E-Commerce Concepts and Issues PDF

TH2106 E-Commerce Concepts and Issues E-Commerce Essentials E-commerce involves the use of the Internet, the World Wide Web (or simply Web), and mobile apps and browsers running on mobile devices...

TH2106 E-Commerce Concepts and Issues E-Commerce Essentials E-commerce involves the use of the Internet, the World Wide Web (or simply Web), and mobile apps and browsers running on mobile devices to transact business. More formally, e-commerce can be defined as “digitally enabled commercial transactions between and among organizations and individuals.” Digitally enabled transactions include all transactions mediated by digital technology, i.e., transactions that occur over the Internet, the Web, and/or via mobile devices. Commercial transactions involve the exchange of value (such as money) across organizations or individuals in return for products and services. Exchange of value is important because without this, no commerce occurs (Laudon & Traver, 2017). Technological Building Blocks of E-Commerce The technological building blocks behind e-commerce are the following (Laudon & Traver, 2017): Internet – It is a worldwide network of computer networks built on common standards. It links businesses, educational institutions, government agencies, and individuals together, and provides users with services such as e-mail, document transfer, shopping, research, instant messaging, music, videos, and news. World Wide Web – It is an information system that runs on the Internet infrastructure. It was the original “killer app” that made the Internet commercially interesting and extraordinarily popular. It provides access to billions of Web pages indexed by Google and other search engines. Before the Web, the Internet was used mainly for text communications, file transfers, and remote computing. The Web introduced more powerful and commercially interesting capabilities with direct relevance to commerce. It added color, voice, and video to the Internet, creating a communications infrastructure and information storage system. Mobile platform – It provides the ability to access the Internet from a variety of mobile devices such as smartphones, tablets, and other ultra-lightweight laptop computers via wireless networks or cell phone service. An app (short for application) is a software application, which is typically used when referring to mobile applications, although it is sometimes used to refer to desktop computer applications as well. A mobile browser is a version of Web browser software accessed via a mobile device. Types of E-Commerce There are different types of e-commerce and many ways to characterize them. According to Laudon and Traver (2017), the following are the types of e-commerce based on the nature of market relationship—who is selling to whom. Business-to-Consumer (B2C) E-Commerce – It is the most common type of e-commerce that most consumers are likely to encounter. It is where online businesses attempt to reach individual consumers. B2C e-commerce includes purchases of retail goods, travel and other types of service, and online content. Business-to-Business (B2B) E-Commerce – It is the largest form of e-commerce in which businesses focus on selling to other businesses. Consumer-to-Consumer (C2C) E-Commerce – It provides a way for consumers to sell to each other with the help of an online market maker (also called a platform provider) such as eBay and Etsy or an on- demand service company such as Airbnb. In this type of e-commerce, the consumer prepares the product for market, places the product for auction or sale, and relies on the market maker to provide catalog, search engine, and transaction-clearing capabilities so that products can be easily displayed, discovered, and paid for. Mobile E-Commerce (M-Commerce) – It refers to the use of mobile devices to enable online transactions, which involves using cellular and wireless networks to connect smartphones and tablet computers to the Internet. Once connected, mobile consumers can purchase products and services, make travel reservations, access online content, and much more. 03 Handout 1 *Property of STI  [email protected] Page 1 of 6  TH2106 Social E-Commerce – It is enabled by social networks and online social relationships. The growth of social e-commerce is driven by several factors, including the increasing popularity of social sign-on (signing onto websites using Facebook or other social network IDs) and social search (recommendations from online trusted friends) and the increasing prevalence of integrated social commerce tools such as buy buttons, shopping tabs, and virtual shops on Facebook, Instagram, Pinterest, and other social networking sites. Social e-commerce is often intertwined with m-commerce, particularly as more and more social network users access those networks via mobile devices. A variation of social e-commerce known as conversational commerce controls the mobile connection even further. It involves the use of mobile messaging apps such as Facebook Messenger, WhatsApp, Snapchat, Slack, and others as a vehicle for companies to engage with consumers. E-Commerce Business Models A business model is a set of planned activities or business processes designed to result in a profit in a marketplace. An e-commerce business model aims to use and control the unique qualities of the Internet, the Web, and the mobile platform. Major Business-to-Consumer (B2C) Business Models The major business models of business-to-consumer e-commerce, in which online businesses seek to reach individual consumers, are the following (Laudon & Traver, 2017): E-tailers – Online retail stores, often called e-tailers, are similar to the traditional storefront, except the customers only have to connect to the Internet or use their smartphone to place an order. Some e-tailers are subsidiaries or divisions of existing physical stores and carry the same products. Others, however, operate only in the virtual world without any ties to physical locations. Examples of e-tailers are wine.com (online liquor store), airasia.com (AirAsia airline), and