Using the Internet to Connect with Customers 148 The Nature of Web Communications 148 Summary 152. Contract Making and Contract Enforcement in Electronic Commerce 309 Use and Protection of Intellectual Property in Online Business 314.
Technologies for Electronic Commerce
Integration
Preface
ORGANIZATION AND COVERAGE
Chapter 7, “The Electronic Commerce Environment: Legal, Ethical, and Tax Issues,” discusses the legal and ethical aspects of the use of intellectual property, the privacy rights of customers, and the protection of children using the Internet. The third part of the book contains four chapters that describe the technologies of electronic commerce and explain how they work.
FEATURES
The fourth and final part of the book includes a chapter that integrates the business and technology strategies used in electronic commerce. All of the book's key terms are gathered together with definitions in a glossary at the end of the book.
TEACHING TOOLS
Review Questions and Exercises Each chapter concludes with meaningful review material, including conceptual discussion questions and practical exercises. Key Terms and Glossary Terms within each chapter that may be new to the student or have specific subject-related meaning are highlighted in bold type.
ACKNOWLEDGMENTS
The University of San Diego School of Business also provided the research assistance of many graduate students who helped me work on the first seven editions of this book. I also thank Quinnipiac University for providing a graduate student, Arienne Kvetkus, who provided many helpful comments on the content of Chapter 6.
DEDICATION
The University of San Diego provided research funding that allowed me to work on the first edition of this book and gave me faculty colleagues who were always happy to discuss and critically evaluate ideas for the book, including Tom Buckles (now at Azusa Pacific University), Rahul Singh (now at the University of North Carolina-Greensboro), Carl Rebman, and Jim Perry, who wrote the first two editions of this book with me. Among those researchers were Sebastian Ailioaie, a Fulbright Scholar who did much of the work on web links, and Anthony Coury, who used his considerable legal knowledge to review Chapter 7 and suggest a number of improvements.
ABOUT THE AUTHOR
He has won a number of teaching and research awards at these universities and served as academic director of the University of San Diego's graduate programs in electronic commerce and information systems. He served as editor of the Business Studies Journal and the Accounting Systems and Technology Reporter, accounting discipline editor of Advances in Accounting, Finance and Economics, as associate editor of the Journal of Global Information Management, and on the editorial boards of the Journal of Information Systems, the Journal of Electronic Commerce in Organizations, the Journal of Database Management and the Information Systems Audit & Control Journal.
Introduction
Introduction to Electronic
Commerce
INTRODUCTION
Although Chinese buyers use US-based websites such as Amazon (Note: this font indicates a relevant link to a related website in the book's web links. The Google URL is http://www.amazon.com) and eBay, they are also common users of homepages with well-developed brand recognition, such as JD.com and Tmall. In major cities, shoppers buy luxury brand goods and precious items such as cars; while in smaller cities, consumers are more price conscious and look for deals on everyday goods.
The Evolution of Electronic Commerce
Electronic Commerce and Electronic Business
Categories of Electronic Commerce
Business Processes
Transferring money, placing orders, sending invoices, and shipping goods to customers are all types of activities or transactions. For example, the business process of shipping goods to customers may include a number of activities (or tasks or transactions) such as inspecting the goods, packaging the goods, negotiating with a transportation company to deliver the goods, making and printing the shipping information. documents, load the goods into the truck and send the payment to the freight company.
Relative Size of Electronic Commerce Elements
For example, C2C electronic commerce occurs when a person sells an item to another person through a web auction. Because one party is selling, and therefore acting as a business, this book treats C2C transactions as part of B2C electronic commerce.
The Development and Growth of Electronic Commerce
Early Electronic Commerce
A Value Added Network (VAN) is an independent firm that provides transaction linking and transfer services to buyers and sellers engaged in EDI.
The First Wave of Electronic Commerce, 1995–2003
The Second Wave of Electronic Commerce, 2004–2009
Selling digital products was fraught with difficulties in the first wave of e-commerce. This has created an environment where digital piracy—the theft of music artists' intellectual property—is rampant.
The Third Wave of Electronic Commerce, 2010–Present
You will learn more about how these technologies are integrated into B2B e-commerce in Chapter 5. However, the third wave of e-commerce will offer new opportunities for these companies as well.
