E-commerce: Transforming Business in the Digital Age, Summaries of Computer science

Download E-commerce: Transforming Business in the Digital Age and more Summaries Computer science in PDF only on Docsity! ELECTRONIC COMMERCE 9 One of the most profound changes currently transpiring in the world of business is the introduction of electronic commerce. The impact of electronic commerce (e- commerce, or EC) on procurement, shopping, business collaboration, and customer services as well as on delivery of various services is so dramatic that almost every or- ganization is affected. E-commerce is changing all business functional areas and their important tasks, ranging from advertising to paying bills. The nature of competition is also drastically changing, due to new online companies, new business models, and the diversity of EC-related products and services. EC provides unparalleled opportu- nities for companies to expand worldwide at a small cost, to increase market share, and to reduce costs. In this chapter we will explain the major applications of EC, the issues related to its successful implementation and to its failures, and what services are necessary for its support. We look at business-to-consumer (B2C) commerce, business-to-business (B2B) commerce, intrabusiness commerce, and e-government. Also, we will demonstrate the impact on the various functional areas of organizations. CHAPTER PREVIEW 9.1 Overview of E-Commerce 9.2 Business-to-Consumer Applications 9.3 Market Research, Advertising, and Customer Service 9.4 B2B and Collaborative Commerce Applications 9.5 Innovative Applications of E-Commerce 9.6 Infrastructure and E-Commerce Support Services 9.7 Legal and Ethical Issues in E- Commerce CHAPTER OUTLINE 1. Describe electronic commerce, its scope, benefits, limitations, and types. 2. Describe the major applications of business-to- consumer commerce, service industries in e-commerce, and electronic auctions. 3. Discuss the importance and activities of B2C market research, advertising, and customer service. 4. Describe business-to-business and collaborative commerce applications. 5. Describe emerging EC applications such as e- government and mobile commerce. 6. Describe the e-commerce infrastructure and support services, including payments and logistics. 7. Discuss legal and other implementation issues. LEARNING OBJECTIVES INTEL CORPORATION EMBRACES THE WEB Intel Corporation, the world’s largest producer of microprocessor chips, sells its products to thousands of manufacturers. Much of its business is in the personal computer market, in which companies such as Dell computer use Intel’s chips (“Intel Inside” logo). Competition in the chip market is intense. Intel creates customized catalogs and sends them to its potential customers together with in- formation on product availability. Until 1997 it was all done on paper. Orders from Intel’s thousands of customers, distributors, and business partners world- wide were received by fax and phone, making the distribution process slow, ex- pensive, and frequently not up to date. During 1997, a number of departments launched their own electronic order handling that resulted in incompatible and inefficient systems. So, in 1998, Intel established its e-business program, which is focused on selling online and on customer support for a range of products, including microprocessors, mother- boards, embedded chips, chipsets, and flash memory. Order placing is only part of what Intel is doing online. The site also features self- service order tracking and a library of product documentation and roadmaps that re- place the work of customer service representatives, who previously sent information manually to customers. In 1999, Intel moved to a broad program of electronic pro- curement of products and services. Finally, Intel is using electronic commerce to im- prove its internal operations, such as interdepartmentalcollaboration. Intel first specifically targeted small and midsize customers, the majority of which operate outside the United States. These companies had previously communicated with Intel mostly by phone and fax. Intel also moved 11 of its larger customers, which previously were connected to Intel on electronic data interchange (EDI) networks, to a system called Supply Line Management. This system lets Intel link to customers’ plants across the Internet to track usage of parts. Intel is also using online systems to deliver personalized information to its customers and employees. Intel claims that it is doing more e-business than any other company in the world. Intel’s e-business initiatives enhance its competitive advantage by giving its customers better tools for managing transactions. At the same time they bring substantial tangi- ble savings to Intel. For example, the company has been able to eliminate 45,000 faxes per quarter to Taiwan alone. Sources: Compiled from InternetWeek (November 23, 1998), pp. 1, 98, “Intel Goes E-Business” (intel.com/eBusiness/enabling/ebusiness.htm), December 28, 1999, and intel.com/ebusiness, August 2001. The Intel case illustrates a new and effective way for conducting business—selling and buying products on the Internet. This is an example of business-to-business electronic commerce, one of the most exciting and fastest-growing business phenomena of our times. The case demonstrates that electronic commerce not only involves electronic buying and selling, but also provides customer service and improves the organization’s internal business processes. This chapter will explore what electronic commerce is, how it works, what issues are involved in its implementation, and how it creates new business models that www.intel.com T h e B u s i n e s s P r o b l e m T h e I T S o l u t i o n T h e R e s u l t s W h a t W e L e a r n e d f r o m t h i s C a s e B e n e f i t s o f E - C o m m e r c e Few innovations in human history encompass as many benefits to organizations, indi- viduals, and society as does e-commerce. These benefits are have just begun to materi- alize, but they will increase significantly as EC expands. The major benefits are listed in Table 9.1. L i m i t a t i o n s a n d F a i l u r e s o f E - C o m m e r c e Counterbalancing its many benefits, EC has some limitations, both technical and non- technical, which have slowed its growth and acceptance. Those limitations are listed in Table 9.2, and some have been contributing factors in the failures of many EC projects and dot-com companies in recent years. As time passes, the limitations, espe- cially the technical ones, will lessen or be overcome. In addition, appropriate planning can minimize the impact of some of them. Despite its limitations and failures, e- commerce has made very rapid progress. Also, various B2B activities, e-government, and some B2C activities are ballooning. As experience accumulates and technology improves, the ratio of EC benefits to cost will increase, resulting in an even greater rate of EC adoption. Section 9.1 Overview of E-Commerce 277 Tab le 9 .1 Benef i ts o f E - commerce • Expands a company’s marketplace to national and international markets. With minimal capital outlay, a company can quickly locate more customers, the best suppliers, and the most suitable business partners worldwide. • Enables companies to procure material and services from other companies, rapidly and at less cost. • Shortens or even eliminates marketing distribution channels, making products cheaper and vendors’ profits higher. • Decreases (by as much as 90 percent) the cost of creating, processing, distributing, storing, and retrieving information by digitizing the process. • Allows lower inventories by facilitating pull-type supply chain management. This allows product customization and reduces inventory costs. • Lowers telecommunications costs because the Internet is much cheaper than value-added networks (VANs). • Helps small businesses compete against large companies. • Enables a very specialized niche market. • Frequently provides less expensive products and services by allowing consumers to conduct quick online comparisons. • Gives consumers more choices than they could easily locate otherwise. • Enables customers to shop or make other transactions 24 hours a day, from almost any location. • Delivers relevant and detailed information in seconds. • Enables consumers to get customized products, from PCs to cars, at competitive prices. • Makes it possible for people to work and study at home. • Makes possible electronic auctions. • Allows consumers to interact in electronic communities and to exchange ideas and compare experiences. • Enables individuals to work at home and to do less traveling, resulting in less road traffic and lower air pollution. • Allows some merchandise to be sold at lower prices, thereby increasing people’s standard of living. • Enables people in developing countries and rural areas to enjoy products and services that are otherwise are not available. This includes opportunities to learn professions and earn college degrees, or to receive better medical care. • Facilitates delivery of public services, such as government entitlements, reducing the cost of distribution and chance of fraud, and increasing the quality of social services, police work, health care, and education. To O rgan i za t i on s To Cu s t omer s To So c i e t y Forrester Research Institute and others predict that online B2C will be in the range of $300 billion to $800 billion in 2004, up from $515 million in 1996 (see cyberatlas.com and emarketer.com). For 2004, the total of B2C and B2B is estimated to be in the range of $2,500 billion to $7,000 billion. Some EC applications grew by 10 percent per month. Here we will look at some of the major categories of business-to-consumer applications. E l e c t r o n i c R e t a i l i n g , S t o r e f r o n t s , a n d M a l l s For generations, home shopping from catalogs has flourished, and television shopping channels have been attracting millions of shoppers for more than a decade. However, these methods have drawbacks: Paper catalogs are sometimes inaccurate, and televi- sion shopping is limited to what is shown on the screen. Also, many people are trou- bled by the waste of paper used in catalogs that just get tossed out. B e f o r e y o u g o o n . . . 1. Define e-commerce and distinguish it from e-business. 2. List the major types of EC. 3. Distinguish among business-to-consumer, business-to-business, and intra- business EC. 4. List some organizational, societal, and consumer benefits of EC (five each). 5. List the major technical and nontechnical limitations of EC (three each). 278 Chapter 9 Electronic Commerce Tab le 9 .2 L imi tat ions of E - commerce 1. Lack of universally accepted standards for quality, security, and reliability. 2. Insufficient telecommunications bandwidth. 3. Still-evolving software development tools. 