hyatt.com (Hyatt Hotels Corporation). Community Providers – They create an online environment where people with similar interests can transact (buy and sell goods); share interests, photos, and videos; communicate with like-minded people; receive interest-related information; and even play out fantasies by adapting personalities called avatars. Facebook, LinkedIn, Twitter, and Pinterest, and hundreds of other social networks all offer community- building tools and services. Content Providers – They distribute information content, such as digital video, music, photos, text, and artwork. These can make money via different revenue models, including advertising, subscription fees, and sales of digital goods. For example, in the case of music streaming services, such as Spotify and Apple Music, users can stream millions of music by paying a monthly subscription fee. Portals – Portals such as Google, Yahoo, MSN, and AOL offer users powerful search tools, as well as an integrated package of content and services, such as news, e-mail, instant messaging, calendars, shopping, music downloads, video streaming, and more, all in one place. These generate revenue by charging advertisers for ad placement and collecting referral fees for steering customers to other sites. Transaction Brokers – These are companies that process transactions normally handled in person, by phone, or by mail on behalf of consumers. The largest industries using this model are financial services, travel services, and job placement services. They make money each time a transaction occurs. Travel sites generate commissions from travel bookings, and job sites generate listing fees from employers upfront rather than charging a fee when a position is filled. Examples of transaction brokers include Expedia, Travelocity, Orbitz, and Monster. Market Creators – They build a digital environment in which buyers and sellers can meet, display and search for products and services, and establish prices. They make money by either charging a percentage of every transaction made or charging merchants for access to the market. The main examples are Priceline, an online travel agency that allows consumers to set the price they are willing to pay for various 03 Handout 1 *Property of STI  [email protected] Page 2 of 6  TH2106 travel accommodations and other products, and eBay, an online auction site utilized by both businesses and consumers. Service Providers – These entities offer services online and use a variety of revenue models. Some charge a fee or monthly subscriptions, while others generate revenue from other sources such as through advertising. Some examples of service providers include VisaNow (visausanow.com, provider of online immigration services – United States visas), GCash (an app that allows a user to pay bills, purchase goods and services, and send or receive money), and RocketLawyer (an online legal technology company). Major Business-to-Business (B2B) Business Models The following are the major business models of business-to-business e-commerce in which businesses sell to other businesses (Laudon & Traver, 2017): E-distributors – These are companies that supply products and services directly to individual businesses. These are owned by one (1) company seeking to serve many customers. With this model, the more products and services a company makes available, the more attractive it is to potential customers. An example is Grainger (grainger.com), which is a large distributor of maintenance, repair, and operations (MRO) supplies. The platforms of e-distributor include websites and mobile apps that make ordering fast and easy. E-procurement – E-procurement firms create and sell access to digital markets. For example, Ariba (ariba.com) has created a software that helps large firms to organize their procurement process by creating mini-digital markets for a single firm. The company creates custom-integrated online catalogs (where supplier firms can list their offerings) for purchasing firms. On the sell side, Ariba helps vendors sell to large purchasers by providing software to handle catalog creation, shipping, insurance, and finance. Both the buy and sell side software is referred to as value chain management software. Exchanges – These are independent digital marketplaces where hundreds of suppliers meet a smaller number of large commercial purchasers. They generate revenue by charging a commission or fee based on the size of the transactions conducted among trading parties. For B2B buyers, exchanges make it possible to gather information, check out suppliers, collect prices, and be up to date on the latest happenings all in one place. Sellers, on the other hand, benefit from expanded access to buyers. TravelB2BHub (travelb2bhub.com) is an example of an exchange hub that helps travel companies, hoteliers, and event planners to buy or sell tourism services to each other and to end consumers in India. Industry Consortia – These are industry-owned vertical marketplaces that serve specific industries such as automobile, aerospace, chemical, floral, or logging. Vertical marketplaces supply a smaller number of companies with products and services of specific interest to their industry. In contrast, horizontal marketplaces sell specific products and services to a wide range of companies. They supply companies in different industries with a particular type of product and service, such as marketing-related, financial, or computing services. An example of this is Avendra (avendra.com), which is the leading hospitality procurement services provider in North America and the Caribbean formed by Marriott International, Hyatt Hotels, ClubCorp. USA, Inc., InterContinental Hotel Group, and Fairmont Hotels and Resorts. Private Industrial Networks – These are sometimes referred to as private trading exchanges. These are digital networks designed to coordinate the flow of communications among firms engaged in business together. The network is owned by a single large purchasing firm. Participation is by invitation to trusted long-term suppliers of direct inputs only. These networks typically evolve out of a firm’s own enterprise resource planning (ERP) system and are an effort to include key suppliers in the firm’s own business decision making. For example, Walmart (walmart.com) operates one of the largest private industrial networks in the world for its suppliers that use Walmart’s network daily to monitor the sales of their goods, the status of shipments, and the actual inventory level of their goods. 