MD253 / MK253 Electronic Commerce

April 19, 2006 Telecom How the Internet Works Telecommunication Markets

Issues Covered
How the Internet Works
IP addresses, TCP/IP, packet switching, and why you should care

Telecom markets
RBOCs, Cable, CLECs, VoIP, and more Crushing monopolies, shifting billions in wealth

The Transmission Speed Crib Sheet

Bandwidth
measure of transmission speed / capacity

Bits & Bytes

bit - smallest form of computer memory - 1 or 0 byte - 8 bits, roughly 1 character (Latin alphabet)

How do we measure speeds?

bps - bits per second Kbps - kilobit, thousands of bits per second Mbps - megabit, millions of bits per second Gbps - gigabit, billions of bits per second Tbps terabit, trillions of bits per second (a.k.a wicked fast)

Anatomy of a URL
URL
Uniform Resource Locator (web address)
http://www2.bc.edu/~gallaugh/directory/file.html

application protocol (http is assumed by current browsers). Others: FTP, NNTP

host (others @ BC: agora, www)

domain user ID name, top level domain

directory

file

case sensitive

The DNS & IP Addresses

IP Address
Unique number identifying Internet computers. Expressed as four numbers between 0 and 255. ex: www.bc.edu = 136.167.2.96 (32 bit address) IPv6: 128 bit addressing, more efficient/faster, secure

DNS - Domain Name Service

A distributed database used to translate host/domain names, into Internet Protocol (IP) Addresses.

Registry of an Internet domain name:

for com, net, org, over 60 firms (see icann.org for list) for country-specific domains (.jp,.uk, .tv) fees vary widely (see icann.org for list)

Network Interconnections
dial-in web server www2.bc.edu users (56.6 Kbps) dorm users class/office users

modem pool

dorm LAN

office LAN

wireless

BC Campus Network Backbone (1 Gbps)

(IP #s 136.167.xxx.xxx domain)

Internet Leased Line through our ISPs (100 Mbps)

stanford.edu

The Internet
google.com whitehouse.gov
local ISP

TCP/IP
TCP/IP - the Internets common language TCP - Transmission Control Protocol. Breaks up transmissions (e-mail messages, web pages, etc.) into packets of no more than about 1500 characters each, checks the integrity of incoming packets, and reassembles packets on the other end IP - Internet Protocol. Routes packets.

Packet Traffic
Whats in a packet?
source address destination address error checking (checksum) time to live options (timestamp, record route, etc.) your data!

A Packet Switched Network at Work

packet1 E-mail message:
Prof. Gallaugher, I just wanted to let you know that I got a job based on the stuff I learned in your class...

R
packet1 packet2 R packet3 packet2 E-mail message:
Prof. Gallaugher, I just wanted to let you know ...

R packet1
packet3

R
packet2

R
packet2 packet3

= router

packet3

US Internet Infrastructure

Portions of the Abilene Intenet2 Backbone

Circuit vs. IP Telephony

Circuit Switching

Guaranteed QoS (quality of service)

Internet VoIP (e.g. Vonage, AT&T CallVantage, Skype)

packets over the Internet, variable QoS

The Internet

Private Network VoIP (e.g. corporate VoIP) packets over private network, improved QoS

Private IP Network

Words from the Powerful

VoIP is the most significant paradigm shift in the entire history of modern communications since the invention of the telephone. Employees ask me what Im most excited about and I tell them Voice over the Internet. It is going to be a really big deal for us.

Former FCC Chair Michael Powell

Time Warner CEO Richard Parsons

MD253/MK252 Electronic Commerce

April 10, 2006 Web 2.0: Power through User-Created Content

Topics Covered
User-Contributed Web
Technologies Examples:
Blogs social networking sites Flickr Digg And more

Pros & Cons Wikipedia

MD253/MK252 Electronic Commerce

March 22, 2006 Strategy & the Internet

Topics Covered
E-Commerce & The Five Forces of Industry Competitiveness Operational Effectiveness & Strategic Positioning Resources for Competitive Advantage
Characteristics Examples of key resources The Value Chain

Strategy & the Internet a critical look

ICA: Industry & Competitive Analysis

(Porters Five Forces)
Potential New Entrants

Power of Suppliers

Industry Competitors

Power of Buyers

Substitute products or services

Critical Concepts in Understanding Competitive Advantage

Operational Effectiveness performing the same tasks better than your rivals. Strategic Positioning performing different tasks than your rivals, or performing the same tasks in a different way.

How Do We Know if Assets Yield Sustainable Advantage?

Rareness
Is the asset in limited supply or difficult to acquire?

Value
Does the asset yield value to the firm/customers?

Imperfectly Imitable
Is the asset impossible to imitate?

Non-Substitutable
Is the asset without comparable substitutes?

87% Decline in International DS-3 Pricing in two years

Source: BandXChange

Key Resources for Competitive Advantage

Imitation-resistant Value Chain Organization Brand Scale Economies Alliances (with complementary firms & competitors) Network Effects Data and Switching Costs Distribution Channels Differentiation product or service Patents?

Value Chain
Infrastructure: general mgmt, planning, finance, IS HRM: recruiting, hiring, training, and development Tech. Development: R&D Procurement Inbound Operations Outbound Marketing logistics logistics & Sales

Service

MD253/MK252 Electronic Commerce

April 3, 2006 Search & Advertising: Google, Yahoo, Microsoft

Topics Covered
Online Advertising Spending/Growth Google
Firm background Revenue streams Weaknesses/challenges w/model Areas for development

Competitors
Yahoo, Microosft, & others Exploitable resources

Ad Spending: Comparisons & Growth

The U.S. Ad Market

$283B
Cable TV Mags $16.7B $13.0B

Direct Mail $57.2B

Newspapers $49.6B

Broadcast TV $46.7B

Radio $21.0B

YP $14.5B

Internet $11.3B

Other $53.0B

Experiments with Offline Ads

Google Growth
Revenue ($ Millions)
$7,000 $6,139M $6,000 $5,000 $4,000 $3,189M $3,000 $2,000 $1,000 $0 2002 2003 2004 2005 $440M $0.45 $0.41 $0 $2 $1,466M $1.46 $1
Revenue EPS (diluted)

EPS (diluted)
$6 $5.02 $5 $4

$3

Google Revenue Streams

AdWords AdSense

Licensing

Google Enterprise Products

AdSense
The Power of the Tail
Coverage for advertisers beyond search targeting
AdSense network covers nearly every topic imaginable Matches highly targeted advertising with niche content

3.9 Million Daily Page Views on Hip Hop Related Sites

Broad reach for branding advertisers

Site Targeting allows advertisers to reach their target audience Aggregates the long tail

Top 10 Highest Paying Keywords

$54.33 mesothelioma lawyers $47.79 what is mesothelioma $47.72 peritoneal mesothelioma $47.25 consolidate loans $47.16 refinancing mortgage $45.55 tax attorney $41.22 mesothelioma $38.86 car accident lawyer $38.68 ameriquest mortgage $38.03 mortgage refinance
Source: San Jose Mercury News, March 2006

Despite Click Fraud, Advertisers are Spending More

Source: TNS-MI; 2005 and 2003 US online display advertising, excludes companies with online spend less than $400K in 2003

AdWords Editor for Sophisticated Advertisers

Options for SMBs

Simple Bidding

Straightforward Reporting

Intuitive Targeting

Ads In Local Search

Targeted Advertising

61

Ads In Google Earth

Targeted Advertising

70-20-10 Product Framework

10%
AdSense Offline Google Movies

Google Code

Google Video Google Talk

20%
Enterprise Book Search
Google Reader

Google Suggest

Gmail

Core 70%
Search

AdSense

Google Pack

Orkut

Google Earth Local Search

Ads

Desktop Search Mobile Search

WiFi

Google - A Global Product

= Engineering and PM offices
Mountain View, CA Kirkland, WA Phoenix, AZ Pittsburgh, PA New York, NY Santa Monica, CA Bangalore, India Beijing, China Belo Horizonte, Brazil Hyderabad, India London, U.K. Munich, Germany Tokyo, Japan Trondheim, Norway Waterloo, Canada Zurich, Switzerland

