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CHAPTER 5




ELECTRONIC COMMERCE

Strategies for the New Economy


THE CHAPTER IN SHORT FORM

The chapter documents the growth of global e-commerce, the overriding importance of B2C and B2B e-commerce, and concludes with a short description of e-government and e-commerce payment systems.

After a brief introduction, and description of the four main perspectives of e-commerce (B2C, B2B, C2B, and C2C), the chapter discusses the phenomenal growth and growth projections for e-commerce including such topics as:


  • E-commerce is still commerce (key term – e-commerce)

  • The uneven growth of e-commerce (key terms – digital divide and global digital divide)

The next two sections focus on B2C e-commerce, since this is the segment of e-commerce your students will be most familiar with. The first of these two sections focuses on the principal advantages of B2C e-commerce over traditional retailing. The second section describes the keys to success in B2C e-commerce and details the lessons learned from the initial entrepreneurial forays into B2C e-commerce. The two sections include such key terms as e-tailer, pure-plays, clicks-and-mortar, m-commerce, micro-payments, viral marketing, spam, affiliate programs, click-throughs, and conversion rate.

B2B e-commerce is covered in the next section. It differentiates B2B from B2C by noting that B2B is by far the larger of the two in dollar volume, and that relationships tend to be more important in the B2B space. Focusing on procurement as the most important segment of B2B e-commerce, traditional EDI is discussed first, followed by emerging alternatives and the role of intranets and extranets. The section includes such key terms as intermediaries, complementors, value network, direct materials, indirect materials, electronic data interchange, XML, ebXML, Web services, B2B marketplaces, reverse auction, and customer relationship management (CRM) systems.

The last two sections contain brief discussions of two important aspects of e-commerce: e-government and e-commerce payment systems. They include such key terms as Financial EDI (FEDI), smart cards, and financial cybermediaries.
STUDENT LEARNING OUTCOMES


  1. Describe the four main perspectives of e-commerce, its current status, and the global growth expected to occur in the next few years.

  2. Identify the advantages of business to consumer (B2C) e-commerce

  3. Describe the techniques that lead to success in B2C e-commerce.

  4. Describe the variety of ways that business to business (B2B) e-commerce technologies are being used, and describe next-generation models which may widen the adoption of B2B e-commerce.

  5. Identify the unique aspects of e-government applications.

  6. Describe the status and options for e-commerce payment systems.

LECTURE OUTLINE
INTRODUCTION (p. 178)
THE GROWTH OF E-COMMERCE (p. 178)

  1. Global E-commerce Growth Projections

  2. The Digital Divide


THE ADVANTAGES OF BUSINESS TO CONSUMER E-COMMERCE (p. 180)

  1. Shopping can be faster and More Convenient

  2. Offerings and Prices can Change Instantaneously

  3. Call Centres can be Integrated with the Web Site

  4. Broadband Telecommunications will Enhance the Buying Experience


KEYS TO SUCCESS IN BUSINESS TO CONSUMER E-COMMERCE (p. 185)
  1. Commoditylike Items Work Best


  2. Digital Products are the Best of All

  3. Attracting and Retaining Customers

  4. Remember the Importance of Merchandising

  5. You Must Execute Well

  6. Watch the Competition


BUSINESS TO BUSINESS E-COMMERCE (p. 193)

  1. Value Networks

  2. Corporate Purchasing Segments

  3. Next-Generation Solutions: XML and Web Services

  4. B2B Marketplaces

  5. Intranets and Extranets


THE ROLE OF E-GOVERNMENT (p. 202)
E-COMMERCE PAYMENT SYSTEMS (p. 203)

1. Credit Cards and Smart Cards

2. Financial Cybermediaries

3. Electronic Bill presentment and Payment


END OF CHAPTER (p. 205)

  1. Summary: Student Learning Outcomes Revisited

  2. Closing Case Study One

  3. Closing Case Study Two

  4. Key Terms and Concepts

  5. Short-Answer Questions

  6. Assignments and Exercises

  7. Discussion Questions

  8. Real HOT Electronic Commerce


KEY TERMS AND CONCEPTS


KEY TERMS AND CONCEPTS

TEXT PAGE

Affiliate program

190

B2B marketplace

200

Clicks-and-mortar


181

Click-throughs

190

Complementor

194

Conversion rate

191

Customer relationship management (CRM) system

202

Demand aggregation

179

Digital divide

180

Direct material

195

EbXML

198

E-commerce

178

E-government

202

Electronic Data Interchange (EDI)

195

Electronic Bill Presentment and Payment (EBPP)

205

E-tailer

181

Financial cybermediary


204

Financial EDI (FEDI)

203

Global digital divide

180

Indirect material

195

Interactive chat

184

Intermediary

195

Internet telephony

184

Intranet

201

Marketing mix

187

M-commerce

181

Meta tag

189

Micro-payment

187

Pure play

181

Reverse auction

200

Smart card


204

Spam

189

Value network

194

Viral marketing

189

Virtual private network

197

Web services

199

XML (eXtensible Markup Language)

