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EC(II) - 1 © Minder Chen, 1996-2008 Electronic Commerce: Business Models, Strategies, Investment and Implementation in the Network Economics August, 2008.

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Presentation on theme: "EC(II) - 1 © Minder Chen, 1996-2008 Electronic Commerce: Business Models, Strategies, Investment and Implementation in the Network Economics August, 2008."— Presentation transcript:

1 EC(II) - 1 © Minder Chen, 1996-2008 Electronic Commerce: Business Models, Strategies, Investment and Implementation in the Network Economics August, 2008 Minder Chen, Ph.D. Associate Professor of Management Information Systems E-Mail: or Web site:

2 EC(II) - 2 © Minder Chen, 1996-2008 Outline: Day 2  E-Business and Extended Enterprise  Defining e-business and extended enterprise  Supply Chain Management  Customer Relationship Management  Business-to-business analysis  Case Studies   Dell  Federal Express  Cisco  Web Technology and EC Software Overview  Internet infrastructure and services  Web technology overview  EC software  Internet Security and Electronic Payment Systems EC Implementation  Evolution of EC implementation  EC site life cycle  EC site design issues  Promotion and marketing  Net readiness evaluation EC Investment and Opportunities  Internet / EC industry analysis  EC Firms and Stock market  EC investment pyramid

3 EC(II) - 3 © Minder Chen, 1996-2008 Electronic Business and Extended Enterprise Defining e-business and extended enterprise Supply Chain Management Customer Relationship Management Business-to-business analysis

4 EC(II) - 4 © Minder Chen, 1996-2008 The new way businesses compete and succeed Price differentials have been crushed by global competition. Quality has risen to meet extravagant customer expectations. Cycle times have been cut by revolutionary design, production, and delivery techniques that everyone can use. Superior service is the new way to build sustainable competitive advantage. Service is the most powerful force for attracting and retaining loyal customers. Global access Integration of multiple-channels Innovation

5 EC(II) - 5 © Minder Chen, 1996-2008 eBusiness More than eCommerce & the Internet Enables transactions & interactions among any server, network, or device to any other, anywhere in the world Spans entire value chains Evolves legacy systems with innovative technologies Enhances relationships Creates massive economic value Impacts large enterprises as well as start-ups The new environment for communications, interactions, & transactions

6 EC(II) - 6 © Minder Chen, 1996-2008 Defining E-Business It is about... - Inter/Enterprise Application Integration - Business Process Management - Corporate Competitiveness - Partnering with Customers and Suppliers - Cost Control and Revenue Enhancement It is not about... - Simply transactions

7 EC(II) - 7 © Minder Chen, 1996-2008 E-Business Cycle

8 EC(II) - 8 © Minder Chen, 1996-2008 The Extended Enterprise Enterprise Electronic Commerce Suppliers Back Office Front Office Customers BuyMake/Add Value Sell Supply Chain Front/Back Office Integration Demand Chain Manufacturing Finance Engineering Sales Support/Service Marketing Supply Chain Management Customer Relationship Management

9 EC(II) - 9 © Minder Chen, 1996-2008 IT Transformation & the Extended Enterprise Enterprise Boundary Relations Market Process integration EDI Information partnership Electronic commerce Information refineries Environmental scanning Workflow Groupware Trade platform Electronic marketplace Source: adapted from B. R. Konsynski, "Strategic Control in the Extended Enterprise," IBM Systems Journal, Vol. 32, No. 1, 1993, pp. 111-142.

10 EC(II) - 10 © Minder Chen, 1996-2008 Value Matrix: Building Relationships Company create new markets and new relationship with existing markets by applying the five generic value-adding steps of the information world to each activity in the virtual value chain. They create a value matrix. Gather Organize Select Synthesize Distribute Physical Value Chain Virtual Value Chain Value Matrix New market New market Inbound Logistic Production Process Outbound Logistic Marketing Sales

11 EC(II) - 11 © Minder Chen, 1996-2008 Virtual Enterprise Manufacturing Logistics Supplier R&D and Design Management Marketing & Sales After Sale Service

12 EC(II) - 12 © Minder Chen, 1996-2008 Creating Virtual Network: Consumer Products Focus Core Processes Support Processes Strategic Services Strategic Enablers Consumption to Reorder Order to Cash Product to Order Concept to Market Suppliers Customers Research and development Product development Marking Category Management Product and Market Strategy Merchandising and Promotion Strategy Data Base Marketing Information Planning/Scheduling Manufacturing Engineering Purchasing Strategic Partnering Forecasting Improvement Business Process Reengineering Sales Distribution Finance Order-to-Cash Diagnostic Supply Chain Optimization Channel Management Service Warranty After-Sales Support Services Customer Response Trust Information Technology Shared Resources

13 EC(II) - 13 © Minder Chen, 1996-2008 What Is Shared in Partnership? Information –E-mail message –Transaction data –Product design specifications and documents Business applications –Operating procedures Controls and coordination –Simultaneous –Interactive

