Chapter 8
The Internet and Electronic Commerce
LECTURE NOTES
SECTION I: The Internet and Business
Business use of the Internet is moving from an electronic information exchange to a broad platform for strategic business applications. Applications like collaboration among business partners, researching competitors, providing customer and vendor support, and buying and selling products and services have become major business uses of the Internet. Studies show the strong growth of cross-functional business applications, and the emergence of applications in engineering, manufacturing, human resources, and accounting.
Analysing GeoCities, Inc.
We can learn a lot from this case about how businesses are successfully using Internet web sites to create virtual communities and engage in electronic commerce.
8-1 Business Use of the Internet: [Figure 8.2]
The Internet is proving to be a versatile tool as an information technology platform on which to base a variety of business strategies. Conceptually, business use of the Internet can be group into a few major application categories:
Communications and Collaboration:
The Internet, intranets, and extranets support realtime global communications and collaboration among employees, customers, suppliers, and other business partners.
Internet features which enable internal and external business information to be researched, solicited, disseminated, and shared include:
1. Interactive web sites
2. E-mail
3. Bulletin board systems
4. Discussion groups
5. Audio and videoconferencing
The Internet enables members of different organizations and people at different locations to work together as members of virtual teams on business projects to develop, produce, market, and maintain products and services.
Electronic Commerce
The Internet, the World Wide Web, and Internet-based technologies such as intranets and extranets provide global links to a company’s customers and suppliers. This enables electronic commerce applications - marketing, buying, selling, and support of products and services over these networks. Electronic commerce applications include:
1. Interactive order processing at company web sites
2. Electronic data interchange (EDI) of business transaction documents
3. Secure electronic funds transfer (EFT) payments systems.
Interactive Marketing
Because of the Internet, marketing a company and its products and services has become an interactive process. A company’s web site can now offer more than hyperlinked multimedia product catalogues and promotional material. The Internet and the Web enable companies to create a dialogue with customers through:
1. Online discussion groups
2. Bulletin boards
3. Electronic questionnaires
4. Mailing lists
5. Newsletters
6. E-mail exchanges
Thus, customers can be interactively involved in the development, marketing, sales, and support of products and services, along with a company’s market researchers, product designers, marketing and sales staff, and support specialists.
Strategic Alliances
The Internet enables companies to form strategic alliances with customers, suppliers, consultants, subcontractors, and even competitors. Internet and extranet global links to such business partners support network organizational structures and the formation of virtual companies. The Internet enables global alliances of business partners to be quickly formed to take advantage of market opportunities by interconnecting the unique strengths of each partner into an integrated network of business resources and capabilities.
FedEx and UPS
The World Wide Web is a key business battlefield for FedEx and UPS as they compete for leadership of the express package delivery market. Both companies are:
1. Implementing a variety of electronic commerce and logistics management applications using Internet, intranet, and extranet technologies.
2. Have set long-range business goals of doing all customer business interactions and operations online using the Internet
8-2 Interactive Marketing
The Internet has made interactive marketing process possible. Some of the characteristics of interactive marketing include:
1. Intranets and extranets and other networks may also be used to enable multilevel interaction between a company’s marketing, development, and customer support personnel, and its customers and prospective customers.
2. Goal of interactive marketing is to attract and keep customers who will become partners with a business in creating, purchasing, and improving products and services.
3. Customers are actively engaged in a network-enabled proactive and interactive marketing experience.
4. Interactive marketing depends on many of the capabilities of the Internet and the World Wide Web to enable the interactive process.
Push versus Pull Marketing:
The interactive marketing process includes a choice between push or pull marketing methods.
Pull technologies: Rely on the user to access the services of the Internet or the Web (or Intranets and extranets) using a web browser.
Push technologies: Rely primarily on software called Web broadcasters, or net broadcasters. These tools can transmit a variety of information from the Web or other sources to the users PC.
Merits of push technology include:
1. Save the user time and effort while providing prompt delivery of critical information.
2. Information can be provided more selectively and efficiently than surfing the Web, or exchanging E-mail, voice mail, or paper messages.