198





OPENING CASE STUDY

Sodas and Snack Food on the Web
The opening case study is one that discusses how Pepsico uses the Web to reach its target market, consumers under 25 years of age.
Your students may not think of sodas and snack foods as items that Pepsico would spend significant amounts of money for Web advertising and promotion, but this case shows that the opposite is true. Pepsico knows that young people spend lots of time on the Web and therefore, the Web is a good place for Pepsico to open up another channel of communication with a key target market. Obviously, if they are going to reach this age group, the content has to be engaging, so Pepsico has spent a considerable amount of effort in devising content that will be interesting, such as “Pepsi Stuff”, recipes, and “ePloids”, an online auction for younger kids.
Key Points:
  • Pepsi is putting advertising dollars into the Web because it knows that’s where its current and future


customers will increasingly be found.

  • Pepsi’s reciprocal deal with Yahoo! is a variant form of affiliate advertising.

  • Pepsi fully expects that the effectiveness of Web advertising will increase in the coming years.


SUPPORT
Extended Learning Modules


  • XLM/E – this is a great module to cover (or review if already covered) if your students need an introduction to the World Wide Web and Internet.

  • XLM/D – cover this module if your students have not had much exposure to networks.

Skills Modules (CD-ROM)

  • Skills Module 3 – include coverage of this module if your students need experience in building a Web page.

  • Skills Module 4 – this module shows your students how to describe their professional capabilities on the Web.


Real HOT Group Projects (CD-ROM)
4: Advertising with Banner Ads – use spreadsheet software to evaluate Web site traffic.

D: Demonstrating How to Build Web Sites – use presentation software to illustrate how to build a Web site using HTML and good design guidelines.



E: E-Classified@GabbyGazzetteer.com – design and implement a database to support an online auction.
Web Support (www.mcgrawhill.ca/college/haag)

  • Competitive intelligence

  • Storefront software

  • Hosting services

  • Marketing the site

  • B2B marketplaces


INTRODUCTION

Your students will intuitively know that e-commerce is a better way to do business. You will not have to convince them that the Web is a valuable resource. On the other hand, they may be troubled by press reports of dot-coms going belly-up. Explain that many informed observers anticipated the dot-com shakeout.

Key Points:


  • The Economist had a cover story in 1999 discussing the dot-com “bubble”.

  • It was common to hear that there would be many losers and few winners in e-commerce. The reason for this is that entry barriers were quite low, there was ample venture capital money available (even for bad ideas) and that the word about which company had the best business proposition would spread very quickly because of the ease with which information can be shared on the Internet.

  • For example, while there are well over 1000 booksellers on the Internet, most people have only heard of Amazon.com and Barnes and Noble.




Concept Reinforcement: Adding Value – Class Participation

  • This would be a good place to emphasize that what we have seen thus far, particularly in the B2C space, has been a period of creative experimentation with the new media. We have learned much about what works and what does not. We are truly just at “the end of the beginning”.

  • Ask your students to give examples of dot-coms they are familiar with that had flawed concepts. Ask them to think of reasons why companies like Amazon.com emerged as big winners.





THE GROWTH OF E-COMMERCE
This section defines e-commerce (see key term below) and puts it into perspective. It also covers common growth projections and the concept of the digital divide.
Key Points:
  • E-commerce is still commerce, companies and people buying and doing business with each other.


  • The technology behind e-commerce enables powerful new relationships to be formed between organizations, between people, and between people and organizations.

  • Most e-commerce will be B2B because that is where most of the money is spent.



Key Term: E-commerce - commerce, but it is commerce accelerated and enhanced by IT, in particular the Internet.
Key Term: Demand aggregation - combines purchase requests from multiple buyers into a single large order, which justifies a discount from the business.


Concept Reinforcement: Adding Value – Class Participation

  • Figure 5.1 (page 178) can be used to help put e-commerce in perspective, since many students will naturally think e-commerce is B2C, and perhaps C2C, and overlook the B2B and C2B sectors.

  • Ask your students to give examples of e-commerce relationships in each of the four quadrants of Figure 5.1 beyond those mentioned in the chapter.

  • Discuss the notion of demand aggregation a bit. Ask your student for examples around them where the concept could be applied. Could it ever work for students applying for admission to a private college, for example, or at a store near campus?


Global E-Commerce Growth Projections (p. 179)
Key Points:

  • Internet usage continues to grow worldwide. Table 5.1 (page 179) shows estimates of global Internet users as of February 2002.
  • If you or some of your more advanced students are interested in another, more rigourous estimate, please see www.dtc.umn.edu/~odlyzko/doc/oft.internet.growth.pdf. In this paper, K. G. Coffman and A. M. Odlyzko forecast that Internet traffic will double each year until the end of this decade (and the current telecom capacity glut will finally disappear).