03 Handout 1 *Property of STI  [email protected] Page 3 of 6  TH2106 Digital Commerce Marketing Strategies and Tools The objective of online marketing is to build customer relationships so that a firm can achieve above-average returns both by offering superior products and services and by communicating the brand’s features to the consumer. Major Types of Marketing Website – A business’ website is a major tool for establishing an initial relationship with the customer. Its first function is to establish a brand’s identity by identifying for the consumer the differentiating features of a business’ product or service in terms of quality, price, product support, and reliability. It also functions as an anchor for a firm’s other web marketing activities. It acts as a central point where all the branding messages that come from its digital presence, such as Facebook, Twitter, mobile apps, or e-mail, come together at a single location. A website with its online catalogs and associated shopping carts is an important element of the online customer experience. Traditional Online Marketing – These are the basic marketing and advertising tools for attracting e- commerce consumers: o Search engine marketing – It refers to the use of search engines to build and sustain brands. Search engines are often thought of as mostly direct sales channels focused on making sales in response to advertisements. These are also used to strengthen brand awareness and drive traffic to websites. The top three (3) search engine providers (Google, Microsoft/Bing, and Yahoo) supply more than 95% of all online searches. The common types of search engine advertising are organic search (the search results of a search engine that cannot be influenced by paid advertising; results are ranked according to their relevance to the search term), paid inclusion (a program in which, for a fee, a search engine guarantees a website’s inclusion in its list of search results), and pay-per-click (PPC) search ads (the primary type of search engine advertising in which advertisers pay each time a user clicks on one of their online ads). o Display ad marketing – A display ad is made up of texts, images, or videos that encourages users to click-through to a landing page and take action. The common kinds of display ads are banner ads (these display a promotional message in a rectangular box on a computer or mobile device screen and brings a potential customer directly to the advertiser’s site), rich media ads (these employ features such as video, animation, sound, and other elements that encourage viewers to interact and engage with the content), video ads (television-like advertisements that appear as in-page video commercials before, during, or after a variety of content), and sponsorship (a paid effort to tie an advertiser’s name to a particular information, event, or venue in a way that reinforces its brand in a positive yet not obviously commercial manner). o E-mail marketing – Direct e-mail marketing (marketing messages sent directly to interested users) was one of the first and most effective forms of online marketing communications. Marketing messages are sent to an opt-in audience of Internet users who, at one time, have expressed an interest in receiving messages from the advertiser. o Affiliate marketing – It is a form of marketing where a firm pays a commission, typically anywhere between 4% and 20%, to other websites (including blogs) for sending customers to their website. It generally involves pay-for-performance: the affiliate or affiliate network only gets paid if users click on a link or purchase a product. o Viral marketing – It is a form of social marketing that involves getting customers to pass along a company’s marketing message to friends, family, and colleagues. It is the online version of word-of- mouth advertising, which spreads even faster and further than in person. Social Marketing and Advertising – It involves the use of online social networks and communities to build brands and drive sales revenues. There are several kinds of social networks, from Facebook, Twitter, 03 Handout 1 *Property of STI  [email protected] Page 4 of 6  TH2106 Pinterest, and Instagram, to social apps, social games, blogs, and forums. Social networks offer advertisers all the main advertising formats, including banner ads, short pre-roll and post-roll ads (advertisements that stream after a desktop or mobile video finishes) associated with videos, and sponsorship content. Mobile Marketing and Advertising – Mobile marketing includes the use of display banner ads, rich media, video, games, e-mail, text messaging, in-store messaging, quick response (QR) codes, and couponing. Apps on mobile devices constitute a marketing platform that did not exist before. Apps are a non-browser pathway for users to experience the Web and perform several tasks from reading newspapers to shopping, searching, and buying. These provide users much faster access to content than multi-purpose browsers. Local Marketing – The growth of mobile devices has accelerated the growth of local search and purchasing. Local advertisements on social networks and daily sites are also contributing to local marketing growth. The most commonly used venues include Facebook, Google, LinkedIn, Instagram, Yahoo, Bing, and Twitter, as well as more specific location-based offerings like Google My Business, Yahoo! Small Business, Citysearch, ClickTheCity, and Yelp. The “daily deal” coupon sites, like Groupon (American e-commerce marketplace connecting subscribers with local merchants) and Metrodeal Philippines (a market leader when it comes to discount vouchers for different products and