The “Boom and Bust” Myth
Business Models, Revenue Models, and Business Processes
You can read more about Porter's critique of the business model approach in the articles cited in the For Further Studies and Research section at the end of this chapter.). Adapted from reports by ClickZ Network (http://www.clickz.com/stats/stats_toolbox/); eMarketer. http://www.emarketer.com/); Forrester Research (http://www.forrester.com); Gartner (http://www.gartner.com);.
Focus on Specific Business Processes
Role of Merchandising
Product/Process Suitability to Electronic Commerce
One business process that is particularly suitable for electronic commerce is the sale of commodity items. Well suited for traditional trading Selling/buying impulse items for immediate use Selling/buying used, unmarked goods.
Electronic Commerce: Opportunities, Cautions, and Concerns
Many businesses use a combination of personal contact enhanced with an online presence to sell products such as fashion clothing, antiques or specialty foods. Because of the varying conditions of used cars, the traditional commercial component of the in-person inspection is a key part of negotiating the transaction.
Opportunities for Electronic Commerce
A business can use e-commerce to reach small groups of customers that are geographically dispersed. Electronic commerce provides an easy way for buyers to adjust the level of detail in the information they obtain about a future purchase.
Electronic Commerce: Current Barriers
In the rest of this book, you will learn more about e-commerce security, privacy issues, and payment systems. The legal environment in which electronic commerce takes place is full of unclear and conflicting laws.
Economic Forces and Electronic Commerce
In addition to technology and software issues, many businesses face cultural and legal barriers to conducting all types of e-commerce. However, as more businesses and individuals see the benefits of e-commerce as compelling, many of these technology- and culture-related disadvantages will be resolved or appear less problematic.
LEARNING FROM FAILURES
These large companies often conduct many different business activities entirely within the organizational structure of the company, and participate only in markets for the purchase of raw materials and the sale of finished products. If markets are indeed highly effective mechanisms for allocating scarce resources, these large corporations should participate in markets at every stage of their production and value generation processes.
Transaction Costs
Markets and Hierarchies
It will also have control of information flowing from the upper levels of the organization to the lower levels. General Electric, one of the largest companies in the world, has used strategic business units to organize its diverse business operations since the 1960s.
Using Electronic Commerce to Reduce Transaction Costs
Strategic business units have their own mission and objectives; therefore, they have their own strategies for marketing, product development, purchasing and long-term growth. General Electric's Jet Engine Division and Light Bulb Division operate as separate strategic business units.
Network Economic Structures
If a sufficient number of employees around the world can telecommute, many of these transaction costs can be reduced or eliminated. Mobile technologies, which are becoming more common in the third wave, can also reduce transaction costs.
Network Effects
Most people today have e-mail accounts that are part of the Internet (a global network of computers, which you will learn more about in Chapter 2). In the early days of email, most email accounts only connected people within the same company or organization.
Identifying Electronic Commerce Opportunities
Your email account giving you access to the network of other people with email accounts is another example of a network effect. Today's internet email accounts are much more valuable than single organization email accounts due to the network effect.
Strategic Business Unit Value Chains
Deliver: activities that store, distribute and ship the final product or provide the service, including warehousing, handling of materials, primary activities performed in a strategic business unit. Each business unit must also have support activities that form the infrastructure for the unit's primary activities.
Industry Value Chains
The industrial value chain identifies opportunities upstream and downstream in the product life cycle to increase the efficiency or quality of the product. When companies are thinking about e-commerce, the value chain can be an excellent way to organize a review of business processes within their business units and in other parts of the product life cycle.
SWOT Analysis: Evaluating Business Unit Opportunities
By examining elements of the value chain beyond the individual business unit, managers can identify many business opportunities, including those that can be exploited using electronic commerce. The use of the value chain reinforces the idea that electronic commerce should be a business solution, not a technology implemented for its own sake.
International Nature of Electronic Commerce
Trust Issues on the Web
Web sellers cannot assume that visitors will know that the site is operated by a trustworthy business. Businesses on the Web must find ways to overcome this well-established tradition of mistrust of foreigners, because today a company can incorporate one day and, via the Web, do business the next day with people all over the world.