  • Estimates of e-commerce growth vary widely, but all forecasters predict robust growth.

  • Most e-commerce will be B2B because that is where most of the money is spent.




Concept Reinforcement: Adding Value – Class Participation

  • Ask your students to check the NUA Web site (www.nua.com) for a current estimate of worldwide Internet users.

  • Ask your students to reflect on the effect that other access devices such as cell phones, PDAs and wireless networks (for laptops and PCs) is likely to have on Internet users worldwide.



The Digital Divide (p. 180)

Key Points:

  • Internet usage varies widely between regions of the world.

  • Internet usage can also vary widely between different regions of the same country, state or city.

  • The so-called “digital divide” should be closed so that consumers and organizations in all countries, developed and lesser-developed, can participate in global e-commerce.


Key Term: Digital divide – different peoples, cultures, and areas of the world or within a nation do not have the same access to information and telecommunication technologies.
Key Term: Global digital divide – specifically describes the differences in IT access and capabilities between different countries or regions of the world


Concept Reinforcement: Adding Value – Class Participation
  • Ask your students if they agree that it is important to bring the benefits of e-commerce to all countries and not just the wealthy ones.


  • Discuss the benefits to all countries if e-commerce can be ubiquitous (e.g. worldwide trade will become more seamless and frictionless, lives of citizens in lesser developed countries will be improved, etc.).

  • Ask whose task it is to close the digital divide. You may want to refer back to the initiatives made by the government of Singapore in the Global Perspective in Chapter 2.

  • Have them suggest efforts that should be made by governments, managers, and schools in lesser-developed countries.

  • Ask them to consider what companies, organizations, and individuals in the developed world could do.

  • Make sure they understand both the importance of the issue as well as the enormity of the task.





THE ADVANTAGES OF BUSINESS TO CONSUMER E-COMMERCE
This section builds on the concepts of mass customization and personalization, disintermediation, and global reach introduced previously as advantages of e-commerce. Noting that B2C e-commerce is still very small in scale compared to traditional catalogue and bricks-and-mortar retailing, it has at least four inherent advantages as a new and powerful channel to reach retail customers.
Shopping Can Be Faster and More Convenient (p. 180-183)

Key Points:

  • Internet shopping can be done from the comfort of one’s home, 24 hours a day, seven days a week.

  • A click of the mouse will get you from one online store to another.


  • Online product and price comparison sites such as MySimon (www.mysimon.com) are available and, with m-commerce technologies, permit such comparisons while shopping at traditional stores.


  • M-commerce will lead to an environment where buying and selling can be done anywhere.


Key Term: E-tailer - describes an Internet retail site.
Key Term: Pure plays - Internet retailers such as Amazon.com that have no physical stores.
Key Term: Clicks-and-mortar - retailers (also called bricks-and-clicks) like Nordstrom, which has both an Internet presence and one or more physical stores.
Key Term: M-commerce - describes e-commerce conducted over a wireless device such as a cell phone or personal digital assistant (PDA).









Offerings and Prices Can Change Instantaneously (p. 183)

Key Points:

  • The ability to change prices instantaneously based on the way sales are going in comparison to expectations, or based on other factors such as a change in suppliers’ pricing, is a tremendous advantage for e-tailers.

  • Catalogue retailers have to print and mail new catalogues to reflect price changes.

  • Bricks-and-mortar retailers have to re-mark merchandise, change in-store signage, and perhaps run ads in traditional media such as newspapers and television.




Concept Reinforcement: Global Perspective – If I Want Your Advice I’ll Ask for It (p. 182)
  • Not exactly m-commerce in the sense of buying and selling, but a somewhat unique example of enlisting the collective intelligence of a community of interest in a manner similar to the Ace Hardware example previously discussed.


  • Ask your students to offer other examples of harnessing the power of the network to focus on problems and issues.

  • Some examples that might be cited include the reviews that customers who have purchased a product might write on sites such as www.amazon.com or www.ebags.com.

  • Another, less flattering, example is a site like www.untied.com which chronicles reports from disgruntled passengers and employees of United Airlines.

  • Conclude by reminding students of the shift in power from company to customer made possible in the world of e-commerce.


Call Centres Can Be Integrated with the Web Site (p. 184)

Key Points:

  • Call centres integrated with Web sites are becoming more common and give an added dimension to online shoppers.

  • They permit customers to make contact with a human being if they need additional information or assistance in making a purchase decision.

  • Speech recognition systems are on the horizon and may provide the opportunity for companies to offer similar services at lower cost.


Key Term: Interactive chat - lets you engage in real-time typed exchange of information between you and one or more other individuals over the Internet.
Key Term: Internet telephony - a combination of hardware and software that uses the Internet as the medium for transmission of telephone calls in place of traditional telephone networks.


Concept Reinforcement: On Your Own: B2C Services (p.183)
  • The purpose of this exercise is to make your students well aware that B2C e-commerce consists of services and not just products.