4. Difficulties in integrating the Internet and EC software with some existing (especially legacy) applications and databases. 5. Need for special Web servers in addition to the network servers. 6. Expensive and/or inconvenient Internet accessibility for many would-be users. 1. Unresolved legal issues (see Section 9.7 and Chapter 15). 2. Lack of national and international government regulations and industry standards. 3. Lack of mature methodologies for measuring benefits of and justifying EC. 4. Many sellers and buyers waiting for EC to stabilize before they take part. 5. Customer resistance to changing from a real to a virtual store. People do not yet sufficiently trust paperless, faceless transactions. 6. Perception that EC is expensive and unsecured. 7. An insufficient number (critical mass) of sellers and buyers exists for profitable EC operations. Te chn i c a l L im i t a t i on s Non t e chn i c a l L im i t a t i on s 9.2 BUSINESS-TO-CONSUMER APPLICATIONS Like any mail-order shopping experience, e-commerce enables you to buy from home, 24 hours a day, 7 days a week. But EC overcomes some of the limitations of the other forms of home shopping. It offers a wide variety of products and services, in- cluding the most unique items, usually at lower prices. Furthermore, within seconds, you can get very detailed information on products, and you can easily search for and compare competitors’ products and prices. Electronic retailing (e-tailing) is the direct sale of products through electronic storefronts or electronic malls, usually designed around an electronic catalog format and/or auctions. Electronic storefronts. Hundreds of thousands of solo storefronts can be found on the Internet, each with its own Internet name and Web site. Electronic storefronts may be an extension of physical stores such as Home Depot, The Sharper Image, or Wal-Mart. Others are new businesses started by entrepreneurs who saw a niche on the Web. Examples of these are Amazon.com, CDNow, Peapod, and Virtual Vine- yards, (described at the book’s Web site). There are two types of storefronts, general and specialized. The latter sell one or a few products (e.g., flowers, wines, or dog toys). The general storefronts sell many products. Goods that are bought most often are computers and computer-related items, books and magazines, CDs, cassettes, movies and videos, clothing and shoes, toys, and food. Services that are bought most often online include travel services, stocks and bonds trading, electronic banking, insurance, and job matching. (Services will be presented as a separate topic later in this section.) Directories and hyperlinks from other Web sites and intelligent search agents help buyers find the best stores and products to match their needs. Storefronts may or may not be affiliated with elec- tronic malls. Electronic malls. An electronic mall, also known as a cybermall or e-mall, is a collec- tion of individual shops under one Internet address. The basic idea of an electronic mall is the same as that of a regular shopping mall—to provide a one-stop shopping place that offers many products and services. Representative cybermalls are Down- town Anywhere (da.awa.com), HandCrafters Mall (rocksworld.com), America’s Choice Mall (mall.choicemall.com), and Shopping 2000 (shopping2000.com). As is true for vendors that locate in a physical shopping mall, a vendor that lo- cates in an e-mall gives up a certain amount of independence. Its success depends on the popularity of the mall, as well as on its own marketing efforts. On the other hand, malls generate streams of prospective customers who otherwise might never have stopped by the store. Each cybermall may include thousands of vendors. For example, shopping.yahoo.com and eshop.msn.com include tens of thousands of products from thousands of vendors. Issues in e-tailing. The following are the major issues faced by e-tailers. • Channel conflict. If the seller is a click-and-mortar company, it may face a conflict with its regular distributors when it sells directly online. Known as channel conflict, this situation can alienate the regular distributors and has forced some companies (e.g., lego.com) to limit their B2C efforts; others (e.g., automotive companies) have decided not to sell direct online. However, a better approach is to try to collaborate in some way with the existing distributors whose services may be restructured. • Order fulfillment. E-tailers face a difficult problem of shipping very small quantities to a large number of buyers. This can be expensive, especially when returned items need to be handled. This topic is discussed in Section 9.6. • Viability of online e-tailers. Most of the purely online e-tailers (excluding service in- dustries) were unable to survive and folded in 2000–2002. Companies had problems Section 9.2 Business-To-Consumer Applications 279 Orders can be placed from anywhere, any time, and you can find on the Web, by your- self, a considerable amount of information regarding investing in a specific company or in a mutual fund. How does online trading work? Let’s say you have an account with Charles Schwab. You access Schwab’s Web site (schwab.com; see the screen capture at our Web site), enter your account number and password, and click on stock trading. Using a menu, you enter the details of your order (buy or sell, margin or cash, price limit, market order, etc.). The computer tells you the current “ask” and “bid” prices, much as a broker would do on the telephone, and you can approve or reject the transaction. Some well-known companies offer only online trading. Examples are E*Trade, Ameritrade, and Suretrade. The online job market. The Internet offers a perfect environment for job seekers and for companies searching for hard-to-find employees. The online job market is especially effective for technology-oriented jobs. However, there are thousands of companies and government agencies that advertise available positions in all types of jobs, accept resumes, and take applications via the Internet. The online job market is used by: 1. Job seekers. Job seekers can reply to employment ads online. Or they can take the initiative and place resumes on their own home pages or on others’ Web sites, send messages to members of newsgroups asking for referrals, and use recruiting firms such as Career Mosaic (careermosaic.com), Job Center (jobcenter.com), and Mon- ster Board (monster.com). For entry-level jobs and internships for newly minted graduates, job seekers can use jobdirect.com. Need help writing your resume? Try resume-link.com or jobweb.com. 2. Job offers. Many organizations advertise openings on their Web site. Others use sites ranging from Yahoo! to bulletin boards and recruiting firms. 3. Recruiting firms. Hundreds of job-placement brokers and related services are ac- tive on the Web. They use their own Web pages to post available job descriptions and advertise their services in electronic malls and on others’ Web sites. Recruiters use newsgroups, online forums, bulletin boards, and chat rooms. Job-finding bro- kers help candidates write their resumes and get the most exposure. Matching of candidates and jobs is done by companies such as discoverme.com. 4. Newsgroups. Job finding is of interest to many newsgroups. Jobs in a certain cate- gory or location are posted, discussions are conducted, and resumes can be sent. In addition to low cost and wide exposure, participants in the online job market cite the ease of transmitting information and documents (resumes and job descrip- tions) and the speed of the recruiting process as motivators for using the Internet. Also, the recruiting companies save time on data entry by using electronic forms for taking applications. Finally, the ability to widen an employee’s search geographically is an advantage to both the recruiter and the recruitee. Hot Jobs (hotjobs.com) pro- vides links to many sources for further research, for accessing job listings, and for find- ing for-fee counselors. A Manager’s Checklist at the Web site lists the benefits and limitations of the online job market. Travel. The Internet is an ideal place to plan, explore, and economically arrange al- most any trip. Potential savings are available through special sales, comparisons, use of auctions, and the elimination of travel agents. Examples of comprehensive travel online services are Expedia.com, Travelocity.com, and Travelweb.com. Services are also provided online by all major airline vacation services, large conventional travel 282 Chapter 9 Electronic Commerce agencies, car rental agencies, hotels, and tour companies. Online travel services allow you to purchase airline tickets, reserve hotel rooms, and rent cars. Most sites also support an itinerary-based interface, including a fare-tracker feature that sends you e-mail messages about low-cost flights to your favorite destinations. Finally, Price- line.com allows you to set a price you are willing to pay for an airline ticket or hotel accommodations and Priceline then attempts to find a vendor that will match your price. Real estate. Real estate transactions are an ideal area for e-commerce, for the fol- lowing reasons. First, you can view many properties on the screen, saving time for you and the broker. Second, you can sort and organize properties according to your crite- ria and preview the exterior and interior designs of the properties, shortening the search process. Finally, you can find detailed information about the properties and frequently get even more detail than brokers will provide. In some locations brokers allow the use of such databases only from their offices, but considerable information is now available on the Internet. For example, Realtor.com allows you to search a data- base of over one million homes across the United States. The database is composed of local “multiple listings” of all available properties and properties just sold, in hun- dreds of locations. In another application, homebuilders now use virtual reality technology on their Web sites to demonstrate three-dimensional floor plans to potential home buyers. They use virtual models that enable buyers to walk through mockups of homes. A u c t i o n s An auction is a market mechanism by which sellers place offers and buyers make se- quential bids. Auctions are characterized by the competitive nature by which a final price is reached. Auctions have been an established method of commerce for cen- tures, and they are especially suited to deal with products and services for which con- ventional marketing channels are ineffective or inefficient. Auctions can expedite the disposal of items that need liquidation or a quick sale, and they ensure prudent execu- tion of contracts. The Internet provides an infrastructure for executing auctions at lower cost, and with many more involved sellers and buyers. Individual consumers and corporations alike can participate in this rapidly growing form of e-commerce. There are several