If they are well organized and managed, e-marketplaces can
provide significant benefits to both buyers and sellers
Viral advertising and marketing - people use e-mail and social networks to spread word-of-mouth
advertising.
Social Networking/commerce – the ability to generate sales through word of mouth between individual
in connected social networks

4. Identify some business models related to buying and those related to selling.

Brokerage: Market makers that charges fee for their services.

Advertising: Websites that provide content and charge advertisers for related ads.
Infomediary: Provide information and/or infrastructure that help buyers and/or sellers and charge for
their services.
Merchant: Retailers (such as Walmart or Amazon): These buy the products and sell them at profit.
Direct model: Sell without intermediaries.
Affiliate: Paying website owners to place banners. Share fees received from advertisers.
Community: A social media-based model that utilizes Web 2.0 tools and social networks

5. Describe how viral marketing works.

People use e-mail and social networks to spread word-of-mouth advertising. It is basically Web-based
word-of-mouth advertising, and is popular in social networks.

Section 1.7 Review Questions

1. List the components of the business environment and the performance model and explain
the model.
Business Pressures
- are divided into the following categories: market (economic), societal, and technological.

Organizational Response Strategies

- many traditional strategies are still useful in today’s environment. However, because some traditional
response activities may not work in today’s turbulent and competitive business environment, some of
the old solutions may not work and need to be modified or supplemented. Alternatively, new responses
can be devised. Critical response activities can take place in some or all organizational processes, from
payroll processing to a merger

2. List the major factors in today’s business environment.

Market and economic pressures

 Intense global competition
 Global economy and markets
 Regional trade agreements (e.g., NAFTA)
 Extremely low labor costs in some countries
 Regular and important changes in markets
 Increased power of consumers
 Political and government
 Interventions in markets

Societal pressures
 The nature (and composition) of the workforce is changing
 Government deregulation, leading to more competition
 Compliance with regulations is needed (e.g., Sarbanes-Oxley Act)
 Shrinking government subsidies
 Politics drives government regulations
 Increased importance of ethical and legal issues
 Increased social responsibility of organizations
 Rapid political changes
 Terrorism is on the rise

Technological pressures
 Increasing innovations and new technologies
 Rapid technological obsolescence
 Increases in information overload
 Rapid decline in technology cost versus labor cost (technology becomes more and more
attractive)

3. List some of the major response activities taken by organizations.

 Strategic systems
 Agile systems
 Continuous improvements and business process management
 Customer relationship management
  Business alliances and partner relationship management (PRM)
 Electronic markets
 Cycle time reduction
 Empowering employees, especially on the front line (interacting with customers, partners)
 Mass customization in a buildto-order system
 Intrabusiness use of automation
 Knowledge management
 Customer selection, loyalty, and service
 Human capital
 Quality of products and services
 Financial performance
 Research and development
 Social networking

4. List and briefly discuss five capabilities of EC.

• Provide efficient and effective business transactions.

• Provide global reach for selling, buying, or finding business partners.
• Conduct business anytime, from anywhere, in a convenient way. For example, there were more than
300 million wireless subscribers in the U.S. and over 600 million in China in 2013 (see Peterson 2014).
• Disseminate information rapidly, frequently in real time.
• Enable price comparisons.

Discussion Questions
1. Compare brick-and-mortar and click-and-mortar organizations.

The primary difference is if in addition to a physical location, they also have an online EC
presence (click-and-mortar).

2. Why is buying with a smart card from a vending machine considered EC?
It is using web-based technologies to manage the information and value on the card.

3. Explain how EC can reduce cycle time, improve employees’ empowerment, and facilitate
customer service.

EC allows for the use of more efficient, integrated systems that can speed business processes,
reduce employee processing and provide better and quicker access to customer information.

4. Compare and contrast viral marketing with affiliate marketing.

Viral marketing is spread social by users without cost whereas affiliate marketing is spread by
partners for a fee.

5. Identify the contribution of Web 2.0. What does it add to EC?

Web 2.0 adds social components to EC which provides a richer experience to customers in the
form or referrals, reviews and product evaluations.

6. Discuss the reasons companies embark on social commerce.

Most companies use social commerce to help access customers in a virtual space that they are
comfortable in.

