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P A R T I I
3. Network Computing: Discovery, Communication,
The Web Revolution
4. E-Business and E-Commerce
5. Mobile, Wireless, and Pervasive Computing
C H A P T E R
4 E-Business and
4.1 Overview of E-Business and
After studying this chapter, you will be able to:
4.2 Major EC Mechanisms
Describe electronic commerce, its scope, beneﬁts,
limitations, and types.
4.3 Business-to-Consumer Applications
· Understand the basics of how online auctions
4.4 Online Advertising
and bartering work.
4.5 B2B Applications
» Describe the major applications of business-to-
consumer commerce, including service industries,
4.6 Intrabusiness and Business-to-
and the major issues faced by e-tailers.
¿ Discuss the importance and activities of online
4.7 E-Government and Consumer-to-
´ Describe business-to-business applications.
4.8 E-Commerce Support Services
² Describe intrabusiness and B2E e-commerce.
4.9 Ethical and Legal Issues in
¶ Describe e-government activities and consumer-
4.10 Failures and Strategies for Success
º Describe the e-commerce support services,
speciﬁcally payments and logistics.
¾ Discuss some ethical and legal issues relating to
2. Hi-Life Corporation
µ Describe EC failures and strategies for success.
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BUY CHOCOLATE ONLINE? TRY GODIVA.COM
➥ THE BUSINESS OPPORTUNITY
The demand for high-quality chocolate has been increasing rapidly since the
early 1990s. Several local and global companies are competing in this market.
Godiva Chocolatier is a well-known international company (based in New York)
whose stores can be found in hundreds of malls worldwide. The problem for the
company was to discover new ways to increase its sales. After rejecting the use
of a CD-ROM catalog, Godiva had the courage to try to sell online as early as
1994. The company was a pioneering click-and-mortar e-business that exploited
an opportunity years before its competitors.
➥ THE PROJECT
Teaming with Fry Multimedia (an e-commerce pioneer), Godiva.com was cre-
ated as a division of Godiva Chocolatier. The objective of the project was to sell
online both to individuals and to businesses. Since 1994 the Godiva.com story
parallels the dynamic growth of e-commerce (see Reda, 2004). It went through
difﬁcult times—testing e-commerce technologies as they appeared, failing at
times—while remaining continuously committed to online selling and ﬁnally be-
coming the fastest-growing division of Godiva, outpacing projections. This is a
true success story. Here we present some of the milestones encountered.
The major driving factors in 1994 were Internet user groups of chocolate
lovers, who were talking about Godiva, to whom the company hoped to sell its
product online. Like other pioneers, Godiva had to build its Web site from
scratch, without EC-building tools. A partnership was made with Chocolatier
Magazine, allowing Godiva.com to showcase articles and recipes from the maga-
zine on its site in exchange for providing an online magazine subscription form
to e-shoppers. The recognition of the importance of relevant content was cor-
rect, as was the perceived need for fresh content. The delivery of games and puz-
zles, which was considered necessary to attract people to EC sites, was found to
be a failure. People were coming to learn about chocolate and Godiva and to
buy—not to play games. Another concept that failed was the attempt to build
the Web site to look like the physical store. It was found that different market-
ing channels should look different.
If you visit Godiva.com, you will ﬁnd a user-friendly place to shop. Included
in its major features are: electronic catalogs, some of which are constructed for
special occasions (e.g., Mother’s and Father’s Days); a store locator (how to ﬁnd
the nearest physical store); a shopping cart, for easy collection of items to buy;
a gift selector and gift ﬁnder; custom photography of the products for the Web
site; a search engine, by products, by price, and so on; instructions of how to shop
online (take the tour); a chocolate guide that shows you exactly what is inside
each box; a place to click for live assistance, or for a paper catalog, if you wish;
the ability to create an address list for shipping gifts to your friends or employ-
ees; “My Godiva,” a personalized place for your order history, account, order sta-
tus, and so on; general content about chocolate (e.g., recipes); and shipment and
Sales are both to individuals and to corporations. For corporations, incentive
programs are offered, including address lists of employees or customers to whom
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OVERVIEW OF E-BUSINESS AND E-COMMERCE
the chocolate is to be sent directly. (This sales model is called business-to-business-
to-customers, or B2B2C; see Turban et al., 2006).
