IS 340
Management
Information Systems
Case Study – Managing in the
Digital World: Businesses Get Social –
Businesses using social networks to enhance their operations and increase
competitive advantage
I. Electronic Commerce
Defined – the online exchange of goods, services and money among firms (B2B),
between firms and their employees (B2E), between firms and their customers
(B2C), between customers (C2C), between governments and their citizens (G2C), and
between governments (G2G);
Total retail sales in 2009 dropped
from 2008, but online retail sales were up 2%, and EC retail sales were $134.9B
(3.7% of total retail sales); this does NOT include auctions (e.g., eBay) or
movie or music rentals.
Online retail sales are estimated/projected at
over $200B by 2013 – that’s a lot of money and businesses want their share of
it!
Although
E-Commerce has been around for years, the Internet/WWW has made it much more
available to most persons with a whole new set of products and services.
A WWW
presence is a strategic necessity for most firms today.
A. Internet and World Wide Web Capabilities –
new technology is the driving force (“agent of change”) that has broken down
entry barriers and leveled the playing field
1. Information Dissemination – distribution of
information products and services
2. Integration – real-time access to the
information a customer wants/needs
3. Mass Customization – tailoring
products/services to meet a particular customer’s needs, but doing this on a
large scale
4. Interactive Communication –
immediate/real-time communication and feedback
5. Transaction Support – providing ways for
firms and clients to conduct business online without human assistance; reducing
transaction costs, enhancing operational efficiency
Disintermediation
– cutting out the “middleman” and reaching customers directly
Reintermediation
– re-introducing the “middleman” between the firm and the customers
Insert – When Things Go Wrong: Apple vs.
Adobe – Apple products do not support Adobe Flash – OUCH!!!
B. Electronic Commerce Business Strategies – the
Net has transformed traditional business operations into a hypercompetitive
marketplace with a number of strategies
Strategic Decisions – made by Executives - What product or service will the firm sell,
and How is the firm going to go about selling that product or service (how to
compete).
Brick-and-Mortar
– traditional firm operating in the physical market with a physical store
location where people go to purchase goods
1. The Click-and-Mortar Strategy – both physical
location and online presence for doing business over the Net
2. The Click-Only Strategy (Amazon.com,
eBay.com) – no physical location for a customer to go to; Net presence only;
requires being adept and skilled at technology, innovation, and responding to
quickly changing business environment;
3. Business Models – Click-Only requires a sound
Business Model: What does
the firm do? How does it do this
Uniquely? How does it get Paid
for doing it? How much Gross Margin can the firm earn per unit
sale? Revenue Model – how the firm will
earn revenue and generate profits
II. Business-to-Business
Electronic Commerce: Extranets
Text definition of Extranet:
use of the internet by firms and companies for business-to-business
transaction
Traditional definition of Extranet – a private intranet (a
firms private network using internet technologies) that is opened to specific
business partners outside the organization
A. The Need for Organizations to Exchange Data –
the secure transportation of information is vital to organizations, and
alternatives to the public Internet are preferred today; (in order to do
business (Business-to-Business – B2B), firms need to exchange information with
each other); today, speed and security are paramount concerns in this exchange
process; B2B focuses on Wholesale transactions between businesses
EDI (Electronic Data Interchange) was the method of choice before
recent Internet technologies (.xml)
How
EDI Works – Standardized Business Documents
1. EDI Streamlines Business Processes – EDI
helped reduce the amount of paper flow required to transfer data between
organizations
2. EDI Reduces Errors – EDI reduced the number
of human errors, and entering the same data multiple times, by computerizing
the process
B. Exchanging Organizational Data Using
Extranets – the trend today is to use the Web and private extranets (accessed
through the Web); .xml documents facilitate this process
C. Benefits of Extranets
1. Information Timeliness and Accuracy – (refer
to Dimensions of Information)
2. Technology Integration – Web-based
technologies are cross-platform and help differing systems to communicate with
each other
3. Low Cost-High Value – extranets do not
usually require large expenditures for training (users are usually familiar
with the workings of the Web); Extranets impact the firm’s bottom line –
automated business transactions, reduced processing costs, shortened cycle
times
D. Extranet System Architecture – looks like a
typical Internet-base application, but in connecting two partners a Virtual
Private Network (VPN) is required for secure transmission of proprietary
information
E. Extranet Applications – in using extranets a
common set of useful applications has been found in enterprise portals for
managing supply chains
1.
