Introduction To E-Commerce II Speaker: Jerry Gao Ph.D. San Jose State University email: jerrygao@email.sjsu.edu URL: http://www.engr.sjsu.edu/gaojerry August, 2000
Topic: Online Payment Protocols and Systems Presentation Outline Scope of E-Commerce Basic Concepts on E-Commerce Business Models Commerce Value Chain Commerce Value Chain on the Internet Types of E-Commerce Markets Jerry Gao Ph.D. 5/20000 All Rights Reserved
Scope of E-Commerce Electronic commerce Electronic business community Electronic business Internet commerce Web commerce EDI Which include: Groupware Electronic collaboration Transaction processing Web-based advertising Web-based distribution Web marketing and customer service Jerry Gao Ph.D. 5/2000
Basic Concepts on E-Commerce Web commerce refers to the use of the World Wide Web technology on the Internet to facilitate consumer-to-business interactions by providing the capability of buying and selling products, related information and services on the Web. Internet commerce refers the use of the Internet technologies to facilitate various business applications to support internal business transactions among different functional processes as well as inter-organizational business interactions and transactions with suppliers and customers. Electronic data interchange (EDI) facilitates and supports inter-organizational exchanges of business documents between businesses based on EDI network technology and document standards. EDI can be viewed as a traditional business-to-business application scope. ry Gao Ph.D. 5/2000
Basic Concepts on E-Commerce Electronic business facilitates the integration of business processes, enterprise applications, and organizational structure to create and implement a high-performance business model. Unlike other e-commerce applications and practices, electronic business focuses on a well-structured plan with a tactic business model that combines internal business process, inter-organizational transactions, organizational structures, and managerial processes together to implement and deliver a successful roadmap for a business organization. Electronic business community refers to networks of suppliers, distributors, commerce providers, and consumers that use the Internet and other electronic media as platforms for collaboration and competition. ry Gao Ph.D. 5/2000
Basic Concepts of E-Business What is e-business? - E-business is the overall strategic planing and development process that leads a business corporation to a successful road. - The focus of the e-business is roadmap for the successes. - E-business focuses on business models, management strategies, and tactics that make them on the way to conduct high-performance businesses (Kalakota 1999). Thus, e-business will play a significant role in determining the success of corporations. E-business includes the following aspects: - Supporting e-commerce transactions. - Digitizing internal front- and back-office applications to support business processes, transactions, and workflow. - Redefining (or re-engineering) old business models with the aid of technology to form new effective commerce value chain on the Internet. ry Gao Ph.D. 5/2000
Why is e-business important? Here we identify three major reasons: Business Concepts of E-Business - As the advent of electronic commerce on the Internet, visionary companies realized that their current business design, organization structure, and business process, and information systems are insufficient to meet the challenges of doing business in the e- commerce era. They are looking for new business model, strategy, process, structure and technology to support their future business. - Everyday more and more individuals and companies worldwide are getting involved in electronic commerce on the Internet. Business managers want to know what make some companies successful in the digital economy. - CEOs of traditional businesses are looking for effective ways to transform (or reengineer) the traditional business model, structure, and process into a new highperformance business model to support new commerce value chain on the Internet. ry Gao Ph.D. 5/2000
Commerce Value Chain Three Variants Producer Wholesaler Retailer Consumer* Cost Per Shirt $52.72 Percent Savings 0% Producer Wholesaler Retailer Consumer* Producer Wholesaler Retailer Consumer* $41.34 $20.45 28% 62% Growth in Value Added and Selling Price Producer Wholesaler Retailer Consumer* Value Added $20.45 $11.36 $20.91 Selling Price $20.45 $31.81 $52.72 $52.72 *Consumer transactions are not considered. Source: The prices for high-quality shirts are derived from E. Thornton, "Revolution in Japanese Retailing," Fortune, 7 February 1994, p.144. ry Gao Ph.D. 5/2000
Commerce Value Chain What is a commerce value chain? - Commerce value chain refers to a value added process for a product. - The process usually consists of a number of steps. - When a producer uses the raw materials to produce the product, it is merely only the first step of the process. Then, the value may have been added when the product is further processed and transported. At the last step, a consumer purchases the product in a retail store. ry Gao Ph.D. 5/2000
Commerce Value Chain over the Internet Producer of Digital Products Producer of Physical Goods Physical Distribution Services Banks and Financial Services Wholesalers Electronic Markets Internet Consumers ry Gao Ph.D. 5/2000