Language Issues
Customers' lack of trust in "strangers" online is logical and expected; after all, people did business with their neighbors—not strangers. For businesses to succeed online, they must find ways to quickly build the trust that traditional businesses take years to develop.
Cultural Issues
Different approaches may be appropriate for translating the different types of text that appear on an electronic commerce site. The cultural element is very important because it can influence (and sometimes completely change) the user's interpretation of text.
Culture and Government
China's Golden Shield Project is an $800 million effort to restrict its citizens' access to information on the Internet that the country deems prohibited. The Chinese government actively monitors developments in the world to determine what it will censor.
Infrastructure Issues
International transactions almost always require the physical handling of goods by various freight carriers, storage at a freight forwarder's facility before international shipment, and storage at a port or bonded warehouse in the destination country. Industry experts estimate that the annual cost of paperwork for international transactions is $700 billion.
Summary
Key Terms
Review Questions
What caused the burst of enthusiasm that led to the rapid growth of investment in online business during the first wave of e-commerce. What specific Internet technologies led to the growth of e-commerce in developing countries during the third wave of e-commerce.
Exercises
Briefly define the term "transaction costs" and outline in about 100 words several specific ways in which electronic commerce can reduce transaction costs. In approximately 100 words, give examples of how specific government regulations and cultural norms can interfere with the conduct of electronic commerce across international borders.
Cases
So Hal's Hardware created a tool demonstration area staffed with salespeople who are experts in power. Hal's Hardware currently has a website that includes general information about the company, directions to the store, and hours of operation.
Technology
Infrastructure: The Internet and the
World Wide Web
As more users use their devices within range of a given cell tower, the service speed that each user experiences slows down. Instead of building a network based on cell towers serving all users within a range of 200–.
The Internet and the World Wide Web
Origins of the Internet
59 In this chapter, you will learn about the technologies that created the Internet and made it possible. The ARPANET was the earliest network that eventually came together to become what we now call the Internet.
New Uses for the Internet
The computer networks that existed at the time used leased telephone lines for their connections. In the late 1980s, these independent academic and research networks from around the world merged to form what we now call the Internet.
Commercial Use of the Internet
The explosion of personal computer use in the 1980s also helped to get more people used to computers. In the 1980s, other independent networks (such as Bitnet) were developed by academics around the world and researchers in certain countries other than the United States (such as the UK Academic Research Network, Janet).
Growth of the Internet
As the number of people in various organizations using these networks increased, security concerns arose; these concerns remain problematic. Researchers who were so involved in the creation and growth of the Internet simply accepted it as part of their working environment.
The Internet of Things
The subset of the Internet that includes these computers and sensors connected together for communications and automatic transaction processing is often referred to as the Internet of Things. Industry analysts estimate that the number of devices, sensors, switches and computers connected together in the Internet of Things is 10 billion (more than the number of people on Earth) and will reach 40 billion by 2020.
Packet-Switched Networks
From its humble beginnings in 1969, the Internet has grown to become one of the most significant technological and social achievements of the past millennium. The Internet is designed to be fault-tolerant and instead uses packet switching to move data between two points.
Routing Packets
As you can see, routers are an important part of the Internet's infrastructure. When a company or organization becomes part of the Internet, it must connect at least one router to the other routers (owned by other companies or organizations) that make up the Internet.
Public and Private Networks
The Internet also has routers that manage packet traffic along the main connection points of the Internet. You can see in the picture that a router connected to the Internet always has more than one path it can route a packet to.
Virtual Private Networks (VPNs)
A private network is a leased line connection between two companies that physically connects their computers and/or networks. For example, if a company wants to establish private network connections with seven other companies, the company must pay the costs for seven leased lines, one for each company.
Intranets and Extranets
However, as the Internet became more widespread, many organizations began to use it as part of their extranets (and in some cases intranets). The addition of VPN technologies allowed organizations to use the Internet (a public network) yet have the same level of security over their data that had been provided by their use of private networks in the past.
Internet Protocols
Remember that "intranet" is used when the Internet does not extend beyond the boundaries of a particular organization; "Extranet" is used when the Internet goes beyond the boundaries of an organization and includes the networks of other organizations. The open architecture approach has contributed to the success of the Internet, as it is possible to connect computers manufactured by different companies (Apple, Dell, Hewlett-Packard, etc.) to each other.
