How does Ecommerce Work

How E-Commerce Works

The consumer first moves through the internet to the merchant’s web site. At the web site, the consumer is briefly given an introduction to the product or services the merchant offers. It is at this point that the consumer makes the decision to visit the web store by clicking on a link or button located on the web page (e.g., Buy Now, Shop Online, or an image of a shopping cart button are common entry points into a web store). After choosing to visit the web store, the consumer is typically connected to an online transaction server located somewhere else on the internet which runs software commonly referred to as a shopping cart application. The shopping cart application has been setup by the merchant to display all products and services offered, as well as calculate pricing, taxes, shipping charges, etc.

From there, the consumer decides that he wants to purchase something, so he enters all pertinent credit card information and a sales order is produced. Depending on the ecommerce implementation, the sales order can now take two totally different paths for confirming to the consumer that the order is officially placed.

Scenario 1

The consumer’s credit card information goes directly through a private gateway to a processing network, where the issuing and acquiring banks complete or deny the transaction. This generally takes place in no more than 5-7 seconds and the consumer is then informed that the order was received, the credit card was authorized, and that the product will ultimately be shipped.

Scenario 2

The consumer’s entire order and credit card information is electronically submitted back to the merchant’s server (usually via email, FTP, or SSL connection) where the order can be reviewed first and then approved for credit card authorization through a processing network. The consumer then receives an email shortly afterwards, confirming the order being received, the credit card being authorized, and status on when the product will exactly be shipped.

In both scenarios, the process is transparent to the consumer and appears virtually the same. However, the first scenario is a more simplistic method of setting up a shopping cart application and does not take into consideration any back office issues that may delay shipment (i.e., items out of stock, back orders, orders submitted after office hours or during holidays, etc.). ManageMore’s eCommerce Manager relies on the second scenario to handle all of its ecommerce orders. This second scenario keeps the consumer accurately informed throughout the entire ordering process.

Let us assume an ecommerce implementation that uses the second scenario mentioned above.

There are several basic steps you will need to accomplish before becoming Commerce enabled.

Getting a Merchant Bank Account

Web Hosting

Web Design Considerations

Registering a Domain Name

Obtaining a Digital Certificate

Getting a Merchant Bank Account

In order to be able to accept credit cards, you must apply for an account with a credit card merchant account provider. This can be relatively easy or somewhat difficult, depending on which country you live in, and the type of business you are running.

When choosing a merchant account provider, the following should also be noted:

In order for credit card authorization to be automatic from within ManageMore, you must ensure that your merchant account provider has credit card processors that connect with IC Verify™, PC Charge™, or AuthorizeNet™ (i.e.Intellicharge Interface) software. These products are sold separately from ManageMore and eliminate the need for merchant terminal devices or separate time consuming steps to approve credit cards.

Your merchant account provider must allow you to handle non-swiped credit card transactions. This refers to transactions where the customer is not present and only the credit card number and expiration date are being used for approving the charges.

When choosing a merchant account provider, you should do a little research on the company’s reputation, years in business, and company size. Constantly changing to a new merchant account provider when your old one goes out-of business can be costly and time consuming.

Avoid merchant account providers that ask for a non-refundable fee before you get approved.

Avoid merchant account providers that require 1 or 2 year contract terms. Since there are so many merchant account providers available, it doesn’t make sense to lock your company into a commitment for any period of time.

Expect merchant account providers to have some form of a sign up fee after being approved only. These fees can come in the form of an application fee, processing fee, software fee, etc. Typically expect to pay around $100 to $500 for getting an account setup to accept credit cards and sometimes electronic checks.

You should be able to find a merchant account provider that can offer you discount credit cards rates ranging from 1.75% to 2.75% and no more than .25 cent per transaction. If not, contact Intellisoft regarding our merchant account provider affiliates and the free Intellicharge Interface just for signing up with them.

You will need a dedicated phone line or data line for processing credit cards and electronic checks. Note: If your computer or local area network is already connected to the internet, a separate data line will not be necessary if you use the Intellicharge Interface for electronic payment.

Web Hosting

Web hosting is a very important step in this process, as this is how you gain a presence on the internet in the first place. There are actually two scenarios that can be used for web hosting. Scenario1 involves setting up and maintaining your own web server, while Scenario 2 involves farming out all web hosting administration to an ISP. An Internet Service Provider (ISP) is a company that provides you with internet access and limited hard drive space on their web servers for hosting your web site.

