Chapter 1

1 Introduction to
Electronic Commerce

Electronic Commerce 1
 Objectives
 Differences between e-commerce and
traditional commerce
 Advantages and disadvantages of

1 
using e-commerce to conduct business
International nature of e-commerce
 Fostering of e-commerce through
economic forces
 Utilizing value chains

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 What is Electronic Commerce?

 Also known as “e-commerce”

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 More than on-line shopping
 Encompasses other business activities
 Used interchangeably with “Electronic
Business”

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 EFT and EDI

 Electronic Funds Transfers (EFT)

 Used by the banking industry to exchange

1 
account information over secured
networks
Electronic Data Interchange (EDI)
 Used by businesses to transmit data from
one business to another

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 Traditional Commerce

 The exchange of valuable objects or

services between at least two parties

1  Includes all activities that each party

undertakes to complete the transaction
 Barter system eventually gave way to
the use of currency

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 The Buyer
Figure 1-1

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 The Seller
Figure 1-2

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 Activities as Business Processes

 The activities in which businesses

engage as they conduct commerce are
often referred to as Business
1 Processes.
 Transferring funds
 Placing orders
 Sending invoices
 Shipping goods to customers

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 Traditional vs. Electronic Commerce
Figure 1-3

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 Business Processes Suitability
Figure 1-4

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 Advantages of Electronic
Commerce

 Increased sales
 Reach narrow market segments in

1
geographically dispersed locations
 Create virtual communities

 Decreased costs
 Handling of sales inquiries
 Providing price quotes
 Determining product availability

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 Disadvantages of Electronic
Commerce

 Loss of ability to inspect products from

remote locations

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 Rapid developing pace of underlying
technologies
 Difficult to calculate return on
investment
 Cultural and legal impediments

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 International Electronic Commerce

 Language barriers must be overcome

 Political structures

1
 Currency conversion
 Tariffs and import/export restrictions

 Legal, tax, and privacy concerns

 Who has jurisdiction to levy taxes?
 How is personal information handled?

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 The Internet and World Wide Web

 The Internet is a large system of

interconnected networks that spans the

1 
globe
The World Wide Web (WWW) is part of
the Internet and allows users to share
information with an easy-to-use
interface

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 Origins of the Internet

 Developed by the U.S. Department of

Defense in the early 1960s

1
 The world’s telephone companies were
early models for networked computers
 Researchers at universities were
connected in 1969

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 New Uses for the Internet

 E-mail
 The ability to send messages to one or many
across the Internet

1  File Transfer Protocol (FTP)

 The ability to transfer data files from one
computer to another
 Telnet
 The ability to remotely logon to another computer

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 New Uses for the Internet
 World Wide Web (WWW)
 The ability to access information using a common
interface
 Videoconferencing

1 
 The ability to use video across the Internet for
conferencing purposes
Multimedia
 The ability to use video, audio, and animations
across the Internet

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 Commercial Use of the Internet

 During the 1980s, the National Science

Foundation prohibited commercial
network traffic on its networks
1  In 1989, the NSF permitted MCI Mail
and CompuServe to establish limited
connections to the Internet
 By 1990, over 300,000 computers were
connected to the Internet
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 Growth of the Internet and the Web
Figure 1-5

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 Hypertext Markup Language
(HTML)

 A language that uses codes attached to

text

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 <img src=“photo.jpg”>
 <a href=“mailto:abc@aol.com”>mail</a>

 Hypertext links, or hyperlinks, allow the

user to move from one HTML
document to another on a different
computer

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 Growth of the World Wide Web
Figure 1-6

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 Economic Forces and
Electronic Commerce

 Transaction Costs
 The total of all costs that the buyer and

1
seller incur as they gather information and
negotiate a purchase-sale transaction
 The “Market”
 Potential sellers must come in contact with
potential buyers
 A medium of exchange must be available

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 Transaction Costs

 Brokerage fees
 Sales Commissions

1 

Information search and acquisition
Investment in equipment
 Hiring of skilled employees

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 Markets and Hierarchies
Figure 1-7

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 Markets and Hierarchies
Figure 1-8

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 Role of Electronic Commerce

 Reduces transaction costs

 Improves information flow

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 Increases coordination of actions

 Improvement of existing markets

 Creation of new markets

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 Network Form of Economic Organization
Figure 1-9

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 Value Chains in
Electronic Commerce

Defined as the way of organizing the

activities undertaken to design,

1 produce, promote, market, deliver,

and support the products or services
a business sells.

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 Strategic Business Unit Value Chains
Figure 1-10

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 Value Chain Primary Activities

 Identify customers
 Market research, customer satisfaction

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surveys
 Design
 Concept research, engineering, test
marketing
 Purchase materials and supplies
 Vendor selection, quality and timeliness of
delivery
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 Value Chain Primary Activities

 Manufacture
 Fabrication, assembly, testing, packaging

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 Market and sell
 Advertising, promotion, pricing, monitoring
sales and distribution channels
 Deliver
 Warehousing, materials handling,
monitoring timeliness of delivery

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 Value Chain Primary Activities

 Provide after-sale service and support

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 Installation, testing, maintenance, repair,
warranty replacement, replacement parts

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 Value Chain Support Activities
 Finance and administration
 Accounting, bill payment, borrowing, regulations, compliance with
laws
 Human resources

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 Recruiting, hiring, training, compensation, benefits
 Developing technology
 Research, development, improvement studies, maintenance
procedures

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 Industry Value Chains
Figure 1-11

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 Role of Electronic Commerce

 Reducing costs

1
 Improving product quality
 Reaching new customers or suppliers
 Creating new ways of selling existing
products

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