types of auctions, each with its motives and procedures. Auctions are divided here into two major types: forward auctions, and reverse auctions. Forward auctions. Forward auctions are used mainly as a selling channel. A single seller auctions item(s) to many potential buyers. The specific alternative mechanisms in a forward auction are as follows. • English auctions. Buyers bid on one item at a time. The bidding price increases with additional bids. The high- est bidder wins (if price is the only criterion). • Yankee auctions. These are similar to English auctions, but multiple identical items are offered. You can bid on any number of items. Biddings prices are escalating. • Dutch auctions. These are usually for multiple, identi- cal items (e.g., flowers). Prices are set high and are re- Section 9.2 Business-To-Consumer Applications 283 duced as the auction clock runs down until a bid for a specific quantity is submitted. The first bidder wins. See the auction clock at our Web site. Reverse auctions. In reverse auctions, there is one buyer, who wants to buy a prod- uct or a service. Suppliers are invited to submit bids. The supplier that submits the lowest bid wins. Several rounds may take place if the lowest bid is not satisfactory to the seller. Auctions are used in B2C, B2B, C2B, e-government, and C2C commerce, and they are becoming popular in many countries. Benefits are derived for sellers, buyers, and auctioneers as shown in Manager’s Checklist 9.1. Electronic auctions started in the 1980s on private networks, but their use was limited. The Internet opens many new opportunities for e-auctions, and millions of sellers and buyers participate. Auctions can be conducted from the seller’s site or from a third-party site. For example, eBay offers hundreds of thousands of different items in several types of auctions (see the screen capture at our Web site). Over 300 other major companies, including Amazon.com, offer online auctions as well. B2B auctions are discussed in Section 9.4. Bartering. Related to auctions is electronic bartering, the exchange of goods or ser- vices without a monetary transaction. In addition to the individual-to-individual bar- tering ads that appear in some newsgroups, bulletin boards, and chat rooms, there are several intermediaries that arrange for corporate bartering (e.g., barterbrokers.com). These intermediaries try to find partners to a barter. Not all e-commerce applications are Internet based. For an example of a B2C non-Internet EC service, see the description of the Highway 91 project at our Web site. 284 Chapter 9 Electronic Commerce Manager’s Checklist 9.1 Benefits of Electronic Auctions Bene f i t s t o S e l l e r s • Increased revenues from broadening customer base and shortening cycle time • Optimal price setting, determined by the market (more buyers) • Saves on the commission to intermediaries. (Physical auctions’ fees are very expensive compared to e-auctions.) • Can liquidate large quantities quickly • Improved customer relationship and loyalty (in the case of specialized B2B auction sites and electronic exchanges). Ben f i t s t o Buye r s • Opportunities to find unique items and collectibles • Chance to bargain, instead of buying at a fixed price • Entertainment. Participation in e-auctions can be entertaining and exciting. • Anonymity. With the help of a third party, buyers can remain anonymous. • Convenience. Buyers can trade from anywhere, even with a cell phone; they do not have to travel to an acution place. Bene f i t s t o Au c t i onee r s • High “stickness” to the Web site (customers stay at “sticky” sites longer and come back more often); generates more ad revenue to auctioneer • Expansion of the auction business Tracking customer activities on the Web. Today it is possible to learn about cus- tomers by observing their behavior on the Internet. Many companies offer site- tracking services, based on cookies or other approaches. For example, Nettracker (from sane.com) collects data from client/server logs and provides periodic reports that include demographic data such as where customers come from or how many cus- tomers have gone straight from the home page to ordering. The company translates Internet domain names into real-company names and includes general and financial corporate information. One of the most interesting tools for tracking customers on the Internet as well as helping them to shop is intelligent agents. E - C o m m e r c e I n t e l l i g e n t A g e n t s Agents are computer programs that conduct routing tasks, search and retrieve infor- mation, support decision making, and act as domain experts. These agents sense the environment and act autonomously without human intervention. This results in a sig- nificant savings of users’ time (up to 99 percent in some cases). There are various types of agents, ranging from software agents, which are those with no intelligence, to learning agents that exhibit some intelligent behavior (see Chapter 12). Agents are used to support many tasks in EC. It will be beneficial to distinguish between search engines and the more intelligent type of agents. A search engine, which is usually a software agent, is a computer program that can automatically con- tact other network resources on the Internet, search for specific information or key words, and report the results. Unlike search engines, an intelligent agent uses expert, or knowledge-based, capabilities to do more than just “search and match.” For exam- ple, it can monitor movement on a Web site to check whether a customer seems lost or ventures into areas that may not fit his profile, and the agent can notify the cus- tomers and even provide assistance. Depending on their level of intelligence, agents can do many other things. In this section we will concentrate on intelligent agents for assisting customers. Search and filtering agents. Intelligent agents can help customers to determine what to buy to satisfy a specific need. This is achieved by looking for specific product infor- mation and critically evaluating it. An agent helps consumers decide what product best fits their profile and requirements. Product- and vendor-finding agents. Once the consumer has decided what to buy, a comparison agent will help in doing comparisons, usually of prices from different ven- dors. A pioneering intelligent agent for online price comparison was Bargainfinder from Andersen Consulting. This agent was used only in online shopping for CDs. The agent queried the price of a specific CD from a number of online vendors and re- turned the list of vendors and prices. Today much more sophisticated agents such as Mysimon.com help with comparisons. An interesting agent worth mentioning is Kasbah (kasbah.com). This agent from MIT media lab is sent out to actively seek buyers or sellers. In creating the agent, users must specify requirements, including desired price, highest (or lowest) accept- able price, and a date by which to complete the transaction. The agent’s goal is to complete an acceptable transaction based on these requirements. This agent will soon be able to negotiate on the part of the buyers. Kasbah agents (which now deal with the travel industry) will be able to negotiate with each other, following specific strate- gies assigned by their creators, using a number of different parameters: price, war- ranty, delivery time, service contracts, return policy, loan options, and other value-added services. Section 9.3 Market Research, Advertising, and Customer Service 287 Profiling customers using intelligent agents. Some companies collect information about consumers for the purpose of creating a customer’s profile. With this profile, the company can tailor ads to the specific customers or offer them product informa- tion. Use of this type of intelligent agent is called product brokering. To build a cus- tomer profile, an agent uses a collaborative filtering process. The consumer is asked to rate a number of products; the system then matches these ratings with the ratings of other consumers, and, relying on the ratings of other consumers with similar tastes, recommends products that the consumer has not yet rated. Fujitsu’s agents profile consumers. Fujitsu, a major Japanese vendor of consumer products, is using an agent-based technology called Interactive Marketing Interface (iMi) that allows advertisers to interact directly with targeted customers (magazine. fujitsu.com). Consumers submit a personal profile to iMi, indicating such characteris- tics as product categories of interest, hobbies, travel habits, and the maximum number of e-mail messages per week they are willing to receive. In turn, via e-mail, customers receive product announcements, advertisements, and marketing surveys based on their personal profile. By answering the marketing surveys or acknowledging receipt of advertisements, consumers earn iMi points, redeemable for gift certificates and phone cards. Consumers remain anonymous to the advertisers. ● The information collected by market research and intelligent agents in used for advertising strategies and for customer service, the topics we discuss next. A d v e r t i s i n g O n l i n e Advertising is an attempt to disseminate information in order to influence a buyer- seller transaction. Traditional advertising on TV or newspaper is impersonal, one-way mass communication. Direct-response marketing contacts individuals by means of di- rect mail or by telephone calls and requires them to respond in order to make a pur- chase. The direct-response approach personalizes advertising and marketing, but it can be expensive, slow, and ineffective. Internet advertising redefines the process, making it media-rich, dynamic, and interactive. It improves on traditional forms of ad- vertising in a number of ways: Internet ads can be updated any time at minimal cost, and therefore can always be timely. They can reach a very large number of potential buyers all over the world. Online ads are sometimes cheaper in comparison to print (newspaper and magazine), radio, or television ads. Ads in these other media are ex- pensive because they are determined by space occupied (print ads), by how many days (times) they are run, and by the number of local and national stations and print media that run them. Internet ads can be interactive and targeted to specific interest groups and/or to individuals. Finally, the use of the Internet itself is growing very rapidly, and it makes sense to move advertising to the Internet, where the number of viewers is growing. Nevertheless, the Internet as an advertising medium does have some shortcomings, most of which relate to measurement of effectiveness. For one thing, it is difficult to measure the actual results of placing a banner ad, and the audi- ence is still relatively small (compared to television, for example). For a summary of the benefits and the limitations of Internet advertising, see