INTRODUCTİON TO E-COMMERCE

Contents
INTRODUCTİON TO E-COMMERCE .......................................................................................................... 1
1. Comparing Traditional Commerce and E-Commerce...................................................................... 2
2. E-Commerce and Value Chain ......................................................................................................... 2
3. E-COMMERCE BUSİNESS MODELS .................................................................................................. 3
4. MAJOR TYPES OF E-COMMERCE ..................................................................................................... 5
4.1 BUSINESS-TO-CONSUMER E-COMMERCE ..................................................................................... 5
4.2 A Business-to-Consumer e-Commerce Cycle ................................................................................ 6
4.3 Business-to-Business e-Commerce ............................................................................................... 7
4.4 CONSUMER-TO-CONSUMER E-COMMERCE................................................................................ 10
4.5 CONSUMER-TO-BUSINESS E-COMMERCE ................................................................................... 10
4.6 NON-BUSINESS AND GOVERNMENT E-COMMERCE ................................................................... 11
4.7 INTRA-BUSINESS E-COMMERCE .................................................................................................. 11
4.8 VOİCE-BASED E-COMMERCE ....................................................................................................... 11
5. Advantages of Electronic Commerce ............................................................................................ 12

E-commerce is buying and selling goods and services over the Internet. E-commerce is part of
e-business as specified. E-business is a structure that includes not only those transactions that
center on buying and selling goods and services to generate revenue, but also those transactions
that support revenue generation. These activities include generating demand for
goods and services, offering sales support and customer service, or facilitating communications
between business partners. By the help of the flexibility offered by computer
networks and the availability of the Internet, E-commerce develops on traditional commerce.
E-commerce creates new opportunities for performing profitable activities online. It promotes
easier cooperation between different groups: businesses sharing information to improve
customer relations; companies working together to design and build new products/services; or
multinational company sharing information for a major marketing campaign.

The followings are the business uses of the Internet. These services and capabilities are a core
part of a successful e-commerce program. They are either parts of a value chain or are included
as supporting activities:
• Buying and selling products and services

• Providing customer
service
• Communicating within organizations

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• Collaborating with others
• Gathering information (on competitors, and so forth)
• Providing seller support
• Publishing and distributing information
• Providing software update and patches

Airline and travel tickets, banking services, books, clothing, computer hardware, software, and
other electronics, flowers and gifts are some popular products and services that can be
purchased online. Several successful e-businesses have established their business models
around selling these products and services. E-commerce has the potential to generate revenue
and reduce costs for businesses and entities. Marketing, retailers, banks, insurance, government,
training, online publishing, travel industries are some of the main recipients of e-commerce.
For instance, banks use the Web for diverse business practices and customer service.
Appendix I lists companies using e-commerce, stressing the products and services that are most
suitable for web transactions.

1. Comparing Traditional Commerce and E-Commerce

In e-commerce there may be no physical store, and in most cases the buyer and
seller do not see each other. The Web and telecommunications technologies play a major role,
in e-commerce. Although the goals and objectives of both e-commerce and traditional
commerce are the same—selling products and services to generate profits—they do it quite
differently. Traditional commerce presents product information by using magazines, flyers. On
the other hand, e-commerce presents by using web sites and online catalogs. Traditional
commerce communicates by regular mail, phone yet e-commerce by e-mail. Traditional
commerce checks product availability by phone, fax and letter. However, e-commerce checks
by e-mail, web sites, and internal networks. Traditional commerce generates orders and
invoices by printed forms but e-commerce by e-mail, and web sites. Traditional commerce gets
product acknowledgments by phone and fax. On the other hand, e-commerce gets by email,
web sites, and EDI.

It is important to notice that currently many companies operate with a mix of traditional and e-
commerce. Just about all medium and large organizations have some kind of e-commerce
presence.

