Chapter 1

Introduction to
E-Business
1-2
 Course Overview

E-Commerce Basics Supply Chain Management,

Business Models and E-Procurement, Trading
Strategies Exchanges and Auctions
Architecture Customer Relationship
Management and Business
Security and Controls
Intelligence
Billing and Payment
Marketing
Systems
Performance Measurement
Regulatory Issues

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 Agenda

Definition of e-commerce
Distinction between e-commerce and e-business
Quick History
E-Commerce Models
The e-conomy
Benefits of e-commerce
The internet as an enabler of e-commerce
Effect on business
Effect on the profession

1-4
Definition of E-Commerce

“Exchange of economic value facilitated by electronic

media”

Carrying out business transactions in electronic form

using computer and telecommunication networks

Buying and selling over digital media

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 Is it E-Commerce?

Customer shopping at an online store, payment online

YES!
Trading Partner Interaction:
Shopping
Payment
Medium:
Internet
Value Exchange:
Information

Money/Goods
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 Is it E-Commerce?

Customer shopping at an online store, payment online

Transactions and Values Exchanges

Browsing Habits Catalogue Info

Money Goods/Services

Personal Info

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 Is it E-Commerce?

Customer shopping at an online store, payment over

the phone

YES!
Trading Partner Interaction:
Catalogue Browsing
Medium:
Internet
Value Exchange:
Information

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 Is it E-Commerce?

Customer shopping at an online store, payment over

the phone

Transactions and Values Exchanges

Browsing Habits Catalogue Info

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How E-Commerce Differs from
Traditional Commerce
Core strategic decisions are commingled with
technology decisions
Network economics – bigger network is better
Speed-based competition – first mover advantage?
The store is always open
Screen-to-customer interface – mass customization
Customer controls interaction
Online behaviour can be tracked/measured – new
metrics

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E-Commerce Drivers
Expand universe of potential
buyers
Increase sales
Meet customer expectations
Increase brand/product
recognition
Ease of doing business
Competitive pressure
Cost effectiveness
Provide more information to
customers
Improve customer service
New sales channel

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 Agenda

Definition of e-commerce
Distinction between e-commerce and e-business
Quick History
E-Commerce Models
The e-conomy
Benefits of e-commerce
The internet as an enabler of e-commerce
Effect on business
Effect on the profession

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Essential Structure of
E-Business

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 E-Business

In addition to encompassing e-commerce, e-business includes many

activities that do not involve direct exchange of economic value such
as front and back office applications that form the engine for
modern business; customer service and support, employee services,
investor relations and shareholder services, etc.

E-Business strategy provides the framework for carrying out e-

commerce.

E-Business
E-
Back- Front-
Office Commer office
ce

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 Basic Tools of E-Business
Intranet
Company A
Halifax
Extranet

Internet

Extranet
Intranet

Internet Company B
Toronto

Customers Suppliers

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 “Front-office”
Customer-facing Activities
Attracting…and keeping
User authentication
Catalog display
Availability
Price comparison
Order taking
Credit check

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“Back-office” Activities

Sourcing (finding, pricing, ordering, inbound

logistics/receiving, paying)
Outbound logistics/delivery
Billing
Collection
Post-delivery service

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 Agenda

Definition of e-commerce
Distinction between e-commerce and e-business
Quick History
E-Commerce Models
The e-conomy
Tech Bust
Forces of change
Effect on business
Effect on the profession

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 Quick History

E-commerce is older than the internet

First e-commerce examples go back to the 60’s
Examples of early e-commerce:
 FACSIMILE (FAX)
 EDI (Electronic Data Interchange) moving to the
internet
Today, primarily B2B
B2C is growing

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 Facsimile (FAX)

Fax is one of the first example of e-commerce, when

used for electronic exchange of Line of Business
documents
The first Fax experiments are as early as 1851!
Commercial success of Fax came over a century
later
Today, most Line of Business documents are
exchanged via Fax

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Electronic Data Interchange
(EDI)
A standard way of electronically encoding and
exchanging Line of Business documents (such as POs
and invoices) between organizations.
Facilitated by private networks called VANs (Value
Added Networks) or through the internet
EDI is widely used by large corporations and
government agencies to communicate with their
suppliers; e.g., WalMart.

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 EDI Standards

There is no single “universal” standard for EDI.

