Ch01.ppt

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Chapter 1
Introduction to digital business

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Introduction
Part 1
Introduces e-business and e-commerce and their
relevance to businesses and consumers. It
clarifies e-business terms and concepts such as
online business, revenue and technology models
by reviewing alternative applications through
activities and case studies.

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Introduction to e-business and e-
commerce
• The impact of the electronic communications on
traditional businesses.
• What is the difference between e-commerce and
e-business?
• E-business opportunities.
• Business adoption of digital technologies for e-
commerce and e-business.
• E-business risks and barriers to business adoption.
• Management responses to e-commerce and e-
business.

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Learning outcomes
• Define the meaning and scope of e-business
and e-commerce and their different elements
• Summarize the main reasons for adoption of e-
commerce and e-business and barriers that
may restrict adoption
• Outline the ongoing business challenges of
managing e-business and e-commerce in an
organization.

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Management issues
• How do we explain the scope and implications
of e-business and e-commerce to staff?
• What is the full range of benefits of introducing
e-business and what are the risks?
• How do we evaluate our current e-business
capabilities?

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Introduction
• Organizations have now been applying technologies based
on the Internet, World Wide Web and wireless
communications to transform their businesses for over 15
years since the creation of the first web site
(http://info.cern.ch) by Sir Tim Berners-Lee in 1991.
• Deploying these technologies has offered many
opportunities for innovative e-businesses to be created
based on new approaches to business.
• Table 1.1 highlights some of the best-known examples and
in Activity 1.1 you can explore some of the reasons for
success of these e-businesses.

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Table 1.1
• Year Company / site Category of innovation and business model
Founded:
• 1994 Amazon Retailer.
• 1995 (March) Yahoo! (yahoo.com) Directory and portal.
• 1995 (Sept) eBay Online auction.
• 1995 (Dec) AltaVista (altavista.com) Search engine.
• 1996 Hotmail (hotmail.com) Web-based e-mail,Viral marketing (using e-
mail signatures to promote service),Purchased by Microsoft in 1997.
• 1998 GoTo.com (goto.com) Pay-per-click search marketing.
• Overture (2001) Purchased by Yahoo! in 2003.
• 1998 Google (google.com) Search engine.
• 1999 Blogger (blogger.com) Blog publishing platform
Purchased by Google in 2003.
• 1999 Alibaba (alibaba.com) B2B marketplace with $1.7 billion IPO on
Hong Kong stock exchange in 2007. See case in Chapter 2.

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• 1999 MySpace (myspace.com) Social network.
• Formerly eUniverse Purchased by News Corp in 2005.
• 2001 Wikipedia (wikipedia.com) Open encyclopedia.
• 2002 Last.fm A UK-based Internet radio and music
community web site,founded in 2002. On 30 May 2007, CBS
Interactive acquired Last.fm for £140m (US$280m).
• 2003 Skype (skype.com) Peer-to-peer Internet telephony
VoIP – Voice over Internet protocol.
• Purchased by eBay in 2005, 2003.
• Second Life (secondlife.com) Immersive virtual world.
• 2004 Facebook (facebook.com) Social network applications
and groups.
• 2005 YouTube (youtube.com) Video sharing and rating
• 2007 Joost (joost.com) Quality video broadcast service.
• IPTV – Internet Protocol TV.
• ?? The future ??

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Continue
• For the author, e-business and e-commerce is an exciting
area to be involved with, since many new opportunities
and challenges arise yearly, monthly and even daily.
Innovation is a given, with the continuous introduction of
new technologies, new business models and new
communications approaches.
• For example, Google innovates relentlessly. Its service has
developed a long way since 1998 (Figure 1.1) with billions
of pages now indexed and other services such as web
mail, pay per click adverts, analytics and social networks
all part of its offering. Complete Activity 1.1 or view Table
1.1 to see other examples of the rate at which new
innovations occur.