2. E-Commerce and Value Chain

Typical business organizations (or parts within a business organization) design, produce,
market, deliver, and support its product(s)/service(s). Each of these activities adds cost and
value to the product/service that is eventually distributed to the customer. The value-chain
consists of a series of activities designed to satisfy a business need by adding value (or cost) in

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each phase of the process. In addition to these primary activities that result in a final
product/service, supporting activities in this process also should be included:
• Managing company infrastructure
• Managing human resources
• Obtaining various inputs for each primary activity
• Developing technology to keep the business competitive

For instance, in a furniture manufacturing company, the company buys wood (raw materials)
from a logging company and then converts the wood into chair (finished product); chairs are
shipped to retailers, distributors, or customers. The company markets and services these chairs
products. Those are the primary activities (value-chain) that adds value and result in a final
product/service for the company. Value-chain analysis may highlight the opportunity for the
company to manufacture products directly. This means, for furniture manufacturer, it may
enter in the logging business directly or through partnership with others. The value chain may
continue after delivering chairs to the furniture store. The store, by offering other
products/services and mixing and matching this product with other products, may add
additional value to the chair.

The Internet can increase the speed and accuracy of communications between suppliers,
distributors, and customers. Furthermore, the Internet's low cost allows companies of any size
to be able to take advantage of value-chain integration. E-commerce may improve value chain
by identifying new opportunities for cost reduction. For instance, using e-mail to notify
customers instead of using regular mail helps for reducing cost. Selling to distant customers
using the company web site may allow revenue improvement or generation. These sales may
not have been materialized otherwise or selling digital products such as songs or computer
software or distributing software through the Web. Offering online customer service or new
sales channel identification helps for product/service improvement.

Many companies have taken advantage of the web and e-commerce to reduce cost, improve
revenue and increase customer service:
Dell Computer generates a large portion of its revenue through the Web by eliminating the
middleman. Cisco Systems sells much of its networking hardware and software over the Web,
improving revenue and reducing cost. United Parcel Service (UPS) and Federal Express use
the Internet to track packages that result in enhanced customer service.

3. E-COMMERCE BUSİNESS MODELS

The ultimate goal of an e-business is to generate revenue and make a profit, similar to traditional
businesses. It is factual that the Internet has improved productivity for almost all the
organizations that are using it. Nevertheless, the bottom line is that productivity must be
converted to profitability. To achieve profitability as the final goal, different e-businesses or
e-commerce sites position themselves in different parts of the value-chain. To generate revenue,
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an e-business either sells products/services or shortens the link between the suppliers and
consumers. Many business-to-business models try to eliminate the middleman by using the
Web to deliver products/services directly to their customers. By doing this they may be able to
offer cheaper products and better customer service to their customers. The end result would be
a differentiation between them and their competitors, increased market share, and increased
customer loyalty. Products sold by e-businesses could be either traditional products, such as
books and clothing, or digital products, such as songs, computer software, or electronic books.
E-commerce models are either an extension or revision of traditional business models, such as
advertising model, or a new type of business model that is suitable for the Web implementation,
such as info-mediary. Merchant, brokerage, advertising, mixed, info-mediary, subscription are
the most popular e-commerce models:
 Merchant model: This model basically transfers the old retail model to the e-commerce
world by using the Internet. There are different types of merchant models. The most
common type of merchant model is similar to a traditional business model that sells
goods and services over the Web.
Amazon.com is a good example of this type. An e-business similar to Amazon.com
utilizes the services and technologies offered by the Web to sell products and services
directly to the consumers. By offering good customer service and reasonable prices,
these companies establish a brand on the Web. The merchant model is also used by
many traditional businesses to sell goods and services over the Internet. Dell, Cisco
Systems, and Compaq are popular examples. These companies eliminate the middleman
by generating a portion of their total sale over the Web and by accessing difficult-to-
reach customers. An example that uses this model is Amazon.com Corporation. [
Appendix II ]
 Brokerage model: The e-business brings the sellers and buyers together on the Web
and collects a commission on the transactions by using this model. The best example of
this type is an online auction site such as eBay, gittigidiyor.com which can generate
additional revenue by selling banner advertisement on their sites.
 Advertising model: This model is an extension of traditional advertising media, such
as television and radio. Search engines and directories such as Google and Yahoo
provide contents (similar to radio and TV) and allow the users to access this content for
free. By creating significant traffic, these e-businesses are able to charge advertisers for
putting banner ads or leasing spots on their sites.
 Mixed model: This model generates revenue both from advertising and subscriptions.
Internet service providers (ISPs) such as America On-line (AOL), and SuperOnline
generate revenue from advertising and their customers' subscription fees for Internet
access.
 Info-mediary model: E-businesses that use this model collect information on
consumers and businesses and then sell this information to interested parties for
marketing purposes. For instance, bizrate.com collect information related to the
performance of other sites and sells this information to advertisers. Netzero.com
provides free Internet access; in behavior of customers. This information is later sold to
advertisers for direct marketing. eMachines.com offers free PCs to its customers for the
same purpose.