  • While many services are free, there are others that consumers have to pay for.

  • You might challenge students to see if they can find unusual or unexpected services offered on the Web.



Broadband Telecommunications Will Enhance the Buying Experience (p. 184-185)

Key Points:

  • Broadband services in the U.S. had been expected to be in widespread use long before this. In other countries, notably Korea and Canada, broadband usage is well ahead of that in the U.S. Japan, which had been well behind the U.S. in the adoption of broadband, will soon be ahead.

  • According to a recent Forbes Magazine article (www.forbes.com/forbes/2002/1111/106.html), the main reason for the slow rate of adoption in the U.S. is price.

  • Widespread adoption will come in due course, however, and when it does, the e-commerce buying experience will be enhanced in many of the ways mentioned in the text.

  • In addition, no doubt new applications using broadband will appear that will have great consumer appeal. These could be opportunities waiting for your students.



Concept Reinforcement: Team Work – Broadband Services: Where Do You Place Your Bets? (p. 184)


  • The purpose of this exercise is to demonstrate that, although broadband services are surely coming, it is not yet clear which technology, if any, will emerge as dominant.

  • Make sure they understand the advantages and disadvantages of each broadband technology before they start. They are described in module C.

  • Divide the class into teams and let them discuss how they want to allocate their $10 million between the competing technologies. While they are doing this, ask them to pick a name for their team and draw a chart on the board with the teams as the rows and the technologies as the columns.


  • After about twenty minutes of discussion, reconvene the class and record each team’s allocation on the chart. After all teams have reported, look for the differences that will almost surely occur, and ask teams to explain their reasoning.

  • The resultant discussion should bring out the advantages and disadvantages of the competing broadband solutions. It also usually results in a conclusion that it is not yet clear which technology will dominate and it is probably better for them to hedge their bets by adopting a portfolio approach.





KEYS TO SUCCESS IN BUSINESS TO CONSUMER E-COMMERCE
While there have been many spectacular and well-publicized failures in the B2C e-commerce space, there have been (and will continue to be) many successes as well. This section sets out six important lessons learned from the initial forays into B2C e-commerce, that, if heeded by your students, will increase their chances of success.

Commoditylike Items Work Best (p. 186)

Key Points:

  • While people are buying all sorts of things, the more commoditylike an item is, the easier it is to sell over the Internet.

  • The reason for this, is that with a commoditylike item, people know exactly what they are getting, and are thus more confident in making a purchase that is essentially sight unseen.
  • Thus, books and videos, DVDs, computers, cameras, and the like make ideal candidates for selling over the Internet.


  • The grocery industry will be an interesting one to watch, although initial attempts have not met with success, since the typical grocery basket consists of commoditylike and non-commoditylike products.



Concept Reinforcement: Adding Value – Class Participation

  • Ask your students which types of grocery products they typically purchase.

  • Draw a spectrum on the board with commoditylike at one end of the line and non-commoditylike at the other.

  • Place the students’ responses at the appropriate points on the spectrum. For example, a box of cereal would be at the commoditylike end and flowers or fresh produce might be at the non-commoditylike end, with perhaps ground beef or coffee beans somewhere in between.

  • Ask for a vote on how many would be willing to buy products from each end of the spectrum to (hopefully) illustrate the point that commoditylike items are an easier buy on the Internet.



Digital Products Are the Best of All (p.187)

Key Points:

  • Digital products like software, music, and printed materials are the best for Internet sales because they are commoditylike and can be delivered and paid for over the Internet as well.

  • Information-based products, many of which are now free, offer tremendous future potential for Internet delivery, particularly when micro-payment schemes become widely available.



Key term: Micro-payments - techniques to facilitate the exchange of small amounts of money for an Internet transaction.

Concept Reinforcement: Global Perspective – Green E-Commerce (p. 186)


  • This is another perspective on how e-commerce could help in dealing with the global digital divide, discussed earlier in the chapter.

  • It introduces the concept of “sustainable development”, i.e. development that does not do harm to the environment.

  • Many believe that the technologies associated with e-commerce, by their very nature, will permit and promote sustainable economic development in lesser-developed countries.

  • Ask your students for examples. A good start is the delivery of digital information products over the Internet. No trees are cut, and no petroleum products are expended in delivery.


Attracting and Retaining Customers (p. 187-191)

Key Points:

  • It’s not enough to build a Web site and expect customers to find you.

  • You must find a way to draw customers to your Web site instead of to those of your competitors and, once there, find ways to encourage them to return again and again.

  • Registering with search engines is one technique to help customers find you. There are services that will do this for you for a fee.

  • Online ads have had mixed reviews, but the consensus seems to be that they can be effective if they are done well. New techniques such as Flash and DHTML help make them more appealing.

  • E-mail and viral marketing have proven to be especially effective tools for marketing over the Internet.
  • Affiliate programs help Web sites refer customers to each other. Figure 5.4 (p. 190) illustrates how to become one of Amazon.com’s 500,000 associates (affiliates).