Cost/performance evolution is not just in chips

Cookies
stored in a text file on your hard drive usage track users (unique ID) save passwords / prefs. temporary storage (shopping basket) each cookie can only be accessed by the domain that placed it (ads have own domain) may be disabled (prefs) a cookie single user

Targeting
Targeting Options site categorization visitor frequency geography domain name service provider SIC codes company size (emp, $) browser type operating system click stream

Chapter 9: Electronic Commerce Software

Objectives
In this chapter, you will learn about: Finding and evaluating Web hosting services Basic functions of electronic commerce software Advanced functions of electronic commerce software Electronic commerce software for small and midsize businesses Electronic commerce software for midsize to large businesses

Electronic commerce software for large businesses that have an existing information technology infrastructure

Web Hosting Alternatives

Self-hosting
Running servers in-house

Commerce service providers (CSPs)

Provide Internet access to companies and individuals
Offer Web server management and the renting of application software

Web Hosting Alternatives

Shared hosting
Clients Web site is on a server that hosts other Web sites simultaneously

Dedicated hosting
Service provider makes a Web server available to a client

Co-location
Service provider rents a physical space to the client to install its own server hardware

Basic Functions of Electronic Commerce Software

Electronic commerce solutions should, at a minimum, provide:
A catalog display Shopping cart capabilities Transaction processing

Basic Functions of Electronic Commerce Software

Additional software components can include:
Middleware Enterprise application integration Web services Integration with enterprise resource planning (ERP) software Supply chain management (SCM) software

CRM
Content Management Software Knowledge Management Software

Catalog Display
Catalog
Listing of goods and services
Static catalog: Simple list written in HTML that appears on a Web page Dynamic catalog: Stores information about items in a database

Shopping Cart
Early shopping carts relied on forms for submitting orders. Problems with forms-based shopping:
Shoppers have to write down product information before going to the order form Customers sometimes forgot whether they had clicked the submit button Confusing and error prone

Shopping Cart (continued)

Forms-based method of ordering has given way to electronic shopping carts Shopping cart
Keeps track of items a customer has selected Allows customers to view contents of their carts, add new items, or remove items

Transaction Processing
Transaction processing occurs when a shopper proceeds to the virtual checkout counter by clicking a checkout button The server must then perform any necessary calculations
Computing taxes and shipping costs Provisions for coupons, special promotions, and time-sensitive offers

Advanced Functions of Electronic Commerce Software

Middleware
Establishes a connection between electronic commerce software and, for example, an accounting system

Enterprise Application Integration and Databases

Application program
Program that performs a specific function

Application server
Computer that takes request messages received by the Web server and runs application programs

Business logic
Rules used in the business

Enterprise Application Integration and Databases

Page-based application systems
Return pages generated by scripts

Component-based application systems

Separate presentation logic from business logic

Database manager
Software that stores information in a highly structured way

Enterprise Application Integration and Databases

Distributed information systems
Large information systems that store the same data in many different physical locations

Distributed database systems

Databases within distributed information systems

Web Services
Combination of software tools that let application software in one organization communicate with other applications over a network
Companies are using Web services to offer improved customer service and reduce costs

SOAP, WSDL, and UDDI Specifications

Simple Object Access Protocol (SOAP)
A message-passing protocol that defines how to send marked up data from one application to another across a network A protocol for exchanging XML-based messages
<soap:Envelope xmlns:soap="http://schemas.xmlsoap.org/soap/envelope/"> <soap:Body> <getProductDetails xmlns="http://warehouse.example.com/ws"> <productID>827635</productID> </getProductDetails> </soap:Body> </soap:Envelope>

SOAP, WSDL, and UDDI Specifications

Web Services Description Language (WSDL)
Describes characteristics of logic units that make up specific Web services

Universal Description, Discovery, and Integration (UDDI) specification

Set of protocols that identify locations of Web services and their associated WSDL descriptions

Electronic Commerce Software for Small and Midsize Companies

Commerce Service Providers (CSPs)
Have same advantages as ISP hosting services
Low cost is biggest single advantage

Offer free or low-cost electronic commerce software for building electronic commerce applications
Valueweb.com Tophosts.com Interland.com

Mall-Style Commerce Service Providers

Provide small businesses with:
Internet connection Web site creation tools

Little or no banner advertising clutter

shopping cart software

Example CSPs
eBay Stores Bigsteps.com

Mall-Style Commerce Service Providers

Bigstep received many industry awards for its CSP offering
It provides two different storefront packages Reports
Provide data-mining capabilities

Data mining
Looking for hidden patterns in data

Electronic Commerce Software for Midsize to Large Businesses

Midrange packages allow a merchant to have explicit control over:
Merchandising choices Site layout Internal architecture Remote and local management options

Intershop Enfinity
Intershop Enfinity MultiSite provides:
Search and catalog capabilities Electronic shopping carts Online credit card transaction processing The ability to connect to existing back-end business systems and databases

IBM WebSphere Commerce Professional Edition

Set of software components that provides software suitable for midsize to large businesses

Includes:
Catalog templates Setup wizards Advanced catalog tools

Microsoft Commerce Server 2002

Allows businesses to sell products or services on the Web using the following tools:
User profiling and management Transaction processing Product and service management Target audience marketing

Provides many predefined reports for analyzing site activities and product sales data

Electronic Commerce Software for Large Businesses

Examples of enterprise-class products that can be used to run a large online business:
IBM WebSphere Commerce Business Edition Oracle E-Business Suite Broadvision One-To-One Commerce

Enterprise-class software
Typically provides good tools for linking to and supporting supply and purchasing activities

Customer Relationship Management Software

Must obtain data from operations software that conducts activities such as:
Sales automation

Customer service center operations

Marketing campaigns

Must also gather data about customer activities on the companys Web site and any other points of contact

Supply Chain Management Software

Helps companies to coordinate planning and operations with their partners in the industry supply chains Performs two general types of functions:
Planning Execution

Content Management Software

Helps companies control large amounts of text, graphics, and media files
EMC Software Vignette WebMethods

Knowledge Management Software

Helps companies do four main things:
Collect and organize information
Share information among users

Enhance ability of users to collaborate

Preserve knowledge gained through the use of information

Summary
A company must first choose between paying a service provider to host the site and self-hosting External hosting options
Shared hosting, dedicated hosting, and colocation

Key elements of electronic commerce software

Catalogs, shopping carts, and transaction processing capabilities

Summary
Commerce service provider (CSP)
Used by small enterprises just starting an electronic commerce initiative

If a company already has computing equipment and staff in place, purchasing a midrange electronic commerce software package provides more control over a site Large enterprises with high transaction rates need to invest in larger, more customizable systems

CHAPTER 8

E-COMMERCE APPLICATIONS

E-COMMERCE TECHNOLOGIES
Electronic commerce the electronic transmission of buyer/seller transactions and related information between individuals and businesses or between two or more businesses that are trading partners

Page 239

E-COMMERCE TECHNOLOGIES
Will we see continued growth in e-commerce (Internet) applications? Consider Metcalfes Law: The value of a network to each of its members is proportional to the number of other users, expressed as (n2 n) / 2
There are increasing returns to be gained as more organizations and people use the Web

Page 240

E-COMMERCE TECHNOLOGIES
Commercial History of the Internet

Figure 8.1 Internet Technology Innovations for E-Commerce

Page 241

E-COMMERCE TECHNOLOGIES Technologies for B2C Applications

Improvements for online sales or auction bidding New channels for customer service Collection of clickstream metrics and personal data from Web site users Acceptance of Web cookies stored on users hard drive to enable customization of Web sites Web browser improvements with multimedia
Page 240

E-COMMERCE TECHNOLOGIES Technologies for B2B Applications

Most important technological advance for B2B applications XML markup language
Now have accepted standards Can be used for a flexible, low-entry form of EDI Electronic data interchange (EDI) proprietary applications for communicating with trading partners based on agreedupon standards for business document transmission

Page 242

E-COMMERCE TECHNOLOGIES Technologies for B2B Applications

EDI Benefits:
Reduced cycle times for doing business Cost savings for automated transaction handling and elimination of paper documents Improved interfirm coordination and reduced interfirm coordination costs Start-up coordination challenges (EDI standards agreement and legal issues) Start-up and ongoing IT costs

EDI Constraints:

Page 242-243

E-COMMERCE TECHNOLOGIES Technologies for B2B Applications

Prediction:
Web forms using XML and extranet applications will continue to grow!

