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E-business is changing fast, along with the thinking behind it, and as yet there is no agreement on what should be taught on an e-business course and how. This revised and updated edition of a successful MBA-level text takes a strategic management perspective of e-business, although it also touches on related areas such as Internet marketing and IS. Stephen Chen focuses on the strategic implications of e-business and examines the strategies employed in a range of industries, providing a comprehensive review of current research and practice.
We are on the verge of a revolution that is just as profound as the change in the economy that came with the industrial revolution. Soon electronic networks will allow people to transcend the barriers of time and distance and take advantage of global markets and business opportunities not even imaginable today, opening up a new world of economic possibility and progress. US Vice President Albert Gore, Jr, 1997
The beginning of the second millennium will almost certainly be remembered by business historians as a time of unprecedented change in the business world. In the space of a few years entire industries have been radically transformed, hundreds of thousands of new businesses have been spawned and fortunes made and lost by entrepreneurs and investors, all as a result of digital technologies. New technologies, such as the Internet, digital television, mobile telephones and intelligent home appliances, have all reached critical mass at the same time and are poised to revolutionize businesses in a way not seen since the Industrial Revolution. Many people have already named this the E-Business (electronic business) Revolution, an idea that has caught the imagination of many businesses, governments and individuals around the world.
This chapter provides a brief background to the Electronic Business Revolution,outlining some of the political initiatives around the world that have led to the global interest in electronic commerce. (Some of the technological developments will be described in Chapter 2.) It also assesses the economic and business impact of e-business and introduces some of the themes that will be explored in more detail in later chapters, such as electronic marketing methods and impacts on particular industries.
Defining and classifying e-businesses
To begin, it is useful to describe what is meant by electronic business or electronic commerce. There are various definitions of an electronic business or "e-business". Some define it as:
the conduct of business on the Internet, not only buying and selling but also servicing customers and collaborating with business partners. whatis.com
Others include businesses using any electronic network to conduct buying and selling as well as other activities.
E-businesses can be classified into four main types according to the type of buyer and seller in the transaction (Figure 1.1):
Business-to-consumer (B2C). These have been the most highly publicized of e-businesses and are online stores or shopping sites. Examples include online retailers, such as Amazon, and direct sales companies, such as Dell.
Business-to-business (B2B). Examples include Cisco and Intel, both of which offer online procurement and customer support.
Consumer-to-consumer (C2C). This has been one of the fastest growing sectors and one where the Internet provides significant advantages over conventional channels. Examples include classified advertisement sites, such as Loot, which allow individuals to post notices of items for sale, as well as auction sites, such as e-Bay, which allow individuals to put items up for auction.
Consumer-to-business (C2B). This category includes individuals offering their services to businesses (e.g., accountants and lawyers) and sites that allow individuals to offer items for sale to businesses.
An alternative classification (Figure 1.2) is according to the type of product, process and delivery agent (Choi et al., 1997).
A product can be physical or digital, an agent can be physical or digital and the process can be physical or digital; this creates eight possible types of business, ranging from businesses that are purely physical (physical product, physical agent and physical process) to purely digital (digital product, digital agent and digital process). An example of the former is the traditional high street store while an example of the latter might be the music software site Real Jukebox, where the product, agent, delivery and payment are all digital. In this categorization, Amazon.com would not be a pure e-business since its products and part of its processes are still physical in nature.
There are many definitions of electronic commerce. Some people include all financial and commercial transactions that take place electronically, including electronic data interchange (EDI), electronic funds transfer (EFT) and all credit/debit card activity. Others limit electronic commerce to retail sales to consumers for which the transaction and payment take place on open networks, like the Internet. Others distinguish between electronic commerce (e-commerce) and electronic business (e-business), limiting the former to buying and selling activities, not including other business activities, such as servicing customers, collaborating with partners and communicating within the organization, which are encompassed by the latter.
Scope of book
At its most basic, electronic commerce involves the electronic exchange of information or "digital content" between two or more parties, which results in a monetary exchange (Figure 1.3).
The basic components required to operate such a system are for the seller:
Digitization of content (conversion of content into digital format).
Storage of digitized content.
Link to electronic network.
Link to electronic payment system.
Link to physical manufacturing and delivery systems (where there is an exchange of physical goods).
For the buyer:
Link to electronic network.
Search and locate content on network.
Retrieve information from network.
Link to electronic payment system.
Although such a system seems relatively simple in principle, in order to allow "any information anywhere" several disparate technologies are required to work together. Examples of various technologies and devices to perform each of the above steps are:
Content production - word processors, video cameras and editing software, music synthesizers.
Digitization - digital cameras, scanners, dictation software, "ripper" software for music.
Storage - a variety of storage is now available for digitized material, including hard disk drives, floppy diskettes, CD-ROMs and tapes.
Network communications - dedicated lines, telephone, cable, mobile phone, electricity cables.
Network connections - PC and modem, television and set-top box.
Information search and retrieval mechanisms - search engines and directories.
Display devices - PC, TV, mobile phone.
EDI and EFT
Although it discusses traditional e-commerce systems, such as EDI and EFT, this book focuses specifically on business that is conducted over networks that use non-proprietary protocols, such as the Internet. This includes internal networks (e.g., intranets) and networks that extend to a limited number of participants (e.g., extranets). It also includes communications and broadcasting networks, such as telephone, satellite and cable networks.
