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INFORMATION AND COMMUNICATION TECHNOLOGY DEPARTMENT
 * UGANDA MANAGEMENT INSTITUTE**

**DIPLOMA IN INFORMATION & COMMUNICATION TECHNOLOGY (DICT)** **: E – BUSINESS AND E - COMMERCE** **17 OCTOBER – 04 NOVEMBER 2011**

Course Leader: Jennifer A Course Facilitator: David Kabugo

17/10/2011 || **Overview of** 18/10/2011 ||  || * Typical business models in e-commerce 19/10/2011 ||  || * B2G e-commerce models 20/10/2011 ||^  || * Strategy in e - commerce || “ || 21/10/2011 ||^  || * Strategy in e - commerce || “ || 24/10/2011 ||||  || * The Internet and World Wide Web: E-commerce Infrastructure || “ || 25/10/2011 ||||  || * Building an E-commerce Website (Assignment) || “ || 26/10/2011 ||||^  || * Building an E-commerce Website (Assignment) || “ || 27/10/2011 ||||^  || * Internet/Ecommerce marketing concepts || Alex Nduhura || 28/10/2011 ||||  || * Internet/Ecommerce marketing concepts /Electronic payment systems || Alex Nduhura || 31/10/2011 ||||  || * Security concerns & security threats on the internet || Aduwo Jennifer || 01/11/2011 |||| Launching business on the Internet || * Security concerns & security threats on the internet || “ || 02/11/2011 ||||^  || Ethical, social and political issues in E-commerce || “ || 03/11/2011 ||||  || * Self study ||   || 04/11/2011 ||||  || * Module evaluation/end of module test || “ ||
 * Timetable:**
 * **Date** |||| **Major Topic** || **Sub Topics** || **Facilitator** ||
 * = Week 1 = ||
 * Monday
 * e-commerce** || * Definitions and concepts
 * Advantages and limitations of e–commerce
 * || Kabugo David ||
 * Tuesday
 * B2B e-commerce models
 * B2C e-commerce models || “ ||
 * Wednesday
 * C2 C e-commerce models
 * Mobile commerce (m-commerce) || “ ||
 * Thursday
 * Friday
 * == Week 2 == ||
 * Monday
 * Tuesday
 * Wednesday
 * Thursday
 * Friday
 * == Week 3 == ||
 * Monday
 * Tuesday
 * Wednesday
 * Thursday
 * Friday


 * Important Course Resources:**

Generate Your Own Quick Response Codes which you will need for marketing your on-line products from here from here; media type="custom" key="10967744"

**INTRODUCTION** Electronic commerce or e-commerce refers to a wide range of on-line business activities for products and services.It also pertains to “any form of business transaction in which the parties interact electronically rather than by physical exchanges or direct physical contact.”
 * What is e-commerce?**

E-commerce is usually associated with buying and selling over the Internet, or conducting any transaction involving the transfer of ownership or rights to use goods or services through a computer-mediated network Though popular, this definition is not comprehensive enough to capture recent developments in this new and revolutionary business phenomenon. A more complete definition is: E-commerce is the use of electronic communications and digital information processing technology in business transactions to create, transform, and redefine relationships for value creation between or among organizations, and between organizations and individuals

International Data Corp (IDC) estimates the value of global e-commerce in 2000 at US$350.38 billion. This is projected to climb to as high as US$3.14 trillion by 2004. IDC also predicts an increase in Asia’s percentage share in worldwide e-commerce revenue from 5% in 2000 to 10% in 2004 (See Figure 1).


 * Figure 1: Worldwide E-Commerce Revenue, 2000 and 2004 (as a % share of each country/region)**



Asia-Pacific e-commerce revenues are projected to increase from $76.8 billion at year-end of 2001 to $338.5 billion by the end of 2004.


 * Is e-commerce the same as e-business?**

While some use e-commerce and e-business interchangeably, they are distinct concepts. In e-commerce, information and communications technology (ICT) is used in inter-business or inter-organizational transactions (transactions between and among firms/organizations) and in business-to-consumer transactions (transactions between firms/organizations and individuals).

In e-business, on the other hand, ICT is used to enhance one’s business. It includes any process that a business organization (either a for-profit, governmental or non-profit entity) conducts over a computer-mediated network. A more comprehensive definition of e-business is:

“//The transformation of an organization’s processes to deliver additional customer value through the application of technologies, philosophies and computing paradigm of the new economy.”//


 * Three primary processes are enhanced in e-business:**

1. **Production processes**, which include procurement, ordering and replenishment of stocks; processing of payments; electronic links with suppliers; and production control processes, among others;

2. **Customer-focused processes**, which include promotional and marketing efforts, selling over the Internet, processing of customers’ purchase orders and payments, and customer support, among others; and

3. **Internal management processes**, which include employee services, training, internal information-sharing, video-conferencing, and recruiting. Electronic applications enhance information flow between production and sales forces to improve sales force productivity. Workgroup communications and electronic publishing of internal business information are likewise made more efficient.

__Is the Internet economy synonymous with e-commerce and e-business?__
The Internet economy is a broader concept than e-commerce and e-business. It includes e-commerce and e-business.

The CREC (Center for Research in Electronic Commerce) at the University of Texas has developed a conceptual framework for how the Internet economy works. The framework shows four layers of the Internet economy-the three mentioned above and a fourth called intermediaries (see Table 1).