the checklist at our Web site. Advertising methods. The most common advertising methods online are banners and e-mail, which we look at first. EXAMPLE 288 Chapter 9 Electronic Commerce www.fujitsu.co.jp Banners. As you drive along a highway you see countless billboards on the sides of the road. Banners are electronic billboards, and banner advertising is the most com- monly used form of advertising on the Internet. Typically, a banner contains a short text or graphical message to promote a product or a vendor. It may even contain video clips and sound. When customers click on the banner, they are transferred to the advertiser’s home (ordering) page. Advertisers go to great lengths to design ban- ners that catch consumers’ attention. There are two types of banners: Keyword banners appear when a predetermined word is queried from the search engine. It is effective for companies who want to nar- row their target to consumers interested in particular topics. Random banners appear randomly and might be used to introduce new products to the widest possible audi- ence, or to keep a well-known brand, such as Amazon.com or IBM, in the public eye. A major advantage of using banners is the ability to customize them to the target audience. Keyword banners can be customized to a market segment or even to an in- dividual. If the computer system knows who you are, or what your profile is, you may be sent a banner that is supposed to match your interests. However, one of the major drawbacks of using banners is that limited information is allowed. Hence advertisers need to think of creative but short messages to attract viewers. Another drawback is that banners, which were a novelty in late 1990s and so were noticed by viewers, are ignored by many viewers today. Therefore some question their cost effectiveness and instead recommend e-mail advertising. E-mail advertising. E-mail is emerging as an Internet advertising and marketing channel that affords cost-effective implementation and a better and quicker response rate than other advertising channels (such as print ads). Marketers develop or pur- chase a list of e-mail addresses, place them in a customer database, and then send ad- vertisements via e-mail. A list of e-mail addresses can be a very powerful tool because the marketer can target a group of people or even individuals. However, there is po- tential for misuse of e-mail advertising. A major issue related to unsolicited e-mail ad- vertising is spamming, the practice of indiscriminate distribution of electronic messages (electronic junk mail) without permission of the receiver. What will happen when many marketers start inundating prospects and customers with electronic mail? How will consumers deal with it? What areas must marketers focus on to ensure e-mail marketing success? The answers to these and similar ques- tions will determine the success of e-mail advertising. Unfortunately, the answers to these questions are not always known. Market research may help provide some an- swers to these questions. Other forms of Internet advertising. Online advertising can be done in several other forms, including non-banner ads or posting advertisements in chat rooms, to news- groups, and on online kiosks. Advertising on Internet radio is just beginning, and soon advertising on Internet television will commence. Of special interest is advertising to members of Internet communities. Community sites are gathering places for people of similar interests and are therefore a logical place to promote products related to those interests. Advertising at a community site (such as at geocities.com; see Web site) might include direct advertising and, frequently, a chance to buy the advertised prod- ucts at a discount. Some advertising issues and approaches. There are many issues related to the imple- mentation of Internet advertising: how to design ads for the Internet, where and when to advertise, and how to integrate online and offline ads. Most of such decisions re- quire the input of marketing and advertising experts. We present several illustrative Section 9.3 Market Research, Advertising, and Customer Service 289 Coupons online. Finally, just as in offline advertising, shoppers can get discounts via coupons. You can gather any discount coupons you want by accessing sites like hotcoupons.com or supermarkets.com, selecting the store where you plan to redeem the coupons, and printing them. In the future, transfer of coupons directly to the virtual supermarket (such as peapod.com or netgrocer.com) will be available so that you can receive discounts on the items you buy there. Coupons also can be distributed via wire- less devices, based on your location. As you approach a restaurant you may be offered a 15 percent discount electronic coupon to show to the proprietors when you arrive. C u s t o m e r S e r v i c e Whether an organization is selling to organizations or to individuals, in many cases a competitive edge is gained by providing superb customer service. In e-commerce, cus- tomer service becomes even more critical, since customers and merchants do not meet face-to-face. Phases in the customer service life cycle. Customer service should be approached as a business life cycle process, with the following four phases: Phase 1. Requirements. Assist the customer to determine needs by providing pho- tographs of a product, video presentations, textual descriptions, articles or re- views, sound bites on a CD, and downloadable demonstration files. Also use intelligent agents to make requirements suggestions. Phase 2. Acquisition. Help the customer to acquire a product or service (online order entry, negotiations, closing of sale, and delivery). Phase 3. Ownership. Support the customer on an ongoing basis (interactive on- line user groups, online technical support, FAQs and answers, resource libraries, newsletters, and online renewal of subscriptions). Phase 4. Retirement. Help the client to dispose of a service or product (online re- sale, classified ads). Many activities can be conducted in each of these phases. For example, when an air- line offers information such as flight schedules and fare quotes on its Web site, it is supporting phases 1 and 2. Similarly, when computer vendors provide electronic help desks for their customers, they are supporting phase 3. Dell will help you to auction your obsolete computer, and Amazon.com will help you to sell used books, activities that support phase 4. Fidelity Investments offers financial information and news. Fidelity Investments provides investors with “the right tools to make their own best investment decisions.” The site has several sections, which include daily updates of financial news, informa- tion about Fidelity’s mutual funds, material for interactive investment and retirement planning, and brokerage services. This is an example of support given to phase 1 in the online selling of services. The site also helps customers buy Fidelity’s products (phase 2), handle their accounts (phase 3), and sell the securities (phase 4). ● Facilitating customer service. Several tools are available for facilitating online cus- tomer service: • FAQs. Companies provide online answers to questions customers ask most. • E-mail. Companies can send confirmations, product information, and instructions to customers. They can also take orders, complaints, and other inquiries. EXAMPLE 292 Chapter 9 Electronic Commerce www.fidelity.com • Tracking capabilities. Customers can track the status of their orders, services (such as FedEx shipments, banking or stock-trading activities), or job applications. • Personalized Web pages. Customers build individualized pages at the vendor’s site; customized information can be provided there. • Chat rooms. Customers can interact with each other and with the vendor’s person- nel, who monitor the chat room. • Web-based call centers. A comprehensive communication center takes customers’ inquiries in any form they come (fax, telephone, e-mail, letters) and answers them quickly and automatically, whenever possible. Customers can also interact with the vendor and get quick problem resolution. An application of Web-based call centers is becoming very popular, as shown in IT’s About Business 9.2 about Canadian Tire’s integrated call center. Section 9.3 Market Research, Advertising, and Customer Service 293 A b o u t B u s i n e s s Box 9.2: Canadian Tire provides superb customer service via integrated call center Canadian Tire Acceptance Ltd. (CTAL), the financial services division of the $5 billion Canadian Tire Corp., Ltd., serves over four million of Canadian Tire’s credit card holders. In 1998, CTAL became the primary call center of the company, handling telephone, fax, e-mail, and Internet contacts. It increased sales, enhanced customer retention, and eliminated annoying and time- consuming call transfers, ensuring that customers are treated on an individual basis. “The call center is a strategic asset,” says Mary Turner, vice president of cus- tomer services at CTAL. “This is our main point of contact with the customer. We have to maximize it.” Canadian Tire’s call center is actually 10 call centers, each dealing with a different area (general information, retail, wholesale, service, etc.), or with a geographical zone. The demands are heavy. CTAL’s 10 call centers operate 24 hours a day, 7 days a week, and they respond to more than 16 million calls each year. Call center rep- resentatives are expected to provide personalized service while handling a diverse set of customer needs—dealing with more than 200 types of customer requests, for ex- ample. CTAL’s new system ensures that any representa- tive can resolve any customer need without handing it off to another department. CTAL has several key business objectives: • Greater customer loyalty to Canadian Tire as a re- sult of enhanced service • Personalized customer attention and fewer trans- fers from one service agent to another • Rapid introduction of new products or changes to existing business services • Reduced training requirements for customer- service representatives • Integration of all customer touch points via a single system capable of handling Web, e-mail, and call center interactions “When we began the project, we took a look at our operations and saw too many independent call centers,” Turner continues. “It seemed that every time we intro- duced a new product or services, we set up a new call center. We decided to streamline operations to make it possible for customers to reach the right representative whenever they called.” One of the call center’s major capabilities is to build customer profiles and act on them when needed, providing one-to-one relationships. The call center can be viewed as an interaction center that immediately rec- ognizes the individual customer and integrates data that reflect on the relationship. While the Web-based call center is still new, it is expected to pay for itself quickly. Sources: Compiled from D. Peppers et al., The One to One Fieldbook (New York: Currency & Doubleday, 1999) and cana- diantire.ca (2001). Questions 1. Why does the company have several call centers? 