ch08

							 Principles of Information
         Systems
      Eighth Edition

            Chapter 8
Electronic and Mobile Commerce
     Principles and Learning Objectives

• Electronic commerce and mobile commerce are
  evolving, providing new ways of conducting
  business that present both opportunities for
  improvement and potential problems
     – Describe the current status of various forms of e-
       commerce, including B2B, B2C, and C2C
     – Outline a multistage purchasing model that
       describes how e-commerce works
     – Define m-commerce and identify some of its unique
       challenges

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     Principles and Learning Objectives
                 (continued)
• E-commerce and m-commerce can be used in
  many innovative ways to improve the operations of
  an organization
     – Identify several e-commerce and m-commerce
       applications
     – Identify several advantages associated with the use
       of e-commerce and m-commerce




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     Principles and Learning Objectives
                 (continued)
• Although e-commerce and m-commerce offer many
  advantages, users must be aware of and protect
  themselves from many threats associated with this
  technology
     – Identify the major issues that represent significant
       threats to the continued growth of e-commerce and
       m-commerce
• Organizations must define and execute a strategy
  to be successful in e-commerce
     – Outline the key components of a successful e-
       commerce strategy
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     Principles and Learning Objectives
                 (continued)
• E-commerce and m-commerce require the careful
  planning and integration of a number of technology
  infrastructure components
     – Identify the key components of technology
       infrastructure that must be in place for e-commerce
       and m-commerce to work
     – Discuss the key features of the electronic payment
       systems needed to support e-commerce




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    Why Learn About Electronic and Mobile
               Commerce?
• Most organizations have an Internet presence
     – Sales/marketing manager involved with e-commerce
     – Customer service employees help develop the Web
       site
     – Human resource or public relations manger may
       provide Web content for employees and investors
• Must learn about e-commerce and m-commerce




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             An Introduction to Electronic
                      Commerce
• Electronic commerce: conducting business
  activities electronically over computer networks
• Types of business activities that are strong
  candidates for conversion to e-commerce
     – Paper based
     – Time-consuming
     – Inconvenient for customers




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              Business-to-Business (B2B)
                    E-Commerce
• Subset of e-commerce
• All the participants are organizations
• Useful tool for connecting business partners in a
  virtual supply chain to cut resupply times and
  reduce costs




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            Business-to-Consumer (B2C)
                   E-Commerce
• Form of e-commerce in which customers deal
  directly with an organization and avoid
  intermediaries
     – Squeezes costs and inefficiencies out of supply
       chain
     – Can lead to higher profits
     – Can lead to lower prices for consumers
• E-commerce via the Internet
     – Many goods and services are cheaper online
     – The Internet allows consumers to easily compare
       prices, features, and value
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          Consumer-to-Consumer (C2C)
                E-Commerce
• Subset of e-commerce that involves consumers
  selling directly to other consumers
• Example: eBay
     – Customers buy and sell items directly to each other
       through the site
     – 181 million users buy and sell items valued at more
       than $44 billion
• Other popular online auction Web sites: Craigslist,
  uBid, Yahoo! Auctions, Onsale, and WeBidz


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                                eGovernment

• Use of information and communications technology
  to simplify the sharing of information, speed
  formerly paper-based processes, and improve the
  relationship between citizen and government
• Forms of eGovernment
     – Government-to-consumer (G2C)
     – Government-to-business (G2B)
     – Government-to-government (G2G)



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      Multistage Model for E-commerce




        Figure 8.1: Multistage Model for E-Commerce (B2B and B2C)
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         Multistage Model for E-commerce
                    (continued)




Figure 8.2: Product and Information Flow for HP Printers Ordered over the Web

   Principles of Information Systems, Eighth Edition                    13
                 E-Commerce Challenges

• Defining an effective e-commerce model and
  strategy
     – Community, content, and commerce
• Changing distribution systems and work processes
  to manage shipments of individual units directly to
  consumers
     – B2C systems must be able to handle split-case
       distribution
• Integrating Web-based order processing with
  traditional systems