Godiva continues to add features to stay ahead of the competition. Lately, it
embarked on use of wireless technologies. For example, the store locator is avail-
able to wireless phone users and to Palm Pilot users who can download mailing
lists for gift sending.
➥ THE RESULTS
Godiva.com’s online sales have been growing at a double-digit rate every year,
outpacing the company’s “old economy” divisions as well as the online stores of
Sources: Compiled from Reda (2004) and from godiva.com (accessed June 2004).
➥ LESSONS LEARNED FROM THIS CASE
Selling online can be a success if properly done. Trial and error enabled Godiva
to be a leader in e-commerce (EC). Also, good alliances helped. Building an
e-store requires special consideration for e-shoppers, especially user friendliness
and fast services. Powerful multimedia eliminates the need to go to a physical
store. This case demonstrated online business to customer (B2C) retailing, one
of the topics of this chapter. Other online channels (B2B, C2C, G2C, etc.) are
also described in this chapter as well as EC support services, strategies for suc-
cess, and implementation issues.
OVERVIEW OF E-BUSINESS AND E-COMMERCE
Electronic commerce (EC or e-commerce) describes the process of buying,
selling, transferring, or exchanging products, services, or information via com-
puter networks, including the Internet. Some people view the term commerce as
describing only transactions conducted between business partners. When this def-
inition is used, some people ﬁnd the term electronic commerce to be fairly nar-
row. Thus, many use the term e-business instead. E-business refers to a broader
deﬁnition of EC, not just the buying and selling of goods and services, but also
servicing customers, collaborating with business partners, conducting e-learning,
and conducting electronic transactions within an organization. Others view
e-business as the “other than buying and selling” activities on the Internet, such
as collaboration and intrabusiness activities.
In this book we use the broadest meaning of electronic commerce, which
is basically equivalent to e-business. The two terms will be used interchangeably
throughout the chapter and the remainder of the text.
PURE VERSUS PARTIAL EC.
Electronic commerce can take several forms
depending on the degree of digitization—the transformation from physical to
digital—involved. The degree of digitization can relate to: (1) the product (service)
sold, (2) the process, or (3) the delivery agent (or intermediary).
Choi et al. (1997) created a framework that explains the possible conﬁgu-
rations of these three dimensions. A product can be physical or digital, the
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E-BUSINESS AND E-COMMERCE
process can be physical or digital, and the delivery agent can be physical or dig-
ital. In traditional commerce all three dimensions are physical. Purely physical
organizations are referred to as brick-and-mortar organizations. In pure EC
all dimensions are digital. All other combinations that include a mix of digital
and physical dimensions are considered EC (but not pure EC).
If there is at least one digital dimension, we consider the situation partial EC.
For example, buying a shirt at Wal-Mart Online or a book from Amazon.com is
partial EC, because the merchandise is physically delivered by a shipper. However,
buying an e-book from Amazon.com or a software product from Buy.com is pure
EC, because the product, its delivery, payment, and transfer agent are all done
online. In this book we use the term EC to denote either pure or partial EC.
Companies that are engaged only in EC are considered
virtual (or pure-play) organizations. Click-and-mortar (or click-and-brick)
organizations are those that conduct some e-commerce activities, yet their pri-
mary business is done in the physical world. Gradually, many brick-and-mortar
companies are changing to click-and-mortar ones (e.g., Wal-Mart Online).
Indeed, in many ways e-commerce is now simply a part of traditional com-
merce, and like the introduction of innovations, such as barcodes, a generation
ago, many people expect companies to offer some form of e-commerce.
Types of E-commerce transactions can be done between various parties. The common
types of e-commerce transactions are described below.
