A) Some business processes might not be suitable for electronic commerce. For example, perishable foods and high-cost, unique items such as custom-designed jewelry can be very difficult to inspect from a remote location. The issues that currently act as barriers to electronic commerce include:
- The Need for Critical Mass
- Predictability of Costs and Revenues
- Technology Integration Issues
- Cultural and Legal Concerns
Discussion Questions:
1. Discuss some examples of products or services that require a critical mass of potential buyers be equipped and willing to buy through the Internet.
2. Describe the challenge for businesses surrounding return-on-investment calculations and employee recruitment and retention.
3. Discuss the difficulty of integrating existing databases and transaction-processing software designed for traditional commerce into the software that enables electronic commerce.
4. Discuss some aspects of cultural and legal obstacles to conducting all types of electronic commerce
B)A business model is a set of processes that combine to achieve a company’s goal, which is to yield a profit, while a revenue model is the combination of strategies and techniques that a company uses to generate cash flow into the business from customers. Although much of the course material is devoted to explaining technologies, the focus of the course indeed is on the business of electronic commerce; the technologies only enable the business processes – the group of logical, related, and sequential activities and transactions in which businesses engage.
Figure 1-5 illustrates examples of business processes categorized by suitability for electronic commerce and traditional commerce.
You can learn more about business models by reading the following article:http://timkastelle.org/blog/2012/01/eight-models-of-business-models-why-theyre-important
Discussion Questions
1. Explain why a product that has a strong brand reputation is easier to sell on the Web than an unbranded item.
2. In Figure 1-5, sale/purchase of residential real estate is listed as a type of business that is well suited to a combination of electronic and traditional commerce. Discuss the elements of this service that would be best handled using traditional commerce, and explain why.
3. Why can traditional commerce, rather than electronic commerce, be a better way to sell items that rely on personal selling skills?
C) Transaction costs are the total of all costs that a buyer and seller incur as they gather information and negotiate a purchase-and-sale transaction. A significant component of transaction costs can be the investment a seller makes in equipment or in the hiring of skilled employees to supply the product or service to the buyer. Figure 1-6 illustrates a market form of economic organization for a sweater dealer.
The practice of an existing firm replacing one or more of its supplier markets with its own hierarchical structure for creating the supplied product is called vertical integration. Figure 1-7 illustrates a hierarchal form of economic organization for a sweater dealer. A strategic business unit (SBU) is one particular combination of product, distribution channel, and customer type.
Businesses and individuals can use electronic commerce to reduce transaction costs by improving the flow of information and increasing the coordination of actions.
Strategic partners are entities that come together as a team for a specific project or activity. Network organizations are particularly well suited to technology industries that are information intensive. Figure 1-8 reveals a network organization. As more people or organizations participate in a network, the value of the network to each participant increases. This increase in value is called a network effect. Electronic commerce can make networks, which rely extensively on information sharing, much easier to construct and maintain. It is likely that these network forms of organizing commerce will become predominant in the near future.
Discussion Questions
1. Discuss how electronic commerce can make networks much easier to construct and maintain.
2. Explain why a hierarchical organization always has a pyramid-shaped structure.
3. Why is most business activity conducted today in hierarchical organizations rather than in markets?
4. Discuss the importance of transaction costs.
5. How are businesses harnessing the power of network effects during the COVID-19 pandemic?
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