Commerce Value Chain over the Internet The advances of electronic commerce will affect the current commerce value chain and future evolution of the information infrastructure for electronic commerce (Benjamin 1995). Figure 1.5 shows the structure of the commerce value chain on the Internet. It consists of three levels. -- The first level includes different types of online markets. They play as intermediaries between consumers and suppliers on the Internet. -- The second level includes the wholesalers, which have warehouses and inventory support for products. -- The third level includes supporting business organizations (or companies) which provide products, shipping and delivery services, and necessary financial support. Producers of digital products. Producers of physical goods. Physical distribution services. Banks and financial service providers. Banks and final service provides support the payment transactions and perform validations for those online businesses, such as electronic retailers. ry Gao Ph.D. 5/2000
Commerce Value Chain over the Internet Get and keep Customer interest Turn interest Into orders Manage Orders Service Customers Attract Interact Attract React Advertising Marketing Catalog Sales Order capture Payment Fulfillment Customer service Order tracking ry Gao Ph.D. 5/2000
Commerce Value Chain Over the Internet Attract customers The first phase of the commerce value chain is attract. In the first phase, we use various ways to draw customers into the primary web site. We can market our wet site using electronic mails, television, radio, print or other forms of advertising and marketing means. The focus on this phase is to make an impression on customers and draw them into the online detailed catalog or sale information about products and services. Interact with customers The next phase of the commerce value chain is interact. In this phase, we want to turn customers' interest into orders by providing them with online product catalogs. To achieve this goal, we may use different web publishing methods and tools to create and update the content information in product catalogs. ry Gao Ph.D. 5/2000
Commerce Value Chain Over the Internet Act on customer instructions The third phase in the commerce value chain is act. After buyers have searched through a product catalog and decide to make a purchase, we must provide them a way to capture the orders, process payment, and handle fulfillment. React on customer requests The last phase is called react. The focus of this phase is on post-sales interactions with customers. After a sale is complete, the customer may have some questions or difficulties that require service. Although many questions need a customer supporter to answer, others can be answered with the appropriate information system. y Gao Ph.D. 5/2000
Definitions of Business Model There are many ways of defining business models, and many different definitions about business models. A business model is the method of doing business by which a company can sustain itself - that is, generate revenue. The business model spells-out how a company makes by specifying where it is positioned in the value chain. Given by http://ecommerce.ncsu.edu/business_models.html A business model is a pattern or blueprint of how a business is structured and operates - typically documented in the form of Standard Operating Procedures and Work Instructions. Encompassing all of a company s business systems under a umbrella, a clearly defined Business Model can be studies and optimized - maximizing processes, production and efficiency while minimizing repetitious error, rework and waste. Given by http://www.cs.unb.ca/profs/bhavsar/courses/cs3013/cs3013/note7.htm y Gao Ph.D. 5/2000
Definitions of Business Model? According to Peter G. W. Keen of Keen Group on business remodel: Business model is largely displacing strategy as the core term for reviewing the New World of commerce today. There s good reason: Strategy largely works within the givens of business - industry, channels, price structures - but there aren t any givens now. Is our basic business model sound, or will we have to change, adapt or even abandon it? Strategy rests on answering this, not the other way around. From http://www.wsaccess.com/thestreet/funds/deardagen/782926.html A business model is an all-encompassing strategic plan that details how a company intends to conduct and grow its business. A typical business mode begins with management s sweeping vision of the industry in which it operates and of its future. This plan will sketch the company s existing and future product lines or businesses,. Simply, you should get a good idea of how the management is running the company. y Gao Ph.D. 5/2000
Business Model Overview 1 Company Mission & Value 2 Economic & Industry Environment Customers Competition Regulation Technologic Change Globalization 4 Clearly Defined Vision & Value Creation Strategies 3 Current Strategic Assets 5 Required Strategic Assets Asset Gaps 6 Achievement of Vision & Value Creation Strategies y Gao Ph.D. 5/2000
Definitions of Business Models According to Ivar Jacobson s The Object Advantage, A business model shows what the company s environment is and how the company acts in ration to this environment. By environment it means everything the company interacts with to perform its business processes, such as customers, partners, subcontracts and so on. It shows employees at every level what must be done and when and how it should be done. Business models can be several models integrated consistently. y Gao Ph.D. 5/2000
What Is A Business Model? A business model includes: a conceptual idea on how a business makes money by providing products and services to its customers. A business supporting environment, which consists of: its related commerce value chain and its position. its planed strategy on its business market, including products, suppliers, customers, and their relationships. its business workflow and business operation processes its business organization structure and the functions and roles of each entity An ideal business model should be: - create high integration value and - independent from people - independent from used technology and knowledge y Gao Ph.D. 5/2000