Portals – access points through which a business partner accesses secured,
proprietary information from an organization (typically using extranets)
a. Supplier Portals (sourcing portal or
procurement portal) – an extranet subset designed to automate business
processes before, during and after sales transactions between a single buyer
and multiple suppliers
b. Customer Portals – an extranet subset
designed to automate business processes before, during and after sales
transactions between a supplier and multiple customers
F. B2B Marketplaces – Portals are very expensive
and beyond the reach of many small- to medium-sized firms, so B2B Marketplace
have been developed by third party vendors that provide portals for a price or
percentage of sales. Many B2B
marketplaces focus on vertical
markets (all in the same industry), but others are open to anyone.
G. Managing B2B Financial Transaction – most B2C
transactions are by credit card or electronic payment services (e.g., Paypal),
but most B2B transaction (75% estimated) are by check or letters of credit
issued by banks. These take time and are
costly, and there is considerable risk when dealing internationally or with a
new customer.
III. Business-to-Employee
Electronic Commerce – much communication and interaction occurs between a
business and its employees; using the Internet can make this easier and faster
A. Supporting Internal Business Processes Using Intranets
– a private network that utilizes Internet technology to support proprietary,
internal communications and B2E electronic commerce
B. Intranet System Architecture – looks the same
as a publicly accessible Web site (hardware and software) but uses Firewalls
(security hardware and software) to secure the internal information from
unauthorized users.
Inset – Ethical Dilemma:
Monitoring Productive Employees – how closely should you monitor your
employees? What is
legal/ethical/moral? How much right to
privacy does an employee have when working on company time? Can you read/write personal email or surf the
Web with the firm’s equipment when on your own time? TELL YOUR EMPLOYEES YOUR POLICIES! Put your policies in writing and make the
employee sign a form that they have read and understand the policies!
C. Intranet Applications – covers a broad range
of Internet applications for internal use
1. Training – Online training for inside the
organization (WIU – yearly ethics and sexual harassment training, safety
training for driving large vans for the university)
2. Personalized Intranet Pages – each employee
being able to access needed information formatted to their own language and job
situation, regardless of their physical or geographical location, or function
in the organization
3. Real-Time Access to Information – immediate
updates and availability
4. Online Entry of Information – streamlines
routine business processes
5. Collaboration – multiple people working
together in a timely fashion across a large organization
a. Groupware – allows people to work together
more effectively; distinguished by two dimensions
1. Whether it supports groups working together
at the same time (Synchronous) or at different times (Asynchronous)
2.
Whether it supports groups working face-to-face or distributed
b.
Videoconferencing – uses both video and audio concurrently with a microphone
and a Web cam
IV.
Business-to-Consumer Electronic Commerce, Consumer-to-Consumer
E-Commerce, and Internet Marketing – The widespread acceptance and use of the
Internet/Web has made it an affordable and practical medium for
Business-to-Consumer (B2C) and Consumer-to-Consumer (C2C) business
transactions.
A. Stages of B2C EC – B2C focuses on Retail
transactions
1. e-information – a Web site that provides the
user with information on products and services; electronic brochures
2. e-integration – ability to gain personalized
information by querying corporate databases, etc.
3. e-transaction – customers are able to place
orders and make payments on the Web site
B. E-tailing:
Selling Goods and Services in the Digital World – e-tailing is the
online sale of goods and services
Reverse
Pricing – customers specify how much they are willing to pay for an item
Menu-Driven
Pricing – companies set the price for an item
1. Benefits of E-tailing
a. Product Benefits – Web sites can offer
unlimited numbers and varieties of products because there is no physical store
and shelf limitations; Comparison Shopping is easier on the Web – customers do
not have to travel to various stores
b. Place Benefits – customers are not limited to
close physical locations or store hours (Web is open 24 hours per day)
c. Price Benefits – lack of a physical store
location and possible sales volume translate into lower prices for the customer
2. The Long Tail – a focus on niche markets
rather than on mainstream products is enabled in e-tailing, providing customers
with the products they want, rather than just those that are popular at the
moment
3. Drawbacks to E-tailing –
a. Product Delivery Drawbacks – e-tailing
requires additional time to deliver the product to the customer (except for a
direct download of software)
b. Direct Product Experience Drawbacks – lack of
sensory information about a product is a problem (that jacket looks good on
screen, but how does it look on you?)