Page 242-243

E-COMMERCE TECHNOLOGIES Technologies for IT Security

Potential constraint to e-commerce: lack of security for Internet transactions Issues:
How to control access to a computer that is physically networked to the Internet How to ensure that security of a given communication is not violated

Page 243

E-COMMERCE TECHNOLOGIES Technologies for IT Security

How to control access to a computer that is physically networked to the Internet?

Use of a firewall devices that sit between the Internet and an organizations internal network to block intrusions from unauthorized users and hackers
How to ensure that security of a given communication is not violated?

Encryption based on two decoding keys and mathematical principles for factoring a product into its two prime numbers, where one key codes a message and the other decodes it
Page 243-244

(Adapted from Applegate, Holsapple, et al. 1996; Kalakota and Whinston, 1996)

Figure 8.2 E-Commerce Framework

Page 244

LEGAL AND REGULATORY ENVIRONMENT

Tax Policies Copyright Lays Antitrust Laws Privacy Issues

Page 244-246

STRATEGIC OPPORTUNITIES AND THREATS

1. Supplier power
2. Customer power 3. Threat of new entrants

Porters Competitive Forces Model

4. Threat of substitute products or services 5. Responses of competitors

Page 246

STRATEGIC OPPORTUNITIES AND THREATS

Opportunities due to the Internet:
1. Procurement of supplies via Internet can increase companys power over suppliers
2. Size of potential market is expanded 3. Distribution channels between traditional company and customer can be eliminated

Page 246

STRATEGIC OPPORTUNITIES AND THREATS

Threats to traditional companies due to the Internet:
1. Migration to price competition difficult to keep offerings proprietary 2. Increased number of potential competitors 3. Internet reduces some traditional barriers (such as in-person sales force) 4. Customers increase their bargaining power Internet reduces customers switching costs
Page 246-247

The four main areas where companies conduct business online

1. Direct marketing, selling, and services 2. Financial and information services 3. Maintenance, repair, and operations (MRO) 4. Intermediaries

Maintenance, Repair, & Operations (MRO)

MRO goods include office suppliers, office equipment, furniture, computers, and replacement parts

Internet transforms corporate purchasing from a labor-and paperwork-intensive process into a self-service application

Intermediaries
Content providers companies that use the Internet to distribute copyrighted content, including news, music, games, books, movies, and many other types of information Online brokers intermediaries between buyers and sellers of goods and services Market makers intermediaries that aggregate three services for market participants A place to trade Rules to govern trading An infrastructure to support trading

Types of Intermediaries

E-BUSINESS MODELS
B2C Applications

Figure 8.4 Potential Benefits to Sellers and Buyers

Page 249

B2B Applications If Buyers and Sellers are Fragmented, Independent Intermediaries are likely to be successful. If Sellers are Concentrated, Sellers are likely to dominate.

If Buyers are Concentrated, Buyers are likely to dominate.

Figure 8.5 Opportunities for B2B Marketplace

Page 250

E-BUSINESS MODELS
Atomic Business Models

Weill and Vitale proposition: The value

propositions of eight business models differ according to the degree to which the following ebusiness assets are captured online: Customer transaction to capture revenue Customer data to capture data about customers purchasing needs Customer relationship ability to influence customers behaviors
Page 251

E-BUSINESS MODELS
Atomic Business Models

(Based on Weill and Vitale 2001, Straub 2004)

Figure 8.6 Business Models and Their E-Business Assets

Page 251

E-BUSINESS MODELS
Atomic Business Models

(Based on Weill and Vitale 2001, Straub 2004)

Figure 8.6 Business Models and Their E-Business Assets

Page 251

DIRECT-TO-CUSTOMER EXAMPLES
Amazon.com

Dot-com pioneer in online retailing of thirdparty products Began as bookseller competitor Now a multi-store, online mall First profitable year 2003 Provides excellent online shopping experiences for millions of customers
Page 252

( 2004 Amazon.com, Inc. All right reserved.)

Figure 8.7 Amazon.com Home Page

Page 253

DIRECT-TO-CUSTOMER EXAMPLES
Dell.com

Traditional direct seller and market leader of made-to-order microcomputers Developed custom software to support mass customization strategy Took advantage of early penetration of Internet market

Page 254

(Used with permission of Dell Corporation.)

Figure 8.8 Dell.com Home Page

Page 254

DIRECT-TO-CUSTOMER EXAMPLES
Landsend.com

Traditional catalog company that developed capability to give online tools to customers so they could make orders for new custom clothing via its Web site

Page 255

( 2004 Lands End, Inc. Used with permission.)

Figure 8.9 Landsend.com Home Page

Page 256

DIRECT-TO-CUSTOMER EXAMPLES
Successful Online Models

Amazon.com Dell Lands End

All developed B2C Web sites that use advanced technologies to support customized interactions with customers

Page 256

DIRECT-TO-CUSTOMER EXAMPLES
Successful Online Models

Source: Pew Internet & American Life Project Surveys, 2002

Figure 8.10 Common Online Activities by U.S. Consumers

Page 257

INTERMEDIARY EXAMPLES

(Based on Weill and Vitale, 2001)

Figure 8.11 Key Characteristics of Six Types of Intermediaries

Page 257

INTERMEDIARY EXAMPLES
eBay

A dot-com pioneer in electronic auctions One of first to achieve profitability Now is a C2C, B2B, and B2C intermediary

Page 258

These materials have been reproduced with the permission of eBay, Inc. Copyright eBay, Inc. All rights reserved.

Figure 8.12 eBay.com Home Page

Page 259

INTERMEDIARY EXAMPLES
Yahoo!

Early dot-com intermediary Has recently leveraged IT innovations and business acquisitions to become a leading portal As a portal, site owns only the customer relationship Primary source of revenue is advertisements Through acquisition, now offers online job searches
Page 259-260

(Reproduced with permission of Yahoo! Inc. Copyright 2004 by Yahoo! Inc. YAHOO! And the YAHOO! Logo are trademarks of Yahoo! Inc.)

Figure 8.13 Yahoo.com Home Page

Page 260

INTERMEDIARY EXAMPLES
Manheim

Traditional B2B intermediary for sale of used cars Has leveraged the Internet to reduce purchasing and sales costs Provides remote, real-time bidding during physical auctions

Page 260-261

(Used with permission of Manheim.)

Figure 8.14 Manheim.com Home Page

Page 261

Types of Intermediaries

SPECIAL ISSUE: WHAT MAKES A GOOD WEB SITE?