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Figure 1.1 Google circa 1998
Source: Wayback machine archive: http://web.archive.org/web/19981111183552/google.stanford.edu

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E-business innovation and opportunity
• Since Google was launched in 1998 which
e-business start-ups have transformed the way
we work, live and play?
• How has Google innovated in search and its
business table?
• See Table 1.1 for some of major innovators

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The impact of the Internet on business
• Andy Grove, Chairman of Intel, one of the
early adopters of e-commerce, has made a
meteorological analogy with the Internet. He
says:
Is the Internet a typhoon force, a ten times
force, or is it a bit of wind? Or is it a force that
fundamentally alters our business? (Grove,
1996)

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E-business opportunities
• Reach
– Over 1 billion users globally
– Connect to millions of products
• Richness
– Detailed product information on 20 billion + pages
indexed by Google. Blogs, videos, feeds…
– Personalized messages for users
• Affiliation
– Partnerships are key in the networked economy

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Internet risks – what can go wrong with a transactional site?
•
1.False orders made by customers
•
2. Incorrectly input orders
•
3. Insufficient security
•
4. People are usually hesitant to give out banking details over the internet
•
5. After sales service may be hard to organize depending on store location and
postage
•
‫المعامالت؟‬ ‫موقع‬ ‫في‬ ‫خطأ‬ ‫يحدث‬ ‫أن‬ ‫يمكن‬ ‫الذي‬ ‫ما‬
•
•
‫العمالء‬ ‫قبل‬ ‫من‬ ‫كاذبة‬ ‫أوامر‬
•
•
‫صحيح‬ ‫غير‬ ‫بشكل‬ ‫إدخالها‬ ‫أوامر‬
•
•
‫األمن‬ ‫كفاية‬ ‫عدم‬
•
•
‫اإلنترنت‬ ‫عبر‬ ‫مصرفية‬ ‫تفاصيل‬ ‫إعطاء‬ ‫في‬ ‫يترددون‬ ‫ما‬ ‫عادة‬ ‫الناس‬
•
•
‫موقع‬ ‫على‬ ‫اعتمادا‬ ‫تنظيم‬ ‫الصعب‬ ‫من‬ ‫يكون‬ ‫قد‬ ‫البيع‬ ‫بعد‬ ‫ما‬ ‫خدمة‬
‫والبريد‬ ‫مخزن‬

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What is e-commerce and e-business?
You are attending a role in the e-business team of a global bank You
anticipate you may be asked the distinction between
e-commerce and e-business.
E-commerce: Electronic commerce (e-commerce)
All electronically mediated information exchanges between an
organization and its external stakeholders Kalakota and Whinston (1997)
refer to a range of different perspectives for
e-commerce:
1 A communications perspective – the delivery of information,
products or services or payment by electronic means.
2 A business process perspective – the application of technology
towards the automation of business transactions and work-flows.
3 A service perspective – enabling cost cutting at the same time
as increasing the speed and quality of service delivery.
4 An online perspective – the buying and selling of products and
information online.

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E-business:
Electronic business (e-business)
All electronically mediated information
exchanges, both within an organization and with
external stakeholders supporting the range of
business processes.

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Buy-side e-commerce and Sell-side
e-commerce
• Buy-side e-commerce
E-commerce transactions between a purchasing
organization and its suppliers.
• Sell-side e-commerce
E-commerce transactions between a supplier
organization and its customers.

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Figure 1.2 The distinction between buy-side and sell-side e-commerce

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Figure 1.3 Three definitions of the relationship between e-commerce and e-business

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• In Figure 1.3(a) there is a relatively small overlap between
e-commerce and e-business.
From Figure 1.2 we can reject Figure 1.3(a) since the overlap
between buy-side and sell-side e-commerce is significant.
Figure 1.3(b) seems to be more realistic, and indeed many
commentators seem to consider e-business and e-commerce to
be synonymous.
It can be argued, however, that Figure 1.3(c) is most realistic since e-
commerce does not refer to many of the transactions within a
business, such as processing a purchasing order, that are part
of e-business.
So e-commerce can best be conceived of as a subset of e-business and
this is the perspective we will use in this book.
Since the interpretation in Figure 1.3(b) is equally valid, what is
important within any given company is that managers involved with the
implementation of e-commerce or e-business are agreed on the scope
of what they are trying to achieve!.

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Figure 1.4 The relationship between intranets, extranets and the Internet

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Intranet and Extranet
• Intranet :
A private network within a single company using
Internet standards to enable employees to
access and share information using web
publishing technology.
• Extranet :
A service provided through Internet and web
technology delivered by extending an intranet
beyond a company to customers, suppliers and
collaborators.

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• If information is restricted to employees inside an organization, this is an
intranet as is shown in Figure 1.4.
• In a survey of 275 managers responsible for an intranet
featured in CIO (2002),
The main benefits mentioned by managers were:
1. Improved information sharing (customer service), 97%
2. Enhanced communications and information sharing (communications),
95%
3. Increased consistency of information (customer service), 94%
4. Increased accuracy of information (customer service), 93%
5. Reduced or eliminated processing, 93%
6. Easier organizational publishing, 92%.
• It is apparent that benefits focus on information delivery suggesting
that management of information quality is a key to successful use of
intranets.