 * Figure 2. Table 1. Internet Economy Conceptual Frame**



//Based on Center for Research in Electronic Commerce, University of Texas, "Measuring the Internet Economy," 6 June 2000; available from// __[|//http://www.internetindicators.com//]__

The greatest and the most important advantage of __[|e-commerce]__, is that it enables a business concern or individual to reach the global market. It caters to the demands of both the national and the international market, as your business activities are no longer restricted by geographical boundaries. With the help of electronic commerce, even small enterprises can access the global market for selling and purchasing products and services. Even time restrictions are nonexistent while conducting businesses, as e-commerce empowers one to execute business transactions 24 hours a day and even on holidays and weekends. This in turn significantly increases sales and profit.
 * Advantages of Electronic Commerce**

Electronic commerce gives the customers the opportunity to look for cheaper and quality products. With the help of e-commerce, consumers can easily research on a specific product and sometimes even find out the original manufacturer to purchase a product at a much cheaper price than that charged by the wholesaler. Shopping online is usually more convenient and time saving than conventional shopping. Besides these, people also come across reviews posted by other customers, about the products purchased from a particular e-commerce site, which can help make purchasing decisions.

For business concerns, e-commerce significantly cuts down the cost associated with marketing, customer care, processing, information storage and inventory management. It reduces the time period involved with business process re-engineering, customization of products to meet the demand of particular customers, increasing productivity and customer care services. Electronic commerce reduces the burden of infrastructure to conduct businesses and thereby raises the amount of funds available for profitable investment. It also enables efficient __[|customer care services]__. On the other hand, It collects and manages information related to customer behavior, which in turn helps develop and adopt an efficient marketing and promotional strategy.
 * Other benefits of e-commerce**
 * **o** increase sales - this is the first thing that people consider

when dealing w e-commerce


 * o** decreasing costs


 * o** provide price quotes


 * o** increase profits


 * o** understanding that profits is not the same as sales


 * o** Expands the size of the market from regional to national or national to international


 * o** Contract the market


 * o** reach a narrow market


 * o** target market segmentation allows you to focus on a more

select group of customers

.
 * o** and therefore have a competitive advantages in satisfying them ||
 * || **Decreasing costs**


 * o** costs of creating the product


 * o** marketing


 * o** of promotional material


 * o** costs of distribution
 * eg. Netscape allowing you to download instead of waiting to get the CD by mail
 * o** costs of processing (orders from the customers)
 * repeat activities and information processing
 * of handling customer phone calls
 * of handling sales inquiries
 * determine product availability (inventory management)
 * o** costs of storing information


 * o** lowers telecommunication costs ||


 * Disadvantages of Electronic Commerce**

Electronic commerce is also characterized by some technological and inherent limitations which has restricted the number of people using this revolutionary system. One important disadvantage of e-commerce is that the Internet has still not touched the lives of a great number of people, either due to the lack of knowledge or trust. A large number of people do not use the Internet for any kind of financial transaction. Some people simply refuse to trust the authenticity of completely impersonal business transactions, as in the case of e-commerce. Many people have reservations regarding the requirement to disclose personal and private information for security concerns. Many times, the legitimacy and authenticity of different __[|e-commerce]__ sites have also been questioned.

Another limitation of e-commerce is that it is not suitable for perishable commodities like food items. People prefer to shop in the conventional way than to use e-commerce for purchasing food products. So e-commerce is not suitable for such business sectors. The time period required for delivering physical products can also be quite significant in case of e-commerce. A lot of phone calls and e-mails may be required till you get your desired products. However, returning the product and getting a refund can be even more troublesome and time consuming than purchasing, in case if you are not satisfied with a particular product.

Thus, on evaluating the various pros and cons of electronic commerce, we can say that the advantages of e-commerce have the potential to outweigh the disadvantages. A proper strategy to address the technical issues and to build up customers trust in the system, can change the present scenario and help e-commerce adapt to the changing needs of the world.

Mobile commerce (m-commerce).

 * What is B2B e-commerce?**

B2B e-commerce is simply defined as e-commerce between companies. This is the type of e-commerce that deals with relationships between and among businesses. About 80% of e-commerce is of this type, and most experts predict that B2B e-commerce will continue to grow faster than the B2C segment. The B2B market has two primary components: e-frastructure and e-markets. E-frastructure is the architecture of B2B, primarily consisting of the following:

E-markets are simply defined as Web sites where buyers and sellers interact with each other and conduct transactions.
 * Logistics - transportation, warehousing and distribution (e.g., Procter and Gamble);
 * Application service providers - deployment, hosting and management of packaged software from a central facility (e.g., Oracle and Linkshare);
 * Outsourcing of functions in the process of e-commerce, such as Web-hosting, security and customer care solutions (e.g., outsourcing providers such as eShare, NetSales, iXL Enterprises and Universal Access);
 * Auction solutions software for the operation and maintenance of real-time auctions in the Internet (e.g., Moai Technologies and OpenSite Technologies);
 * Content management software for the facilitation of Web site content management and delivery (e.g., Interwoven and ProcureNet); and
 * Web-based commerce enablers (e.g., Commerce One, a browser-based, XML-enabled purchasing automation software).

The more common B2B examples and best practice models are IBM, Hewlett Packard (HP), Cisco and Dell. Cisco, for instance, receives over 90% of its product orders over the Internet.

Most B2B applications are in the areas of supplier management (especially purchase order processing), inventory management (i.e., managing order-ship-bill cycles), distribution management (especially in the transmission of shipping documents), channel management (i.e., information dissemination on changes in operational conditions), and payment management (e.g., electronic payment systems or EPS).11

eMarketer projects an increase in the share of B2B e-commerce in total global e-commerce from 79.2% in 2000 to 87% in 2004 and a consequent decrease in the share of B2C e-commerce from 20.8% in 2000 to only 13% in 2004 (Figure 3).


 * Figure 3. Share of B2B and B2C E-Commerce in Total Global E-Commerce (2000 and 2004)**



Likewise B2B growth is way ahead of B2C growth in the Asia-Pacific region. According to a 2001 eMarketer estimate, B2B revenues in the region are expected to exceed $300 billion by 2004.

