E-commerce 2020-2021
Business. Technology. Society
16th edition
K.C. Laudon and C.G. Traver
Chapter 1- Introduction to E-commerce
1.1- Why you should study e-commerce
It is important to study e-commerce to be able to perceive and understand the opportunities and
risks that lie ahead due to the rapid changes in e-commerce. The next five years hold exciting
opportunities—as well as risks—for new and traditional businesses to exploit digital technology for
market advantage.
1.2- Introduction to e-commerce
E-commerce involves the use of the Internet, the World Wide Web (Web), and mobile apps and
browsers running on mobile devices to transact business. More formally, digitally enabled
commercial transactions between and among organizations and individuals. The Internet is a
worldwide network of computer networks built on common standards. To measure the growth of
the Internet -> looking at the number of Internet hosts with domain names. The Web is an
information system running on Internet infrastructure that provides access to billions of web pages.
The pages are in HTML language. It added colour, voice and video to the internet than only text
which was the Internet first consisting of.
E-business = the digital enabling of transactions and processes within a firm, involving information
systems under the control of the firm. E-business does not include commercial transactions involving
an exchange of value across organizational boundaries (inventory management e.g.)
E-commerce and e-business systems blur together at the business firm boundary, at the point where
internal business systems link up with suppliers or customers.
The mobile platform has become a significant part of Internet infrastructure. It provides the ability to
access the Internet from a variety of mobile devices such as smartphones, tablets, and other ultra-
lightweight laptop computers. We only see the surface/visible web, but the deep web is much larger.
It contains subscription content, databases (medial e.g.) and encrypted content.
The technology juggernauts behind e-commerce are the Internet, the Web, and increasingly, the
mobile platforms.
Trends in e-commerce:
Business: all forms of e-commerce continue to show very strong growth-> retail e-commerce e.g.
Technology: cloud computing, IoT, the mobile platform based led to a growth in mobile advertising
and making e-commerce a reality.
Societal: User Generated Content, privacy issues.
1.3- Unique features of e-commerce technology
Before e-commerce, there was information asymmetry: any disparity in relevant market information
among parties in a transaction. Dynamic pricing did not exist, it was expensive to change national
prices, what are called menu costs. E-commerce technologies have 8 unique features:
Ubiquity: e-commerce is available just about everywhere, always. Result: a marketspace:
marketplace extended beyond traditional boundaries and removed from a temporal and geographic
location. Ubiquity lowers transaction costs for consumers and cognitive energy on a broader level.
Global reach: reach = the total number of users or customers an e-commerce business can obtain.
,Universal standards: standards that are shared by all nations around the world. They lower market
entry costs and search costs. Also: network externalities: benefits that arise because everyone uses
the same technology. There is a common, inexpensive, global technology foundation businesses use.
Richness: the complexity and content of a message. Prior to the development of the Web, there was
a trade-off between richness and reach: the larger the audience reached, the less rich the message.
E-commerce can offer more information richness because they are interactive and can adjust the
message to individual users. Video, audio, text marketing messages are integrated into marketing
messages and consuming experience
Interactivity: technology that allows for two-way communication between merchant and consumer.
Interactivity allows an online merchant to engage a consumer in ways similar to a face-to-face
experience. Consumer is co-participant in process of delivering goods to the market.
Information density: the total amount and quality of information available to all market participants.
E-commerce technologies increase the accuracy and timeliness of info, decrease info storage and
processing costs. Lower information asymmetry, more price transparency and cost transparency (the
ability of consumers to discover the actual costs merchants pay for products). Merchants can use
price discrimination as they can discover much more about consumer.
Personalization (the targeting of marketing messages to specific individuals by adjusting the message
to a person’s name, interests, and past purchases and customization (changing the delivered product
or service based on a user’s preferences or prior behaviour).
Social technology: user generated content which means users are able to create new social networks
and strengthen existing ones.
1.4- Types of e-commerce
Business-to-consumer (B2C) e-commerce:: online businesses selling to individual consumers->
Amazon
Business-to-business (B2B) e-commerce: online businesses selling to other businesses. There are two
primary business models used within the B2B arena: Net marketplaces, which include e-distributors,
e-procurement companies, exchanges, and industry consortia, and private industrial networks.
Consumer-to- Consumer (C2C): e-commerce consumers selling to other consumers-> Etsy
Mobile e-commerce (m-commerce): the use of mobile devices to enable online transactions. A
variation of m-commerce aka conversational commerce involves the use of chatbots on mobile
messaging apps such as Facebook Messenger.
Social e-commerce: e-commerce enabled by social networks and online social relationships. Driven
by increased popularity of social sign-on (signing in onto website with FB ID).
Local e-commerce: e-commerce that is focused on engaging the consumer based on his or her
current geographic location -> Groupon
1.5- E-commerce: a brief history
Periods in the evolution of e-commerce:
1. Invention (1995-2000): was a technological success: technology driven, revenue growth emphasis,
venture capital financing, first mover advantages, disintermediation (=displacement of market
middlemen who traditionally are intermediaries between producers and consumers by a new direct
relationship between producers and consumers), friction-free commerce (=vision of commerce in
which info is equally distributed, dynamic pricing to reflect actual demand, unfair competitive
advantage decline, low transaction costs, intermediaries decline -> this is not yet fully realized),
network effects.
2. Consolidation (2001-2006): business driven, earnings and profits emphasis, traditional financing,
strategic-follower strength. E-commerce now included also more complex services (travel services).
3. Reinvention (2007-present): mobile technology enables social, local, mobile e-commerce,
audience, and social network connections emphasis, return of venture capital financing, extension of
,bricks-and-clicks, first mover advantages. E-commerce transformed by growth of Web 2.0 (=set of
applications and technologies that enable user-generated content).
