Lecture-04

Basic concept of
E-commerce
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Presented By,
M.M. Rakibul Hasan
Faculty, CSE Dept. IUBAT
WHAT IS COMMERCE?
 Commerce is the activity of buying
and selling of goods and services,
especially on a large scale.
 A system or environment consists of
legal, economical, political, social,
cultural and technological systems
that are in business in any country
or internationally.
 It can also be defined as a component
of business which includes all
activities, functions and institutions
involved in transferring goods from
producers to consumers.
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WHAT IS E-COMMERCE?
 E simply means anything done via
the internet and commerce means
buying and selling products, services
and information.
 So, E-Commerce refers to the
process of buying and selling or
exchanging of products, services, or
information via computer networks
including internet.
 E-commerce is the online process of
developing, marketing, selling,
delivering, servicing, and paying for
products & services transacted on
internetworked, global marketplaces
of customers, with the support of a
worldwide network of business
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partners.
E-COMMERCE VS. E-BUSINESS
We use the term e-business to refer
primarily to the digital enablement
of transactions and processes
within a firm, involving
information systems under the
control of the firm. E-commerce
includes commercial transactions
involving an exchange of value
across organizational boundaries.

So it is understandable that, any e-

commerce falls into e-business but
not all the e-businesses can be
termed as e-commerce when they
are performed inside the
organization. 4
E-COMMERCE VS. TRADITIONAL COMMERCE
Traditional commerce E-commerce

 Consumer as passive  Reduction in

targets information asymmetry
 Highly price
 Mass-marketing driven
competitive market
 Sales-force driven
 Consumers gain access
 Fixed prices in free flow of
 Information information
asymmetry  Merchants gain market

 Relied on mass
power over consumer
by using consumers
production not personal information to
customization and maximize their
personalization. revenue.
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FEATURES OF E-COMMERCE TECHNOLOGY
1. Ubiquity
2. Global reach
3. Universal standards
4. Information richness
5. Interactivity
6. Information density
7. Personalization/customization
8. Social technology
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FEATURES OF E-COMMERCE TECHNOLOGY
 Ubiquity: Available just about every where, at all
time.
 Marketplace extended beyond traditional boundaries and
removed from a temporal and geographic location- called
markets pace.
 Reduces transaction costs- (time and money travelling to a
market).
 Lowers cognitive energy

o Global Reach:
 Allows transactions across boundaries (cultural, regional
and national) more conveniently and cost-effectively
 Reach- the total number of users or customers an e- 7
commerce business can obtain.
FEATURES OF E-COMMERCE TECHNOLOGY
 Universal standard: standards that are shared by all
nations around the world.
 Lower market entry costs
 Reduce search cost
 Price discovery becomes simpler, faster and more accurate
 Network externalities-benefits that arise because everyone
uses the same technology.
 Easy to find many of suppliers, prices and delivery term of a
specific product anywhere of the world
o Richness:
o The complexity and content of a message.
o In traditional market, national sales forces and small retail store-
grate richness (personal, face-to-face service)
But, trade-off between richness and reach.
(larger audience less rich message) 8
FEATURES OF E-COMMERCE TECHNOLOGY
 Interactivity: Technology that allows for two-way
communication between merchant and consumer and
among consumers.
 Similar to face to face.
 Information Density: The total amount and quality
of information available to all market participants.
E-com technology-
 Reduces information collection, storage, processing, and
communication cost.
 Greatly increases currency, accuracy and timeliness of
information.
As a result, information becomes more plentiful, less expensive
and higher quality. 9
Business consequences of information density:
FEATURES OF E-COMMERCE TECHNOLOGY
o Price and cost becomes more transparent (to consumers)-
Price transparency and cost transparency
o Know more about consumer can segment market  engage
in price discrimination

 Personalization and customization

o Personalization: the targeting of marketing messages to

specific individuals by adjusting the message to a person’s
name, interests and past purchase.
o Customization: Changing the delivered products or service
based on a user’s preferences or prior behavior.
o TV vs. online version of wall Street Journal

Personalization and customization allow firms to precisely

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identify market segments and adjust their message.
DIFFERENT TYPES OF E-COMMERCE
 Business-to-business (B2B)
 Business-to-Consumer (B2C)

 Business-to-government (B2G)

 Consumer-to-consumer (C2C)

 Government to consumer (G2C)

 Government-to-business (G2B)

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WHAT IS B2B E-COMMERCE?
 B2B e-commerce is simply
defined as ecommerce
between companies
 About 80% of e-commerce is
of this type.

 Examples:
 Intel selling microprocessor to
Dell
 Heinz selling ketchup to
McDonalds
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WHAT IS B2C ECOMMERCE?
 Business-to-consumer e-
commerce, or commerce
between companies and
consumers, involves
customers gathering
information; purchasing
physical goods or receiving
products over an electronic
network.