● Business-to-business (B2B): In B2B transactions, both the sellers and the
buyers are business organizations. The vast majority of EC volume is of this
● Collaborative commerce (c-commerce): In c-commerce, business part-
ners collaborate (rather than buy or sell) electronically. Such collaboration
frequently occurs between and among business partners along the supply
chain (see Chapter 7).
● Business-to-consumers (B2C): In B2C, the sellers are organizations, and
the buyers are individuals. B2C is also known as e-tailing.
● Consumer-to-consumer (C2C): In C2C, an individual sells products or serv-
ices to other individuals. (You also will see the term C2C used as “customer-
to-customer.” The terms are interchangeable, and both will be used in this
book to describe individuals selling products and services to each other.)
● Business-to-business-to-customers (B2B2C): In this case a business sells
to a business but deliver the product or service to an individual consumer,
such as in Godiva’s case.
● Consumers-to-businesses (C2B): In C2B, consumers make known a par-
ticular need for a product or service, and suppliers compete to provide the
product or service to consumers. An example is Priceline.com, where the
customer names a product and the desired price, and Priceline tries to ﬁnd
a supplier to fulﬁll the stated need.
● Intrabusiness (intraorganizational) commerce: In this case an organiza-
tion uses EC internally to improve its operations. A special case of this is
known as B2E (business-to-its-employees) EC, which was illustrated in
the opening case.
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OVERVIEW OF E-BUSINESS AND E-COMMERCE
● Government-to-citizens (G2C) and to others: In this case a government en-
tity (unit) provides services to its citizens via EC technologies. Government units
can do business with other government units as well as with businesses (G2B).
● Mobile commerce (m-commerce): When e-commerce is done in a wire-
less environment, such as using cell phones to access the Internet and shop
there, we call it m-commerce.
Each of the above types of EC is executed in one or more business models,
the method by which a company generates revenue to sustain itself. For exam-
ple, in B2B one can sell from catalogs or in auctions. The major business mod-
els of EC are summarized in Table 4.1. For ﬁnding the right business model for
EC, see Sawhney (2002).
TABLE 4.1 E-Commerce Business Models
Online direct marketing
Manufacturers or retailers sell directly online to customers. Very efﬁcient for digital
products and services. Can allow for product or service customization.
Businesses conduct online tendering, requesting quotes from suppliers. Uses B2B with
a reverse auction mechanism (see Section 4.2).
Companies or individuals run auctions of various types on the Internet. Fast and
inexpensive way to sell or liquidate items.
Customers decide how much they are willing to pay. An intermediary (e.g.,
Priceline.com) tries to match a provider.
Customers specify a need; an intermediary (e.g., Hotwire.com) compares providers and
shows the lowest price. Customers must accept the offer in a short time or may lose
Vendors ask partners to place logos (or banners) on partner’s site. If customers click
on logo, go to vendor’s site, and buy, then vendor pays commissions to partners.
Receivers send information about your product to their friends. (Be on the watch for
Small buyers aggregate demand to get a large volume; then the group conducts
tendering or negotiates a low price.
Customers use the Internet to self-conﬁgure products or services. Sellers then price
them and fulﬁll them quickly (build-to-order).
Transactions are conducted efﬁciently (more information to buyers and sellers, less
transaction cost) in virtual marketplaces (private or public).
Integrators aggregate information and package it for customers, vendors, or others in
the supply chain.
Service provider offers specialized services in supply chain operations such as providing
logistics or payment services.
Brokers provide services related to EC information such as trust, content, matching
buyers and sellers, evaluating vendors and products.
Intermediary administers online exchange of surplus products and/or company receives
“points” for its contribution, and the points can be used to purchase other needed items.
Company (e.g., Half.com) offers deep price discounts. Appeals to customers who
consider only price in their purchasing decisions.
Only members can use the services provided, including access to certain information,
conducting trades, etc. (e.g., Egreetings.com).
Organizations restructure supply chains to hubs or other conﬁgurations. Increases
collaboration, reduces delays, and smoothes supply chain ﬂows.