Points against push technology include:
1. Push information is distracting to users’ work activities
2. Push information worsens users information overload
3. Push information hogs a company’s network bandwidth.
8-3 The Business Value of the Internet: [Figure 8.11]
Business values that companies derive from their business applications on the Internet include:
1. Substantial cost savings can arise because applications that use the Internet and Internet-based technologies (like Intranets and extranets) are typically less expensive to develop, operate, and maintain than traditional systems.
2. The use of the Internet and the Web for interactive marketing and customer service.
3. Generating revenue from the Internet through electronic commerce applications is a growing source of business value.
Most companies are building commercial sites on the World Wide Web to achieve four major business objectives:
1. Attract new customers via Web marketing and advertising.
2. Improve service to existing customers via Web customer service and support functions.
3. Develop new Web-based markets and distribution channels for existing products.
4. Develop new information-based products accessible on the Web.
Assessing Strategic Business Value:
One way to assess the business value of the Internet is by using the Internet strategy matrix which emphasizes that a company should undertake an internal and external
assessment of itself and its environment to discover Internet applications that add strategic business value to the organization. This may include steps such as:
1. Making an internal assessment of the organizations communications flows and information resources to discover communication and information deficiencies that could be improved by Internet technologies.
2. An external assessment should include an evaluation of the Internet activity of a company’s competitors and business partners.
3. Assess the unmet needs of current and prospective customers that might be met by Internet-based electronic markets.
The Internet can be viewed as having six strategic capabilities that support a variety of key applications that can add business value to a company. These capabilities include:
Global Dissemination:
Global communications has become a fact of life in business. E-mail, electronic mailing ists, World Wide Web sites, and other Internet services have made international dissemination of information significantly faster, cheaper, and easier. Characteristics include:
1. Increased cost savings and efficiency of global communications
2. Ability to reach, sell, and provide customer service to new or expanded international markets.
Business Value: increased cost savings and efficiency of global communications, and the ability to reach, sell, and provide customer service to new or expanded international markets.
Interaction:
Interactive communications is another key capability of the Internet. This may take the form of:
1. Interactive web sites
2. Discussion forums and chat groups
3. Interactive forms of customer orders, feedback, and technical support
4. Immediate E-mail responses to online queries and comments.
5. Fast, efficient feedback from customers and responses from customer support specialists provide multiple opportunities to demonstrate a company’s responsiveness to its customers.
Business Value: Helps a business build customer value and loyalty.
Customization:
The ability to automatically provide information and services customized to an individual customer or user is a strategic business capability of the Internet, Intranets, and extranets. Characteristics include:
1. Ability to automatically provide information and services customized to an individual customer or user.
2. Information can be accessed and disseminated from network servers on an individual basis, depending on a variety of factors.
Business Value: Efficiency, low cost, and interactive target marketing to an individual customer or prospect.
Collaboration:
The Internet, Intranets, and extranets enable easy and efficient access to shared data and other network resources. Characteristics include:
1. Project information at web sites can be easily shared using web browsers.
2. Groupware tools help coordinate projects and manage the information they store on servers at cross-linked web sites.
Business Value: Enhances the collaboration process among teams, workgroups, and business partners.
Electronic Commerce:
The Internet has become the technology platform for electronic commerce. Characteristics include:
1. The Internet, along with Intranets and extranets, link companies to their customers and suppliers, and thus enables them to electronically market, buy, sell, and support products and services.
Business Value: Lies in electronic commerce applications, which have opened up new markets or make possible new products and services.
Integration:
The internetworked enterprise integrates its external online activities with its internal business process. Characteristics include:
1. A company’s Internet web site can be linked by extranets to selected operational databases stored on its intranet web servers. This provides more detailed, up-to-date information that can be used to support electronic commerce applications.
2. Intranets promote the integration of cross-functional business processes within a company.
Business Value: Arises from efficiencies and innovations that make possible in internal and external business processes.