7. Distinguish an enterprise social network from a public one such as Facebook.

An enterprise social network is closed and only available to select users, while other systems
(like Facebook) are open to the public.

8. Carefully examine the non-technological limitations of EC. Which are company-dependent

and which are generic?

Of the listed factors in Table 1.7, only “resistance to change,” “difficulty in measuring impact, “
and lack of customer/supply chain issues” are company specific.

10. Relate the social customer to social business.

The social customer uses social networks for a variety of reasons, and the social business
understands and participates in social networking to grow sales.

Topics for Class Discussion and Debates

1. How can EC be both a business pressure and an organizational response to other business
pressures?

Student perceptions and opinions will vary.

2. Debate: Does digital business eliminate the “human touch” in trading? And if “yes,” is it
really bad?

Student opinions and debate positions will vary.

3. Why do companies frequently change their business models? What are the advantages?
The disadvantages?

Student perceptions and opinions will vary.

4. Debate: EC eliminates more jobs than it creates. Should we restrict its use and growth?

Student opinions and debate positions will vary.

5. Debate: Will online fashion hurt traditional fashion retailers?

Student opinions and debate positions will vary.

6. Search for information on the enterprise of the future. Start with ibm.com.In one or two
pages, summarize how the enterprise of the future differs from today’s enterprise.

Student reports will differ.

7. Investigate why the one day sales of Single Day in China generated more than twice the
money generated on Cyber Monday in the U.S. (see Wang and Pfanner 2013).

Student reports will differ.

8. Discuss the impacts of EC on the fashion industry.

Student opinions and debate positions will vary.

9. Visit packdog.com and entirelypets.com/dogtoys.html. Compare the two sites and relate
their contents to the digital society.
Student reports will differ.

Internet Exercises
1. Enter exitingcommerce.com and find recent information about emerging EC models and
the future of the filed.

Student reports will vary.

2. Visit amazon.com and locate recent information in the following areas:

(a) Find the five top-selling books on EC.
(b) Find a review of one of these books.
(c) Review the personalized services you can get from Amazon.com and describe the benefits
you receive from shopping there.
(d) Review the products directory.

Student answers will vary.

3. Visit priceline.com and zappos.com and identify the various business revenue models used
by both. Discuss their advantages.
Student answers will vary.

4. Go to nike.com and design your own shoes. Next, visit office.microsoft.com and create
your own business card. Finally, enter jaguar.com and configure the car of your dreams. What
are the advantages of each activity? The disadvantages?

Student answers will vary.

5. Try to save on your next purchase. Visit pricegrabber.com, yub.com, and buyerzone.com.
Which site do you prefer? Why?

Student perceptions and opinions will vary.

6. Enter espn.go.com, 123greetings.com, and facebook.com and identify and list all the
revenue sources on each of the companies’ sites.

Student answers will vary.

7. Enter philatino.com, stampauctioncentral.com, and statusint.com. Identify the business

model(s) and revenue models they use. What are the benefits to sellers? To buyers?

Student answers will vary.

8. Go to zipcar.com . What can this site help you do?

Student perceptions will differ.

9. Enter digitalenterprise.org. Prepare a report regarding the latest EC models and

developments.

Student answers will vary.

10. Visit some websites that offer employment opportunities in EC (such as execunet.com and
monster.com). Compare the EC salaries to salaries offered to accountants. For other
information on EC salaries, check Computerworld’s annual salary survey, unixl.com, and
salary.com.

Student reports will differ.

11. Visit bluenile.com, diamond.com, and jewelryexchange.com. Compare the sites.

Comment on the similarities and the differences.

Student answers will vary.

12. Visit ticketmaster.com, ticketonline.com, and other sites that sell event tickets online.
Assess the competition in online ticket sales. What services do the different sites provide? 14.
Enter the Timberland Company (timberland.com) and design a pair of boots. Compare it to
building your own sneakers at nike.com. Compare these sites to zappos.com/shoes.

Student reports will differ.

13. Enter the Timberland Company (timberland.com) and design a pair of boots. Compare
it to building your own sneakers at nike.com. Compare these sites to zappos.com/shoes.

Student reports will differ.