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  Subscription model: An e-business might sell digital products to its customers, by
using this model. The Wall Street Journal and Consumer Reports are two examples.
Sreeet.com, AjansPress.com is another example of this model that sells business news
and analysis based on subscription.


4. MAJOR TYPES OF E-COMMERCE

The several types of e-commerce in use today are classified based on the nature of the
transactions: business-to-consumer (B2C), business-to-business (B2B), consumer-to consumer
(C2C), consumer-to-business (C2B), and non-business and government, and organizational
(intra-business).

4.1 BUSINESS-TO-CONSUMER E-COMMERCE

In B2C e-commerce, businesses sell directly a diverse group of products and services to
customers. In addition to pure B2C e-commerce players such as Amazon.com, and
hepsiburada.com other traditional businesses have entered the virtual marketplace by
establishing comprehensive web sites and virtual storefronts. In these cases, e-commerce
supplements the traditional commerce by offering products and services through electronic
channels. Wal-Mart Stores, and the Gap are examples of companies that are very active in B2C
e-commerce. Some of the advantages of these e-commerce sites and companies include
availability of physical space (customers can physically visit the store), availability of returns
(customers can return a purchased item to the physical store), and availability of customer
service in these physical stores. Figure 1 illustrates a B2C relationship. In the figure ISP, means
Internet service provider.

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Figure 1 A business-to-consumer (B2C) e-commerce relationship

4.2 A Business-to-Consumer e-Commerce Cycle

There are five major activities involved in conducting B2C e-commerce. The B2B e-commerce
model uses a similar cycle, as shown in Figure 2.

Figure 2 Major activities for B2C e-commerce

1. Info sharing: A B2C e-commerce may use some or all of the following applications
and technologies to share information with customers: Online advertisements, e-mail,
newsgroups/discussion groups, company web site, online catalogs, message board
systems, bulletin board systems, multiparty conferencing.
2. Ordering: A customer may use electronic e-mail or forms available on the company's
web site to order a product from a B2C site. A mouse click sends the essential
information relating to the requested piece(s) to the B2C site.
3. Payment: Credit cards, electronic checks, and digital cash are among the popular
options that the customer has as options for paying for the goods or services.
4. Fulfillment. Fulfillment that is responsible for physically delivering the product or
service from the merchant to the customer. In case of physical products (books, videos,
CDs), the filled order can be sent to the customer using regular mail, MTA, Cargo. As
expected for faster delivery, the customer has to pay additional money. In case of digital
products (software, music, electronic documents), the e-business uses digital
documentations to assure security, integrity, and privacy of the product. It may also
include delivery address verification and digital warehousing that stores digital products
on a computer until they are delivered. The e-business can handle its own fulfillment
operations or outsource this function to third parties with moderate costs.
5. Service and support: It is much cheaper to maintain current customers than to attract
new customers. For this reason, e-businesses should do whatever that they can in order
to provide timely, high-quality service and support to their customers. As e-commerce
companies lack a traditional physical presence and need other ways to maintain current
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 customers, service and support are even more important in e-commerce than traditional
businesses. The following are some examples of technologies and applications used for
providing service and support: (E-mail confirmation, periodic news flash, and online
surveys may also be used as marketing tools.)
 E-mail confirmation: In most cases, the e-mail confirmation provides the customer
with a confirmation number that the customer can use to trace the product or service.
E-mail confirmation promises the customer that a particular order has been processed
and that the customer should receive the product/ service by a certain date.
 Periodic news flash: They used to give customers with the latest information on the
company or on a particular product or offering.
 Online Surveys: Their results can assist the e-commerce site to provide better services
and support to its customers based on what has been collected in the survey, even
though online surveys are mostly used as a marketing tool.
 Help desks: They provide answers to common problems or provide advice for using
products or services. They are used for the same purpose as in traditional businesses.
 Assured secure transactions & assured online auctions: They guarantee customers
that the e-commerce site covers all the security and privacy issues. As many customers
still do not feel comfortable conducting online business, the security and privacy
services are especially important.