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  E-Commerce Challenges (continued)




Figure 8.3: Three Basic Components of a Successful E-Commerce Model

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  E-Commerce Challenges (continued)




 Figure 8.4: Web-Based Order Processing Must Be Linked to Traditional
                           Back-End Systems
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   An Introduction to Mobile Commerce

• Mobile commerce (m-commerce) relies on the use
  of wireless devices, such as personal digital
  assistants, cell phones, and smart phones, to place
  orders and conduct business
• Handset manufacturers are working with
  communications carriers to develop appropriate
  wireless devices, related technology, and services
• Content providers and mobile service providers are
  working together more closely than ever


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       Mobile Commerce in Perspective

• Only 12 to 14 percent of the world’s 1.8 billion
  mobile phone users have ever used the Web from
  their phones
• Internet Corporation for Assigned Names and
  Numbers (ICANN) created a .mobi domain to help
  attract mobile users to the Web
• Market for m-commerce in North America is
  maturing much later than in Western Europe and
  Japan


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          Technology Needed for Mobile
                  Commerce
• Improved interface between the wireless device
  and its user
• Improved network speed
• Security
     – Encryption, digital certificates
• Web applications that are accessible for handheld
  users




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          Technology Needed for Mobile
             Commerce (continued)
• Wireless application protocol (WAP): standard
  set of specifications for Internet applications that
  run on handheld, wireless devices
     – Effectively serves as a Web browser for such
       devices
     – Uses the Wireless Markup Language (WML), which
       is designed for effectively displaying information on
       small devices




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       Electronic and Mobile Commerce
                  Applications
• Many B2B, B2C, C2C, and m-commerce
  applications are being used in:
     –   Retail and wholesale
     –   Manufacturing
     –   Marketing
     –   Investment and finance
     –   Auction arenas




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                      Retail and Wholesale

• Electronic retailing (e-tailing): direct sale from
  business to consumer through electronic
  storefronts
     – Electronic storefronts are typically designed around
       an electronic catalog and shopping cart model
• Cybermall: single Web site that offers many
  products and services at one Internet location
• Manufacturing, repair, and operations (MRO)
  goods and services


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                               Manufacturing

• To raise profitability and improve customer service,
  many manufacturers move their supply chain
  operations onto the Internet
• Electronic exchange: electronic forum where
  manufacturers, suppliers, and competitors buy and
  sell goods, trade market information, and run back-
  office operations




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               Manufacturing (continued)




                   Figure 8.5: Model of an Electronic Exchange
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                                     Marketing

• Market segmentation: identification of specific
  markets to target them with advertising messages
• Technology-enabled relationship management:
  use of detailed information about a customer’s
  behavior, preferences, needs, and buying patterns
  to customize the entire relationship with that
  customer




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                   Investment and Finance

• Online stock trading
     – Online tools for doing research and analysis
• Online banking
     – Customers can check account balances, transfer
       money among accounts, pay bills, etc.
     – Electronic bill presentment




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                                       Auctions

• eBay
     – Has become synonymous with online auctions
     – Customer complaints: increased fees and problems
       with unscrupulous buyers
     – Constantly trying to expand and improve its services:
       Skype, Verisign
• Hundreds of other online auction sites
     – Example: Priceline.com




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     Anywhere, Anytime Applications of
           Mobile Commerce
• M-commerce devices are ideal for accessing
  personal information and receiving targeted
  messages for a particular consumer
• Through m-commerce, companies can establish
  one-to-one marketing relationships with individual
  consumers anytime and anywhere
• The most successful m-commerce applications suit
  local conditions and people’s habits and
  preferences
• Examples: banking, stock trading, information
  services, retail, advertisements

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   Advantages of Electronic and Mobile
              Commerce
• Global reach: helps reduce gap between rich and
  poor countries
• Reduces costs: increases speed and accuracy
• Speeds the flow of goods and information
• Increases accuracy: eliminates human data-entry
  error
• Improves customer service: information about
  delivery status and ability to meet customer
  demand