Why is Web page design important? For e-commerce applications, the companys Web site is the company

Page 262

(Based on Rayport and Jaworski, 2004)

Figure 8.15 7Cs Framework for Web Site Design

Page 262

 E-commerce is a new way of conducting business, and as with any other new application of technology, it presents both opportunities for improvement and potential problems

Identify several advantages of e-commerce Outline a multistage model that describes how ecommerce works Identify some of the major challenges that

 E-commerce requires the careful planning and integration of a number of technology infrastructure components

Outline the key components of technology infrastructure that must be in place for ecommerce to succeed

 Users of e-commerce technology must use safeguards to protect themselves

Identify the major issues that represent significant threats to the continued growth of e-commerce

 Organizations must define and execute a strategy to be successful in e-commerce

Outline the key components of a successful e-commerce strategy

An Introduction to Electronic Commerce

Business-to-consumer (B2C) ecommerce: customers deal directly with the organization, avoiding any intermediaries Business-to-business (B2B) ecommerce: participants are organizations

Consumer-to-consumer (C2C) e-

Multistage Model for Ecommerce

Search and identification Selection and negotiation Purchasing products and services electronically Product and service delivery After-sales service

Figure 8.1: Multistage Model for E-Commerce (B2B and B2C)

E-Commerce Challenges
Define an effective e-commerce model and strategy Need to change distribution systems and work processes Integrate Web-based order processing with traditional systems

Figure 8.3: Three Basic Components of a Successful E-Commerce Model

Figure 8.4: Web-Based Order Processing Must Be Linked to Traditional Back-End Systems

The E-Commerce Supply Chain

Supply chain management is a key value chain composed of:
Demand planning

Supply planning
Demand fulfillment

Figure 8.5: Supply Chain Management

The E-Commerce Supply Chain (continued)

E-commerce supply chain management allows businesses an opportunity to achieve:
Increased revenues and decreased costs Improved customer satisfaction Inventory reduction across the supply chain

Business-to-Business (B2B) E-Commerce

Allows manufacturers to buy at a low cost worldwide

Enterprises can sell to a global market

Offers great promise for developing countries

Business-to-Consumer (B2C) E-Commerce

Convenience
Many goods and services are cheaper when purchased via the Web Comparison shopping

Disintermediation: elimination of intermediate organizations between the producer and the consumer

Consumer-to-Consumer (C2C) E-Commerce

Often done through Web auction sites such as eBay

Growth of C2C is responsible for reducing the use of the classified pages of newspapers to advertise and sell personal items

Global E-Commerce
Localization: adapting an existing U.S.centric Web site to another language and culture Steps involved in localization
Recognizing and conforming to the nuances, subtleties, and tastes of local cultures Supporting basic trade laws such as those covering each countrys currency, payment preferences, taxes, and tariffs

Global E-Commerce (continued)

Determine which global markets make the most sense for selling products or services online Decide whether Web content should be generated or updated centrally or locally

Mobile Commerce
Mobile commerce (m-commerce) relies on the use of wireless devices, such as personal digital assistants, cell phones, and smart phones, to place orders and conduct business Issues confronting m-commerce
User-friendliness of the wireless device
Network speed

Technology Needed for Mobile Commerce

Handheld devices used for mcommerce have limitations that complicate their use Wireless application protocol (WAP): a standard set of specifications for Internet applications that run on handheld, wireless devices

E-Commerce Applications: Retail and Wholesale

Electronic retailing (e-tailing): the direct sale from business to consumer through electronic storefronts, typically designed around an electronic catalog and shopping cart model
Cybermall: a single Web site that offers many products and services at one Internet location

Manufacturing
To raise profitability and improve customer service, many manufacturers move their supply chain operations onto the Internet Electronic exchange: an electronic forum where manufacturers, suppliers, and competitors buy and sell goods, trade market information, and run backoffice operations

Figure 8.6: Model of an Electronic Exchange

Marketing
Market segmentation: the identification of specific markets to target them with advertising messages Technology-enabled relationship management: use of detailed information about a customers behavior, preferences, needs, and buying patterns to set prices, negotiate terms, tailor promotions, add product

Investment and Finance

Online stock trading Online banking

Figure 8.7: Key Technology Infrastructure Components

Hardware
Storage capacity and computing power required of the Web server depends on:
Software that will run on the server

Volume of e-commerce transactions

Website hosting

Web Server Software

Security and identification
Web sites must be designed to protect against attacks

Denial-of-service (DOS) attack

Retrieving and sending Web pages Web site tracking

Web Server Software (continued)

Web site development Web page construction
Static Web page Dynamic Web page

E-Commerce Software
Catalog management
Product configuration

Shopping cart facilities

E-commerce transaction processing Web traffic data analysis

Figure 8.8: Electronic Shopping Cart

E-Commerce Transaction Processing

E-commerce transaction processing software: connects participants in the e-commerce economy and enables communication between trading partners, regardless of their technical infrastructure Fully automates transaction processes from order placement to reconciliation

Electronic Payment Systems

Digital certificate: an attachment to an email message or data embedded in a Web page that verifies the identity of a sender or a Web site

Certificate authority (CA): a trusted third party that issues digital certificates Secure Sockets Layer (SSL): a communications protocol used to secure sensitive data

Electronic Payment Systems (continued)

Electronic wallet: a computerized stored value that holds credit card information, electronic cash, owner identification, and address information

Credit card
Charge card Debit card

Threats to E-Commerce
E- and m-commerce incidents Theft of intellectual property
Intellectual property: music, books, inventions, paintings, and other special items protected by patents, copyrights, or trademarks Patents on business processes

Fraud
Phishing: bogus messages purportedly from a legitimate institution to pry personal information from customers by convincing them to go to a spoof Web site Online auction fraud Spam: e-mail sent to a wide range of people and Usenet groups

Fraud (continued)
Pyramid schemes Investment fraud Stock scams

Invasion of Consumer Privacy

Online profiling: the practice of Web advertisers recording online behavior to produce targeted advertising Clickstream data: data gathered based on the Web sites visited and the items clicked on Safe harbor principles: principles that address the e-commerce data privacy

Figure 8.9: TRUSTe Seal

Figure 8.10: BBB Online Privacy Seal

Table 8.4: How to Protect Your Privacy While Online

Strategies for Successful E-Commerce: Developing an Effective Web Presence

Decide which tasks the site must accomplish
An effective Web site creates an attractive presence and meets the needs of its visitors

It may be necessary to redefine your sites business model to capture new

Putting up a Web Site

Web site hosting companies: companies that provide the tools and services required to set up a Web page and conduct e-commerce within a matter of days and with little up-front cost Storefront broker: companies that act as middlemen between your Web site and online merchants that have the products and retail expertise

Building Traffic to Your Web Site

Obtain and register a domain name Make your site search-engine-friendly
Meta tag: a special HTML tag, not visible on the displayed Web page, that contains keywords representing your sites content, which search engines use to build indexes pointing to your Web site

Web site traffic data analysis software

Maintaining and Improving Your Web Site

Be alert to new trends and developments in e-commerce Be prepared to take advantage of new opportunities Personalization: the process of tailoring Web pages to specifically target individual consumers

Summary
In business-to-consumer (B2C) ecommerce, customers deal directly with the organization In business-to-business (B2B) ecommerce, the participants are organizations

In consumer-to-consumer (C2C) ecommerce, the participants are individuals

Summary (continued)
Supply chain management is a key value chain composed of demand planning, supply planning, and demand fulfillment Mobile commerce (m-commerce) uses wireless devices to place orders and conduct business Electronic retailing (e-tailing) is the direct sale from business to consumer through electronic storefronts

Summary (continued)
Threats to e-commerce include e- and m-commerce incidents, theft of intellectual property, fraud, and invasion of consumer privacy Strategies for successful e-commerce
Developing an effective Web presence Putting up a Web site Building traffic to your Web site