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• As an example, an online bank can potentially use many
of these technologies to communicate with its customers
according to the customers’ preferences – some prefer to
use the web, others mobile banking or SMS alerts, others
wireless or interactive TV and others traditional
channels.
• Bank First Direct (www.firstdirect.com) which is part of
the HSBC banking group has a strategy of innovation and
showcases its latest approaches in First Direct Interactive
(Figure 1.5).
• It uses SMS short codes as direct response from TV or
print advertising to integrate traditional and digital media
channels and also uses SMS periodically to deliver relevant
related product offers to customers.

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Figure 1.5 First Direct Interactive (www.firstdirect.com)

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Mini Case Study 1.1 gives an example of
a viral campaign which helped sell
products
• This example shows how an engaging idea can
be discussed initially online and then in
traditional media to help increase the
awareness of a brand.
• On the WillItBlend campaign micro-site
(www.willitblend.com, Figure1.6) a blender
designed for making smoothies has blended an
iPhone, an iPod, golf balls, glow sticks and a
video camera and more.

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Figure 1.6 Blendtec viral campaign micro-site (www.willitblend.com)

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Figure 1.7 summarizes the evolution of
digital and web-related technologies
• Since the Web 2.0 concept has been widely applied, it is
natural that commentators would try to evolve the concept to
Web 3.0, although the term hasn’t been widely applied to date.
We can suggest that as web functionality evolves, these
approaches which could be deemed ‘Web 3.0’ will become
more important:
1.Web applications. Usage of web-based applications and services
(like Google word processor and spreadsheets) using the web
in this way is sometimes termed ‘cloud computing’ where all
that is really needed for many activities is a computer with a
web browser, with local software applications used less widely.
2. Syndication. Increased incorporation of syndicated content and
services from other sites or a network into a site (using tools
such as Yahoo! Pipes and XML exchange between widgets).

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continue
3.Streamed video or IPTV. Increased use of streamed
video from existing TV providers and user-generated
content (as suggested by use of YouTube and IPTV
services such as Joost);
4. Virtual worlds. Increased use of immersive virtual
environments such as Second Life;
5. Personal data integration. Increased exchange of data
between social networks fulfilling different needs (as
indicated by the recent Google development of
OpenSocial);
6. The semantic web. Increased use of semantic markup
leading to the semantic web envisioned by Tim Berners-
Lee over 10 years ago.

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Figure 1.7 Evolution of web technologies
Source: Adapted from Spivack (2007)

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Figure 1.8 Summary and examples of transaction alternatives
between businesses, consumers and governmental organizations
• It is now commonplace to describe e-commerce transactions between an
organization and its stakeholders according to whether they are primarily with
consumers (business-to consumer– B2C) or other businesses (business-to-
business – B2B).
• Figure 1.8 gives examples of different companies operating in the business-to-
consumer (B2C) and business-to-business (B2B) spheres.
• Often companies such as BP or Dell Computer will have products that appeal to
both consumers and businesses, so will have different parts of their site to
appeal to these audiences.
• Figure 1.8 also presents two additional types of transaction, those
where consumers transact directly with other consumers (C2C) and
where they initiate trading with companies(C2B).
• Finally, the diagram also includes government and public services organizations
which deliver online or e-government services.
• As well as the models shown in Figure 1.8, it has also been suggested that
employees should be considered as a separate type of consumer through the
use of intranets which are referred to as employee-to-employee or (E2E).

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Figure 1.8 Summary and examples of transaction alternatives between
businesses, consumers and governmental organizations

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Additional activity – drivers and barriers to
adoption
• You are in a team of advisers at a local business
link (a local government agency encouraging
adoption of e-commerce)
• List
– Drivers to adoption of sell-side e-commerce by
business and how you can reinforce these by
marketing benefits
– Barriers to adoption of sell-side e-commerce by
business and how you can reinforce these by
stressing benefits

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Cost/efficiency and competitiveness drivers
• Cost/efficiency drivers
– Increasing speed with which supplies can be obtained
– Increasing speed with which goods can be dispatched
– Reduced sales and purchasing costs
– Reduced operating costs
• Competitiveness drivers
– Customer demand
– Improving the range and quality of services offered
– Avoid losing market share to businesses already using e-
commerce

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Usage of different e-business services in European countries.
Examples of poor online customer experience which you will certainly
be familiar with include:
• Web sites that fail because of a spike in visitor traffic after a peak-hour
TV advertising campaign.
• Hackers penetrating the security of the system and stealing credit card
details.
• A company e-mails customers without receiving their permission, so
annoying customers and potentially breaking privacy and data
protection laws.
• Problems with fulfilment of goods ordered online, meaning customer
orders go missing or are delayed and the customer never returns.
• E-mail customer-service enquiries from the web site don’t reach the
right person and are ignored.
• The perception of these risks may have limited adoption of e-business
in many organizations which is suggested by the data in (Figure 1.10).