14 EC(II) - 14 © Minder Chen, 1996-2008 New Information Architecture for Virtual Enterprises Distribution Resource Planning Financials Capacity Resource Panning Master Production Planning VAN EDI EFT Internet EC Networks Electronic Point of Sale Virtual Enterprise ERP Customer Service and Help Desk Marketing & Sales Data Supplier's ERP Supplier's ERP VAN: Value Added Network EDI: Electronic Data Interchange EC: Electronic Commerce ERP: Enterprise Resource Planning

15 EC(II) - 15 © Minder Chen, 1996-2008 Integrated CRM AcquireEnhanceRetain Direct marketingCross-sell & up-sellProactive service Sales force automationCustomer support Integrated CRM Applications Customer Life Cycle Functional Solutions Integrated Solution

16 EC(II) - 16 © Minder Chen, 1996-2008 Core CRM Process Competencies Prospect or Customer Communication Media Mail E-Mail Telephone Voice Response Unit Web Sales Cross-sell Up-sell Tele-sales Marketing Order Fulfillment Customer Service & Support Retention & Loyalty Prorgams Store Front & Field Service

17 EC(II) - 17 © Minder Chen, 1996-2008 eCRM

18 EC(II) - 18 © Minder Chen, 1996-2008 The Reversing of Value Chain Customers' Needs Integrated Channels Products / Services Flexible Infrastructure / Processes Outsourced / In-house Competencies In-House Core Competencies Rigid Infrastructure / Processes Products / Services Channels Customers Traditional Business Design E-Business Design

19 EC(II) - 19 © Minder Chen, 1996-2008 Business Process and e-Business Procurement Manufacturing Logistics Distribution Resource Management Marketing Customer Care Fulfillment Order Entry Sales ENTERPRISE CUSTOMERS Advertising SUPPLIERS PARTNERS

20 EC(II) - 20 © Minder Chen, 1996-2008 Integrated Enterprise Information System (ERP) Integrated Enterprise Information System (ERP) Prime OEM Supplier SME (Small Medium Enterprise) Consumer Web Browser Business-to-Consumer Business-to-Business  Fulfillment/Shipment Source: Policy Analysis Center, GMU EC and E-Business SCM eProcurement

21 EC(II) - 21 © Minder Chen, 1996-2008 E-Business and EC Architecture Security and Access Control User Profiling Search Engine Content Management Catalog Management Payment Workflow Management Event Notification Collaboration Reporting & Analysis Application / Data / Message Integration

22 EC(II) - 22 © Minder Chen, 1996-2008 E-Enterprise Market Trend Customer Demand Strategy & Vision Dynamic Business Models Customer Segmentation Products & Service Branding & Distribution Reusable e-Process Models Customer Productio n Distribution Reusable e-App ArchitectureReusable e-App Models Software Components Data Networks SCM CRM i-Market

23 EC(II) - 23 © Minder Chen, 1996-2008 B2B eMarketPlace Analysis

24 EC(II) - 24 © Minder Chen, 1996-2008 E-Business Case Studies Dell Federal Express Cisco

25 EC(II) - 25 © Minder Chen, 1996-2008 Changes in Book Retailing Market Advice Personal service Proximity Limited product offering suited to local taste Everything under one roof Speed Convenience Regional selection Price Reviews One-stop shopping Ease of ordering Global selection Home delivery Early 1980s Corner Bookstores Late 1980s Large Discounters Mid 1990s Internet Bookstores

26 EC(II) - 26 © Minder Chen, 1996-2008 August 16, 1995

27 EC(II) - 27 © Minder Chen, 1996-2008 Success Story - Http:// -- The Largest Online Book SellerThe Largest Online Book Seller Offers selection of 4.7 million books - more than eight times the inventory of a typical store. Discounts up to 50% on best sellers. Creates a feeling of “community”. Making store a fun place to be. Authors drop by electronically to post comments about their books and readers are encouraged to post reviews, even if they are pans. Customers who fill out a profile are alerted via email to new books on their favorite subject or author. Provide 5%~15% commission through the Associate Program. Check out my AITC Virtual Book Store at Virtual Book Store