Chapter 08: E-Commerce

Objectives
Define e-commerce and understand its role as a transaction processing system List the three types of e-commerce, and explain how e-commerce supports the stages of the buying process and methods of marketing and selling Discuss several examples of ecommerce applications and services
207

Objectives
Define m-commerce, and describe several m-commerce services List the components of an e-commerce system, and explain how they function together to provide e-commerce services

208

Chapter Content
The Roots of E-Commerce Overview of Electronic Commerce E-Commerce Applications Mobile Commerce E-Commerce Implementation

209

Electronic Commerce
Electronic commerce (e-commerce)
Systems that support electronically executed business transactions The fundamental purpose of e-commerce is to execute transactions

210

Electronic Commerce
Electronic commerce (e-commerce)

211

Electronic Commerce

212

E-Commerce History
EDI
Uses private communications networks (VANs) to transmit standardized transaction data between business partners and suppliers

Automating transactions using EDI

Drastically reduced the amount of paperwork and the need for human intervention

Internet
213

E-Commerce History

214

Transaction Processing
Transaction
An exchange involving goods or services

Transaction processing system (TPS)

Information system used to support and record transactions such as paying for products or paying an employee (e.g.
payroll system that calculates an employees pay and cuts a check) transaction processing systems share a common set of activities called the transaction processing cycle

Batch processing
Transactions are collected over time and processed together in batches useful in situations where transactions take place away from the computer system

Online transaction processing

Takes place at the point of sale
critical to time-sensitive transactions such as selling concert tickets and making flight reservations
215

The Transaction Processing Cycle

Data collection
The process of capturing transaction related data

Data editing
Checking the validity of data entered

Data correction
Implemented if an error is found in the entered data
216

The Transaction Processing Cycle

Data manipulation
Processing transaction data

Data storage
Altering databases to reflect the transaction

Data output
Receipts, picking lists, and other documents
217

The Transaction Processing Cycle

218

Different Transaction Processing for Different Needs

Order processing system
Supports the sales of goods or services to customers Arranges for shipment of products

Purchasing system
Supports the purchase of goods and raw materials from suppliers

219

Different Transaction Processing for Different Needs

220

Types of E-Commerce
Business-to-consumer e-commerce (B2C)
Connects individual consumers with sellers , cutting out the middleman E.g. Amazon.com

Business-to-business e-commerce (B2B)

Supports business transactions on across private networks, the Internet, and the Web

Consumer-to-consumer e-commerce (C2C)

Connects individual sellers with people shopping for used items
E.g. ebay.com
221

Types of E-Commerce

222

E-Commerce from the Buyers Perspective

Process of buying or acquiring goods or services
Realizing a need Researching a product Selecting a vendor Providing payment Accepting delivery Using product support
223

E-Commerce from the Buyers Perspective

224

E-Commerce from the Sellers Perspective

Sellers business practices
Market research to identify customer needs Manufacturing products or supplying services that meet customer needs Marketing and advertising to make customers aware of available products and services

225

E-Commerce from the Sellers Perspective

Sellers business practices
Providing a method for acquiring payments Making arrangements for delivery of the product Providing after-sales support

Supply chain management

From the sellers perspective, the process of producing and selling goods Involves three areas of focus: demand planning, supply planning, and demand fulfillment
226

E-Commerce from the Sellers Perspective

227

Benefits and Challenges of ECommerce

Buyers enjoy the convenience of shopping from their desktop B2C e-commerce
Levels the playing field between large and small businesses

Challenges
Established businesses must alter systems and business practices Security, privacy, reliability: E-commerce can survive only if all involved can trust the system Social concerns
228

Benefits and Challenges of ECommerce

229

E-Commerce Applications
E-Commerce
Playing an increasingly important role in our personal and professional lives Allows us to discover new and interesting products Allows us to find better deals Used to monitor bank accounts and transfer electronic funds

230

Retail E-Commerce: Shopping Online

E-tailing provides customers with
Product information The ability to comparison shop

E-tailing options
Set up an electronic storefront Lease space in a cybermall
Web site that allows users to browse through a wide variety of products offered by several different retailers
231

Retail E-Commerce: Shopping Online

232

Online Clearing Houses, Web Auctions, and Marketplaces

Provide a platform for businesses and individuals to sell their products and belongings
www.ubid.com
Provides a method for manufacturers to liquidate stock and consumers to find a good deal

eBay.com
Most popular auction/marketplace

233

B2B Global Supply Management and Electronic Exchanges

Global supply management (GSM)
Businesses can find the best deals for raw materials and supplies needed to manufacture their products on the global market

Electronic exchange
an industry-specific Web resource created to provide a convenient centralized platform for B2B e-commerce among manufacturers, suppliers, and customers Promotes cooperation between competing companies
234

Marketing
Web is used for
Unsolicited advertising
Banner: A rectangular area embedded in the Web page content for advertising, often across the top of the page

Access to product information through business Web sites

Get better deals and make informed decisions

Market research
Traditionally done by interviewing customers Market segmentation divides customer opinions based on various criteria E-commerce allows market segmentation to take place on an individual level
235

Marketing

236

Banking, Finance, and Investment

Online banking provides
Convenient access to bank balance information Ability to transfer funds, pay bills, and obtain account histories

Electronic funds transfer

Popular for paying bills and receiving paychecks

Online brokerages
Able to execute trades fast, within seconds
237

Mobile Commerce (MCommerce)

A form of e-commerce Takes place over wireless mobile devices such as
Handheld computers and cell phones takes place in emerging technologies such as dashtop computers embedded in automobile dashboards

Presents unique opportunities and challenges

238

Mobile Commerce

M-Commerce Technology
Technologies and standards
Wireless Application Protocol (WAP)
a communication standard used by developers to create m-commerce applications

Wireless Markup Language (WML) Infrared or Bluetooth wireless networking technology

Near Field Communications (NFC)

Open Mobile Alliance (OMA)

Hundreds of mobile operators, device and network suppliers and companies have joined together to create standards and

240

Types of M-Commerce Applications

Methods for delivering m-commerce services
Directly from cell phone service providers Via mobile Internet or Web applications
Location-based m-commerce applications

Using Short Message Service (SMS) text messaging or Multimedia Messaging Service (MMS) Using short-range wireless technology, such as infrared
Proximity payment system
241

Types of M-Commerce Applications

242

E-Commerce Implementation
Implementing e-commerce
Requires large investment and expertise

E-Commerce host
A company that takes on some or all of the responsibility of setting up and maintaining an e-commerce system for a business or organization

243

Infrastructure
E-Commerce requires significant infrastructure changes Businesses must have employees who are technically savvy B2C e-commerce
Often connects manufacturers directly with consumers, cutting out the middleman Requires shipping individual products directly to consumers
244

Infrastructure

245

Hardware and Networking

Underestimating the amount of Web traffic
Leads to network stalls and long wait times

Typical e-commerce Web site

Employs one or more server computers and a high-speed Internet connection

Outsourcing to a Web hosting company

Can operate 24 hours a day, 7 days a week Load-balancing

246

Software
Web Server Software
Responds to requests for Web pages

Web Server Utility Programs

Provide statistical information about server usage and Web site traffic patterns

E-Commerce Software
Supports e-commerce activities Includes catalog management, electronic shopping cart, and payment software
247

Software
Web Site Design Tools
What-you-see-is-what-you-get (WYSIWYG) applications or wizards

Graphics Applications
Design and create graphic elements of Web sites

Web Site Development Tools

Application programming interfaces (APIs)
Allow software engineers to develop Webdriven programs
248

Software
Web services
Programs that automate tasks by communicating with each other over the Web Systems developers can provide tools for automating trivial or repetitive tasks Important in transaction processing