  • Repeat sales to existing customers is an important metric of success. It usually costs much more to attract and sell to a new customer than to sell to an existing customer.


Key term: Marketing mix - the set of marketing tools that the firm uses to pursue its marketing objectives in the target market.
Key term: Meta tags - part of a Web site not displayed to users but accessible to browsers and search engines for finding and categorizing Web sites.
Key term: Spam - unsolicited e-mail.
Key term: Viral marketing - encourages users of a product or service supplied by a B2C company to ask friends to join in as well.
Key term: Affiliate programs - arrangements made between e-commerce sites that direct users from one site to another.
Key term: Click-throughs - a count of the number of people who visit one site, click on an ad, and are taken to the site of the advertiser.
Key term: Conversion rate - the percentage of customers who visit the site who actually buy something.


Concept Reinforcement: Adding Value – Class Participation

  • I find it to be worthwhile to go over the Do’s and Don’ts of Web Site Design in Figure 5.3 on page 188 to make sure students understand the reasons for each point.

  • I also like to be sure they visit the Web site to see what else its creator has to say.
  • Use your own judgment as to whether or not to refer them to www.websitesthatsuck.com. It’s famous for examples of bad Web site design. The content changes frequently, so you should probably check it out first before referring it to your students (just to be safe).




Remember the Importance of Merchandising (p. 191-192)

Key Points:

  • A successful B2C Web site must do a good job of merchandising.

  • This means that it must select products that are appealing to its target market.

  • It also means that the products must be attractively displayed and well described on the Web site and that the Web site is well designed and easy to use.

  • Usability tests, where focus groups of consumers use and critique a new version of a Web site before it goes online, are a good technique to use.

  • The Red Envelope site illustrated in Figure 5.5 (p. 191) is an example of a very well designed Web site, and worth a look from your students.




Concept Reinforcement: Team Work – Evaluating Competing Web Sites (p. 192)

  • This project is one that students should be given a couple of weeks to work on outside the classroom.

  • Make sure they understand what constitutes good Web site design before they start.

  • Good students draw up a set of attributes on which they will evaluate the two competing Web sites before they start. You may wish to suggest that all teams do so. The project description in the text (p. 192) gives them a list of suggestions. They may wish to add items to this list.
  • I usually let teams select their own Web sites (e.g. Nike vs. Reebok, Coke vs. Pepsi, etc.). B2C Web sites work best. Before they get started, you may want to make sure that two or more teams are not working on the same sites.


  • I usually allow 10-15 minutes per team for the formal presentation and ensuing discussion.


You Must Execute Well (p. 192)

Key Points:

  • It’s not enough to just sell a product or service. Executing well is extremely important in generating repeat business.

  • Executing well includes on-time delivery of the correct items, hassle-free return processes, timely e-mail updates on delivery status or delays, and prompt response to queries and the like.

  • This is a great place for a B2C company to “delight the customer”.




Concept Reinforcement: Adding Value – Real HOT Group project #4 (CD-ROM)

  • Assign Real HOT Group project #4 to your students to give them some experience in how a company might go about evaluating the effectiveness of their banner ads.

  • In this project your students will use spreadsheet software to help HighwaysAndByways evaluate traffic on its Web site.

  • Students are also asked to determine how best to take advantage of implementing banner ads.



Watch the Competition (p. 192-193)
Key Points:

  • Failure to watch the competition and anticipate their moves could be fatal to any business.

  • Watching the competition is especially important in an e-commerce business because competition can come very quickly, and from anywhere in the world.
  • There are services that can help you monitor your competition, for a fee.





Concept Reinforcement: Adding Value – Real HOT Group project #D (CD-ROM)

  • Assign Real HOT Group project #D to your students to let them pull together some of what they learned from the project earlier in this chapter where they evaluated competing Web sites.

  • This project focuses on the “how-tos” of building a Web site, do’s and don’ts, and useful tips.

  • Students should also summarize what they concluded to be good design guidelines for building Web sites.





BUSINESS TO BUSINESS E-COMMERCE
This section covers B2B e-commerce. It begins by re-emphasizing the importance of B2B e-commerce in terms of dollar volume, that it is global in scope and, in contrast to B2C e-commerce, relationships assume even greater importance. Relationships tend to be more important in the B2B space because companies often partner with each other for mutual benefit for very long periods of time. By way of example, Ford and Firestone were business partners for 95 years before the recent flap over tire safety and the Ford Explorer caused them to split. In the B2C space, more often than not, a consumer is just interested in buying a commoditylike product wherever he/she can get it at the lowest price, perhaps with the aid of shopping comparison software.
Value Networks (p.194)

Key Points:

  • The value network construct, illustrated in Figure 5.6 (p. 194), is a one way of illustrating the new roles that relationships between trading partners can take on in the e-commerce world.
  • Managers now have many more choices in the way they provide products and services to customers.