C. E-Commerce Web Sites: Attracting and Retaining Online Customers
1. Rule 1 – The Web Site Should Offer Something
Unique – many firms offer the same products; what can you offer that will draw
customers to your Web site?
2. Rule 2 – The Web Site Must Be Aesthetically
Pleasing – successful Web sites are nice to look at
3. Rule 3 – The Web Site Must Be Easy to Use and
FAST – you need to attract a viewer
quickly or he is gone; how do you motivate someone to stay on your web site?
Not in Text: Average
Click-Thru time on a Web site is 3 – 6 seconds
4. Rule 4 – The Web Site Must Motivate People to
Visit, to Stay , and to Return – getting people to Visit your web site once is
not that hard, but how do you get them to Stay?
or even harder, to Return?
“Return visitors” is where the money is!
5. Rule 5 – You Must Advertise Your Presence on
the Web Site – people have to know you are out there in order to get to your
site; advertising on the Web: click-thru
(pay-per-click) payments
Click
Fraud – clicking on your own (or someone else’s) link to increase revenues
Search
Engine Marketing – (below)
6. Rule 6 – You Should Learn from Your Web Site
– Web Analytics – using the statistics drawn from your Web site to improve your
Web site and your firm
D. E-Banking – managing online financial
transactions
1. Online Banking – online management of your
checking or savings account, credit cards, etc.
2. Electronic Bill Payment – paying bills online
3. Online Investing – a growing area
E. C2C EC – mostly auctions, social online
communities, and publishing
1.
E-Auctions
a. Forward Auction – highest bidder wins
b. Reverse Auction – buyers post a RFQ (request
for Quote) and the lowest bidder (seller) wins, often used in B2B transaction
c. eBay – largest auction site on the Web, 2006
gross revenues over $6B!
d. E-Auction Fraud – 42% of all Internet-fraud
related complaints in 2005
1. Bid Luring – luring bidders to leave a
legitimate auction to purchase at a lower price
2. Reproductions – selling a reproduction that
was said to be an original
3. Bid Shielding – artificially inflating the
price of an auction by bidding on one’s own item from another account
4. Shipping Fraud – charging large, irregular
shipping/handling fees in excess of actual cost
5. Payment Failure – buyer not paying for item
after close of an auction
6 Non-Shipment – seller failing to ship an item
after receiving payment
Note: No Longer in
this chapter, but important topics: (below)
Social Online
Communities – Web sites enabling social networking; MySpace, FaceBook,
SecondLife, revenues come from ads that attract actual sales or from sales of
Virtual Items that enhance the look and feel of the Web site – CyWorld’s
revenues estimated at ~ $300,000 per day, for (virtual) items that do not exist
in reality!
Self-Publishing
– people can now publish their own works, opinions, or thoughts with no editing
or editorializing; this has moved publishing from B2C to C2C
1. Printing-On-Demand – customized printing done
in small batches to meet demands of actual purchases; little or no shelf space
required, no investment in large stockpiles of books; authors can submit their
work to a Web-based publisher who will edit, format and sell the work for a
small commission, and return the rest of the revenues to the author
2. Blogging (or Weblogging) – online text diary,
published on your own website so that people can read your
thoughts/hopes/desires/fears; usually no monetary costs to the reader; started
as a way to express an individual’s thoughts on a subject, but now a
significant form of social commentary
F. Internet Marketing – There is a lot of
competition out there – how do you attract people to your Web page?
1.