Table 2 shows the projected size of B2B e-commerce by region for the years 2000-2004.


 * Figure 4. Projected B2B E-Commerce by Region, 2000-2004 ($billions)**




 * Benefits of B2B E-Commerce in Developing Markets**

The impact of B2B markets on the economy of developing countries is evident in the following:


 * Transaction costs****.** There are three cost areas that are significantly reduced through the conduct of B2B e-commerce. First is the reduction of search costs, as buyers need not go through multiple intermediaries to search for information about suppliers, products and prices as in a traditional supply chain. In terms of effort, time and money spent, the Internet is a more efficient information channel than its traditional counterpart. In B2B markets, buyers and sellers are gathered together into a single online trading community, reducing search costs even further. Second is the reduction in the costs of processing transactions (e.g. invoices, purchase orders and payment schemes), as B2B allows for the automation of transaction processes and therefore, the quick implementation of the same compared to other channels (such as the telephone and fax). Efficiency in trading processes and transactions is also enhanced through the B2B e-market’s ability to process sales through online auctions. Third, online processing improves inventory management and logistics.


 * Disintermediation****.** Through B2B e-markets, suppliers are able to interact and transact directly with buyers, thereby eliminating intermediaries and distributors. However, new forms of intermediaries are emerging. For instance, e-markets themselves can be considered as intermediaries because they come between suppliers and customers in the supply chain.


 * Transparency in pricing****.** Among the more evident benefits of e-markets is the increase in price transparency. The gathering of a large number of buyers and sellers in a single e-market reveals market price information and transaction processing to participants. The Internet allows for the publication of information on a single purchase or transaction, making the information readily accessible and available to all members of the e-market. Increased price transparency has the effect of pulling down price differentials in the market. In this context, buyers are provided much more time to compare prices and make better buying decisions. Moreover, B2B e-markets expand borders for dynamic and negotiated pricing wherein multiple buyers and sellers collectively participate in price-setting and two-way auctions. In such environments, prices can be set through automatic matching of bids and offers. In the e-marketplace, the requirements of both buyers and sellers are thus aggregated to reach competitive prices, which are lower than those resulting from individual actions.


 * Economies of scale and network effects****.** The rapid growth of B2B e-markets creates traditional supply-side cost-based economies of scale. Furthermore, the bringing together of a significant number of buyers and sellers provides the demand-side economies of scale or network effects. Each additional incremental participant in the e-market creates value for all participants in the demand side. More participants form a critical mass, which is key in attracting more users to an e-market.


 * What is B2C e-commerce?**

Business-to-consumer e-commerce, or commerce between companies and consumers, involves customers gathering information; purchasing physical goods (i.e., tangibles such as books or consumer products) or information goods (or goods of electronic material or digitized content, such as software, or e-books); and, for information goods, receiving products over an electronic network.12

It is the second largest and the earliest form of e-commerce. Its origins can be traced to online retailing (or e-tailing).13 Thus, the more common B2C business models are the online retailing companies such as Amazon.com, Drugstore.com, Beyond.com, Barnes and Noble and ToysRus. Other B2C examples involving information goods are E-Trade and Travelocity.

The more common applications of this type of e-commerce are in the areas of purchasing products and information, and personal finance management, which pertains to the management of personal investments and finances with the use of online banking tools (e.g., Quicken).14

eMarketer estimates that worldwide B2C e-commerce revenues will increase from US$59.7 billion in 2000 to US$428.1 billion by 2004. Online retailing transactions make up a significant share of this market. eMarketer also estimates that in the Asia-Pacific region, B2C revenues, while registering a modest figure compared to B2B, nonetheless went up to $8.2 billion by the end of 2001, with that figure doubling at the end of 2002-at total worldwide B2C sales below 10%.

B2C e-commerce reduces transactions costs (particularly search costs) by increasing consumer access to information and allowing consumers to find the most competitive price for a product or service. B2C e-commerce also reduces market entry barriers since the cost of putting up and maintaining a Web site is much cheaper than installing a “brick-and-mortar” structure for a firm. In the case of information goods, B2C e-commerce is even more attractive because it saves firms from factoring in the additional cost of a physical distribution network. Moreover, for countries with a growing and robust Internet population, delivering information goods becomes increasingly feasible.


 * What is B2G e-commerce?**

Business-to-government e-commerce or B2G is generally defined as commerce between companies and the public sector. It refers to the use of the Internet for public procurement, licensing procedures, and other government-related operations. This kind of e-commerce has two features: first, the public sector assumes a pilot/leading role in establishing e-commerce; and second, it is assumed that the public sector has the greatest need for making its procurement system more effective.15

Web-based purchasing policies increase the transparency of the procurement process (and reduces the risk of irregularities). To date, however, the size of the B2G e-commerce market as a component of total e-commerce is insignificant, as government e-procurement systems remain undeveloped.


 * What is C2C e-commerce?**

Consumer-to-consumer e-commerce or C2C is simply commerce between private individuals or consumers.

This type of e-commerce is characterized by the growth of electronic marketplaces and online auctions, particularly in vertical industries where firms/businesses can bid for what they want from among multiple suppliers.16 It perhaps has the greatest potential for developing new markets.

This type of e-commerce comes in at least three forms:

Consumer-to-business (C2B) transactions involve reverse auctions, which empower the consumer to drive transactions. A concrete example of this when competing airlines gives a traveler best travel and ticket offers in response to the traveler’s post that she wants to fly from New York to San Francisco.
 * auctions facilitated at a portal, such as eBay, which allows online real-time bidding on items being sold in the Web;
 * peer-to-peer systems, such as the Napster model (a protocol for sharing files between users used by chat forums similar to IRC) and other file exchange and later money exchange models; and
 * classified ads at portal sites such as Excite Classifieds and eWanted (an interactive, online marketplace where buyers and sellers can negotiate and which features “Buyer Leads & Want Ads”).