Two major standards:
 ANSI X 12
 UN/EDIFACT
Various EDI “dialects” created by various large
buyers

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 EDI Documents

Pre-Order, RFQ* X12 840

Purchase Order X12 850
Advance Shipping Notice X12 856
Invoice X12 810

* RFQ = Request for Quote

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 EDI Process

Send/Rc
Propriet v.
EDI
ary EDI
Docume
Format Encode /
nt
Docume Decode
nt

Buyer
VAN

Propriet EDI EDI

ary Encode / Docume Send/Rc
Format Decode nt v.
Docume
nt

Vendor
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Example EDI Sequence

Acknowle ASN Invoice

dge
(EDI (EDI
856) 810)

Buyer

Purchas Acknowle Acknowle

e Order dge dge

(EDI
850)

Vendor
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 Beyond EDI

EDI is mostly used by large corporations

High entry cost
High operating costs due to expensive transmission
through VANs
Not a universally accepted “standard”
Most EDI vendors now offer internet-based EDI
solutions : reduce costs, do not solve interoperability
issues

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 The World Internet
Population, 1995-2002

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 The World Internet
Population, 1995–2002
Internet Population Growth

800
Internet Users
(Millions)

600
400
200
0
1995 1996 1997 1998 1999 2000 2001 2002
Year
SOURCE: Nua Internet (www.nua.ie/surveys/how_many_online/world.html)

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The World Internet Population,
2003
Country % Internet # Internet
Penetration Users

Sweden 75.8% 6,726,808

Hong Kong 67.0% 4,571,936
Australia 64.2% 12,823,869
Netherlands 63.7% 10,351,064
United States 63.2% 184,447,987
Denmark 62.7% 3,375,850
Iceland 59.5% 175,000
Switzerland 58.6% 4,319,289
United Kingdom 58.2% 34,387,246
South Korea 56.1% 26,270,000
Singapore 54.6% 2,308,296
New Zealand 54.5% 2,063,831
Germany 53.9% 44,139,071
Canada 53.1% 16,841,811
Finland 50.8% 2,650,000

SOURCE: Internet World Usage Stats (internetworldstats.com)

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 Agenda

Definition of e-commerce
Distinction between e-commerce and e-business
Quick History
E-Commerce Models
The e-conomy
Tech Bust
Forces of change
Effect on business
Effect on the profession

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Business to Consumer
E-Commerce
One of the trading partners is an end user of a
product/service
Authentication is optional
Base catalogues and prices are identical for all users
Payment is largely through credit card

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 Examples of B2C
E-Commerce
Retail:
 Online store
Services:
 Online travel reservations
Financial Services
 ATM, Online Banking, Telephone Banking
 Online trading
 Online credit approval

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 Business to Business
E-Commerce
Both trading partners are businesses
Authentication is required
Catalogues and prices are account-specific
Multiple payment methods/payment terms

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 Examples of B2B
E-Commerce
Manufacturing
 Line of business document exchange
 Supply chain management
Retail:
 Online procurement
 Online catalogue from distributor/manufacturer
Services:
 Airline reservation system
Financial Services:
 Wire transfers
 Brokerage services

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Other “X” 2 “Y” Concepts

G 2 C - Utility payments
B 2 E - Benefits, etc.
C 2 C - Kazaa

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The Amazon Phenomenon

"Online, you can build a store that can't exist in real

life--if we printed a catalog of what we offer, it
would be the size of seven New York City phone
books."
Jeff Bezos

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 The Beginning

Seattle-Based initiative, started in 1994

Site launched in July, 1995
Internally developed, started with 2
programmers
Extensive testing, “soft launch” mode
for a few months
Unique Value Proposition: the most
convenient way of buying books.

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 Amazon.com’s
Value Proposition
Traditional Bookstore
 <100,000 titles
 Focus on best-sellers
 Very long reorder times
 Little information about
books
 Marginal discounts
 One-to-Many marketing
Amazon.com
 >2,000,000 titles
 Broad offering on hard to
find titles
 Max ships in 6 weeks
 Plenty of information,
reviews, etc.
 Heavily discounted prices
(up to 40% off)
 One-to-One marketing
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 Amazon.com today

Market capitalization: $11.5B

 Barnes&Nobles market cap: $1.28B
 Barnes&Nobles.com market cap: $0.24B
Sales as of Jan 31-2003: $4.17B
 Barnes&Nobles.com Sales (as of Mar 31 2003): $422.3M
Not only a bookstore anymore, but a “shopping
portal”: sells Music, Videos,
Toys & Games, Electronics, Auctions
Merchants @ program allows other vendors such as
Toys’R’Us to sell products

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 Dell.com

Dell’s business model has been to sell direct to the

consumer, with no intermediaries (initially by
telephone)
In 1996, www.dell.com goes live
The store sells both to businesses and to end
consumers

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 Dell.com’s
Value Proposition
Traditional Computer
Manufacturer
 Relies on distribution chain
 No direct feedback from the
end consumer
 Inflexible configurations
 Scarce availability of non-
standard configurations
Dell.com
 No middle man
 Deals directly with customer
 Computers are configured
online, and built according to
user specifications
 No necessity of stocking pre-
configured PCs
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 Dell.com today

Market Cap $75.9B

 Hewlett-Packard market cap: $50.8B
$50M+/day sales via the internet
Sales through dell.com represent approx 50% of
total sales for 2001
36 country-specific sites, 18 languages