The following should be noted when searching for an Internet Service Provider:

Always try to find an ISP that can provide a local telephone number for you to connect to the internet.

Choose an ISP that is known for having few interruptions of service.

Choose an ISP that is known for good technical support and has knowledgeable people familiar with ecommerce sites.

Choose an ISP that consistently has fast connection speeds.

As with any company you do business with, make sure the ISP is reputable.

The online transaction providers that offer the actual web store itself can sometimes be hosted by your same ISP or may require a completely different provider, referred to as a Commerce Service Provider (CSP). Many small businesses tend to choose CSP’s for creating a web store because it gives them the flexibility of choosing a provider that offers competitive pricing and the best shopping cart application for their needs. Online transaction providers will usually provide one shopping cart solution they feel is better than the many others that exist and differ by price, appearance, layout, functionality, and ease of use.

The following should be noted when dealing with shopping cart applications:

Online transaction providers will either sell or rent you the use of an online shopping cart application for your business. Be forewarned that purchasing an online shopping cart application is very expensive. Most businesses will rent these online web store programs rather than committing to such a steep investment.

Rental pricing for the use of shopping cart programs vary depending on number of transactions generated a month, number of products listed on the shopping cart application, and the sophistication of the shopping cart application itself.

There are a lot of online transaction providers out there, and they all have varying packages. Deciding on a provider’s package that fits your needs is perhaps the most important aspect.

Web Design Considerations

With little knowledge of HTML and a lot of patience, you can probably create your own corporate web site with the help of products like Microsoft FrontPage™ or DreamWeaver™. However, when adding a web store to your web site, you may want to seek the help of professional web designers to make the look and feel of your web store consistent with the rest of your corporate web site. Most shopping cart applications, like SoftCart by Mercantec, allow its templates to be modified just for this purpose. In many cases, the same ISP or CSP you choose can provide web design and consultation.

Registering a Domain Name

Domain names are the names for computers on the Internet that correspond to IP (Internet protocol) numbers to route information to addresses on the Internet network. Domain names serve as a convenient way of locating information and people on the Internet. In layman terms, will it be important to you, for customers to find your web site by typing “123.123.456.456” or by typing something simple to remember like

Registering a domain name is one of the most important decisions you can make for your online identity. Your domain name says who you are to your clients, your peers - the whole world. The basics for registering a domain name are:

Contact a domain name registrar on the internet to register for a domain name.There are many to choose from, just do a web search on “domain name registrar” to get you started.

2. Select a unique domain name you would like others to use for finding your web site.

Obtaining a Digital Certificate

A digital certificate, also known as a SSL Server Certificate, enables SSL (Secure Socket Layer encryption) on the web server. SSL protects communications so you can take credit card orders securely and ensure that hackers cannot eavesdrop on you. Any ecommerce company that provides you with an online web store will require you to have SSL before you can use their services. Thankfully, for most people obtaining a digital certificate is not a problem. For a minimal fee, one can usually use the certificate owned by the web hosting company where your page resides. If you are a larger company, however, you may want to get your own digital certificate.

Architectural Framework of E Commerce

A framework is intended to define and create tools that integrate the information found in today’s closed systems and allows the development of e-commerce applications. It is important to understand that the aim of the architectural frame-work itself is not to build new database management systems, data repository, computer languages, software agent based transaction monitors, or communication protocols. Rather, the architecture should focus on synthesizing the diverse resources already in place in corporations to facilitate the integration of data and software for better applications. The electronic commerce application architecture consists of six layers of functionality, or services:

applications;

brokerage services, data or transaction management;

interface, and; support layers”

secure messaging, security and electronic document interchange;

middle ware and structured document interchange; and

network infrastructure and basic communications services.

These layers co-operate to provide a seamless transition between today’s computing resources and those of tomorrow by transparently integrating information access and exchange within the context of the chosen application. As seen in Fig., electronic commerce applications are based on several elegant technologies. But only when they are integrated do they provide uniquely powerful solutions.

In the ensuing discussion of each of these layers, we will not elaborate on the various aspects of the network infrastructure that transports information. These were discussed extensively earlier and will not be addressed here. We begin our discussion with the application level services.

Table Electronic Commerce: A conceptual framework

Electronic Commerce Application Services

The application services layer of e-commerce will be comprised of existing and future applications built on the innate architecture. Three distinct classes of electronic commerce application can be distinguished: customer to business, business-to-business, and intra organization

Consumer-to-Business Transactions

We call this category marketplace transaction. In a marketplace transaction, customers learn about products differently through electronic publishing, buy them differently using electronic cash and secure payment systems, and have them delivered differently.