  • In many cases, the customer is unaware of whether a service is provided by the Web site he/she is visiting or by one of the Web site’s alliance partners.


Key term: Intermediaries - specialist companies that provide services better than their client companies can themselves.
Key term: Complementors - provide products and services that complement the offerings of the enterprise and thereby extend its value-adding capabilities to its customers.
Key term: Value network - all of the resources behind the click on a Web page that the customer doesn’t see, but that together create the customer relationship – service, order fulfilment, shipping, financing, brokering, and access to other products and offers.








Corporate Purchasing Segments (p. 194-198)

Key Points:

  • Most B2B e-commerce efforts have been placed in streamlining the purchase of materials.

  • Other sectors are important, but the focus has been on purchasing because it is typically where the most money is spent.

  • There are three significant corporate purchasing segments: direct materials, indirect materials and services.

  • Our focus is on the purchase of direct and indirect materials rather than services, although there are important e-commerce solutions for the services segment.

  • Standards-based EDI is the foundation of B2B e-commerce, particularly for direct materials.
  • EDI has spread in a “hub and spoke” manner. Large company hubs have encouraged or required their smaller suppliers (spokes) to use EDI. (See Figure 5.7 on page 196).


  • The most commonly used EDI standards are ASC X12 in the United States and UN/EDIFACT in Europe.

  • Value-added networks (VANs) make it easier for EDI trading partners to communicate with each other as illustrated in Figure 5.8 on page 197.

  • MRO suppliers are commonly engaged to facilitate the purchase of MRO materials while still permitting corporate purchasing departments to maintain controls over vendor relationships and costs.


Key term: Direct materials - materials that are used in production in a manufacturing company or are placed on the shelf for sale in a retail environment.
Key term: Indirect materials - (commonly called MRO materials) are materials that are necessary for running a modern corporation, but do not relate to the company’s primary business activities.
Key term: Electronic Data Interchange (EDI) - the direct computer-to-computer transfer of transaction information contained in standard business documents, such as invoices and purchase orders, in a standard format.
Key term: Virtual private network - uses software to establish a secure channel on the Internet for transmitting data.








Next Generation Solutions: XML and Web Services (p. 198-200)

Key Points:

  • Many small companies use traditional EDI only at their customers’ urging, because it can be difficult to set up and use.

  • There are several emerging solutions that will deal with this issue, most of them based on the use of XML and the Internet.
  • XML is more useful than HTML because XML tags define what the data encapsulated within them actually means, as illustrated in Figure 5.9 (p. 199).


  • The two most promising next generation solutions at this stage are ebXML and Web services.

  • ebXML can be thought of as an XML-based replacement for current EDI standards.

  • There is enough industry clout behind the Web services initiative that it will probably take hold.

  • Many early adopters seem to be focusing on internal applications to get experience with Web services before moving to extend it to their customers and suppliers.


Key term: XML (eXtensible Markup Language) - a coding language for the Web that lets computers interpret the meaning of information in Web documents.
Key term: ebXML - a set of technical specifications for business documents built around XML designed to permit enterprises of any size and in any geographical location to conduct business over the Internet.
Key term: Web services - software applications that talk to other software applications over the Internet using XML as a key enabling technology.


Concept Reinforcement: On Your Own: A Range of Possibilities for Next Generation EDI (p. 199)

  • This project is best assigned as a homework assignment that should take your students around two hours to complete, followed by a class discussion.

  • There are many solutions being advanced for a replacement to traditional EDI.

  • Most are XML-based, and are listed in the On Your Own Box.

  • Have your students visit the Web sites for each.

  • In class, conduct a discussion of the pros and cons of each possibility.

  • Discuss the potential for a simple solution to greatly expand global e-commerce.


B2B Marketplaces (p. 200)

Key Points:


  • B2B marketplaces seem to be a natural for the Internet because large numbers of buyers and sellers can be brought together to do business in cyberspace.

  • B2B marketplaces more typically involve a single buyer and multiple suppliers and employ a reverse auction technique, pitting the sellers against each other for the buyer’s business.

  • B2B marketplaces have had a difficult time getting traction, and many early attempts have failed.

  • They seem to be having more success in the MRO space rather than in the direct materials space because relationships and embedded EDI legacy systems have such a hold in the latter space.

  • Many suppliers are reluctant to join a reverse auction unless they have to, and do not like the idea of a B2B marketplace operating as an intermediary.

  • A B2B marketplace can be operated by the buyer as a private marketplace without using the services of an intermediary.


Key term: B2B marketplaces - Internet-based services that bring together buyers and sellers.
Key term: Reverse auction - the process in which a buyer posts its interest in buying a certain quantity of items, and sellers compete for the business by submitting successively lower bids until there is only one seller left.








Intranets and Extranets (p. 201-202)

Key Points:
  • Intranets, as illustrated in Figure 5.10 (p. 201), are a common way for organizations to use private TCP/IP networks to facilitate internal communications and automate many internal business processes.