Search Marketing –have your link appear on a search engine for
visibility
a. Paid Search (Search Advertising or Sponsored
Search) – paying (or bidding) to have your link placed at the top of a search
engine response
b. Search Engine Optimization – use key words
that a user may refer to in a search and have other pages reference your Web
site
2. Display Ads – the prevalent form of
advertising in the early days of the Web; advertising placed on a Webpage
3. E-Mail Marketing – becoming more popular than
direct-mail advertising, very low cost, saves massive amounts of paper (makes
the firm look “green”)
4. Social Media – as more people use and depend
on social media, advertising here is a natural move; you can “like” Coke ads,
or become “friends” with an advertiser
5. Mobile Marketing – placing ads on smart phone
applications, or providing applications (with the firm’s name) for smart phone
6. Pricing Models – how do you calculate revenue
and payments for online advertising?
a. Pay-per-Click – a price for each click to an
advertiser through your Web page
b. Click-Through-Rate – how many people actually
click on an ad divided by the number of times it was displayed
c. Conversion Rate – how many people actually
buy the item divided by the number of times it was displayed
d. Click Fraud
1.
Network Click Fraud– artificially inflating the number of clicks on an
ad to generate revenue
2.
Competitive Click Fraud – inflate a competitor’s online advertising
costs by clicking an advertiser’s link repetitively
Inset – Net Stats: Who Is Subsidizing
Web Content?
V. Emerging Topics and
issues in EC – although only about a decade old, E-Commerce has changed social
and economic structures worldwide
A. C2B EC – Consumers sell to Businesses
(although somewhat blurry – doesn’t that make the consumer a business & the
business a consumer? and take us back to B2C?); photographers selling pictures
to print media; Crowdsourcing (see chapter 5).
B. The Rise in M-Commerce – Mobile Electronic
Commerce – any electronic transaction or information interaction conducted
through a wireless/mobile device leading to transfer of real or perceived value
in exchange for information, services, or goods
1. Location-Based M-Commerce – highly
personalized services based on a user’s location – directions, movie listings,
ticket sales,
e911 –
enhanced 911 – GPS built into the cell phone gives the location to the
emergency dispatcher
2. Key Drivers for M-Commerce – growth of
m-commerce is due to consumer interest and adoption of technology/Internet and
the use of new cellular networks
Inset – Smart Phones of the Future
C. Mobile Entertainment – media dissemination –
an e-commerce innovation; the entertainment industry has no choice but to make
its products available via the Internet;
Online Entertainment Industry – there are a LOT of
alternatives in entertainment today
D. Securing Payments in the Digital World – How
can you be certain that you will be paid for inline transactions? How do you keep people from abandoning their
online purchase? Over half of all online
shopping carts are abandoned
Identity
Theft – one of the fastest growing and most expensive frauds today
1. Credit and Debit Cards – used frequently for
online purchases;
CVV2 –
not included on the magnetic strip, so the card must be in the purchaser’s
hands
2. Payment Services – PayPal, Google Checkout
E. Legal Issues in EC – threats to the
e-commerce model do exist, typically in the form of policy changes
Note: The USA Patriot Act – introduced
shortly after the 9/11 terrorist attacks; gives broad powers to law enforcement
agencies
1. Taxation – little tax is paid on Internet
business transactions, and the various levels of government all want their fair
share of this money
a. The Internet Tax Freedom Act (started in
1998) – a moratorium on e-commerce taxation, must be re-approved each year; tax
on Internet sales is only collected when purchased in a state where the
business has a “significant” presence, so people carefully chose the starting
location of their e-commerce business to offer “tax-free shopping” to their
customers
When you
chose the location to start your business, the decision you actually make is
choosing the set of laws under which you will operate.
Note: Not in Text –
Use Tax – if you
purchase out of state, you are SUPPOSED to report this to your state government
and pay an equivalent “use tax” to your own state, but most people do not do
this (must be paid to license a car purchased out of state)
2. Digital Rights Management (DRM) –
controversial area over who owns/controls digital media (movies, music, etc.)
TiVo
– digital recording that allows user to bypass commercials
iTunes
– inexpensive but legal downloads of music
VI. E-Government –
using information systems to provide information to citizens, organizations,
and governmental agencies
1. Government-to-Citizen (G2C) – allows
interaction between government and its citizens; e-filing of taxes
2. Government-to-Business (G2B) – involves the
government and businesses as in procurement (e-procurement), and selling
government equipment to private purchasers
3. Government-to-Government (G2G) – interactions
between different levels of government, or between countries
Inset –Retailing – RFID for billing and Fingerprint Scanners for payments