Also, how customers allocate their loyalty may also be different. In light of this, the organization itself has to adapt to a world where the traditional concepts of brand

Differentiation no longer hold-where “quality” has a new meaning, where “content” may not be equated to “product,” Where “distribution” may not automatically mean “physical Transport.” In this new environment, brand equity can rapidly evaporate forcing firms to develop new ways of doing business

Business-to Business Transactions

We call this category market-link transaction. Here, businesses, governments, and other organizations depend on computer - to-computer communication as a fast, an economical, and a dependable way to conduct business’ transactions. Small companies are also beginning to see the benefits of adopting the same methods. Business-to-business transactions include the use of EDI and electronic mail for purchasing goods and services,buying information and consulting services, submitting requests for proposals, and receiving proposals. Examine this scenario.

The current accounts payable process occurs through the exchange of paper documents. Each year the trading partners exchange millions of invoices, checks, purchase orders, financial reports, and other transactions. Most of the documents are in electronic form at their point of origin but are printed and key-entered at the point of receipt. The current manual process of printing, mailing is costly, time consuming, and error-prone. Given this situation and faced with the need to reduce costs, small businesses are looking toward electronic commerce as a possible savior. Intra-organizational Transactions We call this category market-driven transactions. A company becomes market driven by dispersing throughout the firm information about its customers and competitors; by spreading strategic and tactical decision making so that all units can participate; and by continuously monitoring their customer commitment by making improved customer satisfaction an ongoing objective. To maintain the relationships that are critical to delivering superior customer value, management must pay close attention to service, both before and after sales. In essence, a market-driven business develops a comprehensive understanding of its customers’ business and how customers in the immediate and downstream markets perceive value.

Three major components of market-driven transactions are

customer orientation through product and service

customization; cross-functional coordination through enterprise

integration; and advertising, marketing, and customer service.

Information Brokerage and Management

The information brokerage and management layer provides service integration through the notion of information brokerages, the development of which is necessitated by the increasing information resource fragmentation. We use the notion of information brokerage to represent an intermediary who provides service integration between customers and information providers, given some constraint such as a low price, fast service, or profit maximization for a client. Information brokers, for example, are rapidly becoming necessary in dealing with the voluminous amounts of information on the networks. As on-line databases migrate to consumer information utilities, consumers and information professionals will have to keep up with the knowledge, and owner-ship of all these systems.

Most professionals have enough trouble keeping track of files of 1 interest on one or two database services. With all the complexity associated with large numbers of on-line databases and service bureaus, if it is impossible to expect humans to do the searching. It will have to be software programs-information brokers or software agents, to use the more popular term-that act on the searcher’s behalf. Information brokerage does more than just searching. It addresses the issue of adding value to the information that is retrieved. For instance, in foreign exchange trading, information is retrieved about the latest currency exchange rates in order to hedge currency holdings to minimize risk and maximize profit. In other words, the act of retrieving the information is the input to other transactions. With multiple transactions being the norm in the real world, service integration becomes critical.

Taking the same foreign exchange example further, service integration allows one to link the hedging program (offered on a time-sharing basis by a third party) with the search program (could be another vendor) that finds the currency rates from the cheapest on-line service to automatically send trades to the bank or financial services company. In effect, a personalized automated trading system can be created without having to go to any financial institution. This is just one example of how information brokerages can add value. Another aspect of the brokerage function is the support for data management and traditional transaction services. Brokerages may provide tools to accomplish more sophisticated, time-delayed updates or future compensating transactions. These tools include software agents, distributed query generator, the distributed transaction generator, and the declarative resource constraint base which describes a business’s rules and-environment information.

At the heart of this layer lies the work-flow scripting environment built on a software agent model that coordinates work and data flow among support services. As pointed out earlier, software agents are used to implement information brokerages. Software agents are mobile programs that have been called “healthy viruses,” “digital butlers/” and “intelligent agents.” Agents are encapsulations of users’ instruction that perform all kinds of tasks in electronic market places spread across networks.