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E-BUSINESS AND E-COMMERCE
Brief History and
E-commerce applications began in the early 1970s with such innovations as
Scope of EC
electronic transfer of funds. However, the applications were limited to large cor-
porations and a few daring small businesses. Then came electronic data inter-
change (EDI), which automated routine transaction processing and extended EC
to all industries. (See Chapter 8 for details about EDI.)
In the early 1990s, EC applications expanded rapidly, following the com-
mercialization of the Internet and the introduction of the Web. A major shake-
out in EC activities began in 2000 and lasted about three years; hundreds of
dot-com companies went out of business. Since 2003, EC has continued to show
steady progress. Today, most medium and large organizations and many small
ones are practicing some EC.
THE SCOPE OF EC.
Figure 4.1 describes the broad ﬁeld of e-commerce. As can
be seen in the ﬁgure, there are many EC applications (top of the ﬁgure); many
Electronic Commerce Applications
• Direct Marketing • Stocks, Jobs • Online Banking
• Procurement and Purchasing • Malls • Procurement • Auctions • Travel
• Online Publishing • Customer Services • Intrabusiness Transactions
Content, and Security
(Telecom, cable TV,
(EDI, e-mail, Hypertext
(HTML, JAVA, World
VAN, WAN, LAN,
transfer protocol, chat
Wide Web, VRML)
access, cell phones)
FIGURE 4.1 A framework for e-commerce. (Source: Drawn by E. Turban.)
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MAJOR EC MECHANISMS
of these are shown throughout the book. To execute these applications, compa-
nies need the right information, infrastructure, and support services. Figure 4.1
shows that the EC applications are supported by an infrastructure that includes
hardware, software, and networks, ranging from browsers to multimedia, and also
by the following ﬁve support areas:
1. People. They are the sellers, buyers, intermediaries, information systems spe-
cialists and other employees, and any other participants.
2. Public policy. There are legal and other policy and regulating issues, such as
privacy protection and taxation, that are determined by the government.
3. Marketing and advertising. EC usually requires the support of marketing
and advertising, like any other business. This is especially important in B2C
online transactions where the buyers and sellers usually do not know each
4. Support services. Many services, ranging from payments to order delivery
and content creation, are needed to support EC.
5. Business partnerships. Joint ventures, e-marketplaces, and business part-
nerships are common in EC. These occur frequently throughout the supply
chain (i.e., the interactions between a company and its suppliers, customers,
and other partners).
All of these EC components require good management practices. This means
that companies need to plan, organize, motivate, devise strategy, and restruc-
ture processes as needed.
Few innovations in human history encompass as many beneﬁts to organiza-
tions, individuals, and society as does e-commerce. These beneﬁts have just
begun to materialize, but they will increase signiﬁcantly as EC expands. The
major beneﬁts are listed in Table 4.2.
Counterbalancing its many beneﬁts, EC has some limitations, both techno-
logical and nontechnological, which have slowed its growth and acceptance. The
major limitations are listed in Table 4.3. As time passes, the limitations, espe-
cially the technological ones, will lessen or be overcome. In addition, appropri-
ate planning can minimize the negative impact of some of them.
Despite its limitations, e-commerce has made very rapid progress. Also, var-
ious B2B activities, e-auctions, e-government, e-learning, and some B2C activ-
ities are ballooning. As experience accumulates and technology improves, the
ratio of EC beneﬁts to cost will increase, resulting in an even greater rate of EC
MAJOR EC MECHANISMS
The major mechanisms for buying and selling on the Internet are electronic cata-
logs, electronic auctions, and online bartering. (Other mechanisms—e-storefronts,
e-malls, and e-marketplaces—are described later; see Sections 4.3 and 4.4.)
Catalogs have been printed on paper for generations. Recently, electronic cata-
logs on CD-ROM and the Internet have gained popularity. Electronic catalogs
consist of a product database, directory and search capabilities, and a presentation
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TABLE 4.2 Beneﬁts of E-Commerce
● Expands a company’s marketplace to national and international markets. With minimal capital outlay, a com-
pany can quickly locate more customers, the best suppliers, and the most suitable business partners worldwide.