14. Examine two or three of the following sites: prosper.com, paperbackswap.com,

bigvine.net, etc. Compare their business and revenue models.

Student reports will differ.

Team Assignments and Projects

1. Read the opening case and answer the following questions:
(a) In what ways you think Starbucks increases its brand recognition with its EC initiatives?

Student perceptions and opinions will vary, but it appears that the company has been very
active providing a variety of EC solutions in an attempt to provide customer convenience and
increase sales.

(b) Some criticize My Starbucks Idea as an ineffective “show off.” Find information about the
pros and cons of the program. (See Starbucks Ideas in Action Blog).

Student searches and subsequent opinions will vary. It does appear that the program did
produce ideas that were implemented.

(c) Starbucks initiates discussions on Facebook about non-business topics such as the
marriage equality bill, Why?

The company is probably trying to establish its brand and market position socially.

(d) How customers are being kept involved and engaged in the various EC initiatives.

Many of the initiatives appear to be active and provide customers with activities and reminders.

(e) Starbucks believes that its digital and social initiatives are “highly innovative and cause
dramatic changes in consumer behavior.” Discuss.
Student perceptions will vary, but some may think that by keeping the company in-mind (even
if activities are not related to product), that they form a tighter bond with customers.

(f) View the video available at Stelzner (2010), (8 minutes) and answer the following:
1. How does Starbucks uses video marketing in social media?
2. How does the company listen to their customers?
3. What are some tips for success and for things to avoid?
4. Enter facebook.com/starbucsk. Summarize your impressions with the site.

Student opinions will vary.

2. Each team will research two EC success stories. Members of the group should examine
companies that operate solely online and some that extensively utilize a click-and-mortar
strategy. Each team should identify the critical success factors for their companies and
present a report to the other teams.

Team projects and reports will differ.

3. Watch the video Part 1-E-Commerce (8 minutes) at youtube.com/watch?v=OY2tcQ574Ew.

(a) Update all the data shown in the video.
(b) What fundamental change is introduced by EC?
(c) What is the first mover advantage discussed in the video?
(d) Amazon.com and other companies that lost money during the time the video was made
are making lots of money today; find out why.
(e) Identify all the EC business models discussed in the video.
(f) How can one conduct an EC business from home?
(g) EC is considered a disruptor. In what ways?

Team projects and reports will differ.

4. Conduct a search on ‘social business.’ Start at eweek.com. Divide the work between
several teams, each team covers one topic and each team writes a report.

Team projects and reports will differ.

5. Research the status of self-driven cars. Start by reading Neil (2012). Outline the pro and
con points. Why this is considered an EC. Make a presentation.

Team projects and reports will differ.

6. Find the recent report on ‘HBR/McKiney M-Prize for Management Innovation at mixprize.
org/m-prize/innovating-innovation. Identify the e-commerce cases among the 20 finalists.
What is unique in each case?
Team projects and reports will differ.

7. Compare Net-a-Porter with Myhabit from Amazon, and boutiques from Google and other
sites that discount designer items. Also, see what Groupon offers in this area. Analyze the
competitive advantage of each. Write a report.

Team projects and reports will differ.

8. Compare ride sharing companies (e.g., Uber) to ZABCAB.

Team projects and reports will differ.

Closing Case: E-Commerce at the National Football League (NFL)

Questions
1. Identify all applications related to B2C in online stores.

The case mentions B2C sales, as well as C2C sales (tickets) social networking (Facebook) and
mobile apps.

2. Identify all B2C applications inside the stadium.

Inside the stadium wireless access is provided to assist with B2C sales.

3. Identify all B2E applications inside the stadium.

Systems are available to provide information to coaches and staff.

4. Relate online game playing to EC in NFL.

Online games help to re-inforce the NFL’s position and creates positive associates for later
sales.

5. Compare the NFL information available on Facebook and on Twitter.

Results will vary based on the time of search.

6. Find additional NFL-related applications not cited in this case.

Student search results will vary.

7. Enter ignify.com/Atlanta_Falcons_eCommerce_Case_Study.html. Read the case“Atlanta
Falcons E-Commerce Case Study,” then go to the Falcons’ online store and describe all major
EC models that are used there.

Reports will differ.