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Figure 1.10 Usage of different e-business services in European countries
Source: European Commission, 2008

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Barriers to development of online
technologies
• A DTI (2002) study evaluated some of the
barriers to B2B e-commerce (Figure 1.12)
which remain valid today.
You can see that reasons of cost were the most
important factors.
This suggests the importance of managers
assessing e-business to develop a cost–benefit
analysis that considers both the initial
investment costs and the ongoing costs that
form the total cost of ownership (TCO) against
the value created from the tangible and
intangible benefits.

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Figure 1.12 Barriers to development of online technologies
Source: DTI (2002)

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A simple stage model for buy-side and
sell-side e-commerce
• An example of a basic stage model reviewing
capabilities for sell-side and buy-side e-
commerce is shown in (Figure 1.13) .This
shows how companies will introduce more
complex technologies and extend the range of
processes which are e-business-enabled.

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Figure 1.13 A simple stage model for buy-side and sell-side e-commerce

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Variation in different online activities
by gender
One example of demand analysis is popularity or
adoption rates for different online services. The
range of different ways in which consumers use
the Internet to research or transact is shown in
(Figure 1.14) .
You can see that male and female usage of the
Internet for different activities is now very similar,
but with downloading of different types of digital
content generally more popular amongst males.

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Figure 1.14 Variation in different online activities by gender
Source: UK National Statistics (2006) Individuals accessing the Internet – Report from the UK National Statistics Omnibus
Survey. Published online at www.statistics.gov.uk

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Typical benefits of online services are summarized by the ‘Six Cs’, a
simple mnemonic(‫)تذكري‬ to show different types of customer value
1.Content – In the mid-1990s it was often said that ‘content is king’. Well,
relevant rich content is still king. This means more detailed, in-depth
information to support the buying process for transactional or
relationship-building sites or branded experiences to encourage product
usage for FMCG brands.
2. Customization – In this case mass customization of content, whether
received as web site pages such as ‘Amazon recommends’ or e-mail alerts,
and commonly known as ‘personalization’.
3 Community – The Internet liberates consumers to discuss anything they wish
through forums, chat-rooms and blog comments. We will explore these
techniques more in Chapters 2 and 3.
4 Convenience – This is the ability to select, purchase and in some cases use
products from your desktop at any time: the classic 24 × 7 × 365 availability
of a service. Online usage of products is, of course, restricted to digital
products such as music or other data services. Amazon has advertised off-
line using creative showing a Christmas shopper battling against a gale-
swept ( (
‫عاصفة‬ street clutching several bags to reinforce the convenience
message.

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5 Choice – The web gives a wider choice of products and suppliers than via
conventional distribution channels. The success of online intermediaries
such as Kelkoo (www.kelkoo.com) and Screen trade (www.screentrade.com)
is evidence of this. Similarly, Tesco.com provides Tesco with a platform to
give consumers a wider choice of products (financial, travel, white goods)
with more detailed information than are physically available in-store.
6 Cost reduction – The Internet is widely perceived as a relatively low-cost
place of purchase. Often customers expect to get a good deal online as they
realize that online traders have a lower cost-base as they have lower staff
and distribution costs than a retailer that runs a network of high-street
stores. A simple price differential is a key approach to encouraging usage of
online services. In the late 1990s, low-cost airline easy Jet encouraged the
limited change behavior required from phone booking to online booking by
offering a £2.50 discount on online flight bookings.

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Barriers to consumer Internet
adoption
An indication of some of the barriers to using the Internet, in
particular for consumer purchases, is clear from a survey
(Booz Allen Hamilton, 2002) of perceptions in different
countries.
• It noted that consumer barriers to adoption of the
Internet included:
• No perceived benefit
• Lack of trust
• Security problems
• Lack of skills
• Cost.
This lack of demand for Internet services from this group
needs to be taken into account when forecasting future
demand

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