Electronic Commerce

E-commerce Benefits and Challenges

For the Consumer –

• Quicker access to goods and services (and info about goods and services)

• Reduced traveling to stores

• Potential access to products anywhere in the world

• Improved government services through e-government

For Businesses -

• Access to larger customer base

• New distribution and sales channels

• Reduced sales expenses (commissions, paper processing)

• Creation of sustainable niche markets

• 24X7 Business hours

• Creation of consumer communities

• New sales channels such as virtual auctions

Challenges for Businesses

• Access to your geography by distant competitors
• Intense price competition (“bots”)
• Potential loss of market segments (professors and bookstores)

Business Models

Porter’s Value Chain

Raw materials -> inbound logistics -> production -> outbound logistics -> sales

Supply chain

Supplier -> supplier -> supplier -> production

Example: Ford Motor and three tier suppliers

Demand chain

Production – wholesaler – retailer – customer

Example: Book publishing

E-commerce/IT impact on the value chain

• Disintermediation eliminates middlemen via e-commerce (e.g. Amazon.com)
• Virtual organization allows companies to outsource much of the value chain but keep control via information sharing and contractual agreements (e.g. Oshkosh B’Gosh)
• Reintermediation lets new businesses reach customers via alternative product access (e.g. expedia, mortgages.com, e-bay)

New Business Models

• Horizontal Portals create access to a variety of goods and services (e.g. Yahoo and AOL)
• Vertical portals aggregate related businesses online to reach customers in a related business (e.g. intuit.com and its financial offerings)
• e-markets can be public auctions or membership-only exchanges (e.g. ebay or Automotive Network Exchange)
• Infomediaries produce online information, either for sale or for advertising revenue or for a sales commission (e.g. Carfax)

Where’s the money?

• Digital Products – product can be bought and delivered online. Hotel reservations, plane reservations. Current profit – 70% margins
• Tangible Products – product can be bought online, but must be shipped. Books, meat, sweaters. Current profit – 26% margins

Technical Models of E-commerce

1. Text-only – “brochureware”

Simple presentation of sales information – product catalogs

Example application – Real estate listings

Technical requirements – hypertext links between documents (“pages”), web server with enough memory for the “pages” being stored and accessed

2. Interactive sites

Items are not only displayed, but sales are possible

Example application – amazon.com, Dell computer

Technical requirements – link from web server to product database and customer database, credit check, inventory and shipping systems

Example: Dell Computer – In order to successfully build-to-order, a web order needs to go to

· Accounting – credit card verification

· Production – assigned to worker pod and tracked

· Inventory – J.I.T systems plus inventory controls

· Supply chain – co-vendors like HP printers, and suppliers like Intel need consumption data

· Shipping – UPS and FedEx systems handoff required

· Marketing – record of customer purchase and configuration

3. Personalized site

Appearance of the site is customized based on past behaviors and practices

Example: MyYahoo

Technical requirements – cookies, multiple page formats, behavioral tracking

External Requirements (national and international):

• Electronic payment systems – bank support

• Internet access

• Logistics

• Legal supports for business – contract laws

• Sufficient income

• Appropriate buying habits and attitudes

• Honest government

Means of Security

• Encryption
• Authenticating agents – ITU – Africa project
• Internet Secure Socket layer
• Online testimonials
• Credit card laws