 Example:
 Dell selling me a laptop 13
WHAT IS B2G ECOMMERCE?
 Business-to-government e-
commerce or B2G is generally
defined as commerce between
companies and the public
sector.
 It refers to the use of the
Internet for public
procurement, licensing
procedures, and other
government related operations

 Example:
 Business pay taxes, file reports,
or sell goods and services To 14
Govt. agencies
WHAT IS C2C ECOMMERCE?
 Consumer-to-consumer e-
commerce or C2C is simply
commerce between private
individuals or consumers.

 Example:
 Mary buying an iPod from Tom
on eBay
 Me selling a car to my neighbor

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WHAT IS G2C E-COMMERCE?
 This Model is also a part of e-governance.
 The objective of this model is to provide good and
effective services to each citizen. The Government
provides the following facilities to the citizens
through website. Information of all government
departments, Different welfare schemes, Different
application forms to be used by the citizens.
 Example:
 Help Line

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WHAT IS G2B E-COMMERCE?
 Government-to-business
(G2B) is a business model
that refers to government
providing services or
information to business
organization. Government
uses B2G model website to
approach business
organizations. Such websites
support auctions, tenders
and application submission
functionalities. 17
THE PROCESS OF E-COMMERCE
 A prospective consumer, who wants to buy something,
uses Web browser to connect to the home page of a
merchant's Web site through the Internet.
 The consumer browses the catalog of products
featured on the site and selects items to purchase.
 The selected items are placed in the electronic
equivalent of a shopping cart.
 When the consumer is ready to complete the purchase
of selected items, he/she provides a bill-to and ship-to
address for purchase and delivery
 When the credit/debit card number is validated and
the order is completed at the Commerce Server site,
the merchant's site displays a receipt confirming the
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customer's purchase
THE PROCESS OF E-COMMERCE
 The Commerce Server site then forwards the
order to a Processing Network for payment
processing and fulfillment.

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WEB 2.0
 User-centered applications and social media
technologies
 A set of applications and technologies that allows
users to create, edit, and distribute content;
share preferences, bookmarks, and online
personas; participate in virtual lives; and build
online communities.
 User-generated content and communication
 Highly interactive, social communities
 Large audiences; yet mostly unproven business
models
 Examples: Twitter, YouTube, Instagram, Wikipedia,
Tumblr 20
E-COMMERCE: A BRIEF HISTORY
 1995–2000: Invention
 Key concepts developed
 Limited bandwidth and media
 Selling retail goods, usually simple goods
 Marketing: un sophisticated static display ads,
 Not very powerful search engine
 For computer scientists and information technologists
 universal communication and computing environment

 Every one can access cheap or free

 For economists
 Perfect information
 Merchant can access to millions of consumers

 Lowered search costs, reduced information asymmetry,

disintermediation, price and cost transparency,
elimination of unfair competitive advantage
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E-COMMERCE: A BRIEF HISTORY
 For entrepreneur
 First-mover advantages

 Network effect: occurs when users receive value from the

fact that everyone else uses the same tolls or product

(common operating system such as Windows).
 In Early years e-commerce expected that extraordinary

profitability would come only after several years of loses.

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E-COMMERCE: A BRIEF HISTORY
 2001–2006: Consolidation
 Emphasis on business-driven approach
 Traditional large firms expand presence,
strengthening their market position,
 Start-up financing shrinks up
 Traditional bank financing
 More complex products and services sold (ex: travel
and financial services)
 Growth of search engine advertising, rich media and
video ads
 Business (both small and large) Web presences
expand to include e-mail, display and search
advertising, and limited community feedback
features 23
E-COMMERCE: A BRIEF HISTORY
 2007–Present: Reinvention
 Rapid growth of:
 Online social networks

 Mobile platform

 Local commerce

(―SoLoMo‖)
 Entertainment content develops as major source of e-
commerce revenues
 Transformation of marketing
 Coordinated marketing on social, mobile, local
platforms
 Increasing use of SNS and viral marketing

 Powerful data repositories

 Analytic technologies 24
E-COMMERCE BUSINESS MODELS

 E-tailer
 Community providers
 Content provider
 Portal
 Transaction broker
 Market creator
 Service provider

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E-TAILER
 Online version of traditional retailer
 Revenue model: Sales of goods

 Variations:

 Virtual merchant: Amazon, iTunes

 Bricks-and-clicks: Walmart.com,
Sears.com
 Manufacturer-direct: Dell.com,
SonyStyle
 Low barriers to entry

