ITM 100 Exam Notes
Chapter 5 E-Commerce
Advances in technology, product variety, and consumer demand have brought an
accompanying change in retailing strategy. The arrival of the telegraph enabled orders
to be placed rapidly and shipped by mail. Rail and airline transportation brought new
and rapid possibilities for order fulfillment.
It seems inevitable that the invention of the internet would create another revolution in
commerce, specifically the arrival of e-commerce as a way of doing business around the
world in an instant without the need for a physical business presence. The internet
brought along the forces of build to order as a way for manufactures, such as Dell and
others, to directly solicit orders from consumers and deliver products directly, rather
than relying on a global network of wholesalers and distributors/dealers as a way of
bringing products to market.
Some have tried to distinguish between e-commerce (transactions that involve buying
and selling goods and services through the internet) with e-business (the broader use
of internet technologies to reduce operating costs, such as extending the electronic
supply chain to partners and suppliers).
1880s (Mail order, catalogue retailing), 1920s (Chain/Dealer Stores), Discounters,
Warehouse Clubs, 1980s (Category Killers), Internet Retailers
There is still much unexplored potential in these technologies that relate to everything
we do as a society, so artificial distinctions will not serve any particular purpose. We
group these technologies together and simply call it e-commerce.
Beyond the Basic Definition
Formal definition of E-Commerce: E-commerce is the use of information systems,
technologies, and computer networks by individuals and organizations to carry out
transactions in order to create or support the creation of business value.
This includes all types of computer networks, all types of transactions, and all types
of business relationships and models.
www.notesolution.com Transactions: Business-to-Consumer(B2C) Online equivalent of the retail store
as well as other services Chapters.com; Business-to-Business(B2B) Electronic
exchanges between companies Worldwide Retail Exchange; Business-to-
Government(B2G) Online sales to government agencies as well as electronic
payments of taxes Government of Ontario; Consumer-to-Government(C2G)
Electronic payment of taxes as well as purchase of various types of licenses Taxes
to federal government; Consumer-to-Consumer(C2C) Use of online auctions like
eBay and similar other sites Kijiji, Amazon
E-Commerce and Products: Physical and Digital
Physical products include anything that requires an actual shipment of the item
from a central distribution point to the buyer (whether an end-consumer, wholesaler,
or to another company). This also requires an offline supply chain to handle the
sales, order processing, and delivery of these goods, even if they are discovered and
On the other hand, consumers can receive digital products directly over the
internet or other computer networks (such as downloading an album on iTunes
versus going to HMV to buy it). This usually requires the use of a completely IT-
enabled supply chain. These differences should be very easy for you understand,
given most of you have probably purchased both types of products before.
The main differences between physical and digital products is in the delivery
process, even though a computer network can transmit information about the order,
it obviously cannot ship the actual physical goods.
E-Commerce Business Models
An e-commerce business model combines specific types of website with a successful
revenue model that produces profits for the website owner.
The question of Internet business models is one of the most important strategic
questions for most Internet related businesses, and is tied to the type of site that
you plan to operate. This is also an issue you need to address if you are involved in
planning for a not-for-profit or government service, and you seek to be profitable or
cover your costs as a result of operating online.
Top ways in which most companies currently make money on the Web:
www.notesolution.com 1. Displaying advertising and being paid for click-through from the online
community to those advertising products or services (the traffic monetizing or
2. Selling goods and services online (typically a transactional, wholesale, or
retail merchant model)
3. Earning royalties, access fees, or revenue sharing from selling access to their
platform to third party developers (known as the API or applet model)
4. Selling aggregate data about online user behaviour or selling controlled
access to users with their permission through targeted offers; sometimes
called infomediaries (the information or data aggregation model)
5. Getting users to subscribe to your service, usually on a monthly or annual
basis (the subscription model)
6. Selling upgrades to a premium subscription service by first offering a free
service with more limited capacity (the freemium model)
7. Imposing a very slight fee for specific transactions that add value beyond
some kind of initial free access, which are added up billed or deducted from a
user account (the micro-payments model)
8. Charging a portion of any transaction that you facilitate for others either as a
brokerage or as a re-seller, if you are a traditional middle man (the revenue
share or royalty model)
9. Using an auction or co-operative model that is a derivative of a transactional
or retail site, but with pricing controlled by the marketplace and the
variations in supply and demand (the auction or co-operative model)
10. Selling your company to a strategic buyer! (the build to sell model)
Most online companies choose to focus on only one or two of the models to maximize
their focus and their profits. In fact, some of these business models are mutually
exclusive and could not even co-exist.
Websites Classified by Purpose:
Portal - Provides a gateway to many other websites - Yahoo, Msn - advertising, affiliate;
Search Engine Find websites that contain a word or phrase Google, Yahoo, MSN
advertising, affiliate, infomediary; Browse or Search and Buy Sells goods and
services Dell, Chapters, iTunes Merchant, Co-operative; Sales Support Provides
www.notesolution.com information on a product before or after the sale Microsoft, Dell, McAfee
Community, infomediary; Information Service Provides news, information, and
commentary National Post, Economist subscription, community, affiliate; Auction
facilitates sales between third parties eBay, Priceline, PayPal Brokerage; Travel
sells travel tickets and tours Expedia, Travelocity, Orbitz merchant, brokerage, co-
operative; Special Interest or Services Provides information, product sales and
support, and contacts between visitors Microsoft support groups, Lava life
community, merchant, advertising.
The E-Commerce Advantage
The use of computer networks, especially the Internet, to carry out transactions
between buyers and sellers is creating a significant e-commerce advantage in the
worldwide economy. This advantage is often referred to as frictionless
transactions the ability of the consumer to move from thought to action (buying
to instantly fulfilling the product) creates new opportunities for business to operate
at lower costs by easing the burden of the supply chain electronically.
Frictionless Transactions Example: Craigslist; in a nanosecond, anyone connected
to the Web can post an ad, depending on the site, without cost. Consumers in turn
can immediately access an ad from any place in the world and transact business
no more relying on the local neighbors or drive by types looking for a bargain. This
is a great example of the impact of frictionless transactions and the reason why so
many newspapers are suffering drops in profit as a result of consumers abandoning
an antiquated model for a new, more robust online equivalent.
Impact of E-commerce technologies on business: Universal standards, global reach,
higher information density, customization, ubiquity and accessibility
While still a minority of the worlds total population, Internet users are a fast
growing group with significant buying power. That power is often concentrated,
because those with Internet access often represent a more economically advantaged
economic class overall.
When combined with open source software applications and development tools,
universal standards increase accessibility to the marketplace while also lowering
entry costs and encouraging innovation. The innovative uses of the internet in
business have produced truly global competition.