TCP/IP
The ARPANET and its successor, the Internet, use routers to isolate each LAN or WAN from the other networks to which they are connected. Each LAN or WAN can use its own set of protocols for packet traffic within the LAN or WAN, but must use a router (or similar device) to move packets in the standard format (or protocol) to the Internet.
IP Addressing
However, the increase in mobile devices and the Internet of Things has dramatically increased the need for more IP addresses. Private IP addresses are a set of IP numbers that are not allowed in packets traveling on the Internet.
Electronic Mail Protocols
For example, IMAP can instruct the email server to send only selected email messages to the client instead of all messages. IMAP allows users to create and manage email folders and messages while the messages are still on the email server; that is, the user does not need to download the email before working with it.
Web Page Request and Delivery Protocols
IMAP allows users to manipulate their email and store it on the email server so they can access it from any computer, which is important for people who access their email from different computers at different times. The main disadvantage of IMAP is that email messages are stored on the server and over time may exceed the available space on the user's server.
Emergence of the World Wide Web
The Development of Hypertext
As you learned earlier in this chapter, a web browser is software that lets users read (or browse) HTML documents and move from one HTML document to another through text formatted with hypertext link tags in each file. An HTML document differs from a word processing document in that it does not specify how a particular text element will appear.
The World Wide Web
If the HTML documents are on computers connected to the Internet, you can use a Web browser to switch from an HTML document on one computer to an HTML document on any other computer on the Internet. Different web browser programs may each display text differently, but they all display text with the characteristics of a heading.
The Deep Web
The number of websites is currently estimated at more than 800 million, and the number of individual web pages is probably more than a trillion (each website can include hundreds or even thousands of individual web pages). Noteworthy is the increase from 2010 to 2011, in which the number of websites doubled.
Domain Names
75 is not stored on the web, but in databases that only provide results when a user requests.
Markup Languages and the Web
The markup language most commonly used on the Internet is HTML, a subset of a much older and more complex text markup language called Standard Generalized Markup Language (SGML). In 2000, the W3C released the first version of a recommendation for a new markup language called Extensible Hypertext Markup Language (XHTML), a reformulation of HTML version 4.0 as an XML application.
Hypertext Markup Language
The web client software uses these instructions as it renders the text and page elements in the other files into the web page displayed on the client computer screen. The tags in an HTML document are interpreted by the web browser and used by it to format the display of the text enclosed by the tags.
SGML
XML is also a metalanguage because users can create their own markup elements that extend the usability of XML (this is why it is called an . "extensible" language).
HTML
XHTML
HTML contains tags that instruct the web browser to render the text exactly as it is written. In both of these examples, the text between the anchors on the web page appears as a hyperlink.
Extensible Markup Language (XML)
The web pages are created in HTML, but the product information elements themselves, such as prices, identification numbers, and quantities, are contained in an XML document that can be embedded in the HTML document.
Countries
Consider the example of the list of countries again, but with XML tags created for each fact that convey the meaning of the topic. The root element of an XML file contains all the other elements in that file and is usually assigned a name that describes the purpose or meaning of the file.
Internet Connection Options
Connectivity Overview
Voice-Grade Telephone Connections
Broadband Services
Leased-Line Connections
Wireless Connections
One of the first wireless protocols designed for personal use over short distances is called Bluetooth. In many of the cities NorthPoint had served, there were no competitors to take over the service.
Internet2 and the Semantic Web
Many of the technologies that are now part of the Internet of Things (which you learned about earlier in this chapter) were initially developed as Internet2 initiatives. You've also learned about the wide variety of devices that can be connected to the Internet today, including the Internet of Things.
Business Strategies for Electronic Commerce
Selling on the Web
However, all companies in this business face similar costs; that is, digital storage and high-bandwidth Internet connections are commodities, so it's hard to compete for either of them as the cheapest provider. Google's technology includes a suite of software tools that can analyze image data and detect meaning in image elements (you learned the general nature of this semantic research in Chapter 1).