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 Agenda

Definition of e-commerce
Distinction between e-commerce and e-business
Quick History
E-Commerce Models
The e-conomy
Tech Bust
Forces of change
Effect on business
Effect on the profession

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 The e-conomy

52% of US companies are selling online (Association of National

Advertisers-2001)

74% of US consumers have shopped online (E&Y)

B2C Retail e-commerce 2002: $44 B (shop.org)

Worldwide B2C revenue 2003: $95 B (Business Week 05/12/03)

Worldwide B2B revenue 2003: $2,400 B (Business Week 05/12/03)

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Canadian Shopper Profile

3.6 million “holiday” shoppers in 2001 spent 1.16 billion

92% will repeat next year
Average online purchase in 2001: $324
versus $228 in 2000 and $141 in 1999 (Ipsos-Reid, 2002)

25.6 % more unique visitors in 2001 (Jupiter Media Metrix)

11.2 % more time spent in 2001 (Jupiter Media Metrix)

Average Income: $61,540 (Jupiter)

Average Age: 42 (E&Y)

Gender: Male (51%) Female (49%) (E&Y)

Education: 40% college+ (Jupiter)

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 Agenda

Definition of e-commerce
Distinction between e-commerce and e-business
Quick History
E-Commerce Models
The e-conomy
Tech Bust
Forces of change
Effect on business
Effect on the profession

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 The Tech Bust

$ 100 B poured into 6,000 startups of which 2,000

have gone under
450 internet cos. that went public have lost 90%+ of
stock values

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 The Tech Bust

Ridiculous customer acquisition costs

Excessive ‘burn rates’
Bad ideas - eg. Politics.com:
 Revenue 3,604
 Expenses 1,900,000

Losses due to expansion/acquisitions

 i.e. Webvan

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A .com Failure

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But…the Tech Bust is not the
end of the story…
E-Commerce is growing rapidly…$3.9 T worldwide in 2003*
Of the 200+ public internet cos. that survived the Tech Bust, 40%
earned a Q4 profit
General spending on IT fell 6% between 2001-2003, but e-business
spending rose 11% in 2002
e-Business spending comprises 27% of all tech spending
Broadband use in U.S. has doubled since 2001 and is growing at a
50% rate
Productivity increases are dramatic, but take several years
1/3 of economy still to be touched by it (agriculture, construction,
health care)

* This slide is based on “The E-Biz Surprise” a cover story by Business Week 05/12/03

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 Agenda

Definition of e-commerce
Distinction between e-commerce and e-business
Quick History
E-Commerce Models
The e-conomy
Tech Bust
Forces of change
Effect on business
Effect on the profession

1-51
 Forces of Change

Forces of change are:

 Benefits of e-Commerce
 Removal of Barriers

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Benefits of E-Commerce

Cheaper Richer package (e.g.,

Faster additional information
to customer – FedEx)
More convenient
Wider reach
Better selection
More controllable
More customization/
personalization

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 Cost of Banking
Transactions (US Dollars)

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 Removal of Barriers

Growing Access to Internet

Security
 Firewalls & Encryption
 PKI
Payment Systems
PIPEDA
Personal Information Protection and Electronic
Documents Act

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Basic Firewall
Architecture

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 Forecasts

by 2003 50%-60% of US will be online

# of online shoppers in 2003: 183 M(IDC)

% of international users by 2003: 65% (IDC)

B2B business by 2003: $ 2.3 T

(IDC)

Yearly E-commerce growth: 250%

Savings from E-commerce by 2002 - U.S. $600 B (GIG)

Savings from E-commerce by 2002 - World $1.3 T (GIG)

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 Agenda

Definition of e-commerce
Distinction between e-commerce and e-business
Quick History
E-Commerce Models
The e-conomy
Tech Bust
Forces of change
Effect on business
Effect on the profession

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 Effect on Business

Integration of strategies and processes

 business and e-commerce goal congruence
Customer-centric value chain
Pillars of e-commerce
 information
 relationships

 transactions

 security/control

All business will become e-business

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Strategic Business Trends

Supply Chain Management (SCM)

ERP, ERP & SCM, CRM
Integration
Customization
New Sales Channels
Many small projects vs. risky megaprojects

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Flexible Business Design

Outsourcing
Partnerships
Joint ventures
Mergers
Takeovers AOL - Time Warner
$165,000,000,000

Verisign acquired Network

Solutions for:
$21,000,000,000

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 Agenda

Definition of e-commerce
Distinction between e-commerce and e-business
Quick History
E-Commerce Models
The e-conomy
Tech Bust
Forces of change
Effect on business
Effect on the profession

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Effect on the Profession

New competencies for:

 Advisory services
 Assurance services
New standards:
 Trust Services – (i.e., WebTrust, SysTrust)
 other?

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Thank you