Information brokerages dispatch agents capable of information resource gathering, negotiating deals, and performing transactions. The agents are intelligent because they have contingency plans of action. They examine themselves and their environment and if necessary change from their original course of action to an alternative plan. For example, suppose you send an agent to an on-line store with a request to order a bouquet of roses for Rs. 25 or less. If the shop offers roses starting at Rs. 30, your agent can either choose a different bouquet or find a different store by consulting an online

“Yellow Pages” directory, depending on prior instructions. Although the notion of software agents sounds very seductive, it will take a while to solve the problems of interregna communication, interoperable agents, and other headaches that come with distributed computing and net-working. To some critics, the prospect of a single-agent language like Telescript as a world standard is disturbing. They worry that agents sound a bit too much like computer viruses, which instead of running errands may run amok.

Vendors such as General Magic go to great lengths to explain the precautions it has taken to make this impossible: the limits placed on the power of agents, the “self-destruct” mechanism built into their codes. Yet until electronic commerce services are up and running on a large scale, it is impossible to know how well software agents will work.

Interface and Support Services

The third layer, interface and support services will provide interfaces for electronic commerce applications such as interactive catalogs and will sup-port directory servicesfunctions necessary for information search and access. These two concepts are very different.

Interactive catalogs are the customized interface to consumer applications such as home shopping. An interactive catalog is an extension of the paper-based catalog and incorporates additional features such as sophisticated graphics and video to make the advertising more attractive. Directories, on the other hand, operate behind the scenes and attempt to organize the enormous amount of information and transactions generated to facilitate electronic commerce. Directory services databases make data from any server appear as a local file. A classic example of a directory is the telephone White Pages, which allows us to locate people and telephone numbers. In the case of electronic commerce, directories would play an important role in information management functions.

For instance,take the case of buying an airline ticket with several stopovers with the caveat that the time between layovers be minimized. This search would require several queries to various online directories to-find empty seats on various airlines and then the avail-ability of seats would; be coordinated with the amount of time spent in the air-port terminals. The primary difference between the two is that unlike interactive catalogs, which deal with people, directory support services interact directly with soft-ware applications. For this reason, they need not have the multimedia glitter and jazz generally associated with interactive catalogs. From a computing perspective, we can expect that there will be no one common user interface that will glaze the surface of all electronic commerce applications, but graphics and object manipulation will definitely dominate. Tool developers and designers might incorporate common tools for interface building, but the shape of catalogs or directories will depend on the users’ desires and functional requirements.

Secure Messaging and Structured Document Interchange Services

The importance of the fourth layer, secured messaging, is clear. Everyone in business knows that electronic messaging is a critical business issue. Consider a familiar business scenario:

You hand over an urgent fax Monday and find out Tuesday that it’s still sitting on your fax operator’s desk. What happened?

The line was busy and he thought he’d try again later. Or, the number was wrong,but he forgot to let you know. Or you’re in London and you need to send a spreadsheet that details a marketing plan for a product introduction strategy to a co-worker in New York. This must be done today, not tomorrow when the courier service would deliver.

There is a solution to these common and frustrating problems. It’s called Integrated Messaging: a group of computer services that through the use of a network send, receive, and combine messages, faxes, and large data files. Some better-known examples are electronic mail, enhanced fax, and electronic data interchange.

Broadly defined, messaging is the software that sits between the network infrastructure and the clients or electronic commerce applications, masking the peculiarities of the environment. Others define messaging as a frame-work for the total implementation of portable applications, divorcing you from the architectural primitives of your system. In general, messaging products are not applications that solve problems; they are more enablers of the applications that solve problems. Messaging services offer solutions for communicating non formatted (unstructured) data-letters, memos, and reports as well as formatted (structured) data such as purchase orders, shipping notices, and invoices. Unstructured messaging consists of fax, e-mail, and form-based systems like Lotus Notes.

Structured documents messaging consist of the automated inter-change of standardized and approved messages between computer applications, via telecommunications lines. Examples of structured document messaging include EDI. Messaging is gaining momentum in electronic commerce and seems to have many advantages. It supports both synchronous (immediate) and asynchronous (delayed) message delivery and processing. With asynchronous messaging, when a message is sent, work continues (software doesn’t wait for a response).This allows the transfer of messages through store-and-forward methods.

Another advantage of messaging is that it is not associated with any particular communication protocol. No pre-processing is necessary, although there is an increasing need for programs to interpret the message. Messaging is well suited for both client server and peer-to-peer computing models. In distributed systems, the messages are treated as “objects” that pass between systems.

