Chapter 4: Summary
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Analyze how Internet technology has changed value propositions and business models.

The Internet is rapidly becoming the infrastructure of choice for electronic commerce and electronic business because it provides a universal and easy-to-use set of technologies and technology standards that can be adopted by all organizations, no matter which computer system or information technology platform they use. Internet technology provides a much lower cost and easier to use alternative for coordination activities than proprietary networks. Companies can use Internet technology to radically reduce their transaction and agency costs.

           The Internet radically reduces the cost of creating, sending, and storing information while making that information more widely available. Information is not limited to traditional physical methods of delivery. Customers can find out about products on their own on the Web and buy directly from product suppliers instead of using intermediaries such as retail stores. This unbundling of information from traditional value chain channels is having a disruptive effect on old business models, and it is creating new business models as well. Some of the traditional channels for exchanging product information have become unnecessary or uneconomical, and business models based on the coupling of information with products and services may no longer be necessary. By using the Internet and other networks for electronic commerce, organizations in some industries can exchange purchase and sale transactions directly with customers and suppliers, eliminating inefficient intermediaries.

           The Internet shrinks information asymmetry and has transformed the relationship between information richness and reach. Using the Internet and Web multimedia capabilities, companies can quickly and inexpensively provide detailed product information and detailed information specific to each customer to very large numbers of people simultaneously. The Internet can help companies create and capture profit in new ways by adding extra value to existing products and services or by providing the foundation for new products and services. Many different business models for electronic commerce on the Internet have emerged, including virtual storefronts, information brokers, transaction brokers, Net marketplaces, content providers, online service providers, virtual communities, and portals.


Define electronic commerce and describe how it has changed consumer retailing and business-to-business transactions.

Electronic commerce is the process of buying and selling goods electronically with computerized business transactions using the Internet or other digital network technology. It includes marketing, customer support, delivery, and payment. The three major types of electronic commerce are business-to-consumer (B2C), business-to-business (B2B), and consumer-to-consumer (C2C). Another way of classifying electronic commerce transactions is in terms of the participantsí physical connection to the Web. Conventional e-commerce transactions, which take place over wired networks, can be distinguished from mobile commerce, or m-commerce, which is the purchase of goods and services using handheld wireless devices.

          The Internet provides a universally available set of technologies for electronic commerce that can be used to create new channels for marketing, sales, and customer support and to eliminate intermediaries in buy-and-sell transactions. Interactive capabilities on the Web can be used to build closer relationships with customers in marketing and customer support. Firms can use various Web personalization technologies to deliver Web pages with content geared to the specific interests of each user, including technologies to deliver personalized information and ads through m-commerce channels. Companies can also reduce costs and improve customer service by using Web sites, as well as e-mail and telephone access to customer service representatives, to provide helpful information.

          B2B e-commerce generates efficiencies by enabling companies to locate suppliers, solicit bids, place orders, and track shipments in transit electronically. Businesses can use their own Web sites to sell to other businesses or use Net marketplaces or private industrial networks. Net marketplaces provide a single digital marketplace based on Internet technology for many buyers and sellers. Net marketplaces can be differentiated by whether they sell direct or indirect goods, support spot or longterm purchasing, or serve vertical or horizontal markets. Private industrial networks link a firm with its suppliers and other strategic business partners to develop highly efficient supply chains and to respond quickly to customer demands.


Compare the principal payment systems for electronic commerce.

The principal electronic payment systems for electronic commerce are digital credit card systems, digital wallets, accumulated balance digital payment systems, stored value payment systems, digital cash, peer-to-peer payment systems, digital checking, and electronic billing presentment and payment systems. Accumulated balance systems, stored value systems (including smart cards), and digital cash are useful for small micropayments.


Evaluate the role of Internet technology in facilitating management and coordination of internal and inter-organizational business processes.

Private, internal corporate networks called intranets can be created using Internet connectivity standards. Extranets are private intranets that are extended to selected organizations or individuals outside the firm. Intranets and extranets are forming the underpinnings of electronic business by providing a low-cost technology that can run on almost any computing platform. Organizations can use intranets to create collaboration environments for coordinating work and information sharing, and to make information flow between different functional areas of the firm. Intranets also provide a low-cost alternative for improving coordination of cross-functional business processes within the organization.

          Extranets help coordinate business processes shared with customers, suppliers, and other external organizations. Collaborative commerce builds on extranets to enable multiple organizations to collaboratively design, develop, build, move, and manage products through their life cycles. A firm engaged in collaborative commerce with its suppliers and customers can achieve new efficiencies by reducing product design cycles, minimizing excess inventory, forecasting demand, and keeping partners and customers informed.


Assess the challenges posed by electronic business and electronic commerce and management solutions.

Many new business models based on the Internet have not yet found proven ways to generate profits or reduce costs. Digitally enabling a firm for electronic commerce and electronic business requires far-reaching organizational change, including redesign of business processes; recasting relationships with customers, suppliers, and other business partners; and new roles for employees. Channel conflicts may erupt as the firm turns to the Internet as an alternative outlet for sales. Security, privacy, and legal issues pose additional electronic commerce challenges. Before embracing e-commerce and e-business, firms should understand exactly how Internet technology provides value to the business and relates to their overall business strategy. They should also should anticipate making organizational changes, including changing business processes and developing a plan for managing channel conflict. Finally, they will need corporate policies and tools for promoting security and privacy within an e-business environment.