The focus on networks that use non-proprietary protocols, which are a relatively new phenomenon, is important for a number of reasons. First, earlier forms of e-commerce required expensive and complex custom software, dedicated communication links and, in many cases, strictly compatible equipment. Consequently, usage of early e-commerce systems, such as EDI and EFT, was mainly limited to large businesses and their first-tier suppliers. In contrast, one of the main drivers of growth of Internet systems is that they can exploit the existing information and communication infrastructure, allowing businesses of all sizes and even individuals to utilize a vast global network with minimal investment; this has led to a massive explosion in the adoption of electronic commerce. In 1999, traffic on the Internet was estimated to be doubling every hundred days. To put this in perspective, the Internet took 4 years to reach 50 million users compared with 16 years for PCs, 13 years for TV and 38 years for radio (Figure 1.4).
Some of the technological developments that have contributed to the present explosion in electronic commerce will be dealt with in more detail in Chapter 2. However, apart from the lower cost and ease of use of the technology, one of the significant characteristics of the new technology is that the open standards, accompanied by widespread deregulation of the industries, allow telephone systems, computer systems and cable TV systems to be easily interconnected. The phrase "digital convergence" has been widely used to describe the resulting convergence in technologies and industries. The industries most immediately affected were the communications, electronics, computing and information/entertainment sectors (Figure 1.5), although this is now spreading to other sectors, such as manufacturing and retail.
However, as Kampas (2000) shows (Figure 1.6), convergence is also occurring at the infrastructure, appliance and application levels across a range of industries, and the list is ever-increasing. Most, if not all, industries can now be included in the list of industries that are connected in the Internet.
This new information infrastructure provides several advantages for users and extends its usage and coverage well beyond the scope of previous e-commerce systems, such as EDI and EFT. Some of the reasons include the following:
The cost of accessing the Internet is very low compared with networks that adhere to proprietary systems; this has reduced users' fears that the technology may quickly become obsolete and has encouraged many users to adopt it.
The widespread adoption of these standards has in turn encouraged firms to invest in developing products that are compatible with these standards and to extend their use to a wide range of data, including voice, audio and video.
The new technologies, which enable one-to-many and many-to-many communication, present a significant advantage over other e-commerce technologies, such as EDI, TV and telephone; this will have a significant impact on industries that currently rely on these technologies and will create many new business opportunities.
Apart from the technological drivers, another factor driving the phenomenal growth of electronic commerce is that, unlike previous attempts at electronic commerce, the current standards have national and international backing at government level. Although the technological possibility to create a global digital information network had been mooted for many years, the first practical plan to create such a network was first suggested in the draft of the High Performance Computing Act (HPCA) of 1991 by Al Gore, then a US senator. However, this was initially just a plan to link together supercomputing research centres in the USA in a high-speed "information superhighway" and support other work in high-performance computing. When the Democrats later won the Presidential election in the USA, the notion of building an information superhighway to stimulate the US economy became a key component of the Administration's economic reconstruction policy, and the information superhighway has become politically and economically significant.
At the start of 1993 the CEOs of 13 major US computer companies lobbied for legislation that would extend the government's existing high-performance computing and communications programme beyond the realm of government and university laboratories into offices and homes across the USA; this was followed in April 1993 by a proposal from Congressman Boucher to amend the 1991 HPCA to join all schools, libraries and local government offices to the Internet. Later in September 1993, US Vice President Al Gore and Secretary of Commerce Ron Brown announced the National Information Infrastructure (NII) initiative, a public-private partnership to construct "a seamless web of communications networks, computers, databases, and consumer electronics" (Information Infrastructure Task Force, 1993). This infrastructure would "make it easy and affordable to connect people with each other, with computers, and with a vast array of services and information resources" (from Information Infrastructure Executive Order, 1993). Other countries soon launched similar initiatives (e.g., members of the EU, Malaysia, Singapore, China, Japan and Korea).
It was always recognized that, to take full advantage of the technology, the NII had to form part of a global information infrastructure (GII) and similar initiatives have followed in other countries. For example, the UK Department of Trade and Industry launched an Information Society Initiative in 1996. This was followed in 1997 by the European Initiative in Electronic Commerce, which aimed to:
Promote the technology and infrastructure needed to ensure the competitiveness of the European electronic commerce industry, and put in place structures that will provide efficient access systems for existing and potential users.
Capitalize on the Single Market by ensuring a coherent regulatory framework for electronic commerce in Europe and in wider global markets.
Foster a favourable business environment for electronic commerce by promoting adequate skills and by making consumers and industry aware of the opportunities offered by electronic commerce.
Work toward global consensus from a common European position to ensure effective participation in current international co-operation and negotiation.
In Malaysia a significant programme to harness the new technology for economic growth was initiated in 1998; this proposed a three-phase plan to become a fully developed, mature and knowledge-rich society by the year 2020:
Phase I - in this phase, which has already begun, Malaysia has created a Multimedia Super Corridor, a corridor 15 km wide and 50 km long, that starts from the Kuala Lumpur City Centre (KLCC) and extends south to the Kuala Lumpur International Airport, housing high-technology companies, R&D centres, a university and two "intelligent cities", Cyberjaya and Putrajaya.
Phase II - in this phase, the Multimedia Super Corridor will be linked to other cybercities in Malaysia and the world. The government will also set global standards in flagship applications, champion cyberlaws within the global society and establish a number of intelligent globally linked cities.
Phase III - the aim is that, by this final phase, Malaysia will be transformed into a knowledge-based society.
Excerpted from Strategic Management of e-Business by Stephen Chen Excerpted by permission.
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Preface to the second edition.
Preface to the first edition.
About the Author.
Chapter 1. Introduction to E-Business.
Chapter 2. The Basics of E-Business Technology.
Chapter 3. The Markets for Electronic Commerce.
Chapter 4. E-Marketing.
Chapter 5. The Economics of E-Business.
Chapter 6. Analysing the Industry Impacts of E-business.
Chapter 7. Developing an E-Business Strategy.
Chapter 8. Implementing an E-Business Strategy.
Chapter 9. Public Policy Issues.
Chapter 10. Future Trends.