● Enables companies to procure material and services from other countries, rapidly and at less cost.
● Shortens or even eliminates marketing distribution channels, making products cheaper and vendors’ proﬁts
● Decreases (by as much as 90 percent) the cost of creating, processing, distributing, storing, and retrieving
digitizable products and services (e.g., music, software).
● Allows lower inventories by facilitating “pull”-type supply chain management (see Appendix 2A). This allows
product customization and reduces inventory costs.
● Lowers telecommunications costs because the Internet is much cheaper than value-added networks (VANs).
● Helps some small businesses compete against large companies.
● Enables a very specialized niche market (e.g., cattoys.com).
● Frequently provides less expensive products and services by allowing consumers to conduct quick online
searches and comparisons.
● Gives consumers more choices in selecting products and vendors.
● Enables customers to shop or make other transactions 24 hours a day, from almost any location.
● Retrieves relevant and detailed information in seconds.
● Enables consumers to get customized products, from PCs to cars, at competitive prices.
● Makes it possible for people to work and study at home.
● Makes possible electronic auctions that beneﬁt buyers and sellers (see Section 4.2).
● Allows consumers to interact in electronic communities and to exchange ideas and compare experiences.
● Enables individuals to work at home and to do less traveling, resulting in less road trafﬁc and less air
● Allows some merchandise to be sold at lower prices, thereby increasing people’s standard of living.
● Enables people in developing countries and rural areas to enjoy products and services that otherwise are
not available. This includes opportunities to learn professions and earn college degrees, or to receive better
● Facilitates delivery of public services, such as government entitlements, reducing the cost of distribution and
chance of fraud, and increasing the quality of social services, police work, health care, and education.
TABLE 4.3 Limitations of E-Commerce
● Lack of universally accepted standards for quality,
● Unresolved legal issues (see Section 4.9).
security, and reliability.
● Lack of national and international government reg-
● Insufﬁcient telecommunications bandwidth.
ulations and industry standards.
● Still-evolving software development tools.
● Lack of mature methodologies for measuring bene-
● Difﬁculties in integrating the Internet and EC appli-
ﬁts of and justifying EC.
cations and software with some existing (especially
● Many sellers and buyers waiting for EC to stabilize
legacy) applications and databases.
before they take part.
● Need for special Web servers in addition to the net-
● Customer resistance to changing from a real to a
virtual store. People do not yet sufﬁciently trust
● Expensive and/or inconvenient Internet accessibility
paperless, faceless transactions.
for many would-be users.
● Perception that EC is expensive and unsecured.
● An insufﬁcient number (critical mass) of sellers and
buyers exists for many proﬁtable EC products and
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MAJOR EC MECHANISMS
function. They are the backbone of most e-commerce sites. For merchants, the
objective of electronic catalogs is to advertise and promote products and serv-
ices. For the customer, the purpose of such catalogs is to provide a source of
information on products and services.
Electronic catalogs can be classiﬁed according to three dimensions:
1. The dynamics of the information presentation. Catalogs can be static or dy-
namic. Static catalogs present information in text and static pictures. Dynamic
catalogs present information in motion pictures or animation, possibly with
2. The degree of customization. Catalogs can be standard or customized. In
standard catalogs, merchants offer the same catalog to any customer. Customized
catalogs tailor content, pricing, and displays to the characteristics of speciﬁc
3. The degree of integration with other business processes or features. Catalogs
can be classiﬁed according to the degree of integration with the following
business processes or features: order taking and fulﬁllment; electronic pay-
ment systems; intranet workﬂow software and systems; inventory and ac-
counting systems; and suppliers’ or customers’ extranet. For example, when
you place an order with Amazon.com, your order will be automatically
transferred to a computerized inventory check.
For a comparison of paper and online catalogs, see Online File W4.1.