Messaging is central to work-group computing that is changing the way businesses operate. The ability to access the right information at the right time across diverse work groups is a challenge. Today, with the messaging tools, people can communicate and work together more effectively-no matter where they are located. When an employee sends an electronic mail form, the information travels along with the form. So one person can start the form, mail it to the next person, fill it in/ sign it, mail it to the next, and so on. This is known as message-enabled work-flow solutions.

The main disadvantages of messaging are the new types of applications it enables which appear to be more complex, especially to traditional programmers and the jungle of standards it involves. Because of the lack of standards, there is often no interoperability between different messaging vendors leading to islands of messaging. Also, security, privacy, and confidentiality through data encryption and authentication techniques are important issues that need to be resolved for ensuring the legality of the message-based transactions themselves.

Middleware Services

Middleware is a relatively new concept that emerged only recently. Like so many other innovations, it came into being out of necessity. Users in the 1970s, when vendors, delivered homogeneous systems that worked, didn’t have a need for middleware3&heR conditions changed-along with the hardware and the software the organizations couldn’t cope: The tools were inadequate, the backlog was enormous, and the pressure was overwhelming. And, the users were dissatisfied. Something was needed to solve all the interface, translation, transformation, and interpretation problems that were driving application developers crazy. With the growth of networks, client-server technology, and all other forms of communicating between/among unlike platforms, the problems of getting all the pieces to work together grew from formidable to horrendous.

As the cry for distributed computing spread, users demanded interaction between dissimilar systems, networks that permitted shared resources and applications that could be accessed by multiple software programs. In simple terms, middleware is the ultimate mediator between diverse software pro-grams that enables them talk to one another. Another reason for middleware is the computing shift from application centric to data centric. That is, remote data controls all of the applications in the network instead of applications controlling data. To achieve data-centric computing, middleware services focus on three elements: transparency, transaction security and management, and distributed object management and services.

Transparency

Transparency implies that users should be unaware that they are accessing multiple systems. Transparency is essential for dealing with higher-level issues than physical media and interconnection that the underlying network infrastructure is in charge of. The ideal picture is one of a “virtual” network: a collection of workgroup, departmental, enterprise, and inter enterprise LANs that appears to the end user or client application to be a seamless and easily accessed whole.

Transparency is accomplished using middleware that facilitates a distributed computing environment. This gives users and applications transparent access to data, computation, and other resources across collections of multi-vendor, heterogeneous systems. The strategic architectures of every major system vendor are now based on some form of middleware. The key to realizing the theoretical benefit of such architecture is transparency. Users need not spend their time trying to understand where something is. Nor should application developers have to code into their applications the exact locations of resources over the network. The goal is for the applications to send a request to the middleware layer, which then satisfies the request any way it can, using remote information.

Transaction Security and Management

Support for transaction processing (TP) is fundamental to success in the electronic commerce market. Security and management are essential to all layers in the electronic commerce model. At the transaction security level, two broad general categories of security services exist: authentication and authorization.

Transaction integrity must be a given for businesses that cannot afford any loss or inconsistency in data. Some commercial sites have had gigantic centralized TP systems running for years. For electronic commerce, middleware provides the qualities expected in a standard TP sys-tem: the so-called ACID properties (atomicity, consistency, isolation, and durability).

Distributed Object Management and Services

Object orientation is proving fundamental to the proliferation of network-based applications for the following reasons: It is too hard to write a net-work-based application without either extensive developer retraining or a technology that camouflages the intricacies of the network. Objects are defined as the combination of data and instructions acting on the data. Objects are an evolution of the more traditional programming concept of functions and procedures. A natural instance of an object in electronic commerce is a document.

A document carries data and often carries instructions about the actions to be performed on the data. Today, the term object is being used interchangeably with document resulting in a new form of computing called document oriented computing. Here, the trend is to move away from single data-type documents such as text, pictures, or video toward integrated documents known as com-pound document architectures. The best example of this approach is an active document. If you create a new document that is an integration of the spreadsheet, word processor, and presentation package, what you’ll see in the next generation of operating systems is that as you scroll through your document, the tool bar will automatically change from a spreadsheet too bar,to a word processing tool bar, to a presentation package tool bar. These applications will also be able to access and retrieve data from any file in the computing network.

Advantages of E-Commerce

Electronic Commerce can increase sales and decrease costs.

Advertising done well on the web can get even a small firm’s promotional message out to potential customers in every country in the world.

Businesses can use electronic commerce to identify new suppliers and business partners.