What Is A Business Model? An ideal business model can be used as a strategic plan and guideline to answer the following questions: - What is the commerce value chain? - What is the market? - What is the appropriate products&services for the customers in the market? - What is the appropriate business organization structure? - What is the basic strategy for marketing and sales of the products? - What is the business process and workflow to support various business operations (inter/intra/external)? A good business model should be: - easy to make money and create high integration value - independent from people - independent from used technology and knowledge y Gao Ph.D. 5/2000
Examples of Business Models Recent business model example: CinemaNow uses Media Syndicator URL:CinemaNow http://www.cinemanow.com/ URL:Loudeye Technologies http://www.loudeye.com/ CinemaNow, styled as an online community for people who watch and make independent firms, is to use Loudeye s Media Syndicator application to securely syndicate streaming content to business partners, collect fees, and track the usage of video content over the Internet. CinemaNow s streaming media content will be encrypted and incorporated into Loudeye Distributed Server. CinemaNow will manage the content, creating business rules and subscriptions defining how it will be used. Syndication affiliates will install Media Syndicator Internet-based software, register with CinemaNow, choose content and then pay for the content via an e-commerce transaction. y Gao Ph.D. 5/2000
Examples of Business Models New Web Business Model example: (URL: http://www.freeloader.com/) Freeloader has created a web site with a new way of getting people to click on banner ads. Games players can download games for free. However, they have to earn points by clicking on banners, visiting the site and providing marketing information. The games are broken episodes (usually equivalent to a new level) and each episode costs so many points. Lots of information is available on the site, including an explanation from CEO. y Gao Ph.D. 5/2000
Types of Electronic Markets Producer of Digital Products Producer of Physical Goods Banks and Financial Services Physical Distribution Services Electronic Mall Electronic Business Community Electronic Retailer Electronic Community Internet E-Markets Consumers y Gao Ph.D. 5/2000
Types of Electronic Markets We can classify e-markets into the following four types: electronic retails, eelctronic malls, electronic commerce communities, and electronic business communities. Figure 1.7 shows you the four types of electronic markets in the commerce value chain over the Internet. Electronic retails Electronic retails are also known as e-shops. An electronic retail shop is an online virtual shop on the Web. It allows online consumers to select, order, and buy products by checking its online product catalog. An electronic shop focuses on a special business market, such as music CDs, and computer software. Electronic malls An electronic mall is an online electronic market that integrates a collection of e-shops to offer products buying and selling services to online consumers. It is an online commerce business that creates, manages, and maintains the electronic market. In addition, it may also provide related services for sellers, such as catalog update, payment processing, delivery and shipping. y Gao Ph.D. 5/2000
Electronic Community Types of Electronic Markets Electronic communities are intermediaries that provide online commerce markets to consumers and suppliers. - An electronic community forms a commerce community for a special business market, such as travel, insurance, and real state businesses. - An electronic community allows a set of sellers or producers to participate in the same electronic market even though they are competitors. - Unlike e-shops and e-malls, electronic communities not only support buying and selling products and goods, but also provide pre-sales and post-sales support to their customers. From a consumer's perspective, an electronic market supports four groups of activities. They are: -Pre-purchase determination, including product information search, product feature comparison, product reviews. -Purchase consummation, including ordering, purchasing, and payment. -Post-purchase interaction, including shipping, delivery and customer services. -Community information services, including news, events, and emails y Gao Ph.D. 5/2000
Electronic business communities Types of Electronic Markets Electronic business communities are network-oriented intermediaries that provide online business-to-business commerce community for suppliers, distributors, customers and business partners. An online business community support its participates in the following aspects: -Share and communication information on the Internet. -Exchange business documents in an electronic format, such as electronic document interchange (EDI). -Buy and sell productions between businesses. -Trade products and goods between two businesses, for example business auction and trading. -Provide community services, such as search, news, events, and bulletin board. -Collaborate and integrate businesses to form an added commerce value chain. Support business competition in electronic way, such as one-to-many auction and many-to-many auction. y Gao Ph.D. 5/2000