Revenue Models for Online Business
But the development team also interviewed a large number of potential customers and asked them to describe the last ten photos they had taken. By combining their technology with the information they collected from potential customers, the development team was able to enable the service to automatically organize photos into categories.
Web Catalog Revenue Models
In the first wave of e-commerce, many new discounters such as Buy.com (now Rakuten) launched their first online retail operations using an online catalog revenue model. In contrast, a website delivers a marketing message only when a customer visits the website.
Fee-for-Content Revenue Models
Today, e-books (which can be read or listened to) are available for dedicated devices such as Amazon's Kindle products. E-books are also sold as digital content from online stores such as Apple's iTunes and Google Play along with digital music and video offerings.
Advertising as a Revenue Model Element
Advertisers pay high fees to reach a small number of visitors with specific interests related to the site's topic. Two of the world's most widely circulated newspapers, The New York Times and The Wall Street Journal, have each used a mixed advertising subscription model since they first took their publications online.
Fee-for-Transaction Revenue Models
Most banks that have entered online banking have done so by offering some of their services online. As the Internet became accessible to commercial users, many online travel agencies started doing business online.
Fee-for-Service Revenue Models
The changes caused by online elements in the real estate and mortgage businesses have been minor. Although a large number of websites offer general health information, doctors and other health professionals have been reluctant to sell specific advice to specific patients online.
Free for Many, Fee for a Few
The law on the site offers legal consultations on a range of issues for residents of the United Kingdom. The online version of the well-known Martindale-Hubbell attorney directory is also available online at Martindale.com.
Changing Strategies: Revenue Models in Transition
If a company can charge the small number of customers enough to cover the cost of developing the digital product and turn a profit, it can give away many copies of the product, especially if those free copies lead to connecting with more willing customers. to pay improved product. This is the opposite strategy used by sellers of a digital product; that is, giving away a large number of digital products to entice other customers to buy a small number of relatively expensive versions of the product.
Subscription to Advertising-Supported Model
Advertising-Supported to Advertising-Subscription Mixed Model
Advertising-Supported to Subscription Model
In January 2002, Northern Light decided that the advertising revenue it earned from the ads it sold on search results pages was insufficient to continue offering that service. It stopped offering public access to its search engine and switched to a new revenue model that is primarily subscription-based.
Multiple Changes to Revenue Models
The fee also provided access to the crossword puzzles and older articles in the archives. The newspaper only charged for access to the crossword puzzles and for older articles in the archives.
Revenue Strategy Issues for Online Businesses
Channel Conflict and Cannibalization
By adjusting the managers' compensation and bonus plans, Eddie Bauer was able to convince all managers to support the site. Catalog department managers received credit for existing catalog customers who purchased merchandise on the site.
Strategic Alliances
The retail store managers were credited with an inventory and labor cost allowance for each website return they handled. By giving their customers access to the company's products through a coordinated presence in all three distribution channels, Eddie Bauer was able to increase overall sales to those customers.
Luxury Goods Strategies
Overstock Sales Strategies
Creating an Effective Business Presence Online
Identifying Web Presence Goals
Presenting testimonials, pricing information, links to external reviews or articles about the organization or its products and services. Presenting current information about the organization or its products and services that is regularly updated.
Web Site Usability
Car manufacturers improve their image by providing useful information to customers on their websites. For other organizations, the ability to enhance their image is a key goal in their pursuit of an online presence.
How the Web Is Different
Meeting the Needs of Web Site Visitors
By considering the implications of these many variations in visitor characteristics when building a website, these visitors can be converted into customers. One of the best ways to meet a wide range of visitor needs, including the needs of visitors with disabilities, is to build flexibility into the website interface.
Trust and Loyalty
To be successful in conveying an integrated image and providing information to potential customers, companies should try to meet the accessibility goals shown in Figure 3.7 when building their websites. A common weakness for many sites is the lack of integration between the companies' call centers and their websites.
Usability Testing
Recent studies show that customers rate most electronic retail websites as average or low in customer service. As a result, when a customer calls with a complaint or problem with a web purchase, the customer service representative does not have web transaction information and is unable to resolve the caller's problem.
Customer-Centric Web Site Design
It is almost always important to create a dedicated website for mobile users because the needs of mobile users are so different from the needs of other users. Allow mobile device users to easily switch to the entire site.