Electronic Commerce increases the speed and accuracy with which businesses can exchange information, which reduces costs on both sides of transactions.

E-Commerce provides buyers with a wider range of choices than traditional commerce because buyers can consider many different products and services from a wider variety of sellers.

Electronic payments of tax refunds, public retirement and welfare support cost less to issue and arrive securely and quickly when transmitted over the Internet.

Disadvantages of E-Commerce

Some business processes such as perishable foods and high-cost, unique items such as custom-designed jewelry might be impossible to inspect adequately from a remote location.

Costs, which are a function of technology, can change dramatically even during short-lived electronic commerce implementation projects because the technologies are changing so rapidly.

Many firms have trouble recruiting and retaining employees with the technological, design and business process skills needed to create an effective electronic commerce presence.

Firms facing difficulty of integrating existing databases and transaction processing software designed for traditional commerce into the software that enables electronic commerce.

Companies that offer software design and consulting services to tie existing systems into new online business systems can be expensive.

Consumers are fearful of sending their credit card numbers over the Internet and having online merchants. Consumers are simply resistant to change and are uncomfortable viewing merchandise on a computer screen rather than in person.

ADVANTAGES AND DISADVANTAGES OF TRANSACTING ONLINE

As well as disadvantages, online payment methods have several advantages. Read these examples:

Low labour costs

Since online payments are usually automatic, they have lower labour costs than manual payment methods, such as cheque, money order, cash and EFTPOS.

Convenience for online sales

Online payment methods allow conveniently selling goods and services online.

Automatic

Online payments can be automatic, which can be convenient for you and your customers.

Fast transaction speed

Online transactions quickly provide feedback to you and your customers.

Low risk of theft

After processing delays, online payments generally go straight into your bank account, so they have a low risk of theft.

Disadvantages of online payments

Online payment methods have several disadvantages. Check out these examples:

Service fees

Payment gateways and third-party payment processors charge service fees.

Inconvenient for offline sales

Online payment methods are inconvenient for offline sales.

Vulnerability to cybercriminals

Cybercriminals can disable online payment methods or exploit them to steal people’s money or information. Visit the Australian Cybercrime Reporting Network’s Learn about cybercrime page to learn more about cybercrime.

Reliance on telecommunication infrastructure

Internet and server problems can disable online payment methods.

Technical problems

Online payment methods can go down due to technical problems.

Processing online payments

Online payments are usually automatic. Check out this example:

Your business has a website with online purchase facilities to sell your goods and services.

A customer visits your website and finds some products they want to buy.

The customer checks out the products from your website and goes to the payments section.

Your website lets your customer know the total cost of the products they want to buy as well as their payment options.

The customer selects and completes their preferred payment method.

Your website automatically sends your confirmation of payment to you and your customer and sends a request to your business to ship the product.

Your website automatically gives your customer a receipt and/or a GST tax invoice. If GST applies, you must provide a GST tax invoice within 28 days if your customer requests one.

Tips for using online payment methods

If you want to offer online payments, try some these tips:

Protect customer information

Only retain credit and debit card information if you need it. Make sure you have good security to protect any information you retain.

Shop around

Look for the best payment gateway provider or third party payment processor for your business.

Use encryption

Make sure you use encryption for sending payment information to and from your website to protect your customers’ information from cybercriminals.

Train your employees

If your employees handle online payments, make sure they are properly trained in managing the online payments system and in keeping customer payment details secure.

Key elements of a business model

8 Key elements of a business model that you need to pay attention to

1) Value Proposition

Define how a company’s product or service fufils the need of customers.

-Examples of successful value propositions

 -Personalization/ Customization

 -Reduction of product search, price discovery costs

 -Facilitation of transactions by managing product delivery

2) Revenue Model

Define how the firm will earn revenue generates profits and produce a superior return on invested capital

-Major types:

Advertising revenue models: CNN.com

Subscription revenue models: MATCH.com

Transaction fee revenue model: EBay, E-Trade, Hotwire

Sales revenue model: Amazon, LLbean, Gap.com

Affiliate revenue model: E-pinions, Banner Exchange, Edmunds  sends traffic to another website

3) Market Opportunity

Refers to a company’s intended market space and the overall potential financial opportunities available to the firm in that market space

4) Competitive Environment

Refers to the other competition selling similar products and operating in the same market space

-Influenced by

How many competitors are active

How large operations are

The market share for each competitor

How profitable these firms are

How they price their product

5) Competitive Advantage

Achieved when a firm can produce a superior product and/or bring a product to market, at a lower price than most, or all, of their competitors.