There is little information on the relative size of global C2C e-commerce. However, C2C figures of popular C2C sites such as eBay and Napster indicate that this market is quite large. These sites produce millions of dollars in sales every day.


 * What is m-commerce?**

M-commerce (mobile commerce) is the buying and selling of goods and services through wireless technology-i.e., handheld devices such as cellular telephones and personal digital assistants (PDAs). Japan is seen as a global leader in m-commerce.

As content delivery over wireless devices becomes faster, more secure, and scalable, some believe that m-commerce will surpass wireline e-commerce as the method of choice for digital commerce transactions. This may well be true for the Asia-Pacific where there are more mobile phone users than there are Internet users.

Industries affected by m-commerce include:

Forrester Research predicts US$3.4 billion sales closed using PDA and cell phones by 2005 (See Table 3).
 * **Financial services**, including mobile banking (when customers use their handheld devices to access their accounts and pay their bills), as well as brokerage services (in which stock quotes can be displayed and trading conducted from the same handheld device);
 * **Telecommunications**, in which service changes, bill payment and account reviews can all be conducted from the same handheld device;
 * **Service/retail**, as consumers are given the ability to place and pay for orders on-the-fly; and
 * **Information services**, which include the delivery of entertainment, financial news, sports figures and traffic updates to a single mobile device.17


 * Figure 5. Table 3. Forrester’s M-Commerce Sales Predictions, 2001-2005**



What forces are fueling e-commerce?
There are at least three major forces fueling e-commerce: economic forces, marketing and customer interaction forces, and technology, particularly multimedia convergence.18


 * Economic forces**

One of the most evident benefits of e-commerce is economic efficiency resulting from the reduction in communications costs, low-cost technological infrastructure, speedier and more economic electronic transactions with suppliers, lower global information sharing and advertising costs, and cheaper customer service alternatives.

Economic integration is either external or internal. External integration refers to the electronic networking of corporations, suppliers, customers/clients, and independent contractors into one community communicating in a virtual environment (with the Internet as medium). Internal integration, on the other hand, is the networking of the various departments within a corporation, and of business operations and processes. This allows critical business information to be stored in a digital form that can be retrieved instantly and transmitted electronically. Internal integration is best exemplified by corporate intranets. Among the companies with efficient corporate intranets are Procter and Gamble, IBM, Nestle and Intel.

SESAMi.NET is Asia’s largest B2B e-hub, a virtual exchange integrating and connecting businesses (small, medium or large) to trading partners, e-marketplaces and internal enterprise systems for the purpose of sourcing out supplies, buying and selling goods and services online in real time. The e-hub serves as the center for management of content and the processing of business transactions with support services such as financial clearance and information services.

It is strategically and dynamically linked to the Global Trading Web (GTW), the world’s largest network of trading communities on the Internet. Because of this very important link, SESAMi reaches an extensive network of regional, vertical and industry-specific interoperable B2B e-markets across the globe.


 * Market forces**

Corporations are encouraged to use e-commerce in marketing and promotion to capture international markets, both big and small. The Internet is likewise used as a medium for enhanced customer service and support. It is a lot easier for companies to provide their target consumers with more detailed product and service information using the Internet.

Brazil’s Submarino is a classic example of successful use of the Internet for improved customer service and support. From being a local Sao Paulo B2C e-commerce company selling books, CDs, video cassettes, DVDs, toys, electronic and computer products in Brazil, it expanded to become the largest company of its kind in Argentina, Mexico, Spain and Portugal. Close to a third of the 1.4 million Internet users in Brazil have made purchases through this site. To enhance customer service, Submarino has diversified into offering logistical and technological infrastructure to other retailers, which includes experience and expertise in credit analysis, tracking orders and product comparison systems.


 * Technology forces**

The development of ICT is a key factor in the growth of e-commerce. For instance, technological advances in digitizing content, compression and the promotion of open systems technology have paved the way for the convergence of communication services into one single platform. This in turn has made communication more efficient, faster, easier, and more economical as the need to set up separate networks for telephone services, television broadcast, cable television, and Internet access is eliminated. From the standpoint of firms/businesses and consumers, having only one information provider means lower communications costs.20

Moreover, the principle of universal access can be made more achievable with convergence. At present the high costs of installing landlines in sparsely populated rural areas is a disincentive to telecommunications companies to install telephones in these areas. Installing landlines in rural areas can become more attractive to the private sector if revenues from these landlines are not limited to local and long distance telephone charges, but also include cable TV and Internet charges. This development will ensure affordable access to information even by those in rural areas and will spare the government the trouble and cost of installing expensive landlines.21

What are the components of a typical successful e-commerce transaction loop?
E-commerce does not refer merely to a firm putting up a Web site for the purpose of selling goods to buyers over the Internet. For e-commerce to be a competitive alternative to traditional commercial transactions and for a firm to maximize the benefits of e-commerce, a number of technical as well as enabling issues have to be considered. A typical e-commerce transaction loop involves the following major players and corresponding requisites:

The //Seller// should have the following components:


 * A corporate Web site with e-commerce capabilities (e.g., a secure transaction server);
 * A corporate intranet so that orders are processed in an efficient manner; and
 * IT-literate employees to manage the information flows and maintain the e-commerce system.