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COMMUNITY PROVIDER
 Provide online environment (social network)
where people with similar interests can transact,
share content, and communicate with like
minded people.
Examples: Facebook, LinkedIn, Twitter, Pinterest
 Value Proposition: to create a fast convenient, one-
stop site, user can focus on their most important
concerns and interest, share experience with
friends and learn more about their own interest.
 Revenue models:
 Typically hybrid, combining advertising,
subscriptions, sales, transaction fees, and so on
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CONTENT PROVIDER
 Digital content on the Web:
 News, music, photos, video, text, artwork
Example: WSJ.com. Harvard Business Review,
CNN.com, CIO.com
 Revenue models:

 Subscription; pay per download

(micropayment); advertising; affiliate referral
 Those who own content are gainer.
 Variations:

 Syndication- firm does not own material just

distributes it
 Web aggregators (shopping.com, Travelocity,
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Priceline) aggregate info and add value to it
PORTAL
 Searching capability plus an integrated package
of content and services such as news, email,
instant messaging, calendar, shopping, music
downloads, video streaming, etc.
 Do not sell anything directly (unbiased)
 Top 5 sites gather more than 95% of the search
engine traffic.
 Revenue models:
 Advertising, referral fees, transaction fees,
subscriptions
 Variations:
 Horizontal/general includes all internet users
(Yahoo,MSN, AOL, Google)
 Vertical/specialized (vortal) focus around a particular 29
subject matter or market segment (Sailnet.com)
TRANSACTION BROKER
 Process online transactions for consumers
 Primary value proposition—saving time and
money, and enabling online transactions
(stocks, credit card and PayPal payments)
 Provide timely information and opinios
 Revenue model:
 Transaction fees (flat rate or sliding scale
related to size of the transaction)
 Industries using this model:
 Financial services
 Travel services and entertainment
 Job placement services 30
MARKET CREATOR
 Createdigital environments where buyers
and sellers can meet and transact
business
 Examples:
 Priceline (reverse auction)
 eBay
 E*trade

 Revenue model:
 Transaction fees, fees to merchants for access

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SERVICE PROVIDER
 Offers services online
 Example: Google—Google Maps, Google Doc, Gmail,
and so on.
 Other personal services such as online medical bill
management, financial and pension planning, travel
recommendation etc are growing.
 Value proposition
 Valuable, convenient, time-saving, low-cost
alternatives to traditional service providers
 Revenue models:
 Sales of services, subscription fees, advertising, sales
of marketing data

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ADVANTAGES OF E-COMMERCE:
 Faster buying/selling procedure, as well as easy
to find products
 Buying/selling 24/7

 More reach to customers, there is no theoretical

geographic limitations
 Low operational costs and better quality of
services
 No need of physical company set-ups. Easy to
start and manage a business
 Customers can easily select products from
different providers without moving around 33
physically
DISADVANTAGES OF E-COMMERCE
 Unable to examine products personally
 Not everyone is connected to the Internet

 There is the possibility of credit card number

theft
 Mechanical failures can cause unpredictable
effects on the total processes

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IMPACT OF E-COMMERCE
 Improving Direct Marketing
 Product Promotion
 New Sales Channels
 Direct Savings and Reduced Cycle Time
 Customer Service
 Brand or Corporate Image
 Transforming Organizations
 Technology and Organizational Learning
 Changing Nature of Work
 New Product Capabilities
 New Business Models 35
E-COMMERCE MARKETING
 new ways of identifying and
communicating with millions of potential
customers at costs far lower than
traditional media.
 Search engine marketing, Data mining,
Recommender systems, and Targeted e-
mail.
 Enables long tail marketing.

 Banner, Rich media, and Video ads.

 Behavioral targeting refers to tracking the 36

clickstreams.
ONLINE MARKETING AND ADVERTISING
FORMATS (BILLIONS)

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FEATURES OF SOCIAL COMMERCE

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ELECTRONIC COMMERCE PAYMENT SYSTEM
 The use of digital technologies to pay for product and
services electronically is known as Electronic Payment
System.

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 PAYMENT METHODS
 Payment on Delivery: In this method, payment for
the goods is collected at the point of delivery by the
deliverer. This is a method that has been popular
with small goods sent through postal services that
can be delivered by hand. This method allows for
shipping as soon as the order is confirmed. In
Bangladesh, this method has been adopted by some
B2C vendors.
 Payment at Bank: In this method, after an online
purchase is made, the consumer is provided with a
web page containing the payment amount and some
specific code or identification number for the
purchase and the vendor of the item is bought from.
The consumer prints out the page, and then pays the
amount physically at a local bank. After the
payment is transferred to the vendor’s account, the 40
vendor ships the goods.
 PAYMENT METHODS
 Stored-Value Cards: In this method, a consumer
can purchase a card with a specific amount of value
stored in it. The card can then be used to buy certain
goods or services from the Internet, and
proportionate amount gets deducted each time a
purchase is made.