-Types of competitive advantage:

First mover advantage

Unfair competitive advantage

6) Market Strategy

Plan that details how a company intends to enter a new market and attract strategy

7) Organizational Development

Describes how the company will organize the work that needs to be accomplished

8) Management Team

Employees of the company responsible for making the business model work

-Strong management team gives instant credibility to outside investors

There are many types of e-commerce business models lets take a look at all of them and what are the difference.

Business to Consumer Models

Portal

Offers powerful search tools plus an integrated packages of content and services

typically utilize a combined subscription/ advertising revenues/ transaction fee model

E-tailer

Online version of traditional retailer

Types include:

-Virtual merchants: Amazon

-Bricks and Clicks: Borders, Wal-Mart

-Catalogue merchants: LL Bean

- Manufacturer- direct: Dell.com, Sony Style

Content Provider

Information and entertainment companies that provide digital content over the web

Typically utilizes a subscription, pay for download or advertising revenue model

Syndication a variation of standard content provider model

Transaction Broker

 Processes online transactions for consumers

 Primary value proposition- saving time and money

 Pay Pal

 Typical revenue model – transaction fee

Market Creator

 Uses internet technology to create markets that bring buyers and sellers together

 E.g. priceline.com & ebay.com

Service Provider

Offers service online

Value proposition: valuable, convenient, time-saving, low cost alternatives to traditional service providers

Visa Now

Revenue Model: Subscription fees or one-time payment

Community Provider

Sites that create a digital online environment where people with similar interest can transact, communicate and receive interest-related information

Angie’s List

Typically rely on hybrid revenue model

Business to Business Models

E-distributor

Supplies products and services directly to individual businesses

Owned by one company seeking to serve many customers

E-procurement

Creates and sells access to digital electronic markets

B2B services providers is one type

Application service providers: a subset of B2B service providers

Exchanges

Electronic digital marketplace where suppliers and commercial purchases can conduct transactions

Usually owned by independent firms whose business is making a market

Industry Consortia

Industry-owned vertical market place that serve specific industries

Horizontal market place, in contrast, sell specific products and services to a whole range of industries

Private industrial networks

Digital networks designed to co-ordinate the flow of communications among firms engaged in business together

Lobbying: influence the government as a group  Public policy access

Business models in emerging E-Commerce Areas

Consumer to consumer: Provides a way for consumers to sell to each other, with the help of online market maker (EBay)

Peer to peer (P2P): Link users, enabling them to share files and common resources without a common server (Kazaa, Cloudmark)

M-Commerce: E-commerce business models that use wireless technologies (EBay Mobile)—To date, m-commerce is a disappointment in the united states however, technology platform continues to evolve

Forces Behind E-commerce

E-Commerce is becoming popular, it is worthwhile to examine today’s business environment so let us understand the pressures it creates on organizations and the responses used by organizations.

Environmental factors that create Business Pressures:

Market, economical, societal and technological factors are creating a highly competitive business environment in which consumers are the focal point. These factors change quickly, sometimes in an unpredictable manner and therefore companies need to react frequently not only in the traditional actions such as lowering cost and closing unprofitable facilities but also innovative activities such as customizing products, creating new products or providing superb customer service.

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.

Categories of Economic Forces

Lower marketing costs: marketing on the Internet maybe cheaper and can reach a wider crowd than the normal marketing medium.

Lower sales costs: increase in the customer volume do not need an increase in staff as the sales function is housed in the computer and has virtually unlimited accessibility

Lower ordering processing cost: online ordering can be automated with checks to ensure that orders are correct before accepting, thus reducing errors and the cost of correcting them.

New sales opportunities: the website is accessible all the time and reaches the global audience which is not possible with traditional store front.

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. EG. SESAMi.NET: Linking Asian Markets through B2B Hubs 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 centre 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. Strong competition between organizations, extremely low labor cost in some countries, frequent and significant changes in markets and increased power of consumers are the reasons to create market forces.

Technology Forces

The development of information and communications technology (ICT) is a key factor in the growth of ecommerce. 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.

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 incentive 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

Societal and environmental forces

To understand the role of E-commerce in today’s organizations, it becomes necessary to review the factors that create societal and environmental forces.