services in the country) are also a significant part of this marketing. Without an audience, marketing is not possible. With the rapid growth of the Internet, media consumption patterns have significantly changed as consumers become more likely to engage with online media. Increasingly, marketers are also using multiple online channels to reach customers. E-Commerce Issues Ethics is at the center of social and political discussions about the Internet. Ethics is the study of principles that individuals and organizations can use to determine right and wrong courses of action. It is assumed in ethics that individuals are free moral agents who are in a position to make choices. Extending ethics from individuals to business firms and even entire societies can be difficult but not impossible. E-commerce and the Internet have raised so many ethical, social, and political issues that can be categorized into four (4) major dimensions: privacy and information rights, intellectual property rights, governance, and public safety and welfare. Privacy Issues − Privacy is possibly the most complex ethical issue raised by e-commerce, as well as the changing technology of human communications brought about by the Internet and mobile devices. The claim to privacy rests on the moral right of individuals to be left alone, free from surveillance or interference from other individuals or organizations, including the government. E-commerce sites routinely collect a variety of information from or about consumers’ visits and purchases. Some of these data constitute personally identifiable information (PII), or any data that can be used to identify, locate, or contact an individual. Advertising networks and search engines also track the behavior of consumers across thousands of popular sites via cookies (small files that are stored on a user’s computer to hold a modest amount of data specific to a particular client and website), web beacon (often- transparent graphic image, usually no larger than 1 pixel x 1 pixel, that is placed on a website or in an e- mail to monitor the behavior of the user visiting the Web site or sending the e-mail), spyware (any software that covertly gathers user information through the user’s Internet connection without their knowledge, usually for advertising), and other techniques. These activities are just a few of the issues linked to privacy over the conduct of e-commerce. Intellectual Property Rights − Next to privacy, the most controversial issue related to e-commerce is the fate of intellectual property rights. Intellectual property encompasses all the tangible and intangible products of the human mind. Intellectual property protection in the Philippines is contained in Republic Act No. 8293, otherwise known as the Intellectual Property (IP) Code of the Philippines. The term “intellectual property rights” in the Code consists of copyright and related rights, trademarks and service 03 Handout 1 *Property of STI  [email protected] Page 5 of 6  TH2106 marks, geographic indications, industrial designs, patents, layout designs of integrated circuits, and protection of undisclosed information. Generally, the creator of the intellectual property owns it and has the exclusive right to use it in any lawful way they see fit. The Internet, however, changes things. Once intellectual works become digital, it becomes difficult to control access, use, distribution, and copying. The Internet technically permits millions of people to make perfect digital copies of various works, from music to plays, poems, and journal articles, and then distribute them nearly cost-free to hundreds of millions of online users. It has demonstrated the potential to disrupt the traditional conceptions and implementations of intellectual property law. The major ethical issue relating to e-commerce in this regard is how individuals and business professionals should treat property that belongs to others. Governance − Governance, as it relates to e-commerce, has something to do with social control: who will control the Internet, what elements will be controlled, and how the controls will be implemented. Control issues revolve around the Internet that could not be controlled, given its decentralized design and its ability to cross borders that made monitoring and controlling message content impossible. This implies that the content and behavior of e-commerce sites cannot be “controlled” in the same way. Another issue is taxation. Governments collect sales taxes based on the type and value of goods sold. The money is used for general government purposes and building infrastructures. However, the development of the “remote sales,” such as mail order/telephone order (MOTO) or online purchasing, broke the relationship between physical presence and commerce, complicating the plans of the government to tax all retail commerce. Public Safety and Welfare − Critical issues in e-commerce center around the protection of children, strong sentiments against pornography in any public media, efforts to control gambling, and the protection of public health through restricting the sales of drugs and cigarettes online. References: Beal, V. (n.d.). Spyware. In Webopedia. https://www.webopedia.com/TERM/S/spyware.html Beal, V. (n.d.). Web beacon. In Webopedia. https://www.webopedia.com/TERM/W/Web_beacon.html Intellectual Property Code of the Philippines (R.A. No. 8293) (1997). Laudon, K. & Traver, C. G. (2017). E-commerce: Business. Technology. Society. Pearson. Lawlor, F. & Jayawardena, C. (2003). Purchasing for 4,000 hotels: the case of Avendra, International Journal of Contemporary Hospitality Management, 15(6), 346–348. https://doi.org/10.1108/09596110310488221 Pizam, A. & Holcomb, J. (2010). International dictionary of hospitality management. Routledge. Weaver, B. (2019, January 2). Your guide to post-roll ads: What are they, ad specs & best practices. Insta Page. https://instapage.com/blog/post-roll-ads What are cookies? Computer cookies explained. (n.d.). WhatAreCookies.com. http://www.whatarecookies.com/ 03 Handout 1 *Property of STI  [email protected] Page 6 of 6