4.3 Business-to-Business e-Commerce

Business-to-Business e-commerce holds electronic transactions among and between
businesses. The Internet and reliance of all businesses upon other companies for supplies,
utilities, and services has enhanced the popularity of B2B e-commerce and made B2B the
fastest growing segment within the e-commerce environment. In recent years extranets (more
than one intranet) have been effectively used for B2B operations. B2B e-commerce creates
dynamic interaction among the business partners; this represents a fundamental shift in how
business will be conducted in the 21st century. Oracle, PeopleSoft, SAP, Broadvision,
Commerce One, Heatheon/Webmd, 12 Technologies, Inc., Ariba , Aspect Development, Baan,
BEA Systems, Internet Capital Group, VerticalNet, Vignette are some of the major vendors of
e-commerce and B2B solutions.
Companies using B2B e-commerce relationship observe cost savings by increasing
the speed, reducing errors, and eliminating many manual activities. Wal-Mart
Stores is an example for B2B e-commerce. Wal-Mart's major suppliers (e.g., Proctor
& Gamble, Johnson and Johnson, and others) sell to Wal-Mart Stores electronically; all the
paperwork is handled electronically. These suppliers can access online the inventory status in
each store and refill needed products in a timely manner. In a B2B environment, purchase
orders, invoices, inventory status, shipping logistics, and business contracts handled directly
through the network result in increased speed, reduced errors, and cost savings.[4] B2B e-
commerce reduces cycle time, inventory, and prices and enables business partners to share
relevant, accurate, and timely information. The end result is improved supply-chain
management among business. The following figure illustrates a generic B2B relationship.
(Figure 3)

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Figure 3 A business-to-business (B2B) e-commerce relationship
The following paragraphs provide brief descriptions of the advantages of B2B e-commerce:
• A B2B e-commerce lowers production cost by eliminating many labor intensive tasks.
• More timely information is achieved by the formation of a direct online connection in the
supply chain.
• Accuracy is increased because fewer manual steps are involved.
• Cycle time improves because flow of information and products between business partners is
made simpler. Since, raw materials are received faster and information related to customer
demands is more quickly transferred.
• Naturally this close communication between the business partners improves overall
communication.
• Increased communications results in improved inventory management and control.

Major Models of Business-to-Business e-Commerce

The three major B2B e-commerce models are determined by seller, buyer, or intermediary
(third party) who controls the marketplace. Consequently, the following four marketplaces have
been created. Each model has specific characteristics and is suitable for a specific business:
 Seller-controlled marketplace: This is the most popular type of B2B model for both
consumers and businesses. In this model the sellers who provide to fragmented markets such
as chemicals, electronics, and auto components come together to generate a common trading
place for the buyers. While the sellers aggregate their market power, it simplifies the buyers
search for alternative sources. Businesses and sometime consumers use the seller's product
catalog to order products and services online.
 One popular application of this model is e-procurement, which significantly streamlines
the traditional procurement process by using the Internet and web technologies. E-procurement
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is radically changing the buying process by allowing employees throughout the organization to
order and receive supplies/services from their desktop with just a few mouse clicks. This results
in major cost savings and improves the timeliness of procurement processes and the strategic
alliances between suppliers and participating organizations. E-procurement may qualify
customers for volume discounts or special offers. E-procurement software may make it possible
to automate some buying and selling, resulting in reduced costs and improved processing
speeds. The participating companies expect to be able to control inventories more effectively,
reduce purchasing-agent overhead, and improve manufacturing cycles. E-procurement is
expected to be integrated into standard business systems with the trend toward computerized
supply-chain management.
 Buyer-controlled marketplace: This model is used by large companies with
significant buying power or a consortium of several large companies. The consortium among
Ford, General Motors and Daimler Chrysler is a good example of this model. In this model a
buyer or a group of buyers opens an electronic marketplace and invites sellers to bid on the
announced products or RFQs (request for quotation). Using this model the buyers are looking
to efficiently manage the procurement process, lower administrative cost, and exercise uniform
pricing. Companies are making investments in a buyer controlled marketplace with the goal of
establishing new sales channels that increase market presence and lower the cost of each sale.
By participating in a buyer-controlled marketplace a seller could perform the
following:

o Get better understanding of buying behaviors

o Carry out pre-sales marketing
o Carry out sales transactions
o Carry out post-sales analysis
o Reduce order placement and delivery cycle time
o Offer an alternative sales channel
o Automate the order management process
o Automate the fulfillment process
 Third-party exchanges marketplace: A third-party-controlled marketplace model is
controlled by a third party not by sellers or buyers. A third-party controlled marketplace model
offers suppliers a direct channel of communication to buyers through online storefronts. The
interactive procedures within the marketplace contain features like product catalogs, request for
information (RFI), rebates and promotions, broker contacts, and product sample requests. The
marketplace makes revenue from the fees generated by matching buyers and sellers. These
marketplaces are usually active either in a vertical or horizontal market.
A vertical market focuses on a specific industry or market. The following are some examples
of this type: PaperExchange.com (supplies for publishers), PlasticsNet.com (raw materials and
equipment), SciQuest.com (laboratory products), VerticalNet.com (Provide end-to-end e-
commerce solutions that arc targeted at distinct business segments)
A horizontal market concentrates on a specific function or business process. They provide
the same function or automate the same business process across different industries. The
following are some examples: Employee.com (employee benefits administration),

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CtSpace.com (web-based collaboration, business process management and document
management solutions)

 Trading partner agreements: The main objectives of the trading partner agreements
B2B e-commerce model are to automate the processes for negotiating and enforcing
contracts between participating businesses. This relatively new model is gaining
popularity.

4.4 CONSUMER-TO-CONSUMER E-COMMERCE

Using C2C e-commerce, consumers sell directly to other consumers using the Internet and web
technologies. Individuals sell a wide variety of services/products on the Web or through auction
sites such as eBay.com, and gittigidiyor.com through classified ads or by advertising. Figure 4
illustrates a general C2C e-commerce relationship. Consumers are also able to advertise their
products and services in organizational intranets and sell them to other employees.

Figure 4 A consumer-to-consumer (C2C) e-commerce relationship

4.5 CONSUMER-TO-BUSINESS E-COMMERCE

Consumer-to-business (C2B) e-commerce that involves individuals selling to businesses may
include a service/product that a consumer is willing to sell. Individuals offer certain prices for
specific products/services. Companies such as pazaryerim.com and mobshop.com are examples
of C2B. Figure 2-4 shows a C2B e-commerce relationship.

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Figure 5. A consumer-to-business (C2B) e-commerce relationship

4.6 NON-BUSINESS AND GOVERNMENT E-COMMERCE

Political, social and not-for-profit organizations also use e-commerce applications for various
activities, such as fundraising and political forums. These organizations also use e-commerce
for customer service and for purchasing to decrease cost and get better speed. Universities are
using e-commerce applications extensively for delivering their educational products and
services on a global scale. The e-commerce applications in government and many non-business
organizations are on the rise.

4.7 INTRA-BUSINESS E-COMMERCE

The organization intranets provide the right platform for intra-business e-commerce. Intra-
business e-commerce involves all the e-commerce-related activities that take place within the
organization. These activities may include exchange of information, goods, or services among
the employees of an organization. This may include selling organization products/services to
the employees, offering human resources services, conducting training programs, and much
more.

4.8 VOİCE-BASED E-COMMERCE

Nowadays, just picking up a phone and accessing a web site you can order a product. At the
core of these new services are voice recognition and text-to speech technologies that have
improved significantly during the past decades. Customers will be able to speak the name of

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the web site or service they want to access and the system will recognize the command and
respond with spoken words. By using voice commands, consumers soon will be able to search
a database by product name and locate the merchant with the most competitive prices.
One method to conduct voice-based e-commerce is to use digital wallets (ewallets) online. In
addition to financial information these wallets include other related information, such as the
customer's address, billing information, driver's license, and so forth. This information can be
conveniently transferred online. Digital wallets are created through the customers' PCs and used
for voice-based e-commerce transactions. Security features for voice-based e-commerce are
expected to include the following: Voice recognition, so that authorizations have to match a
specific voice, call recognition, so that calls have to be placed from specific mobile devices.
Voice-based e-commerce will be suitable for applications such as the following: Receiving
sports scores, finding directions to a new restaurant, reserving tickets for local movies, buying
a book. There are already several voice portals on the market. The following are among the
popular ones: InternetSpeech.com (Figure 3.5), BeVocal.com, Tellme.com.