Changing nature of workforce

Government deregulations

Shrinking government subsidies

Increased importance of ethical and legal issues

Increased social responsibility of organizations

Rapid political changes

Critical response activities by Organizations

A response can be a reaction to a pressure already in existence, or it can be an initiative that will defend an organization against future pressures. It can also be an activity that exploits an opportunity created by changing conditions.

Organizations’ major responses are divided into five categories:strategic systems for competitive advantage,continuous improvement efforts, business process reengineering (BPR), business alliances and EC.These several responses can be interrelated and Ecommerce can also facilitate the other categories. The four categories are described below.

Strategic Systems

Strategic systems provide organizations with strategic advantages, thus enabling them to increase their market share, better negotiate with their suppliers, or prevent competitors from entering into their territory. There is a variety of EC supported strategic systems. An example is FedEx’s overnight delivery system and the company’s ability to track the status of every individual package anywhere in the system. Most of FedEx’s competitors have already mimicked the system. So FedEx moved the system to the Internet. However, the competitors quickly followed and now FedEx is introducing new activities.

Continuous Improvement Efforts

In order to improve the company’s productivity and quality, many companies continuously conduct innovative programs. The efforts taken by companies for continuous improvement are

Improved productivity

Improved decision making

Managing Information

Change in management

Customer service Innovation and

Creativity.

For example, Dell Computer takes its orders electronically and improved moves them via Enterprise Resources Planning software (from SAP Corp.) into the just-in-time assembly operation. Intel is taking its products’ consumption in 11 of its largest customers, using its extranets, almost in real time, and determining production schedules and deliveries accordingly.

Business Process Reengineering (BPR)

Business Process Reengineering refers to a major innovation in the organization’s structure and the way it conducts business. Information technology and especially EC play a major role in BPR. Electronic Commerce provides flexibility in manufacturing, permits faster delivery to customers and supports rapid and paperless transactions among suppliers, manufacturers and retailers.

The major areas in which E-Commerce supports BPR are

Reducing cycle time and time to market: Reducing the business process time (cycle time) is extremely important for increasing productivity and competitiveness.Similarly, reducing the time from the inception of an idea until its implementation— time to market—is important because those who can be first on the market with a product, or who can provide customers with a service faster than competitors, enjoy a distinct competitive advantage.

Empowerment of employees and collaborative work: Empowerment is related to the concept of self-directed teams. Management delegates authority to teams who can execute the work faster and with fewer delays. Information Technology allows the decentralization of decision making and authority but simultaneously supports a centralized control. For example, the Internet and the intranets enable empowered employees to access data, information and knowledge they need for making quick decisions.

Knowledge management: Employees can access organizational know-how via their company’s intranet. Some knowledge bases are open to the public for a fee over the Internet, generating income.

Customer-focused approach: Companies are becoming increasingly customer oriented. This can be done in part by changing manufacturing processes from mass production to mass customization. In mass production, a company produces a large quantity of identical items. In mass customization, items are produced in a large quantity but are customized to fit the desires of each customer. Electronic commerce is an ideal facilitator of mass customization.

Business alliances

Many companies realize that alliances with other companies, even competitors can be beneficial. There are several types of alliances, such as sharing resources, establishing permanent supplier-company relationships and creating joint research efforts. One of the most interesting types is the temporary joint venture, in which companies form a special organization for a specific, limited-time mission.

E-Commerce Communities

What it is that will drive e-commerce in the future? — in a word, it’s community.

We certainly have the technology to build great business-to-consumer and business-to business ecommerce applications into our business models. And, yes, attributes such as viable application design, integration with business processes, and overall performance matter.

A successful community strategy must embrace the idea of moving the one-onone communication that occurs offline into the virtual world of e-commerce. Such a strategy currently requires multiple technical approaches. However, we believe community solutions will soon become more integrated and far-reaching.

The tools that form online communities include discussion or forum software, chat functions, instant messaging, two-way mailing lists, online collaboration tools, audio, video, and more. You may choose to invest slowly at first and increase your community commitment over time.

Online conversation with business partners will also give net positive results. A private discussion area or secured online meetings can go a long way toward building stronger relationships between companies. This will also serve to potentially drive new business opportunities for both parties. Building community has to be at the heart of any successful ecommerce strategy.

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, videoconferencing, 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. The Internet economy pertains to all economic activities using electronic networks as a medium for commerce or those activities involved in both building the networks linked to the Internet and the purchase of application services such as the provision of enabling hardware and software and network equipment for Web-based/online retail and shopping malls (or “e-malls”).