  • Common intranet applications include policies and procedures, expense reporting, employee handbooks, and more sophisticated applications such as knowledge management.

  • Extranets serve a similar purpose as intranets but are accessible by customers and suppliers and thus contain information that is open and of interest to them. An extranet structure is illustrated in Figure 5.11 (p. 202).


Key term: Intranet - an internal organizational Intranet that is guarded against outside access by a special security feature called a firewall (which can be software, hardware, or a combination of the two).
Key term: Extranet - an intranet that is restricted to the organization and certain outsiders, such as customers and suppliers.
Key term: Customer relationship management (CRM) systems use information about customers to gain insight into their needs, wants and behaviours in order to serve them better.


Concept Reinforcement: Added Value – Class Participation

  • Ask your students what services are available to them over the campus intranet (assuming you have one) as “customers” of their school.

  • Solicit their ideas for useful services the campus intranet could offer them.


THE ROLE OF E-GOVERNMENT
Local, regional, and national governments can play a key role in promoting e-commerce if they take an active role in deploying e-commerce applications in their processes.
Key Points:
  • E-Government applications can be in citizen-facing processes or in government’s business processes such as procurement and payment.


  • Governments can be the biggest “hub” of all, if they choose to be, and can thus exert an enormous influence on e-commerce adoption by companies who do business with the government.

  • Although governments have lagged the private sector in the deployment of e-commerce technologies, there is currently a lot of activity in this space, by governments all over the world.

  • Governments have a key role to play in closing the digital divide.




Concept Reinforcement: Added Value – Class Participation

  • Ask students for their suggestions of things governments in developed countries could do to hasten the adoption of e-commerce in their country. (e.g. act as a hub; become a model for providing useful services to citizens over the Internet; use value networks to streamline processes in government agencies, etc.).

  • Ask students for their suggestions of things governments in lesser-developed countries could do to bring their country up to speed with developed countries (e.g. items similar to what governments in the developed world can do, plus, support education and training, and ensure an adequate and affordable national technical infrastructure).

  • Ask students for ideas on what developed countries could do to help lesser-developed countries close the digital divide (e.g. international assistance programs, partnering for progress and the like).





E-COMMERCE PAYMENT SYSTEMS

Although Financial EDI (FEDI) has been available for some time, it has not been as widely accepted as EDI for procurement. The principle reason for this is that corporate treasurers like to have the ability to earn money from the “float” that results when checks drawn on slow-clearing banks are sent through the mails. Nevertheless, e-commerce payment systems are gaining greater acceptance now, and will continue gain more acceptance in the future.

Key term: Financial EDI (FEDI) - the use of EDI for payments.
Credit Cards and Smart Cards (p. 203-204)

Key Points:


  • Credit cards are the most common method of payment for B2C e-commerce, but credit cards are not in widespread use in some large emerging markets like China and India.

  • Smart cards are a solution to facilitate e-payment schemes that has been around for some time but has been slow to catch on.

  • Mondex is perhaps the best known of the smart card schemes.


Key term: Smart cards - plastic cards the size of a credit card that contain an embedded chip on

which digital information can be stored.




Concept Reinforcement: Adding Value – Class Participation

  • Ask your students if they have any reservations about supplying their credit card number to an e-tailer in order to make a purchase over the Web.

  • Ask your students if the Mondex card scheme is appealing to them. (More information can be found by going to www.mondex.com and clicking on “All about Mondex”).

  • Ask your students if the Mondex scheme would be more appealing if certain vital personal information, such as medical records, were stored on the Mondex card they carried with them.



Financial Cybermediaries (p. 204-205)

Key Points:

  • PayPal, one of the best examples of a financial cybermediary, has made it easy to transfer cash from one’s personal credit card (or account) to another person.
  • PayPal became so successful in supporting payments for C2C auctions that it was acquired by eBay.


  • The PayPal Web site is illustrated in Figure 5.12 (p. 204).


Key term: Financial cybermediaries are Internet-based companies that make it easy for one person to pay another person over the Internet.


Concept Reinforcement: Adding Value – Class Participation

  • Ask your students if any of them have used PayPal and, if so, if they were pleased with the way it worked for them.

  • Ask students in the class who may be from other countries if PayPal is available in their countries (As of this writing, PayPal is available in the U.S. and about 40 other countries). In some non-U.S. countries, users may send payments but cannot receive payments.

  • In the class before this topic is discussed, see if a few students from countries where PayPal is either not available or where payments cannot be received would contact PayPal by email and find out when full services might be available in their countries and, if possible, the reasons they are not available now.


Electronic Bill Presentment and Payment Systems (p. 205)

Key Points:

  • Electronic bill presentment and payment systems substitute an electronic bill for a paper bill.

  • Expenses for the billing company are reduced, and the arrangement may be considered more convenient than a paper bill received through the mail for customers.