 * Transaction partners** **include:**

//Consumers// (in a business-to-consumer transaction) who:
 * Banking institutions that offer transaction clearing services (e.g., processing credit card payments and electronic fund transfers);
 * National and international freight companies to enable the movement of physical goods within, around and out of the country. For business-to-consumer transactions, the system must offer a means for cost-efficient transport of small packages (such that purchasing books over the Internet, for example, is not prohibitively more expensive than buying from a local store); and
 * Authentication authority that serves as a trusted third party to ensure the integrity and security of transactions.

//Firms/Businesses// (in a business-to-business transaction) that together form a critical mass of companies (especially within supply chains) with Internet access and the capability to place and take orders over the Internet.
 * Form a critical mass of the population with access to the Internet and disposable income enabling widespread use of credit cards; and
 * Possess a mindset for purchasing goods over the Internet rather than by physically inspecting items.

//**Government**//**, to establish:**


 * A legal framework governing e-commerce transactions (including electronic documents, signatures, and the like); and
 * Legal institutions that would enforce the legal framework (i.e., laws and regulations) and protect consumers and businesses from fraud, among others.
 * And finally,** //**the Internet**//**, the successful use of which depends on the following**:

For e-commerce to grow, the above requisites and factors have to be in place. The least developed factor is an impediment to the increased uptake of e-commerce as a whole. For instance, a country with an excellent Internet infrastructure will not have high e-commerce figures if banks do not offer support and fulfillment services to e-commerce transactions. In countries that have significant e-commerce figures, a positive feedback loop reinforces each of these factors.22
 * A robust and reliable Internet infrastructure; and
 * A pricing structure that doesn’t penalize consumers for spending time on and buying goods over the Internet (e.g., a flat monthly charge for both ISP access and local phone calls).

How is the Internet relevant to e-commerce?
The Internet allows people from all over the world to get connected inexpensively and reliably. As a technical infrastructure, it is a global collection of networks, connected to share information using a common set of protocols.23 Also, as a vast network of people and information,24 the Internet is an enabler for e-commerce as it allows businesses to showcase and sell their products and services online and gives potential customers, prospects, and business partners access to information about these businesses and their products and services that would lead to purchase.

Before the Internet was utilized for commercial purposes, companies used private networks-such as the EDI or Electronic Data Interchange-to transact business with each other. That was the early form of e-commerce. However, installing and maintaining private networks was very expensive. With the Internet, e-commerce spread rapidly because of the lower costs involved and because the Internet is based on open standards.

How important is an intranet for a business engaging in e-commerce?
An intranet aids in the management of internal corporate information that may be interconnected with a company’s e-commerce transactions (or transactions conducted outside the intranet). Inasmuch as the intranet allows for the instantaneous flow of internal information, vital information is simultaneously processed and matched with data flowing from external e-commerce transactions, allowing for the efficient and effective integration of the corporation’s organizational processes. In this context, corporate functions, decisions and processes involving e-commerce activities are more coherent and organized.

The proliferation of intranets has caused a shift from a hierarchical command-and-control organization to an information-based organization. This shift has implications for managerial responsibilities, communication and information flows, and workgroup structures.

Aside from reducing the cost of doing business, what are the advantages of e-commerce for businesses?

 * E-commerce serves as an “equalizer”**. It enables start-up and small- and medium-sized enterprises to reach the global market.


 * A casestudy: Leveling the Playing Field through E-commerce: The Case of Amazon.com**

Amazon.com is a virtual bookstore. It does not have a single square foot of bricks and mortar retail floor space. Nonetheless, Amazon.com is posting an annual sales rate of approximately $1.2 billion, equal to about 235 Barnes & Noble (B&N) superstores. Due to the efficiencies of selling over the Web, Amazon has spent only $56 million on fixed assets, while B&N has spent about $118 million for 235 superstores. (To be fair, Amazon has yet to turn a profit, but this does not obviate the point that in many industries doing business through e-commerce is cheaper than conducting business in a traditional brick-and-mortar company.)

However, this does not discount the point that without a good e-business strategy, e-commerce may in some cases discriminate against SMEs because it reveals proprietary pricing information. A sound e-business plan does not totally disregard old economy values. The dot-com bust is proof of this.


 * A case study:** **Lessons from the Dot Com Frenzy**

According to Webmergers.com statistics, about 862 dot-com companies have failed since the height of the dot-com bust in January 2000. Majority of these were e-commerce and content companies. The shutdown of these companies was followed by the folding up of Internet-content providers, infrastructure companies, Internet service providers, and other providers of dial-up and broadband Internet-access services.

From the perspective of the investment banks, the dot-com frenzy can be likened to a gamble where the big money players were the venture capitalists and those laying their bets on the table were the small investors. The bust was primarily caused by the players’ unfamiliarity with the sector, coupled with failure to cope with the speed of the Internet revolution and the amount of capital in circulation.

Internet entrepreneurs set the prices of their goods and services at very low levels to gain market share and attract venture capitalists to infuse funding. The crash began when investors started demanding hard earnings for sky-high valuations. The Internet companies also spent too much on overhead before even gaining a market share.


 * E-commerce makes “mass customization” possible**

E-commerce applications in this area include easy-to-use ordering systems that allow customers to choose and order products according to their personal and unique specifications. For instance, a car manufacturing company with an e-commerce strategy allowing for online orders can have new cars built within a few days (instead of the several weeks it currently takes to build a new vehicle) based on customer’s specifications. This can work more effectively if a company’s manufacturing process is advanced and integrated into the ordering system.


 * E-commerce allows “network production.**”

This refers to the parceling out of the production process to contractors who are geographically dispersed but who are connected to each other via computer networks. The benefits of network production include: reduction in costs, more strategic target marketing, and the facilitation of selling add-on products, services, and new systems when they are needed. With network production, a company can assign tasks within its non-core competencies to factories all over the world that specialize in such tasks (e.g., the assembly of specific components).