1.6- Understanding e-commerce: organizing themes
1. Technology-infrastructure: basic technologies upon which e-commerce is built, it includes the
Internet, the Web, and mobile platform, and complementary technologies—cloud computing,
desktop computers, local area networks, client/server computing, packet-switched communications,
protocols such as TCP/IP, web servers, HTML.
2.Business-basic concepts: business applications create the potential for extraordinary ROI
3. Society-taming the juggernaut: global e-commerce places pressure on the society-> privacy
1.7- Academic disciplines concerned with e-commerce
There are two approaches to e-commerce:
1. Technical: this includes computer science, operations management, and information systems
computer scientists see e-commerce as an application of Internet technology, they are interested in
encryption, software, database design. Operations management scientists are interested in building
models of business processes and optimizing these. The information systems discipline spans the
technical and behavioural approaches.
2. Behavioural: it includes information systems as well as sociology, economics, finance and
accounting, management, and marketing. e-commerce is interesting because of its implications for
firm and industry value chains, industry structure, corporate strategy, and online consumer behavior.
Chapter 2- E-commerce Infrastructure
2.1- The Internet: technology background
The Internet is an interconnected network of thousands of networks and millions of computers (host
computers, or hosts), linking businesses, educational institutions, government agencies, and
individuals. The Web is one of the Internet’s most popular services, providing access to billions,
perhaps trillions, of web pages, which are documents created in a programming language called
HTML that can contain text, graphics, audio, video, and other objects, as well as “hyperlinks” that
permit users to jump easily from one page to another.
The mobile platform has become the primary means for accessing the Internet. Together, the
Internet and the Web make e-commerce possible by allowing computer users to access product and
service information and to complete purchases online
Trends in e-commerce infrastructure :
Business: Mobile devices become the primary access point to the Internet
Technology: cloud computing, IoT, the decreased cost of storage and advances in database software
led to explosion in online data collection known as big data.
Society: expanded government control over the internet
Stages in the development of the Internet:
1. Innovation -> the fundamental building blocks of the Internet—packet-switching hardware, a
communications protocol called TCP/IP, and client/server computing were developed.
2. Institutionalization -> ideas were brought to life. large institutions provided funding and
legitimization for the Internet. he concept of an Internet-supported service called the World Wide
Web based on HTML pages is born. Beginning of e-commerce.
3. Commercialization -> once the ideas and technologies had been proven; private companies
brought the Internet to millions of people worldwide. The fully commercial civilian Internet is born.
, There are 3 concepts that are the basic of Internet:
1. Packet switching is a method of slicing digital messages into discrete units called packets, sending
the packets along different communication paths as they become available, and then reassembling
the packets once they arrive at their destination. A router is a special-purpose computer that
interconnects the different computer networks that make up the Internet and routes packets along
to their ultimate destination as they travel. To ensure that packets take the best available path
toward their destination, routers use a computer program called a routing algorithm. It makes use of
any capacity available on any of the circuits.
2. The TCP/IP communications protocol. While packet switching was an enormous advance in
communications capacity, there was no universally agreed-upon method for breaking up digital
messages into packets, routing them to the proper address, and then reassembling them into a
coherent message. The answer was to develop a protocol (a set of rules and standards for data
transfer) to govern the formatting, ordering, compressing, and error-checking of messages, as well as
specify the speed of transmission and means by which devices on the network will indicate they have
stopped sending and/or receiving message. Transmission Control Protocol/Internet Protocol (TCP/IP)
has become the core communications protocol for the Internet. TCP establishes the connections
among sending and receiving computers and makes sure that packets sent by one computer are
received in the same sequence by the other, without any packets missing. IP provides the Internet’s
addressing scheme and is responsible for the actual delivery of the packet. TCP/IP is divided into 4
layers: 1) Network Interface Layer responsible for placing packets on and receiving them from the
network medium. 2) Internet Layer responsible for addressing, packaging, and routing messages on
the Internet. 3) Transport Layer responsible for providing communication with other protocols within
TCP/IP suite. 4) Application Layer includes protocols used to provide user services or exchange data.
Border Gateway Protocol (BGP) enables exchange of routing information among systems on the
Internet.
Every computer connected to the Internet must be assigned an address—otherwise it cannot send or
receive TCP packets. There are 2 IP versions: Ipv4 (Internet address expressed as a 32-bit number)
and IPv6 (Internet address expressed as a 128-bit number). An IP address expressed in a natural
language is a domain name. Domain Name System (DNS) system for expressing numeric IP addresses
in natural language. Uniform Resource Locator (URL) the address used by a web browser to identify
the location of content on the Web
3. Client/Server computing. It is a model of computing in which client computers are connected in a
network together with one or more servers. It brought out today’s Internet and Web. Internet is a
giant example of client/serving computing.
The main structural elements of the Internet are the backbone (composed primarily of high-
bandwidth fiber optic cable), IXPs (hubs that use high-speed switching computers to connect to the
backbone), CANs (campus/ corporate area networks), ISPs (which deal with Internet access of service
to homes and offices), and the mobile platform, which provides Internet access via cellular telephone
networks and Wi-Fi networks.
The internet cloud computing model: Cloud computing is a model of computing in which computer
processing, storage, software, and other services are provided as a shared pool of virtualized
resources over the Internet. These “clouds” of computing resources can be accessed on an as-
needed basis from any connected device and location. Features: on-demand self service, ubiquitous
network access, location-independent resource pooling, rapid elasticity, measured service.
It consists of 3 basic types of services:
1. Infrastructure as a service (IaaS): Customers use processing, storage, networking, and other
computing resources from third-party providers called cloud service providers (CSPs) to run their
information systems.