249

Building Traffic
The 3Cs Approach
Content, community, and commerce

Keywords and Search Engines

Choose name and product names that best describe business purpose and features Select descriptive domain names Business-related keywords can be listed in the HTML meta tag
Read by search engines and servers, but not displayed on the page
250

Building Traffic
Marketing
Online advertising methods include banner ads, pop-up ads, and e-mail

market segmentation: customer opinions are divided into demographic variables such as race, gender, income, education, and age to determine which segment a product appeals to most
Offline advertising methods include magazines, newspapers, radio, and
251

Building Traffic

252

Electronic Payment System

proximity payment system
allows customers to transfer funds wirelessly between their mobile device and a point-of-sale terminal

Electronic cash (e-cash or digital cash)

Provides a private and secure method of transferring funds from a bank account or credit card to online vendors or individuals PayPal
Best-known e-cash provider

E-cash benefits
Privacy - hides account information from vendors Convenient if seller cannot process a credit card

Smartcards
Credit cards with embedded microchips that can store
and process data and can be used as electronic wallets
253

Electronic Payment System

254

Electronic Payment System

255

International Markets
Internet users of all nationalities will have access to your products First consideration of a global e-commerce strategy
Visitors of all nationalities and cultures should feel comfortable while viewing your Web content

Costly approach
Create multiple versions of your Web site, each in a different language

Once the international market is won over, etailer faces other challenges
256

E-Commerce Security Issues

There are significant privacy and security concerns
Public network No buyer or seller identity verification Hacker attacks

257

E-Commerce Security Issues

Digital certificate
A type of electronic business card Attached to Internet transaction data

Verifies the sender of the data

Provided by certification authorities Encryption
Uses high-level mathematical functions and computer algorithms to transform data so that it is unintelligible to all but the intended recipient
258

E-Commerce Security Issues

Securing data in transit
Secure Sockets Layer (SSL)
Digital certificates combined allows for encrypted communications to occur between Web browser and Web server

Transport Layer Security (TLS)

A URL associated with this begins with https Allow for encrypted communication to occur between browsers and servers Secures usernames, passwords, credit card information
259

E-Commerce Security Issues

260

Business Resumption Planning

Great pains are taken to ensure that transaction processing systems remain in working order Business resumption planning (BRP)
Takes into account every possible disaster and provides courses of action to minimize negative effects The goal is to protect data and keep key systems operating until order is resumed
261

Summary
E-Commerce
Systems that support electronically executed transactions

Transaction processing system (TPS)

Supports and records transactions

Three main types of e-commerce

Business-to-consumer (B2C) Business-to-business (B2B) Consumer-to-consumer (C2C)
262

Summary
Retail Web sites
Allow consumers to comparison shop

Mobile commerce
A form of e-commerce that takes place over wireless mobile devices

E-Commerce
Requires investment in networking, hardware, and a wide variety of software
Requires changes in infrastructure
263

MD253/MK252 Electronic Commerce

March 29, 2005 Amazon.com

Issues Covered
Amazons strategy
competitive advantage

Inventory efficiencies
turns & float

Excellence in customer service

Personalization & switching costs

Partnerships & service businesses

Syndication model, merchants.com, web services

Challenges

Amazons Strategy

Offline vs. Online Retail Efficiencies

Turnover
3 times / year avg. book in store 121 days Book on shelf 68+ days after paying suppliers

Turnover
16 times / year avg. book in house 22 days avg. 28 days of float / title

Inventory
shelf & warehouse stock 30% returns

Inventory
all warehouse stock few returns

Capital Efficiency Negative Operating Cycle (Float)

28 Days

Day 0 Product Received

22 25 Product Customer Shipped Payment

53 Supplier Paid

Inventory Turns for Full Product Line, 2004 Amazon = 16 B&N = 3, Home Depot = 5, Best Buy = 5, Wal-Mart = 7

Amazons Warehouse Network

5 facilities, > 4 million sq. feet Extremely diverse product mix Mixed Automation & Manual Sorting and Conveyance Direct to consumer fulfillment

Photos: blog link provided by the San Jose Merc News

captures early demand & improves inventory forecasting

Leveraging the Amazon Platform

Amazon.com as seller
AMZN inventory & product detail pages

Syndicated stores / Merchants@

AMZN tech & inventory, co-branded website Ex: Borders, HMV, Waterstones, Waldenbooks, VirginMegastore

Marketplace
3rd party inventory, AMZN product detail pages

Merchant.com (Amazon Enterprise Solutions)

AMZN technology powers partner websites Ex: Target, NBA.com, Bombay Company, DVF Shops

MD253 / MK252 Electronic Commerce

Feb. 15, 2006 Channel flux: channel pressure, digital music network effects, CEIs, and auction systems

Issues Covered
Channel Pressure
Power & partners, pressure & innovation limits

New Channels & Media Industry Disruption Network Effects

the secret sauce of tech markets

New Intermediaries
examples, impact, threats, market creation

Auction Models
markets of first choice and last resort

Channel Conflict
Internet Retailers customer

supplier

Distributors

Traditional Retailers (small)

customer

Traditional Retailers (big box)

customer

customer

We recognize that a vendor has the right to sell through whatever distribution channels it desires. However, we too have the right to be selective in regard to the vendors we select and we trust that you can understand that a company may be hesitant to do business with its competitors.

HomeDepot memo to suppliers

Major Labels in Crisis

3 Years: 26% Sales Drop Online piracy CD piracy Shrinking retail space Competition from other media Music Quality

Traditional Client/Server vs. BitTorrent

More Computers Require More Bandwidth Customers Distribute Content

Understanding Network Effects

(a.k.a. Network Externalities, Metcalfes Law)
When present, product or services become more valuable as its installed base expands. Why? Users crave Exchange opportunities Stability Extrinsic Benefits Characteristics: Early competition, bandwagons, monopolistic tendencies Best products dont always win. Innovation effect Lowers competition with established standard Increases innovation within standard

buyers

sellers

Users (Windows, PS2) Developers (programs, game titles)

members

Channel Extending Intermediaries

supplier supplier CEI supplier supplier customer customer customer customer

Search for opportunities to add value: e.g. high customer search costs, switching costs, low customer satisfaction Wield new power by consolidating traditional buyers & customers. Become the first-line interface with consumers.

Auction Formats
Liquidation Auctions: (e.g. Priceline)
Seek first to maximize existing channels & reduce inventory Seek lowest price on widely available goods and services suppliers customers

auction

disincentives to use auction shrink supply over time

Market Efficiency Auctions: (e.g. eBay)

Auction format is favored over the inefficiency of existing channels Seek access to unique / rare products or services

suppliers

auction

customers

incentives to use auction increase supply over time

Leading Global Retailers

Shop, Buy/Transact, Communicate Search, Be Entertained

Dependent on paid & natural search

IPO Inefficiencies
pays a 7% fee $27/share $45/share

small Investors The Firm

Underwriting syndicate Institutions & large investors small Investors small Investors
Company JetBlue PayPal NetScreen Technologies Magma Design Automation Global Power Equipment Simplex Solutions Shares Date Underwritten 4/12/2002 5,500,000 2/15/2002 5,400,000 12/11/2001 10,000,000 11/19/2001 4,850,000 5/17/2001 7,350,000 5/1/2001 4,000,000 Initial Offer Price $27 $13 $16 $13 $20 $12 First Day Close Share Price $45.00 $20.01 $23.72 $18.99 $31.45 $21.20 $ $ $ $ $ $ Difference 99,000,000 37,854,000 77,200,000 29,051,500 84,157,500 36,800,000 Percent Undervalued 67% 54% 48% 46% 57% 77%