How is e-commerce helpful to the consumer?
In C2B transactions, customers/consumers are given more influence over what and how products are made and how services are delivered, thereby broadening consumer choices. E-commerce allows for a faster and more open process, with customers having greater control.

E-commerce makes information on products and the market as a whole readily available and accessible, and increases price transparency, which enable customers to make more appropriate purchasing decisions.

How are business relationships transformed through e-commerce?
E-commerce transforms old economy relationships (vertical/linear relationships) to new economy relationships characterized by end-to-end relationship management solutions (integrated or extended relationships).

How does e-commerce link customers, workers, suppliers, distributors and competitors?Supply chain management (SCM)
E-commerce facilitates organization networks, wherein small firms depend on “partner” firms for supplies and product distribution to address customer demands more effectively.

To manage the chain of networks linking customers, workers, suppliers, distributors, and even competitors, an integrated or extended supply chain management solution is needed. //Supply chain management// (SCM) is defined as the supervision of materials, information, and finances as they move from supplier to manufacturer to wholesaler to retailer to consumer. It involves the coordination and integration of these flows both within and among companies. The goal of any effective supply chain management system is timely provision of goods or services to the next link in the chain (and ultimately, the reduction of inventory within each link).29

There are three main flows in SCM, namely:

Some SCM applications are based on open data models that support the sharing of data both inside and outside the enterprise, called the extended enterprise, and includes key suppliers, manufacturers, and end customers of a specific company. Shared data resides in diverse database systems, or data warehouses, at several different sites and companies. Sharing this data “upstream” (with a company’s suppliers) and “downstream” (with a company’s clients) allows SCM applications to improve the time-to-market of products and reduce costs. It also allows all parties in the supply chain to better manage current resources and plan for future needs.30
 * The product flow, which includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs;
 * The information flow, which involves the transmission of orders and the update of the status of delivery; and
 * The finances flow, which consists of credit terms, payment schedules, and consignment and title ownership arrangements.


 * Figure 6. Old Economy Relationships vs. New Economy Relationships**


 * Ecommerce Strategy**
 * Ecommerce Strategy**


 * Build a business, not a website.**

Our philosophy is: “**Build a business, not a website**”. An Ecommerce website is a business first and foremost; the website is merely the commerce delivery channel. An effective ecommerce site begins by understanding and defining the business strategy, goals and metrics for the site, and then crafting a website that is tailored to meet those site objectives.


 * Start with the 5 Ps: Proper Preparation Prevents Poor Performance**

You wouldn’t build a house without an architect and a blueprint, and you shouldn’t build a website without a digital equivalent. If you want your digital ‘house’ to crumble, the surest way to ensure failure online and waste untold time and money is to skip proper planning and jump blindly into implementation.

Since our inception in 1998, ECommerce Partners has helped hundreds of businesses of all kinds succeed online by following our proven strategy and planning methodology. We swear by our process because it works!


 * Avoid**


 * Weak or inconsistent branding
 * Cart abandonment
 * Bad User Experience and usability
 * Poor navigation
 * Slow performance
 * Slow or limited site search
 * Inability to make changes quickly
 * Poor Performance with search engine
 * Achieve real Economic Benefits for Your Business**

What will you gain through proper strategy and planning? A successful ecommerce business that delivers real economic value, including:


 * **Attracting New Customers:** By planning and implementing a search-engine friendly architecture from the start, your ecommerce site gains relevant and targeted traffic
 * **Increasing Sales:** By streamlining the sales process and improving the shopping experience we increase the conversion rate and the average ticket price
 * **Increasing Customer Loyalty and Retention:** An enhanced, usable, and pleasing ecommerce experience generates greater user satisfaction and trust which translates into returning customers
 * **Providing Superior Customer Service and Communications:** Help your customers to communicate, engage and ultimately identify themselves with your business through ecommerce tools, user communities, online support, and by providing them with comprehensive and timely product information
 * **Reducing Operating Costs and Increasing Efficiency:** Reduce your customer acquisition, customer service and fulfillment costs by leveraging the website for client communications and process automation
 * **Promoting Your Brand and Enhancing Your Brand Image:** We ensure you display a consistent corporate identity online with a professional style guide. Moreover, our __[|ecommerce Marketing solutions]__ promote your products to the right audience, resulting in enhanced Brand Recognition and demand
 * **Preparing for Future Needs:** With proper planning and a scalable architecture, your ecommerce site can accommodate additional requirements, features and functionality in the future
 * Measure your Success**

How will you know if your ecommerce site is successful at meeting your business needs? The key success metrics for ecommerce sites include:


 * **Traffic:** The number of visitors that are coming to your site
 * **Stickiness:** The amount of time users spend on the site and the number of pages they view
 * **Conversion:** The percent of visitors who become customers and the size of the average sales ticket
 * **Customer Retention:** The number of customers who return to your site and the frequency of their purchases
 * Implement our Holistic Methodology**

ECommerce Partners’ motto is to “**Come in prepared and do it once, right**”. A thorough understanding of your business goals alone is not enough to ensure a flawless execution that delivers results. While it takes only one mediocre designer or developer to ruin a website, it takes a highly skilled and professionally managed team to produce a successful ecommerce site, including:


 * A Project Manager
 * An Ecommerce Business Analyst (to conduct the research, plan strategy, find out what your competitors are doing that may be worth mimicking, and find the “opportunities” that those competitors are not taking advantage of)
 * A Search Engine Optimization Specialist (to ensure search-engine friendliness is incorporated into the site architecture)
 * An Information Architect
 * A User-Experience Specialist
 * An Art Director (to create the design style guide and give directions to the designers)
 * A Developer (for site development and technical specifications)
 * A Quality Assurance Specialist
 * The Ecommerce Requirements Specification (ERS)**

We approach your ecommerce site requirements by applying a proven, step-by-step methodology we call the Ecommerce Requirement Specification (ERS). The ERS represents a summation of industry best practices and our extensive experience in Internet development, dating back to 1998. The ERS is a valuable, comprehensive and flexible planning tool.