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        Threats to Electronic and Mobile
                   Commerce
• Businesses must ensure that e-commerce and m-
  commerce transactions are safe and consumers
  are protected
• Number of threats to the continued growth of e-
  commerce and m-commerce
     – Security, theft of intellectual property, fraud, invasion
       of privacy, lack of Internet access, return on
       investment, legal jurisdiction, taxation




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                                       Security

• Methods to increase security
     – Payment Card Industry security standard
     – Address Verification System
     – Card Verification Number technique
     – Visa’s Advanced Authorization process
     – Federal Financial Institutions Examination Council’s
       “Authentication in an Internet Banking Environment”
       guidelines
     – Biometric technology


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             Theft of Intellectual Property

• Intellectual property: works of the mind that are
  distinct somehow and are owned or created by a
  single entity
     – For example: books, films, music, processes, and
       software
• Copyright law protects authored works such as
  books, film, images, music, and software from
  unauthorized copying
• Patents can protect software, business processes,
  formulae, compounds, and inventions

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             Theft of Intellectual Property
                      (continued)
• Trade secrets
• Digital Rights Management (DRM): use of any of
  several technologies to enforce policies for
  controlling access to digital media




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                                          Fraud

• Phishing: sending bogus messages purportedly
  from a legitimate institution to pry personal
  information from customers by convincing them to
  go to a “spoof” Web site
• Click fraud: arises in a pay-per-click online
  advertising environment when additional clicks are
  generated beyond those that come from actual,
  legitimate users
• Online auction fraud


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           Invasion of Consumer Privacy

• Online profiling: practice of Web advertisers’
  recording online behavior to produce targeted
  advertising
• Clickstream data: data gathered based on the
  Web sites you visit and the items you click on




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                    Lack of Internet Access

• Digital divide: difference between people who do
  and people who don’t have access or capability to
  use high-quality, modern information and
  communications technology to improve their
  standard of living
     – Exists between:
           •   More and less developed countries
           •   Economic classes
           •   The educated and uneducated
           •   Those who live in cities and those who live in rural
               areas
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                      Return on Investment

• The investment required for a large firm to
  establish and operate a B2B or B2C Web site can
  be in the millions of dollars
• Common problem with determining return on
  investment: difficult to forecast project costs and
  benefits




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                           Legal Jurisdiction

• When conducting e-commerce, sales must not
  violate county, state, or country legal jurisdictions
• Examples
     – Selling stun guns and similar devices
     – Selling cigarettes or alcohol to underage customers




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                                       Taxation

• U.S. Supreme Court ruling: Internet-based
  merchants must apply sales tax only when buyers
  live in a state where the company has physical
  facilities, or “nexus”
• Most businesses set up separate companies to
  avoid dealing with nonstandard rules of the more
  than 7,500 taxing districts nationwide
     – Consumers are responsible for voluntarily remitting
       sales taxes
• Difficult for states to collect sales taxes on Internet
  purchases
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                  Strategies for Successful
                        E-Commerce
• Companies must develop effective Web sites that
  include the following characteristics:
     –   Easy to use
     –   Accomplish the goals of the company
     –   Safe and secure
     –   Affordable to set up and maintain




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        Defining the Web Site Functions

• Decide which tasks the site must accomplish
• Create an attractive presence for the company
• Meet the needs of its visitors
     – Examples: obtaining information about the
       organization and its products, buying products or
       services, getting advice, registering complaints
• Redefining your site’s basic business model to
  capture new business opportunities



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                   Establishing a Web Site
• Web site hosting companies
    – Allow you to set up a Web page and conduct e-
      commerce within a matter of days
    – Little up-front cost
• Storefront broker: companies that act as
  middlemen between your Web site and online
  merchants that have the products and retail
  expertise




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         Building Traffic to Your Web Site

• Obtain and register a domain name
• Make your site search-engine-friendly
     – Meta tag: special HTML tag that contains keywords
       representing your site’s content
           • Keywords are used by search engines to build
             indexes pointing to your Web site
• Web site traffic data analysis software
• Adapting Web site design for global consumers