  • The systems are just beginning to gain acceptance, and can be used by both businesses and governmental bodies.

Key term: Electronic bill presentment and payment (EBPP) - systems that send us our bills over the Internet and give us an easy way to pay them if the amount looks correct.



Concept Reinforcement: Adding Value – Class Participation

  • Ask your students if they can see the value of EBPP systems over paper bills (e.g. lower cost, more timely delivery, an example of green e-commerce, etc.).

  • Ask your students if any of them receive bills this way and what they like and perhaps do not like about the arrangement.


SUMMARY: STUDENT LEARNING OUTCOMES REVISITED
In each chapter and module, we revisit the student learning outcomes as a mechanism and format for summarizing the chapter.
You’ll find this content for Chapter 5 on pages 205-206.
Following the adage of, “Tell them what you’re going to tell them, tell them, and then tell them what you told them,” you should walk through the summary with your students.
You should also inform your students that the summary is great support for studying for exams.



CLOSING CASE STUDY ONE
EBags: An E-Commerce Success Story (p. 206-207)
This case study describes eBags, a successful e-tailer. It has been able to survive and thrive in the extremely competitive online retail environment. Although there are many factors behind the success of eBags, the emphasis in this instance is how it has successfully applied the principles of the value network. The case study is designed to demonstrate to your students that the value network is not just a theoretical construct. It is one that can help a relatively small e-tailer leverage itself and provide superior customer service.
The questions are designed to do three things for your students:

  • Show how eBags has applied some of the keys to success for B2C e-commerce discussed in the chapter.


  • Encourage them to think of how m-commerce and/or broadband could enhance its customers’ experience.

  • Examine the advantages and disadvantages of the value network it has established with Finali Corporation and Timbuk2.

We recommend that you cover this as an in-class case study, although it should be pre-assigned so students can examine the eBags Web site in preparation for the in-class discussion.


QUESTIONS

1. Pick any two of the advantages of B2C e-commerce discussed in this chapter and describe how eBags has used them to gain a competitive advantage over traditional bricks-and-mortar retailers of bags and accessories.




  • The most obvious ones are that shopping can be faster and more convenient (e.g. 24X7) and that offerings and prices can change instantaneously.

  • Students may also mention the other two advantages: Call centres can be integrated with the Web site and broadband technologies will enhance the buying experience. It might be best to hold off on a detailed discussion of these two since they are the topics of questions 3 and 2, respectively.

  • Encourage your students to suggest advantages that were not among the four mentioned in the chapter.

2. Do you think that m-commerce or broadband are technologies that could provide an enhanced buying experience for eBags customers when such services become more widely available? Do you see a way that eBags could gain a competitive advantage from being one of the first e-tailers to use one of these technologies? Why or why not?


DISCUSSION
  • Your students should have no trouble coming up with suggestions of ways that eBags could employ m-commerce and/or broadband. Try to get them to come up with examples that are as specific as possible.


  • If eBags is an early adopter of m-commerce and broadband it has the potential to gain a first-mover advantage. Look for your students to mention that the successful application of the new technologies will help it attract and retain customers.

  • Look for someone to mention the associated risks. Educating the marketplace in how to use the new technologies at the eBags site as well as the associated risks with moving new technologies into the mainstream of the business.

3. The case describes how eBags has chosen to engage a call centre specialist firm, Finali Corporation, to handle its call centre operations for them. Refer to the above discussion of value networks and to Figure 5.6. Would you describe Finali’s relationship in this venture as being a supplier, an intermediary, or a complementor? Explain the reasons for your choice.


DISCUSSION

  • Finali Corporation fits the definition of an intermediary quite well.

  • Finali is “a specialist company that provide(s) services better than their client companies can themselves.” As evidence, note that the case states that for every dollar eBags spent with Finali it generated an additional $3.79 in sales.

4. The case describes the advantages of the eBags/Timbuk2 relationship over a simple affiliate relationship. What disadvantages are there to this type of relationship to either company?


DISCUSSION

  • Timbuk2 fits the definition of a complementor quite well.

  • Timbuk2 “provide(s) products and services that complement the offerings of the enterprise and thereby extend its value-adding capabilities to its customers.”
  • Make sure your students understand how important it is that eBags customers do not leave the eBags site in order to avail themselves of the customized bag offerings provided by Timbuk2.


  • This seems to be a win-win relationship, but chances are one of your students will come up with a possible disadvantage.

5. In the chapter, we said that successful B2C e-commerce companies must execute well. Visit the eBags Web site at www.ebags.com. What assurances do they give their customers that they will receive the item they ordered when promised? Would you have confidence in ordering from eBags based on what you conclude from examining their Web site? Why or why not?


DISCUSSION

  • This is an opportunity for your students to express their opinions based on their reaction to the site.

  • In general, eBags gives the impression that it will execute well, but some of your students may not have the same reaction, and a short class discussion could develop this point.




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