Using the Web to Connect with Customers
The text must be extremely concise; there's no room for excess verbiage on a mobile device screen. Conduct usability testing by having potential site users navigate different versions of the site on mobile devices.
The Nature of Communication on the Web
Since few users of addressable media actually use address information in their advertising strategies, in this book, we consider addressable media as mass media. Many businesses use a combination of mass media and personal contacts to identify and reach customers.
Mass media
Once a person becomes a customer, Prudential maintains contact through a combination of personal contact and mailings. Jeff Bezos, founder of Amazon, described the web as the ideal tool for reaching what he calls "the hard middle" - markets too small to justify a mass media campaign, yet too large to cover using personal contact .
Personal contact
For example, Prudential uses mass media to create and maintain general public awareness of its insurance products and reputation, while its salespeople use prospecting techniques to identify potential customers. Nor is the Internet a tool for personal contact, although it can allow individuals to make personal connections through e-mail and newsgroups.
The Web
Music Industry Sales Rise, Digital Revenue Takes Credit," The New York Times, February 27, B3. Wal-Mart Launches Web Site for Third Time, This Time With an Emphasis on Speed and Ease," The Wall Street Journal, October 31 , B12.
Marketing on the Web
In this chapter, you will learn how companies use advertising and marketing to develop long-term relationships with customers that their employees may never meet in person. The importance of telling an authentic, accurate, meaningful, and consistent story through online and physical channels underlies the branding, marketing, relationship management, and communication principles you'll learn about in this chapter.
Web Marketing Strategies
In 2012, Kimberly-Clark ran a television commercial for its Huggies brand of diapers that became notorious for its portrayal of men as incompetent caregivers for their young children. A company's marketing strategy is an important tool for communicating its brand and advertising messages to current and prospective customers.
The Four Ps of Marketing
Product-Based Marketing Strategies
For example, both Office Depot and Staples use product categories (paper, ink and toner, printers) as the primary organizing theme in the design of their websites. If customers arrive at these sites looking for a specific type of product, this approach can work well.
Customer-Based Marketing Strategies
Instead of thinking of their websites as a collection of products, companies can build their sites to meet the different needs of different types of customers. The approach to website design that caters to the different needs of different types of customers is called a customer-based marketing strategy.
Communicating with Different Market Segments
165 For example, when a company puts its activities online, it can create a website. This construction reflects the external perspective of each different user group that might use the website.
Trust, Complexity, and Media Choice
The cost of mass media advertising can be spread over many people in its large audiences. Attempts to recreate mass media advertising on the Web are likely to fail for the same reasons—.
Market Segmentation
Because viewers of golf tournaments and tennis matches are likely to play the sport, these programs often include advertisements for gaming equipment. Baseball or football games rarely include advertisements for game equipment because few viewers of those games participate in the sport.
Market Segmentation on the Web
These people are more likely to own pets, so they will also see pet food ads. As a result, programs about golf or tennis are more likely to contain advertisements for investment and insurance products and luxury cars than baseball or football programs.
Offering Customers a Choice on the Web
The site is designed to appeal to an older customer looking for classics rather than the latest trends. There are exceptions, such as a large department store that uses lighting and exhibition space differently in each department; however, smaller stores usually choose the one image that appeals to most of their customers.
Beyond Market Segmentation: Customer Behavior and Relationship Intensity
The website uses a wide variety of fonts, bold graphics and photos of brightly colored products to convey its tone. Some web retailers offer the best in targeted marketing - they allow their customers to create their own stores, as you will learn in the next section.
Segmentation Using Customer Behavior
This places that item in the site's shopping cart and takes the customer directly to the shopping cart page. To avoid putting obstacles in the way of customers who want to buy, a website should not ask visitors to log in until they are close to the end of the shopping cart process.
Customer Relationship Intensity and Life-Cycle Segmentation
Customers who recognize the name of the company or one of its products are in the awareness stage of customer loyalty. Customers who have completed several transactions and are aware of the company's policies regarding returns, credits, and pricing flexibility are in the familiarization phase of their relationship with the company.
Customer Acquisition: The Funnel Model