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  Maintaining and Improving Your Web
                  Site
• Be alert to new trends and developments in e-
  commerce
• Be prepared to take advantage of new
  opportunities
• Personalization: tailoring Web pages to
  specifically target individual consumers
     – Explicit: captures user-provided information
     – Implicit: captures data from customer Web sessions



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Technology Infrastructure Required To
     Support E-commerce and
            M-commerce
• Successful implementation of e-business requires
  significant changes to existing business processes
  and substantial investment in IS technology
• Poor Web site performance drives consumers to
  abandon some e-commerce sites in favor of those
  with better, more reliable performance




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Technology Infrastructure Required To
     Support E-commerce and
     M-commerce (continued)




            Figure 8.6: Key Technology Infrastructure Components
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                                     Hardware

• Storage capacity and computing power required of
  the Web server depends on:
     – Software that will run on the server
     – Volume of e-commerce transactions
• E-commerce solutions should be designed to be
  highly scalable
• Web site hosting: third-party Web service provider




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                       Web Server Software

• Security and identification
   – Access controls
   – Encryption
• Retrieving and sending Web pages
• Web site tracking
     – Web log file
• Web site development
     – HTML/visual Web page editor, software
       development kits

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       Web Server Software (continued)

• Web page construction
     – Web editors and extensions
     – Static Web page: contains same information
     – Dynamic Web page: responds to a specific Web
       user’s request
• Examples of Web server software packages:
  Apache HTTP Server, Microsoft Internet
  Information Server



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                    E-Commerce Software

• E-commerce software tools
     – Catalog management: provides standard format
     – Product configuration: build product online to meet
       user needs
     – Shopping cart facilities
     – Transaction processing
     – Web traffic data analysis
     – Web services: software modules supporting specific
       business processes that users can interact with over
       a network as needed

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     E-Commerce Software (continued)




                         Figure 8.7: Electronic Shopping Cart
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             Electronic Payment Systems
• Digital certificate: attachment to an e-mail
  message or data embedded in a Web page that
  verifies the identity of a sender or a Web site
• Certificate authority (CA): trusted third party that
  issues digital certificates
• Secure Sockets Layer (SSL): communications
  protocol used to secure sensitive data
• Electronic cash: amount of money that is
  computerized, stored, and used as cash for e-
  commerce transactions

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             Electronic Payment Systems
                      (continued)
•   Credit card
•   Charge card
•   Debit card
•   Smart card: a credit card–sized device with an
    embedded microchip to provide electronic memory
    and processing capability




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                                      Summary

• Electronic commerce (or e-commerce): conducting
  business activities electronically over computer
  networks
• Types of e-commerce: business-to-consumer
  (B2C), business-to-business (B2B), and consumer-
  to-consumer (C2C)
• eGovernment: use of information and
  communications technology to simplify the sharing
  of information, speed formerly paper-based
  processes, and improve the relationship between
  citizen and government
Principles of Information Systems, Eighth Edition   54
                      Summary (continued)

• Multistage model for e-commerce: includes search
  and identification, selection and negotiation,
  electronic purchasing, delivery, and after-sales
  service
• Mobile commerce (m-commerce): uses wireless
  devices to place orders and conduct business
• B2B, B2C, C2C, and m-commerce applications are
  being used in retail and wholesale, manufacturing,
  marketing, investment and finance, and auction
  arenas

Principles of Information Systems, Eighth Edition   55
                      Summary (continued)

• Issues affecting growth of e- and m-commerce:
  security, theft of intellectual property, fraud,
  invasion of consumer privacy, lack of Internet
  access, return on investment, legal jurisdiction, and
  taxation
• An effective Web site should be easy to use,
  accomplish the goals of the company, be safe and
  secure, and be affordable to set up and maintain
• Successful implementation of e-business requires
  significant changes to existing business processes
  and substantial investment in IS technology
Principles of Information Systems, Eighth Edition     56