8-4 Customer Value and the Internet
For many companies, the chief business value of the Internet lies in its ability to:
1. Help them keep customers loyal
2. Anticipate customers future needs
3. Respond to customer concerns
4. Improve customer service
The focus on customer value recognizes that quality, rather than price has become the primary determinant in a customer’s perception of value. From a customer’s point of view, companies that:
1. Consistently offer the best value are able to keep track of their customers’ individual preferences
2. Keep up with market trends
3. Supply relevant information attractively, anytime, anywhere, in a variety of media
4. Provide customer services tailored to individual needs.
Customers want and expect companies to communicate with them and service their needs over the Internet. The Internet has become a strategic and comparatively low-cost opportunity for companies large and small to offer fast, responsive, high-quality service tailored to individual customer preferences.
Internet and Internet technologies help make customers the focus of a business. For example:
1. Create new channels for interactive communications within a company with customers, and the suppliers, business partners, and others in the external environment.
2. Enable continual interaction with customers by most business functions and encourages cross-functional collaboration with customers in product development, marketing, delivery, service, and technical support.
3. Business functions throughout the enterprise can contribute to effective customer response to requests. This encourages the creation of cross-functional discussion groups and problem-solving teams dedicated to customer involvement, service and support.
SECTION II: Fundamentals of Electronic Commerce
Electronic commerce is more than just buying and selling products online. Instead, it encompasses the entire online process of developing, marketing, selling, delivering, servicing, and paying for products and services purchased by internetworked, global virtual companies of customers, with the support of a worldwide network of business partners.
Electronic commerce systems rely on the resources of the Internet, Intranets, extranets, and other computer networks. Electronic commerce can include:
1. Interactive marketing, ordering, and payment processes on the World Wide Web
2. Extranet access of inventory databases by customers and suppliers
3. Internet access of customer records by sales reps and customer service
4. Involvement in product development via Internet newsgroups and E-mail exchanges.
8-5 Foundations of Electronic Commerce
The Internet, Intranets, and extranets provide vital electronic commerce links between the components of a business and its customers, suppliers, and other business partners. This allows companies to engage in three basic categories of electronic commerce applications:
Business-to-Consumer:
In this form of electronic commerce, businesses must develop attractive electronic marketplaces to entice and sell products and services to customers. Examples include:
1. Companies may offer multimedia web sites that provide virtual storefronts and virtual shopping malls.
2. Interactive order processing
3. Secure electronic payment systems
Business-to-Business:
This category of electronic commerce involves both electronic business marketplaces and direct market links between businesses. Examples include:
1. Many companies offer the business community a variety of marketing and product information on the World Wide Web.
2. Companies rely on electronic document interchange (EDI) via the Internet or extranets for direct computer-to-computer exchange of business transaction documents with their business customers and suppliers.
Internal Business Processes
All business functions and many business processes are affected by electronic commerce activities. For example:
1. Many internetworked enterprises are customer-driven and market-driven.
2. Organizations continually monitor and evaluate online information about their customers, suppliers, and competitors from their web sites and discussion groups.
3. Information available via Intranets to all business functions is used to shape the company’s product development, marketing programs, customer service, and competitive strategies.
Electronic Commerce Technologies: [Figure 8.20]
Electronic commerce technologies include:
1. Information technologies
2. Telecommunications technologies
3. Internet technologies
Electronic commerce can be viewed as depending on six layers of technology:
1. Application services
2. Broker and data management
3. Interface services
4. Secure messaging
5. Middleware services
6. Network infrastructure
8-6 Electronic Commerce Applications: [Figure 8.22]
The Internet presents businesses, entrepreneurs, and investors with a wide-open economic model on which to base electronic commerce. Some of the key characteristics of the economic model for electronic commerce on the Internet include:
1. Barriers to entry are low
2. Market niches abound
3. Revenue sources are many
4. No one owns the market
5. The same technology is available to everyone
6. Access is becoming universal
7. There is room for teams of successful players
8-7 Business-to-Consumer Commerce:
Electronic commerce on the Internet between businesses and consumers is accelerating the impact of information technology on consumer behaviour and business processes and markets.