2. What are the capabilities of the Web-based system? 3. What are the advantages of the Web-based system? ‘s www.canadiantire.com In business to business (B2B) applications, the buyers, sellers, and transactions in- volve only organizations. Business-to-business comprises the majority of EC vol- ume. It covers a broad spectrum of applications that enable an enterprise to form electronic relationships with its distributors, resellers, suppliers, customers, and other partners. By using B2B, organizations can restructure their supply chain and partnerships. There are several business models for B2B applications. The major ones are sell- side marketplace, buy-side marketplace, and electronic exchanges. S e l l - S i d e M a r k e t p l a c e In the sell-side marketplace model, organizations attempt to sell their products or ser- vices to other organizations electronically. This model is similar to the B2C model in which the buyer is expected to come to the seller’s site (or to an electronic mall), view catalogs, and place an order. In this case, however, the buyer is an organization that may be a regular customer of the seller. The key mechanisms in the sell-side model are: (1) electronic catalogs that can be customized for each large buyer, and (2) forward auctions. Sellers such as Dell Com- puter (dellauction.com) use this method extensively. In addition to auctions from their Web site, organizations can use auction sites, such as eBay, to liquidate items. Compa- nies such as freemarkets.com are helping organizations to auction obsolete and old as- sets and inventories (asset recovery programs). This model is used by thousands of companies and is especially powerful for com- panies with superb reputations. Examples are major computer companies such as Cisco, IBM, and Intel. The seller in this model can be either a manufacturer, a distrib- utor (e.g., bigboxx.com and marshall.com), or a retailer. In this model EC is used to increase sales, reduce selling and advertising expenditures, increase delivery speed, and reduce administrative costs. An example is provided in an IT’s About Business box (about Cisco Systems) at our Web site. B u y - S i d e M a r k e t p l a c e The buy-side marketplace, also known as e-procurement, is a model in which EC technology is used to streamline the purchasing process in order to reduce the cost of items purchased, the administrative cost of procurement, and the purchasing cycle time. A major method of e-procurement is a reverse auction. Here, a company that wants to buy items places a request for quotation (RFQ) on its Web site or in a bidding B e f o r e y o u g o o n . . . 1. Describe the EC consumer behavior model. 2. Describe EC market research and its tools. 3. Describe the major support areas of intelligent agents in EC. 4. Describe online advertising, its methods, and benefits. 5. List the phases of the customer service cycle. 294 Chapter 9 Electronic Commerce 9.4 B2B AND COLLABORATIVE COMMERCE APPLICATIONS industry, and Texaco and Chevron own an energy e-marketplace. The vertical e-mar- ketplaces offer services particularly suited to the particular e-community they serve. Since B2B activities involve many companies, specialized network infrastructure is needed. Such infrastructure works either as an EDI or as extranets. (We will return to the topic of EC infrastructure in Section 9.6.) In addition, business-to-business EC can involve much more than buying and sell- ing between companies. One area of considerable activity is collaborative commerce. C o l l a b o r a t i v e C o m m e r c e Collaborative commerce (c-commerce) refers to non-selling/buying EC transactions between and among organizations. An example would be a company that it is collabo- rating electronically with a vendor that is designing a product or part for this com- pany. C-commerce implies communication, information sharing, and collaboration, done electronically by means of tools such as groupware (Chapter 4) and specially de- signed EC collaboration tools. Let’s look at some areas of collaboration. • Retailer-suppliers. Large retailers, such as Wal-Mart, collaborate with their major suppliers to conduct production and inventory planning and forecasting of demand. Such collaboration enables the suppliers to improve their production planning as well. • Vendor-managed inventory. This is a service provided by large suppliers, such as Procter & Gamble, to large retailers, such as Wal-Mart, in which the vendor moni- tors and replenishes the inventory for the retailer. In some cases, vendor-managed inventory programs now are available to small retailers as well • Product design. All the parties that are involved in a specific product design share data and use special tools. One such tool is screen sharing, in which several people can work on the same screen while they are in different locations. This enables sup- pliers to provide quick feedback when they see the drawing of a product the cus- tomer wants made. Changes made in one place are visible to others instantly. Documents that can be processed through collaborative product design include blueprints, bills of material, accounting and billing documents, and joint reports and statements. • Collaborative manufacturing. Manufacturers can create dynamic collaborative networks. For example, Original Equipment Manufacturers outsources components and subassemblies to suppliers, which in the past often created problems in coordi- nation, work flows, and communication. Collaborative tools have improved the out- sourcing process, and are especially useful during changes, which may be initiated by any partner of the supply chain. Various business activities and functions lend themselves to collaborative processes: (1) planning and scheduling: material position, visibility forecasts, advanced planning, forecasting, and capacity management; (2) design: mechanical, electrical, test, and oth- ers; also component selection and design of and for the supply chain; (3) new product information: design validation, bill-of-material management, prototyping, production validation, and testing; (4) product content management: generating changes, change impact assessment, and phase-in of changes; (5) order management: order capture and configuration, order tracking, and delivery arrangements; and (6) sourcing and procure- ment: approving vendors, reverse auctions (tendering), supplier selection, strategic sourcing, and component selection. Specialized tools for c-commerce applications are provided by vendors such as glyphica.com, allegis.com, lotus.com, and ca.com. The major benefits of c-commerce are smoothing the supply chain, reducing in- ventories along the supply chain, reducing operating costs, increasing customer satis- faction, and increasing a company’s competitive edge. The challenges faced by the Section 9.4 B2B and Collaborative Commerce Applications 297 collaborators are software integration issues, technology selection, trust and security, and resistance to change and collaboration. While B2C and B2B received most of the media attention since 1995, several other EC innovative applications are starting to play a major role in e-commerce. These are e-government, mobile commerce, consumer-to-consumer e-commerce, and intrabusi- ness and business-to-employees e-commerce. E - G o v e r n m e n t As e-commerce matures and its tools and applications improve, greater attention is given to its use to improve the business of public institutions and governments (coun- try, state, county, city, etc). E-government is the use of Internet technology in general and e-commerce in particular to deliver information and public services to citizens, business partners and suppliers, and those working in the public sector. It is also an efficient way of conduct- ing business transactions with citizens and businesses and within the governments themselves. E-government can make government more transparent to citizens and improve delivery of public services. For other potential benefits of e-government, see the checklist at our Web site. E-government applications can be divided into three major categories: government-to-citizens (G2C), government-to-business (G2B), and government-to- government (G2G). Government agencies are increasingly using the Internet to provide various services to citizens. An example would be electronic benefits trans- fer (EBT), in which government transfers Social Security, pension, and other bene- fits directly to recipients’ bank accounts or to smart cards. Governments also are using the Internet to conduct business with businesses (sell to or buy from). For exam- ple, electronic tendering systems, using reverse auctions, are becoming mandatory. Many governments are moving public services online. For a list of those offered by the government of Hong Kong, for example, see our Web site. M - C o m m e r c e M-commerce (mobile commerce) refers to the conduct of e-commerce via wireless devices. The number of mobile devices in use worldwide, according to the Gartner- Group, is projected to top 1.3 billion by 2004. Furthermore, these devices can be con- nected to the Internet, making it possible for users to conduct transactions from B e f o r e y o u g o o n . . . 1. Briefly describe the sell-side marketplace. 2. Describe the various methods of e-procurement. 3. Describe how forward and reverse auctions are used in B2B commerce. 4. Describe the role of exchanges in B2B. 5. Describe c-commerce and its various activities. 