An auction is a competitive process in which either a seller solicits consecu-
tive bids from buyers or a buyer solicits bids from sellers. The primary char-
acteristic of auctions, whether ofﬂine or online, is that prices are determined
dynamically by competitive bidding. Auctions have been an established
method of commerce for generations, and they are well-suited to deal with
products and services for which conventional marketing channels are ineffec-
tive or inefﬁcient. Electronic auctions generally increase revenues for sellers
by broadening the customer base and shortening the cycle time of the auc-
tion. Buyers generally beneﬁt from e-auctions by the opportunity to bargain
for lower prices and the convenience of not having to travel to an auction site
to “attend” the auction. Additional beneﬁts of electronic auctions are shown
in Online File W4.2.
The Internet provides an efﬁcient infrastructure for executing auctions at
lower administrative cost and with many more involved sellers and buyers (see
Kambil and van Heck, 2002). Individual consumers and corporations alike can
participate in this rapidly growing form of e-commerce. There are several types
of electronic auctions, each with its motives and procedures. Auctions are
divided here into two major types: forward auctions and reverse auctions.
Forward auctions are auctions that sellers use as a sell-
ing channel to many potential buyers. Usually, items are placed at a special site
for auction, and buyers will bid continuously for the items. The highest bidder
wins the items. Sellers and buyers can be individuals or businesses. The popu-
lar auction site eBay.com is conducting mostly forward auctions.
According to Gallaugher (2002) there are two types of forward e-auctions.
One is to liquidate existing inventory, the other one is to increase marketing efﬁ-
ciency. Customers in the ﬁrst type seek the lowest price on widely available
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goods or services; customers in the second type seek access to unique products
or services. Online File W4.3 graphically demonstrates these two types of for-
In reverse auctions, there is one buyer, usually an
organization, that wants to buy a product or a service. Suppliers are invited to
submit bids. Online bidding is much faster than conventional bidding, and it
usually attracts many more bidders. The reverse auction is the most common
auction model for large purchases (in terms of either quantities or price). Every-
thing else being equal, the lowest-price bidder wins the auction. Governments
and large corporations frequently mandate this approach, which may provide
Auctions are used in B2C, B2B, C2B, e-government, and C2C commerce,
and they are becoming popular in many countries (see Minicase 1). The Inter-
net opens many opportunities for e-auctions. Auctions can be conducted from
the seller’s site, the buyer’s site, or from a third party’s site. For example, as
described in IT at Work 4.1, eBay, the best-known third-party site, offers hun-
dreds of thousands of different items in several types of auctions. Over 300
other major companies, including Amazon.com and Dellauction.com, offer
online auctions as well.
Related to auctions is electronic bartering, the electronically supported
exchange of goods or services without a monetary transaction. Electronic bartering
is done through means of individual-to-individual bartering ads that appear in
some newsgroups, bulletin boards, and chat rooms. There also are several inter-
mediaries that arrange for corporate e-bartering (e.g., barterbrokers.com). These
intermediaries try to match online partners to a barter transaction.
B2C E-commerce began when companies like Amazon.com and Godiva.com
started selling directly to consumers using the Internet. Here we will look at
some of the major categories of B2C applications, which are expected to reach
$1 trillion by 2005.
For generations home shopping from catalogs has ﬂourished, and television
Mechanisms: shopping channels have been attracting millions of shoppers for more than two
decades. Shopping online offers an alternative to catalog and television shop-
ping. Electronic retailing (e-tailing) is the direct sale of products and serv-
ices through electronic storefronts or electronic malls, usually designed around
an electronic catalog format and/or auctions. For the difference between retail-
ing and e-tailing, see Online File W4.4 and also Lee and Brandberry (2003).
Like any mail-order shopping experience, e-commerce enables you to buy
from home, and to do so 24 hours a day, 7 days a week. However, EC offers a
wider variety of products and services, including the most unique items, often
at lower prices. Furthermore, within seconds, shoppers can get very detailed
supplementary information on products and can easily search for and compare
competitors’ products and prices. Finally, using the Internet, buyers can ﬁnd
hundreds of thousands of sellers.