Company JetBlue PayPal NetScreen Technologies Magma Design Automation Global Power Equipment Simplex Solutions Transmeta CoSine Active Power StorageNetworks VA Linux Red Hat mp3.com Efficient Networks Tibco Software China.com CommTouch eToys iVillage AutoWeb Auto-by-Tel Prodigy VerticalNet Healtheon Pacific Internet Theglobe.com

Date 4/12/2002 2/15/2002 12/11/2001 11/19/2001 5/17/2001 5/1/2001 11/7/2000 9/26/2000 8/8/2020 6/30/2000 12/9/1999 8/11/1999 7/20/1999 7/15/1999 7/14/1999 7/13/1999 7/13/1999 5/19/1999 3/18/1999 3/23/1999 3/24/1999 2/11/1999 2/11/1999 2/11/1999 2/5/1999 11/13/1998

Shares Underwritt en 5,500,000 5,400,000 10,000,000 4,850,000 7,350,000 4,000,000 13,000,000 10,000,000 8,000,000 9,000,000 4,400,000 6,000,000 12,300,000 4,000,000 7,300,000 4,200,000 3,000,000 8,300,000 3,500,000 5,000,000 3,500,000 8,000,000 3,500,000 5,000,000 3,000,000 3,100,000

Underwritin g Share Price $27 $13 $16 $13 $20 $12 $21 $23 $17 $27 $30 $14 $28 $15 $15 $20 $16 $20 $24 $14 $23 $15 $16 $8 $17 $9

First Day Close Share Price $45 $20 $24 $19 $31 $21 $45 $63 $53 $90 239 1/4 $52 $63 $53 $40 $67 $24 $77 $56 $28 $40 $28 $45 $31 $48 $64

Difference $ 99,000,000 $ 37,854,000 $ 77,200,000 $ 29,051,500 $ 84,157,500 $ 36,800,000 $ 315,250,000 $ 400,600,000 $ 286,000,000 $ 569,250,000 $ 920,700,000 $ 228,375,000 $ 434,343,750 $ 152,000,000 $ 182,500,000 $ 197,862,000 $ 24,000,000 $ 473,100,000 $ 112,000,000 $ 71,250,000 $ 60,375,000 $ 105,040,000 $ 102,830,000 $ 116,900,000 $ 93,000,000 $ 168,950,000

Percent Undervalu ed 67% 54% 48% 46% 57% 77% 115% 174% 210% 234% 698% 272% 126% 253% 167% 236% 50% 285% 133% 102% 75% 88% 184% 292% 182% 606%

MD253/MK252 Electronic Commerce

Jan. 25, 2006 Distribution Channels: Disintermediation

Topics Covered
Collapsing Channels
Failures & successes the role of value gaps

Firms changing the channel

Expedia & the travel industry BlueNile & the jewelry industry NetFlix & the movie industry

Disintermediation
Price

Unit Sales

Price/Shirt Savings Retailer Consumer $52.72 0%

Producer

W holesaler

Producer

W holesaler

Retailer

Consumer

$41.34

28%

Producer

W holesaler

Retailer

Consumer

$20.45

62%

Source: Benjamin & Wigand (SMR)

Value Gaps
Value Added = A, Expense = X
source firm distributor

Value Added = B, Expense = Y

retailer customers

Expense Savings = (X+Y) - Cost of New Effort Value Gap = (A+B) - Value Added by New Effort

The Long Tail

Source: Wired

Revenue sharing for DVDs

Source: Video Rental Developments & the Supply Chain: Netflix Inc., WUSTL.EDU case http://www.olin.wustl.edu/workingpapers/pdf/2004-03-225.pdf

MD253 Electronic Commerce

Jan. 23, 2006 Are eBusinesses Better?

Topics Covered
A first look at online businesses
FreshDirect how is this pure play business different from more traditional rivals?
Value proposition Dealings with suppliers Operations differences Customer acquisition issues

Are any of the firms advantages sustainable?

Switching Costs Value of service Value of service

Incumbent

Late Entering Rival

MD253/MK252 Electronic Commerce

Feb. 8, 2006 Single & Multi-Channel firms

Issues Covered
Single Channel Case Study
ING Direct

Classifying Online Retail Efforts

Characteristics & reason for focus
Efficiency Machines Niche Players Traffic Drivers Triple Plays

Success in a multi-channel environment

Right Channeling / Re-Routing Success factors & technologies

Fire Bad Customers!

If someone has a lot of demands we'll say "This is not the right thing for you. You need to go back to your community bank, which will gladly charge you for the service you want."
Arkadi Kulhmann CEO ING Direct USA

A bad customers might Call customer service too often Ask for paper copies of statements Demand special treatment b/c they have high account balances

Mitigating Risk in Re-Routing

Understand channel economics
true cost beyond raw margins: loyalty, frequency, acquisition costs, freight, returns, service

Incentives to guide customers to the right channel

carrots & sticks

Provide a safety net Communication program

for internal & external constituencies

True Cross-Channel Design

Customer clicks Save Application from any application page

Banker in store retrieves all saved application data and can Complete the application.

Source: Watson, Latinbanking.com

Rightchanneling Messages & Results

Messaging & alerts

E-Commerce:
Fundamentals and Applications
Chapter 1 : Introduction

Outline
Electronic commerce and physical commerce The DIGITAL phenomenon Looking at e-commerce from different perspectives Different types of e-commerce Examples of the types of e-commerce Some e-commerce scenarios Effect of e-commerce Advantages of e-commerce Myths about e-commerce development and implementation System model of this book

Types of Commerce
Commerce Electronic Commerce Physical or Traditional Commerce

Internet Commerce

Business focused e-commerce

Consumer focused e-commerce

Digital Phenomenon
What do you think? Data networks the drivers of e-commerce? What are
Intense competition Globalization Information age Technologies Automation Low cost high quality products/services

DIGITAL

E-commerce from different perspectives

Three layer models for e-commerce (e.g. Zwasss model). E-business: a wider perspective than ecommerce. E-commerce improves the value chain. E-commerce provides an effective tool for building, managing and enhancing these relationships.

Different types of ECommerce

Business (organization) Customer (individual) Business (organization) B2B (e.g TPN) B2C (e.g Amazon)

Customer (individual)

C2B (e.g Priceline)

C2C (e.g eBay)

Examples
B2C: www.amazon.com C2C: www.eBay.com B2B: www.tpn.com C2B: www.priceline.com

Lets visit these web sites in turn and discuss its features.

E-commerce scenarios
Retailing Servicing Publishing Supply chain management

Discussion: How are they changing?

What are the advantages of ecommerce?

To consumers (think about the consumer buying process: search, evaluate and execute):

To businesses (think about the common objective of every business):

Discussion
How should different departments participate in an e-commerce project?
Management Marketing Production Finance Procurement Customer support

Transformation of a Compartmentalized Organization into Integrated Organization

Management Production Marketing Management Production Department Marketing Department Finance Department Personnel Department Finance Personnel

Three-tier Technical Model

Server side

Client side

Service system

Backend system

Architecture of Webbased E-Commerce System

Service system

Backend system

Web Server

Application Server

Internet

Database

Firewall

Intranet (Secure)

Client side

Server side

CS 155b: E-commerce
Lecture 17: April 12, 2001 Introduction to B2C E-Commerce
(Acknowledgement: Helen Chiang)

E-Commerce Definitions
Electronic commerce is a set of technologies, applications, and business processes that link business, consumers, and communities
For buying, selling, and delivering products and services For integrating and optimizing processes within and between participant entities

What is B2C?
B2C Commerce: Interactions relating to the purchase and sale of goods and services between a business and consumerretail transactions. Novelty is that retail transaction is done on the Internet, rather than a brick and mortar store location. Technical evolution of B2C from brick and mortar model not new.