298 Chapter 9 Electronic Commerce 9.5 INNOVATIVE APPLICATIONS OF E-COMMERCE anywhere. In addition, many corporate employees are mobile, namely working at home, on clients’ sites, or on the road. GartnerGroup projected that 30 to 50 percent of all employees in developed countries will be mobile by 2010. These employees need to collaborate and communicate with office employees and to access corporate data, rapidly and conveniently. Such a capability is provided by m-commerce. The advantages of m-commerce. Two main characteristics are driving the interest in m-commerce: mobility and reachability. Mobility implies that the Internet access trav- els with the customer. M-commerce is appealing because wireless offers customers in- formation from any location. This enables employees to contact the office from anywhere they happen to be or customers to act instantly on any shopping impulse. Reachability means that people can be contacted at any time, which most people see as a convenience of modern life. (Of course, you can block certain times or certain messages.) These two characteristics—mobility and reachability—break the geo- graphic and time barriers. As a result, mobile terminals such as a PDA (personal digi- tal assistant) or a cell phone with Internet access can be used to obtain real-time information and to communicate from anywhere, at any time. In addition, mobile devices make possible location-based commerce, also known as l-commerce. L-commerce delivers information about goods and services based on where you (and your mobile device) are located. For example, in San Francisco, NextBus service knows, by the use of global positioning systems (GPSs), where the buses are, in real time; when you call on your cell phone from a particular bus stop, the system will compute when the bus will actually arrive there. Other localization systems will find where you are located, and based on this information will send you advertise- ments for nearby vendors. For some representative applications of m-commerce, see the book’s Web site. I-MODE spreads m-commerce. I-MODE is a pioneering wireless service that took Japan by storm in 1999 and 2000. With a few clicks of a handset, I-MODE users can conduct a large variety of m-commerce activities ranging from online stock trading and banking to purchasing travel tickets and booking karaoke rooms. You can also send and receive color images via I-MODE. The service was launched in February 1999, and it had over 29 million users by the end of 2001. I-MODE users can access train and bus timetables, guides to shopping areas, and automatic notification of train delays; get discount coupons for shopping and restaurants; purchase music online; send or receive photos; buy airline tickets; find information about best-selling books and then buy the books; and even receive Tamagotchi’s characters, every day, for only $1 per month. I-MODE was taken international in late 2000. ● Technology and limitations. The implementation of m-commerce requires a multi- tude of infrastructures: hardware (cell phones, PDAs, screen phones, etc.), software (microbrowsers, operating systems, application software), and wireless transmission media (e.g., satellites). Some of the major limitations of m-commerce relating to these technologies are insufficient bandwith, lack of standard security protocols, high cost of 3G licenses, high power consumption, and possible health hazards. C o n s u m e r - t o - C o n s u m e r E - C o m m e r c e An increasing number of individuals are using the Internet to conduct business or to collaborate with others. Auctions are by far the most popular C2C e-commerce activ- ity. Some other C2C activities are: EXAMPLE Section 9.5 Innovative Applications of E-Commerce 299 www.nttdocomo.com/imode Electronic payment systems. As in the traditional marketplace, so too in cyberspace, diversity of payment methods allows customers to choose how they wish to pay. The following instruments are acceptable means of payment: electronic checks, electronic credit cards, electronic cash, smart cards, person-to-person payments, electronic funds transfer (EFT), e-wallets, and purchasing cards. Here we will look at each of these payment mechanisms. Later on we will see how to make them secure. Electronic checks. Electronic checks (e-checks) are similar to regular checks, and they are used mostly in B2B. Here is how they work: Step 1. The customer establishes a checking account with a bank. Step 2. The customer contacts a seller, buys a product or a service, and e-mails an encrypted electronic check. Step 3. The merchant deposits the check in his or her account; money is debited from the buyer’s account and credited to the seller’s account. Like regular checks, e-checks carry a signature (in digital form) that can be verified. Properly signed and endorsed e-checks are exchanged between financial institutions through electronic clearinghouses. Electronic credit cards. Electronic credit cards make it possible to charge online payments to one’s credit card account. It is easy and simple for a buyer to e-mail her or his credit card number to the seller. The risk here is that hackers will be able to read the credit card number. Sender authentication is also difficult. Therefore, for security, only encrypted cards should be used. The data associated with encrypted cards are scrambled so that only those recipients with a key to the coding can retrieve the data. Credit card details can be encrypted by using the SSL protocol (described later) in the buyer’s computer, which is available in standard browsers. When you buy a book from Amazon your credit card information and purchase amount are encrypted in your browser. When this information arrives at Amazon, it will be transferred automatically (encrypted) to VISA, Mastercard, and so forth, for authorization. An enhanced credit card security system uses an intermediary for additional en- cryption. Unfortunately, this additional layer of protection adds to both the cost and the processing time. Also, a more secure protocol, called SET, can be used at a higher cost. (SET is described in detail later.) Electronic cash. Cash is the most prevalent consumer payment instrument. Tradi- tional brick-and-mortar merchants prefer cash since they do not have to pay commis- sions to credit card companies and they can put the money to use as soon as it is received. Also, some buyers pay with cash because they do not have checks or credit cards, or because they want to preserve their anonymity. It is logical, therefore, that EC sellers and some buyers may prefer electronic cash (e-cash). Electronic cash ap- pears in two forms. 1. Electronic cash in a PC. The use of this approach involves a six-step process: Step 1. The customer opens an account with a bank and receives special soft- ware for his or her PC. Step 2. The customer buys “electronic money” from the bank by using the soft- ware. The customer’s bank account is debited accordingly. Step 3. The bank sends a secured electronic money note to this customer. Step 4. The money is stored on the buyer’s PC and can be spent in any elec- tronic store that accepts e-cash. 302 Chapter 9 Electronic Commerce Step 5. The software is also used to transfer the e-cash from the buyer’s com- puter to the seller’s computer. Step 6. The seller can deposit the e-cash in a bank, crediting his or her regular or electronic account, or the seller can use the e-cash to make a purchase else- where. 2. Electronic payment cards with e-cash. Electronic payment cards have been in use for several decades. The best known are credit cards, which use magnetic strips that contain limited information, such as the card’s ID number. A more advanced form of payment card, known as a stored- value money card, is the one that you use to pay for photocopies in your library, for transportation, or for telephone calls. It allows a fixed amount of prepaid money to be stored in quantities that can be de- creased and sometimes increased. Each time you use the card, the amount is reduced. One successful example is used by the New York Metropolitan Transportation Authority (MTA), which operates buses, trains, interstate toll bridges, and tunnels. Nearly 5 million customers present cards to card reader machines on buses, subways, and road toll- booths each day. The Chicago Transit Authority (CTA) uses similar cards. Some of these cards are reloadable, and some are discarded when the money is depleted. Cards with stored-value money also can be purchased for Internet use. You enter a third-party Web site and you provide an ID number and a pass- word, much as you do when you use a prepaid phone card. The money can be used only in participating stores. Smart cards. Although some people refer to stored-value cards as smart cards, they are not really the same. True smart cards contain a microprocessor (chip) and can store a considerable amount of information (more than 100 times that of a stored- value card) and can conduct processing. Such cards are multipurpose, as shown in the Takashimaya Inc. example at our Web site. Advanced smart cards have the ability to transfer funds, pay bills, buy from vend- ing machines, or pay for services such as those offered on television or PCs. Money val- ues can be loaded at ATMs, kiosks, or from your PC. For example, the VISA Cash Card allows you to buy goods or services at participating gas stations, fast-food outlets, pay phones, discount stores, post offices, convenience stores, coffee shops, and even movie theaters. Smart cards are ideal for micropayments. Smart cards can also be used to transfer benefits from companies to their employees, as when retirees get their pen- sion payments, and from governments that pay citizens different entitlements. The money is transferred electronically to a smart card at an ATM, kiosk, or PC. Person-to-person (P2P) payment Person-to-person (P2P) payments is one of the newest and fastest-growing payment schemes. They enable the transfer of funds be- tween two individuals for a variety of purposes like repaying money borrowed from a friend, sending money to students at college, paying for an item purchased at an on- line auction, or sending a gift to a family member. One of the first companies to offer this service was PayPal (paypal.com). PayPal claimed, in late 2001, to have 8 million customer accounts, handling 25 percent of all eBay transactions and funneling $5 bil- lion in payments through its servers annually. Although PayPal had not made a profit by fall 2001, this kind of business activity has drawn the attention of a number of other companies who are trying to get in on the action. Citibank C2IT (c2it.com), AOL QuickCash (aol.com), One’s Bank eMoneyMail, Yahoo! PayDirect, and WebCertifi- cate (webcertificate.com) are all PayPal competitors. Section 9.6 Infrastructure and E-Commerce Support Services 303 An electronic payment card from the Chicago Transit Authority (CTA). Virtually all of these services work in a similar way. Assume you want to send money to someone over the Internet. First, you select a service and open up an ac- count with the service. Basically, this entails creating a user name, a password, giving them your e-mail address, and providing the service with a credit card or bank ac- count number. Next, you add funds from your credit card or bank account to your P2P account. Once the account has been funded you’re ready to send money. You ac- cess PayPal (for example) with your user name and password. Now you specify the e-mail address of the person to receive the money, along with the dollar amount that you want to send. An e-mail is sent to the payee’s e-mail address. The e-mail will con- tain a link back to the service’s Web site. When the recipient clicks on the link, he or she will be taken to the service. The recipient will be asked to set up an account to which the money that was sent will be credited. The recipient can then credit the money from this account to either his or her credit card or bank account. The payer pays a small amount (around $1) per transaction. Electronic funds transfer. Electronic funds transfer (EFT) is the electronic transfer of money to and from financial institutions using telecommunication networks. EFT is now widely used—with funds, debits and credits, and charges and payments electroni- cally routed via clearinghouses among banks and between banks and customers. Ex- amples of EFT include: interbank transactions around the globe; payment of university tuition using an ATM; direct deposit of salaries in employees’ accounts; and payment of mortgages, utility bills, and car payments through monthly bank account deductions. EFT is fast; it reduces delays associated with sending hardcopy documents, and it eliminates returned checks. It has become the only practical way to handle the large volume of financial transactions generated daily in the banking industry. EFT-based ATMs are increasingly available in shopping centers and business areas, allowing in- dividuals to make deposits, withdrawals, and money transfers 24 hours a day. Electronic wallets. Most of the time when you make a purchase on the Web you’re required to fill out a form with your name, shipping address, billing address, credit card information, and so on. Doing this a few times is fine, but having to do it every time you shop on the Web is an annoyance. Some merchants solve the problem by having you fill out a form once and then saving the information stored on their servers for later use. For instance, this is what Amazon.com has done with its “one-click” fea- ture. Of course, even if every merchant provides a “one-click” feature, you would still have to set up an account with every merchant. One way to avoid the problem of having to repeatedly fill out purchase informa- tion, while at the same time eliminating the need to store the information on a mer- chant’s server, is to use an electronic wallet (e-wallet). An e-wallet is a software component that is downloaded to a user’s PC and in which the user stores credit card numbers and other personal information. When the user shops at a merchant who ac- cepts the e-wallet, the user can perform one-click shopping, with the e-wallet auto- matically filling in the necessary information. Credit card companies like Visa and MasterCard offer e-wallet services, as do Yahoo!, America Online (called Quick Checkout), and Microsoft (Passport). Of these, Yahoo! currently has the largest num- ber of merchant participants (over 10,000). As of 2001, many banks around the world offer e-wallet service. Purchasing cards. In some countries, such as the U.K., United States, and Hong Kong, companies are paying other companies by means of purchasing cards. Unlike credit cards, where credit is provided for 30 to 60 days for free before payment is made to the merchant, payments made with purchasing cards are settled within a 304 Chapter 9 Electronic Commerce • Secure Electronic Transaction (SET) protocol. A more comprehensive protocol for credit card processing is SET. It is not used much due to its cost and complexity. However, it is designed to allow consumers to shop anywhere as conveniently and securely as possible by incorporating digital signatures, certification, encryption, and an agreed-upon payment gateway (to banks). While SSL protects only integrity and safety, SET can provide protection against all security hazards. O r d e r F u l f i l l m e n t When a company sells direct to individual customers it is involved in various order fulfillment activities. It must: 1. Quickly find the products to be shipped, and pack them. 2. Arrange for the packages to be delivered speedily to the customer’s door. 3. Collect the money from every customer, either in advance, by COD, or by individ- ual bill. 4. Handle the return of unwanted or defective products. It is very difficult to accomplish these activities both effectively and efficiently since a company may need to ship small packages to many customers, and do so quickly. For this reason, both online companies and click-and-mortar companies have difficulties in their B2C supply chain. Here we provide only a brief overview; a more detailed dis- cussion is provided in Chapter 10. Order fulfillment refers not only to providing customers with what they ordered and doing it on time, but also to providing all related customer service. For example, the customer must receive the assembly and operation instructions to a new appli- ance. (A nice example is available at livemanuals.com.) In addition, if the customer is not happy with a product, an exchange or return must be arranged. Order fulfillment is basically a part of the back-office operations. During the last few years, e-tailers have faced continuous problems in order fulfill- ment, especially during the holiday season. The problems resulted in inability to de- liver on time, delivery of wrong items, high delivery costs, and the need to heavily compensate unhappy customers. Several factors can be responsible for delays in deliv- eries. They range from inability to forecast demand accurately to ineffective supply chains. Some such problems exist also in offline businesses. One factor that is typical of EC, though, is that it is based on the concept of “pull” operations, which begin with an order, frequently a customized one. This is in contrast with traditional retailing that be- gins with a production to inventory, which is then “pushed” to customers. In the pull case it is more difficult to forecast demand, due to unique demands of customized or- ders and lack of sufficient years of experience. For solutions to order fulfillment prob- lems, see Chapter 10. For many e-tailers, taking orders over the Internet could well be the easy part of B2C e-commerce. Fulfillment to customers’ doors is the sticky part. B e f o r e y o u g o o n . . . 1. List the major infrastructure items in EC. 2. List the various electronic payment mechanisms. 3. List the security requirements for EC. 4. Explain encryption for EC. 5. Describe the issues in EC order fulfillment. Section 9.6 Infrastructure and E-Commerce Support Services 307 Ethical standards and their incorporation into law frequently trail technological in- novation. As with advancements in genetic medicine, for example, e-commerce is taking new forms and enabling new business practices that may bring numerous risks—particularly for individual consumers—along with their advantages. We encourage you to develop an awareness of the issues discussed in this section, and to carefully assess the risks involved in future e-commerce developments. Before we present these specific issues, we discuss the issues of market practices and consumer/seller protection. M a r k e t P r a c t i c e s a n d C o n s u m e r a n d S e l l e r P r o t e c t i o n When buyers and sellers do not know each other and cannot even see each other (they may even be in different countries), there is a chance that dishonest people will commit fraud and other crimes over the Internet. During the first few years of EC, the public witnessed many of these, ranging from the creation of a virtual bank that disappeared along with the investors’ deposits, to manipulation of stock prices on the Internet. Unfortunately, fraudulent activities on the Internet are increasing. Fraud on the Internet. Internet fraud and its sophistication have grown as much and even faster than the Internet itself. As one example, in fall 1998 the SEC brought charges against 44 companies and individuals who illegally promoted stocks on computer bulletin boards, online newspapers, and investment Web sites. (You can see details on both settled and pending cases at sec.gov.) In most of these cases, stock promoters falsely spread positive rumors about the prospects of the compa- nies they touted. In other cases, the information provided might have been true, but the promoters did not disclose that they were paid to talk up the companies. Stock promoters specifically target small investors who are lured by the promise of fast profits. Stocks are only one of many areas where swindlers are active. Auctions are espe- cially conducive to fraud, by both sellers and buyers. Other areas of potential fraud in- clude selling bogus investments and phantom business opportunities. Financial criminals now have access to far more people, mainly due to the availability of elec- tronic mail. The U.S. Federal Trade Commission has published a list of 12 scams most likely to arrive via e-mail, which is shown on this book’s Web site. There are several ways buyers can be protected against EC fraud. Representative methods are described next. Buyer protection. Buyer protection is critical to the success of any commerce where buyers do not see the sellers, and this is especially true for e-commerce. Some tips for safe electronic shopping are shown in Table 9.3. In short, do not forget that you have shopper’s rights. Consult your local or state consumer protection agency for general information on your consumer rights. Seller protection. Sellers, too, may need protection. They must be protected against consumers who refuse to pay or who pay with bad checks, and from buyers’ claims that the merchandise did not arrive. They also have the right to protect against the 308 Chapter 9 Electronic Commerce 9.7 LEGAL AND ETHICAL ISSUES IN E-COMMERCE use of their name by others as well as use of their unique words and phrases, slogans, and Web address (trademark protection). Another seller protection applies particu- larly to electronic media: Sellers have legal recourse against customers who down- load without permission copyrighted software and/or knowledge and use it or sell it to others. E t h i c a l I s s u e s Many of the ethical and global issues related to IT apply also to e-commerce. These will be discussed in Chapter 15 and in the Ethics Primer at our Web site. Here we touch on issues particularly related to e-commerce. Privacy. Most electronic payment systems know who the buyers are; therefore, it may be necessary to protect the buyers’ identities. Another privacy issue may involve tracking of Internet user activities by intelligent agents and cookies (see below). A privacy issue related to employees also involves tracking: Many companies monitor employees’ e-mail and have installed software that performs in-house monitoring of Web activities; many employees don’t want to feel like they are under the watchful eye of “Big Brother,” even while at work. Web tracking. By using tracking software, companies can track individuals’ move- ments on the Internet. Programs such as “cookies” raise a batch of privacy concerns. The tracking history is stored on your PC’s hard drive, and any time you revisit a cer- tain Web site, the computer knows it. Programs such as Cookie Cutter are designed to allow users to have some control over cookies. (For further discussion see com- merceNet.com.) Disintermediation. The use of EC may result in the elimination of some of a com- pany’s employees as well as brokers and agents. This result is called disintermediation—that is, “eliminating the intermediary.” The manner in which these Section 9.7 Legal and Ethical Issues in E-Commerce 309 Tab le 9 .3 T ips for Safe E le c t ron i c Shopp ing • Look for reliable brand names at sites like Wal-Mart Online, Disney Online, and Amazon.com. Make sure that the sites are authentic before purchasing, by entering the site directly and not from an unverified link. • Search any unfamiliar selling site for the company’s address and phone and fax numbers. Call up and quiz the employees about the sellers. • Check out the vendor with the local Chamber of Commerce or Better Business Bureau (bbbonline.org). Look for seals of authenticity such as TRUSTe. • Investigate how secure the seller’s site is by examining the security procedures and by reading the posted privacy notice. • Examine the money-back guarantees, warranties, and service agreements. • Compare prices to those in regular stores. Too-low prices are too good to be true, and some “catch” is probably involved. • Ask friends what they know. Find testimonials and endorsements in community sites and well-known bulletin boards. • Find out what your rights are in case of a dispute. • Consult the National Fraud Information Center (fraud.org). • Check consumerworld.org for a listing of useful resources. 