 * The ERS consists of three stages:**

__[|**Services**]__ __[|**Ecommerce Consulting**]__ __[|**Ecommerce Solutions**]__ __[|**User Interface Design**]__ __[|**Internet Marketing**]__ __[|Graphic Design]__ __[|Content & Brand Websites]__
 * __[|Ecommerce Strategy]__
 * __[|From Manufacturer to Retailer]__
 * __[|International Ecommerce]__
 * __[|Landing Page Optimization]__
 * __[|Advanced Site Search]__
 * __[|Ecommerce Website Design]__
 * __[|Custom Solutions]__
 * __[|3rd Party Application Integration]__
 * __[|Support & Maintenance]__
 * __[|Ecommerce Hosting]__
 * __[|User Experience]__
 * __[|Information Architecture (IA)]__
 * __[|Usability]__
 * __[|Internet Marketing Strategy]__
 * __[|Search Engine Optimization (SEO)]__
 * __[|Google Product Search]__
 * __[|Local Search Optimization]__
 * __[|Pay Per Click (PPC) Management]__
 * __[|Email Marketing]__
 * __[|Affiliate Marketing]__
 * __[|Media Buying]__
 * __[|Web Site Design]__
 * __[|Flash Design]__
 * __[|Online Advertising Design]__
 * __[|Logo Design]__
 * __[|Custom Website Strategy]__
 * __[|Content Management Systems]__
 * __[|Copywriting and Website Content]__
 * Key Issues in Implementing an E-commerce Strategy**

**Make sure you have a market.** Who is going to buy your products online? The best place to start is your current customer base. Will going online make life easier for them? Are you going to save them time and money by allowing them to purchase online? You probably have a basic web site already; are you getting requests for online buying from potential customers? It is never truly possible to judge in advance whether a market exists, but there should be at least some indication of a demand for an online presence.

**2. Use a clicks-and-mortar strategy if possible.** The clicks-and-mortar approach is the most effective and economic. This combines offline resources, such as store brands, channels with an online e-commerce presence. The other option - a pure play dot-com - is now rare. Consumers are looking for brands that they know and trust. They also like the fact that a business has a physical presence, a place where they can go if something goes wrong. Pure play dot-coms found that they had to spend a lot of money on marketing just to maintain awareness.

**3. Integrate the shopping experience.** Consumers look to the web primarily for information; they may use the web site initially to find out about the product, then buy by phone or in person. However, repeat purchasers more familiar with the web are more likely to buy online. They will be able to do this more easily if their personal details and purchase history can be stored for subsequent purchases.

**4. Plan how you will deal with content, pricing, stock management, fulfillment, support, payment, returns, support and security.** These are the basics of any business, but there can be added complications online. You need to address the following:

**5. Develop an easy-to-use purchase process.** An alarming number of consumers abandon their attempts to buy online. One of the reasons given is a badly designed purchase process. Your purchase process must be reliable and very easy to use. It is a good idea to tell the customer upfront how many steps there are in the purchase process, and to keep that information prominently displayed at the top of the web page. An example of the purchase steps is as follows: "Shopping cart - Account - Shipping - Payment - Verify - Confirm."
 * Content: This must be updated frequently.
 * Pricing: If you are selling direct for the first time, you may have problems with your distributors and retailers, who will not want you to underprice them. If you are selling brands by other manufacturers, there may be problems involved in selling in foreign marketplaces. Are you going to offer prices in a range of currencies? If so, which?
 * Stock Management: Are you going to use the same stock base to sell online and through your physical distribution channels? If so, you need an integrated stock management system.
 * Fulfillment: Precise information on order status is essential. Each order should have a tracking number so that the customer can get information on the status of the order right up to the point of delivery. If you haven't sold by mail order before, you will have to plan for packaging and fulfillment. This can be a major cost, and needs careful management. If, for cost or other reasons, you decide not to fulfill to certain countries, you must make that very clear on the web site.
 * Payment: How will people pay? What credit cards will you accept? How will you manage fraud?
 * Returns: What is your return policy? Studies indicate that returns can be a major cost for e-commerce.
 * Support: How will you support the products you sell online? You must plan for a support section on your web site to answer basic questions from customers. Will you also offer telephone and e-mail support?
 * Security: Security will be a central issue in an e-commerce strategy. Fraud and hacking of computer systems are ever-growing problems.

**6. Consider localization issues.** If you want to sell seriously to foreign marketplaces, you will have to localize the web site. Studies indicate that, without localization, sales will be minimal. More worryingly, returns are very high because of misunderstanding by people who are purchasing in a foreign language.

**7. Consider customer relationship management and personalization.** The Internet offers many opportunities for a better understanding of customer's behavior and for developing a closer relationship with them. Customer relationship management and personalization systems allow for the collection and application of comprehensive information to create a more customized environment for the consumer. While the potential for such systems is substantial, they are complex and difficult to implement, and, if not professionally managed, can lead to the abuse of consumer privacy.

**8. Make sure that you buy the right software.** There is no need to do all the work internally, as there is now a wide range of quality software for e-commerce.

**9. Make sure you have a team in place.** An e-commerce web site needs day-to-day maintenance. Technical problems must be fixed, new content must be published and old content removed, and the web site must be constantly marketed.

**10. If you don't market, they won't come.** Opening up an e-commerce web site is rather like setting up shop at the North Pole: nobody knows you are there. It is not enough just to register with search engines; you will need an aggressive marketing campaign to make your target market aware of what you have to offer. The ideal situation is a seamless integration with marketing strategy of the offline business.