Revenue Models
Sell goods and services and take a cut (just like B&M retailers). (e.g., Amazon, E*Trade, Dell) Advertising
Ads only (original Yahoo) Ads in combination with other sources

Transaction fees Sell digital content through subscription. (e.g., WSJ online, Economist Intelligence Wire)

A Different Approach to Location Retailing

In 1886, a jeweler unhappy with a shipment of watches refuses to accept them A local telegraphy operator bought the unwanted shipment Used the telegraph to sell all the watches to fellow operators and railroad employees Becomes so successful that he quits his job and started his own enterprise, specializing in catalog sales Name: Richards Sears of Sears Roebuck

E-Commerce Retail Sales

Estimated Quarterly U.S. Retail E-Commerce Sales 4th Quarter 1999 - 4th Quarter 2000
10 9 8 7 6 5 4 3 2 1 0 8.686 6.393 5.198 5.24 5.526

Worldwide B2C E-commerce Revenues 2000-2004 (in billions)

2004 2003 2002 2001 2000 $0.0 $59.7 $100.0 $200.0 $300.0 $400.0 $500.0 $101.1 $167.2 $250.0 $428.1

Billions of Dollars

4th Q 1999 1st Q 2000 2nd Q 2000 3rd Q 2000 4th Q 2000

Source: eMarketer

Estimated Quarterly U.S. Retail Sales: Total and Ecommerce

Data in millions of dollars. Not adjusted for seasonal, holiday, and trading-day differences. E-commerce as a Percent Quarter to Quarter Percent Period Retail Sales of Total Sales Change E-commerce Sales NA 0.8 5.5 15.7 35.9

4Q 1999 1Q 2000 2Q 2000 3Q 2000 4Q 2000 Source: Commerce Dept.

Total 821,351 747,934 815,677 812,158 856,234

E-commerce 5,198 5,240 5,526 6,393 8,686

0.63 0.70 0.68 0.79 1.01

Total Sales 8035 -8.9 9.1 -0.4 5.4

The State of B2C E-commerce in the U.S.

U.S. consumers remain #1 the wired world as they increase frequency and volume of their online purchases But, the number of Internet purchases by U.S. consumers is second to the U.K. Among U.S. respondents using the Internet, 74% have purchased an item online in last 2 months, and 87% expect to make an online purchase in the next year.

US vs. the World

Global Annual Online Transactions (Median = 10 transactions)
1-5 32% 41+ 10% 26-40 12%
41+ 26-40

16-25

11-15

16-25 15% 6-10 19% 11-15 12%

6-10

1-5

Online buyers in the U.S. spent, on average, $898 last year shopping online. Worldwide: Median online expenditure total was $460.

Global Annual Online Expenditures (Median = $460)

$4,001+ 9% $1-200 32% $2,001-$4,000 10% $1,001-$2,000 13% $201-$500 20% $501-$1,000 16%
$4,001+ $2,001-$4,000 $1,001-$2,000 $501-$1,000 $201-$500 $1-200

Top Ten U.S. Purchase Categories

60% 50% 40% 30% 20% 10% 0% 52% 49% 49% 37% 29% 28% 28% 27% 25% 18%

s ic ng r" er ts nt ys ks ns oo oduc mus lothi vatio To sume inme ty aid Oth B pr C ser ed rta eau on ted ecord ll "c ente nd b a r s/re l a a ed -re , ket sm ter CD Tic ts, s, film health c pu , du o om pro Vide nces dc n ic a n gr rs a tro , fra lec ute E tics mp me Co s Co

Top 20 Internet Retailers (based on 1999 values)

Company 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 eBay A mazon.com Dell buy.com E gghead.com Gatew ay Quixtar uBid Barnes & Noble Cyberian Outpost V alue A merica* MicroWareho use Of f ice Depot eToys.com Lands' E nd The Spiegel Group Fingerhut CDW JCP enney Gap Online Sales to U.S. Consumers $3.5-3.7B 1.7-1.9B 1.1-1.3B 700-800M 500-600M 500-600M 400-450M 275-325M 275-325M 200-250M 200-250M 200-250M 175-200M 150-175M 150-175M 150-175M 150-175M 150-175M 150-175M 125-150M P ast-Y ear Customers 10M 12M 600K 3M 700K 350K 600K 600K 3M 425K 250K 175K 250K 1.7M 800K 450K 400K 200K 500K 800K A verage 12month Spending $350 150 2,000 250 800 1,500 700 500 100 550 900 1,200 750 100 200 350 375 800 300 175

Source: National Retail Association

Open Issues in E-commerce

Globalization Contractual and Financial Issues Ownership Privacy and Security Interconnectivity and Interoperability Deployment
Barriers to E-commerce (U.S.): Old retail inconveniences and inefficiencies
Barriers
1. Concern that credit card will be stolen 2. Item is still high cost 3. Item is very large 4. Personal sizing, fit are important 5. High shipping costs 0% 10% 20% 30% 40% 50% 60% source: Ernst & Young

First-Generation B2C
Main Attraction: Lower Retail Prices B2C Pure Plays could eliminate intermediaries, storefront costs, some distribution costs, etc. Archetype: www.amazon.com

Basic Problems Encountered Immediately

Customer-Acquisition Costs are huge. Service is technically commoditizable, and there are no significant network effects. Customers switching costs are tiny. (Lock-in to online book-buying is high. Lockin to Amazon is low. Recall Netscape and IE.) Competition is fierce in almost all segments. Few e-tailers are profitable. Investors have run out of money and patience.

Internet Customer Acquisition Costs

Customer acquisition cost = total spent on advertising and marketing divided by the total number of new customers obtained
Amazon.com $29 DLJ Direct $185 E*Trade $257 Various E-Commerce Sites $34

E-tailing is Difficult in Low-Margin Businesses

Toys (e-Toys.com) Typical online order contributes $11 to gross revenues. Warehouse, marketing, website, and other fixed overhead is high. A pure-play e-tailer needs to capture at least 5% of the toy market to reach profitability. Groceries (Webvan.com, Peapod.com) Typical online order contributes $9 to gross revenue (fulfillment costs are very high). Steady customer orders ~30 times/year. McKinsey/Salomon-Smith-Barneys estimate of the value of one steady customer: ~$900 over 4

Current Theories (after first shakeout)

High order frequency and large order size are more important than large customer base. E-tailers should strive for average order sizes of >$50 and concentrate on high-margin product categories (>35%). [Traditional grocery margins: 2-3%.] Concentrate on making transactions profitable, not on VC-supported market-share wars. Combine e-tailing with B&M stores.

Multi-Channel Retail (B2C w/ B&M)

Exploit multiple marketing and distribution channels simultaneously
B&M (bricks and mortar) stores: Customers browse on the web before going to the store. Catalog sales, telephone, tv advertising,

In 1999, multi-channel retailers (i.e., B&Ms or traditional catalog companies that also sell online) made up 62% of B2C e-commerce. Mostly high-margin sales, e.g., computers, tickets, and financial service. Projected to reach 85% in next 5 years. (Source: Boston Consulting Group)

Advantages of Multi-channel Retail

Leverage existing brands. Biggest B&M retailers have huge clout. (Walmarts annual sales are $138B, much more than all e-tailers combined.) Profits from existing channels can subsidize e-tail start-up. No need to quit when VCs lose interest. Use established distribution and fulfillment infrastructure (e.g., LL Bean, Lands End,). Cross-marketing and cross-datamining.

E-tailers are Adding Offline Channels

Alloy.com sold clothes and accessories, but it became a hit only after its catalog was launched. Drugstore.com once dismissed B&M retailing, but it agreed to sell a 25% stake to Rite-Aid not long after rival Soma.com was bought by CVS. Gateway sells computers through WWW and catalog, but it also has 164 stores across U.S. They carry little stock, but they allow customers to get a feel for the product before ordering it.