1 Describe electronic commerce, its scope, benefits, limitations, and types. E-commerce can be conducted on the Web, by e-mail, and on other networks. It is divided into the following major types: business-to-consumer, consumer-to- consumer, business-to-business, e-government, collaborative commerce, and intra- business. In each type you can find several business models. E-commerce offers many benefits to organizations, consumers, and society, but it also has limitations (technical and nontechnical). The current technical limitations are expected to lessen with time. 2 Describe the major applications and issues of business-to-consumer commerce, service industries in e-commerce, and electronic auctions. The major application areas of B2C commerce are in direct retailing, banking, se- curities trading, job markets, travel, and real estate. Several issues slow the growth of B2C, notably channel conflict, order fulfillment, and customer acquisition. B2C e-tailing can be pure (such as Amazon.com), or part of a click-and-mortar organi- zation. Direct marketing is done via solo storefronts, in malls, and by using elec- tronic auctions. The Internet provides an infrastructure for executing auctions at lower cost, and with many more involved sellers and buyers, including both indi- vidual consumers and corporations. Forward auctions and reverse auctions are the two major types. 3 Discuss the importance and activities of B2C market research, advertising, and cus- tomer service. Understanding consumer behavior is critical to e-commerce. Finding out what cus- tomers want can be done by asking them, in questionnaires, or by observing what they do online. Other forms of market research can be conducted on the Internet by using intelligent agents. Like any commerce, EC requires advertising support, much of which can be done online by methods such as banner advertisements and customized ads. Permission marketing, interactive and viral marketing, electronic catalogs, and online coupons offer ways for vendors to reach more customers. Cus- tomer service occurs before during and after purchasing, and during disposal of products. 4 Describe business-to-business and collaborative commerce applications. The major B2B applications are selling from catalogs and by forward auctions, buying in reverse auctions and in group purchasing, and trading in exchanges. In addition, most organizations employ collaborative commerce, usually along the supply chain. 5 Describe emerging EC applications such as e-government and mobile commerce. E-government commerce can take place between government and citizens or be- tween businesses and governments. It makes government operations more effec- tive and efficient. Using a wireless environment allows new mobile commerce applications as well as more convenient access to the Internet. EC also can be done SUMMARY 312 Chapter 9 Electronic Commerce F O R T H E H U M A N R E S O U R C E S M A N A G E M E N T M A J O R Every activity and task performed by the HRM department may be affected by e-commerce. Recruiting, for example, is becoming Web-based for many companies, and benefits management and employee training are rapidly moving to intranets. And both collaborative commerce and e-government have the potential to break down traditional job descriptions and change job responsibilities. HRM between consumers (C2C), but should be undertaken with caution. Finally, EC can be done within organizations (intrabusiness). 6 Describe the e-commerce infrastructure and support services, including payments and logistics. The major EC infrastructure components are networks, Web servers, Web tools, electronic catalogs, programming languages, transactional software, and security devices. Traditional, nonelectronic payment systems are insufficient or inferior for doing business on the Internet. Therefore, electronic payment systems are used. Electronic payments can be made by e-checks, e-credit cards, e-cash, smart cards, and EFT. Order fulfillment is especially difficult in B2C. 7 Discuss legal and other implementation issues. Protection of customers, sellers, and intellectual property is a major concern, but so are the value of contracts, domain names, and how to handle legal issues in a multicountry environment. Implementing e-commerce is not simple, and multiple financial, organizational, technological, and managerial issues must be addressed. Problem-Solving Activities 313 I N T E R A C T I V E L E A R N I N G S E S S I O N Enchance and test your knowledge of Chapter 2 using the interactive CD. DISCUSSION QUESTIONS 1. Discuss the major limitations of e-commerce. Which of them are likely to disappear? Why? 2. Why is the electronic job market popular, espe- cially among the high-tech professions? 3. Discuss the relationship between digital signature, certification, and PKI. 4. Distinguish between business-to-business forward auctions and buyers’ bids for RFQs. 5. Some say that the major benefit of EC occurs in c-commerce. Why? 6. What is interactive advertising? What are its major benefits? 7. Discuss the benefits to sellers and buyers of a B2B exchange. 8. What are the major benefits of e-government? 9. Why is m-commerce attracting a great deal of attention? 10. Why are online auctions becoming popular? PROBLEM-SOLVING ACTIVITIES 1. Assume you’re interested in buying a car. You can find information about cars at carpoint.com. Go to autoweb.com or autobytel.com for information about financing and insurance. Decide what car you want to buy. Configure your car by going to the car manufacturer’s Web site. Finally, try to find the car from autobytel.com. Write a report about your experience. 2. To find information about how to start a new EC business, go to cio.com/forums/ec, and to financehub.com. Also try e-business at the Netscape main menu, at “Starting EC business” at google.com, and sellitontheweb.com. Prepare a report. 3. Find information on the Web on: a. Getting an MBA degree at a virtual university. b. Going public on the Internet with stocks (IPO). 314 Chapter 9 Electronic Commerce c. Business credit verification. d. Electronic letter of credit. 4. Describe how public and private keys can be used in the following instances: a. Person A wants to send a secure message to many people. b. Person B received an e-check from person C. How can he be sure it is real? c. You want to make sure that the credit card num- ber you give to an e-tailer is secured. How can a PKI system help? If it cannot help, why not? What other approach can you use? 1. Access etrade.com and register for the Internet stock game. You will be bankrolled with $100,000 in a trading account every month. Try to win the game! 2. Access hsbc.com.hk/hk/hexagon.default.htm and us.hsbc.com/business/payments/hexagon, and find in- formation about Hexagon. What are its advantages to the bank? To the customers? 3. Select one of the following destinations you want to visit: Australia, Nepal, Israel, Thailand, or Fin- land. Access expedia.com and google.com. a. Find the lowest airfare. b. Examine a few hotels by class. c. Get suggestions of what to see. d. Find out about local currency, and convert $1,000 to that currency with an online currency converter. e. Compile travel tips. f. Prepare a report. 4. Access realtor.com. Prepare a list of services avail- able on this site. Then prepare a list of advantages derived by the users and advantages to realtors. Are there any disadvantages? To whom? 5. You can customize your own CD from existing music. Look at musicmatch.com or cductive.com. Examine the process, payments, etc. Try your own CD. Write a report. 6. Enter alibaba.com. Identify the site’s capabilities. Look at the site’s private trading room. Write a report. 7. Try to find a unique gift on the Internet for a friend. Several sites help you do it. (You might try shopping.com and amazon.com, for example.) De- scribe your experience with such a site. 8. Access the sites of Pizza Hut (pizzahut.com) and Domino’s (dominos.com) to find what they are doing in your area with respect to take-home or- ders. Also check their distribution of coupons and any other strategic activities. 9. Access peapod.com and netgrocer.com. Compare and contrast the two companies. 10. Access info.gov.hk and find the major e-govern- ment initiatives. Look also at ets.com.hk. 11. Enter campusfood.com. Explore the site. Why is the site so successful? Could you start a competing one? Why or why not? INTERNET ACTIVITIES TEAM ACTIVITIES AND ROLE PLAYING 1. Have each team study a major bank with extensive EC strategy. For example, Wells Fargo Bank is well on its way to being a cyberbank. Hundreds of brick- and-mortar branch offices are being closed. In late 2001, the bank served more than a million cyberac- counts (see wellsfargo.com). Other banks are Citi- corp, Netbank, and HSBC (Hong Kong). Each team should attempt to convince the class that its bank is the best. 2. Find 10 real-world applications of the major business- to-business models listed in the chapter. (Try success stories of vendors and EC-related magazines.) Find at least one in each category. Examine the problems they solve or the opportunities they exploit. 3. Amazon.com, the giant Internet bookstore, lists close to 10 million books. Its major competitor is Barnes & Noble online (bn.com). Assign one team to each company. a. Find out how the company administers its book logistics. b. Evaluate the customer services the site offers. c. Examine how comparison agents such as best- bookbuys.com work. d. Search press releases regarding the corporate strategy. e. Convince the class that your company is better.