5. Advantages of Electronic Commerce

Firms are interested in electronic commerce because, quite simply, it can help increase profits.
All the advantages of electronic commerce for businesses can be summarized in one statement:
electronic commerce can increase sales and decrease costs.

 Advertising done well on the Web can get even a small firm’s promotional message out
to potential customers in every country in the world.
 A firm can use electronic commerce to reach small groups of customers that are
geographically scattered. The Web is particularly useful in creating virtual communities
that become ideal target markets for specific types of products or services.
 A virtual community is a gathering of people who share a common interest, but instead
of this gathering occurring in the physical world, it takes place on the Internet. In recent
years, virtual communities have taken advantage of Web 2.0 technologies to make their
activities more accessible and interesting to community members. Just as electronic
commerce increases sales opportunities for the seller, it increases purchasing
opportunities for the buyer.
 Businesses can use electronic commerce to identify new suppliers and business partners.
Negotiating price and delivery terms is easier in electronic commerce because the
Internet can help companies efficiently obtain competitive bid information.
 Electronic commerce increases the speed and accuracy with which businesses can
exchange information, which reduces costs on both sides of transactions. Many
companies are reducing their costs of handling sales inquiries, providing price quotes,
and determining product availability by using electronic commerce in their sales support
and order-taking processes.

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Appendix I
Some Companies Using e-Commerce [1]
Amazon.com provides access to books music CDs, electronics, software, toys, video games,
prescription drugs, and much more electronically. www.amazon.com

American Express successfully uses e-commerce for credit card transactions. www.
americanexpress .com
Apple Computer sells computers online. www.apple.com
Auto-by-Tel sells cars over the Web. www.autobytel.com

Cisco Systems sells data communications components over the Web. www. cisco .com
Dell Computer and Gateway sell computers through their web sites and allow customers to
configure their systems on the Web and then purchase them. www. dell .com
,www.Gateway.com

Drugstore.com and CVS.com refill and sell new drugs and vitamins and other health and
beauty products online. www. drugstore . com , www.cvs.com
Epicurious sells exotic foods over the Web. www. epicurious .com
Peapod sells groceries over the Web. www. peapod .com

Proctor & Gamble and IBM conduct order placements electronically. www.pg.com , www.
ibm .com

Appendix II
Industry Connection: Amazon.Com Corporation [1]
Amazon.com is one of the leaders in B2C e-commerce. Amazon.com opened its virtual stores
in July 1995 with a mission to use the Internet to transform book buying into the fastest and
easiest shopping experience possible. Amazon.com offers numerous products and services
including books, CDs, videos, DVDs. toys, games, electronics, free electronic greeting cards,
online auctions, and much more. In addition to an extensive catalog of products, Amazon.com
offers a wide variety of other shopping services and partnership opportunities.
Amazon.com's business model is based on the merchant model . By creating customer accounts,
using shopping carts, and using the 1-click technology, Amazon.com makes the shopping
experience fast and convenient. E-mail is used for order confirmation and customer notification
when new products that suit a particular customer become available. Allowing customers to
post their own book reviews, creates an open forum between the storefront and its customers.
Using Amazon.com a prospective shopper can do the following:

 Search for books, music, and many other products and services

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 Browse virtual aisles in hundreds of product categories from audio books, jazz, and
video documentaries to coins and stamps available for auction.
 Get instant personalized recommendations based on the shopper's prior purchases as
soon as the shopper logs on.
 Sign up for the Amazon.com e-mail subscription service to receive the latest reviews
of new titles in categories that interest the customer.
 Amazon.com offers a safe and secure shopping experience by guaranteeing its shopping
and auction services. It also offers 24-hour-a-day, 7-days-a-week help desk services to
assist shoppers who experience difficulties.

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