ELECTRONIC PAYMENT SYSTEMS (EPS)

An e-commerce payment system facilitates the acceptance of electronic payment for online transactions. Also known as a sample of Electronic Data Interchange (EDI), e-commerce payment systems have become increasingly popular due to the widespread use of the internet-based shopping and banking.

There are numerous different payments systems available for online merchants. These include the traditional credit, debit and charge card but also new technologies such as digital wallets, e-cash, mobile payment and e-checks. Another form of payment system is allowing a 3rd party to complete the online transaction for you. These companies are called Payment Service Providers (PSP).

Credit Cards and Smart Cards Over the years, credit cards have become one of the most common forms of payment for e-commerce transactions. In North America almost 90% of online B2C transactions were made with this payment type. It would be difficult for an online retailer to operate without supporting credit and debit cards due to their widespread use. Increased security measures such as the use of the card verification number (CVN) which detects fraud by comparing the verification number printed on the signature strip on the back of the card with the information on file with the cardholder's issuing bank.

Also online merchants have to comply with stringent rules stipulated by the credit and debit card issuers (Visa and MasterCard)this means that merchants must have security protocol and procedures in place to ensure transactions are more secure. This can also include having a certificate from an authorized certification authority (CA) who provides PKI infrastructure for securing credit and debit card transactions. Despite this widespread use in North America, there are still a large number of countries such as China, India and Pakistan that have some problems to overcome in regard to credit card security.

In the meantime, the use of smartcards has become extremely popular. A Smartcard is similar to a credit card; however it contains an embedded 8-bit microprocessor and uses electronic cash which transfers from the consumers’ card to the sellers’ device. A popular smartcard initiative is the VISA Smartcard. Using the VISA Smartcard you can transfer electronic cash to your card from your bank account, and you can then use your card at various retailers and on the internet. There are companies that enable financial transactions to transpire over the internet, such as PayPal.

Many of the mediaries permit consumers to establish an account quickly, and to transfer funds into their on-line accounts from a traditional bank account (typically via ACH transactions), and vice versa, after verification of the consumer's identity and authority to access such bank accounts. Also, the larger mediaries further allow transactions to and from credit card accounts, although such credit card transactions are usually assessed a fee (either to the recipient or the sender) to recoup the transaction fees charged to the mediary.

The speed and simplicity with which cyber-mediary accounts can be established and used have contributed to their widespread use, although the risk of abuse, theft and other problems—with disgruntled users frequently accusing the mediaries themselves of wrongful behavior—is associated with them. Electronic Bill Presentment and PaymentElectronic bill presentment and payment (EBPP) is a fairly new technique that allows consumers to view and pay bills electronically. There are a significant number of bills that consumers pay on a regular basis, which include: power bills, water, oil, internet, phone service, mortgages, car payments etc. EBPP systems send bills from service providers to individual consumers via the internet.

The systems also enable payments to be made by consumers, given that the amount appearing on the e-bill is correct. The original EBPP method is a direct withdrawal from a bank account through a bank such as Scotiabank. Other service providers such as Rogers Communications and Aliant additionally, accept major credit cards within the bill payment sections of their websites. Telpay Incrporated offfers "Telpay for Business", a software application that allows businesses to import electronically presented bills, pay them and store the presented image for audit purposes. The biggest difference between EBPP systems and the traditional method of bill payment, is that of technology. Rather than receiving a bill through the mail, writing out and sending a cheque, consumers receive their bills in an email, or are prompted to visit a website to view and pay their bills.

Three broad models of EBPP have emerged. These are: Consolidation, where numerous bills for any one recipient are made available at one Web site, most commonly the recipient's bank. In some countries, such as Australia, New Zealand and Canada, the postal service also operates a consolidation service. The actual task of consolidation is sometimes performed by a third party and fed to the Web sites where consumers receive the bills. The principal attraction of consolidation is that consumers can receive and pay numerous bills at the one location, thus minimizing the number of login IDs and passwords they must remember and maintain. Biller Direct, where the bills produced by an organization are made available through that organization's Web site. This model works well if the recipient has reasons to visit the biller's Web site other than to receive their bills.

In the freight industry, for example, customers will visit a carrier's Web site to track items in transit, so it is reasonably convenient to receive and pay freight bills at the same site. Direct email delivery, where the bills are emailed to the customer's inbox. This model most closely imitates the analog postal service. It is convenient, because almost everyone has email and the customer has to do nothing except use email in order to receive a bill.

Email delivery is proving especially popular in the B2B market in many countries. Major providers of outsourced bill production services have developed facilities to process bills through consolidation, biller direct and email delivery services, thus enabling major billers to have all their bills, paper and electronic, processed through the one service. Niche service providers in many countries provide one or two of these models, but generally do not integrate with paper bill production. See alsoElectronic Data Interchange Electronic Payment Payment Service Providers.

References: Turban, E. King, D. McKay, J. Marshall, P. Lee, J & Vielhand, D. (2008). Electronic Commerce 2008: A Managerial Perspective. London: Pearson Education Ltd. Turban, E. King, D. McKay, J. Marshall, P. Lee, J & Vielhand, D. (2008). Electronic Commerce 2008: A Managerial Perspective. London: Pearson Education Ltd. p.554. Mastercard: Security Rules and Procedures-Merchant Edition (PDF). 2009. Retrieved: May 12, 2009 Retrieved from "http://en.wikipedia.org/w/index.php?title=E-commerce_payment_system&oldid=453248670"

Please read the following PDF file and conceptualize how Pay Pal is successfully operating its business. Identify what seems to be its definite strategic priorities.
 * OTHER READINGS**