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SECURITY SCHEMES IN ELECTRONIC
PAYMENT SYSTEMS
• Four Essential Security Schemes
• Authentication – A method to verify the buyer’s
identity before payment is authorized.
• Encryption – A process of making messages
unreadable except by those who have an
authorized decryption key.
• Integrity- Ensuring that information will not be
accidentally or maliciously altered or destroyed
during transmission
• Non-repudiation – protection against
customers’ denial of orders placed and against
merchants’ denial of payments made.
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MOST COMMON PAYMENT SYSTEMS,
BASED ON NUMBER OR TRANSACTIONS

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MOST COMMON PAYMENT SYSTEMS,
BASED ON AMOUNT

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CURRENT E-COMMERCE PAYMENT
SYSTEMS
 The emergence of e-commerce has created new
financial needs that in some cases cannot
effectively fulfilled by traditional payment
systems. E-commerce payments can be very
different depending on traditions and
infrastructure.

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CURRENT E-COMMERCE PAYMENT
SYSTEMS
 Online credit card transaction: Use of
credit card for e-Commerce payment is
one of the most major forms of electronic
payment.
 It processed in much the similar way as
in-store purchases are.
 Merchant never see the actual card being
used
 No card impression is taken
 No signature is available
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CURRENT E-COMMERCE PAYMENT
SYSTEMS
 Merchant account: A bank account that
allows companies to process credit card
payments and receive funds from those
transactions. Credit card payments have
the advantage of being simple and fast,
with the added advantage that sellers can
receive confirmation of payment in a very
short time, prior to shipping the goods.

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HOW AN ONLINE CREDIT CARD
TRANSACTION WORKS?

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LIMITATIONS OF ONLINE CREDIT
CARD PAYMENT SYSTEMS
 Security
 Neither the merchant not the consumer can be
fully authenticated.
 Merchant Risk
 Consumers can repudiate charges
 Cost
 Roughly 3.5% of purchase plus transaction fee
 Social Equity
 Young adults do not have credit cards
 Almost 100 million adult Americans cannot
afford cards or are considered poor risks
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ALTERNATIVE ONLINE PAYMENT
SYSTEMS
 PayPal:
 Amazon Account
 Google Checkout
 Bill Me Later
 WUPay
 Dwolla
 Stripe

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 MOBILE PAYMENT SYSTEMS
• Use of mobile phones as payment devices established in
Europe, Japan, South Korea
• Near field communication (NFC)
– Short-range (2‖) wireless for sharing data between
devices
– Google Wallet
• Mobile app designed to work with NFC chips
An Android App, allow you to use credit cards. Coupons,
store loyalty cards, etc.
Without swiping each card, just tap the phone up to a
payment receiver to complete a transaction.
Help to shop online and in-store
Allow sending money to others
 One can add money to the wallet balance from bank a/c
for free, but from credit or debit card that flat rate 2.9%
fee.
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 One can get Google wallet card which can be used in in-
store purchase.
 DIGITAL CASH AND VIRTUAL CURRENCY
 Also called e-cash. Digital Cash generate a private
form of currency that can be spent at e-commerce
sites.
 An alternative payment system developed for e-
commerce in which unique, authenticated tokens
representing cash value are transmitted from
consumers to merchants.
• Like the serial number on real currency, digital cash numbers
are unique. You must have a bank a/c. When purchase digital
cash certificates, money is withdrawn from the a/c.
• Buyer transfer the certificate to the vendor to pay for the
products. Vendor deposits the cash number to any
participating bank or retransmit it to another vendor.
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• Like real cash it is anonymous and re usable.
DIGITAL CASH AND VIRTUAL CURRENCY
 Properties:
 Security
 Anonimity
 Portability
 Transferability
 User friendly

 Virtual Currency: Typically circulates within an

internal virtual world community or is issued by a
specific corporate entity, and used to purchase virtual
goods.

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SMART CARDS
Smart card: It is a credit card size plastic card
that stores digital information and that can be
used for electronic payments in place of cash.
An electronic card containing an embedded
microchip that enables predefined operations
or the addition, deletion, or manipulation of
information on the card.

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GENERAL GUIDELINES TO E-PAYMENT
 Use a secure web browser
 Read the website’s privacy policy carefully

 Figure out the merchant’s refund and return

policies in advance of the final purchase.
 Investigate the trustworthiness of the merchant
before you initiate a purchase.
 Keep a record of all online transactions and check
e-mail and other contacts regularly.
 Review your credit card statements line by line to
ensure authenticity.

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DIMENSIONS OF PAYMENT SYSTEMS

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Thank You
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