28 EC(II) - 28 © Minder Chen, 1996-2008 One-on-One Marketing

29 EC(II) - 29 © Minder Chen, 1996-2008 Instance Recommendation

30 EC(II) - 30 © Minder Chen, 1996-2008 Community Interests: Collaborative Filtering

31 EC(II) - 31 © Minder Chen, 1996-2008 Shopping Cart

32 EC(II) - 32 © Minder Chen, 1996-2008 Shopping Cart (continued) Cross-selling again

33 EC(II) - 33 © Minder Chen, 1996-2008 Security and E-Payment

34 EC(II) - 34 © Minder Chen, 1996-2008 Order Presentation and Checkout

35 EC(II) - 35 © Minder Chen, 1996-2008

36 EC(II) - 36 © Minder Chen, 1996-2008

37 EC(II) - 37 © Minder Chen, 1996-2008

38 EC(II) - 38 © Minder Chen, 1996-2008

39 EC(II) - 39 © Minder Chen, 1996-2008 Cross-selling and Promotion

40 EC(II) - 40 © Minder Chen, 1996-2008 Co-Branding Reciprocal links

41 EC(II) - 41 © Minder Chen, 1996-2008 Promotion

42 EC(II) - 42 © Minder Chen, 1996-2008

43 EC(II) - 43 © Minder Chen, 1996-2008 E-Mail Confirmation Subject: Your Order with (#002-7028864-1883409) Date: Mon, 24 May 1999 13:37:44 -0700 (PDT) From: To: Thank you for ordering from! Your order information appears below. If you need to get in touch with us about your order, send an e-mail message to (or just reply to this message). -- Customer Service ------------------------------------------------------------ Your order reads as follows: E-mail address: Ship to: Minder Chen 7604 Whittier Blvd... Tel: xxx-xxx-xxxx ------------------------------------------------------------ 1 copy of "Business @ the Speed of Thought : Using a Digital Nervous System" Bill Gates, Collins Hemingway (Contributor); Hardcover; @ $15.00 each (Usually ships in 24 hours) …...

44 EC(II) - 44 © Minder Chen, 1996-2008 E-Mail Confirmation Will ship via: Standard Shipping (3-7 business days) Item(s) Subtotal: $49.97 Shipping & Handling: 5.85 ------- Subtotal: $55.82 Tax: 0.00 ------- TOTAL DUE: $55.82 Please note that you can view the status of your account, examine your orders, cancel unshipped orders, change your e-mail address or password, or update your subscriptions to our Personal Notification Services at any time through the "Your Account" link on the navigation bar. Thank you for shopping at! ------------------------------------------------------------- More than 4.7 million titles Earth's Biggest Selection

45 EC(II) - 45 © Minder Chen, 1996-2008 Subject: Your order (#002-1774200-8827236) Date: Sat, 29 May 1999 08:10:56 -0700 (PDT) From: To: We thought you'd like to know that the following items have been shipped to: Minder Chen 7604 Whittier Blvd Bethesda MD 20817 using UPS Ground (3-7 business days). For your reference, the number you can use to track your package is 1Z38EW250313107540. You can refer to our web site's customer service page or to access the shipper's site.

46 EC(II) - 46 © Minder Chen, 1996-2008 Shipment Tracking

47 EC(II) - 47 © Minder Chen, 1996-2008 UPS Package Tracking Web Site

48 EC(II) - 48 © Minder Chen, 1996-2008 Detail Tracking Experiences

49 EC(II) - 49 © Minder Chen, 1996-2008 Account Maintenance

50 EC(II) - 50 © Minder Chen, 1996-2008

51 EC(II) - 51 © Minder Chen, 1996-2008 1-Click Order

52 EC(II) - 52 © Minder Chen, 1996-2008 Associate Program

53 EC(II) - 53 © Minder Chen, 1996-2008 Associate and Affiliate Program Report to the Associate Quarter-to-date Books Ordered: 3 Quarter-to-date Qualified Book Revenue: 61.45 Quarter-to-date Referral Fees: 9.22 Click-throughs and sales by individual book For the week of 05-Oct-97 through 11-Oct-97 Store ID advanceditconsul YOUR ISBN HITS ORDERED FEE TITLE ------------ ---- ------- ------ --------------------------------------- 0070314292 2 0 0.00 Data Stores, Data Warehousing, and the 0127887725 2 1 4.19 Digital Cash : Commerce on the Net 1 sold at 20% off list price of 34.95 0385482051 1 0 0.00 Enterprise One to One : Tools for Compe 0471968811 1 0 0.00 **2** Strategic Learning and Knowledge 0553061720 1 1 2.63 Webonomics : Nine Essential Principles 1 sold at 30% off list price of 25.00 0875848214 3 0 0.00 On-Line Profits : A Manager's Guide to 1572315601 2 1 2.40 Understanding Electronic Commerce (Stra 1 sold at 20% off list price of 19.99 1578700140 1 0 0.00 **2** The Economics of Electronic Comme 1883872022 1 0 0.00 **2** Inter-Corporate Business Engineer ------------ ---- ------- ------ --------------------------------------- Totals: 14 3 9.22

54 EC(II) - 54 © Minder Chen, 1996-2008 Report to the Associate --------------------- ---------- ------- Number of Visitors on 05-Oct-97 5 Number of Visitors on 06-Oct-97 0 Number of Visitors on 07-Oct-97 0 Number of Visitors on 08-Oct-97 0 Number of Visitors on 09-Oct-97 1 Number of Visitors on 10-Oct-97 0 Number of Visitors on 11-Oct-97 0 --------------------- ---------- ------- Total Visitors this week 6 NOTE: A "Visitor" is a person who clicks on book links from your site, and is counted as 1 visitor (above) regardless of the number of different titles they click on. We keep track of this by watching their shopping basket ID, which remains the same for every book they click on. A "Hit" is any person clicking on a book link, and each click is counted as 1 hit. If the same visitor clicks on 5 different titles, we record 1 visitor and 5 hits. Therefore, you should expect the number of visitors to be lower than the total number of hits.

55 EC(II) - 55 © Minder Chen, 1996-2008 Virtual Community: Examples of Readers Comments I read this book, and I want to review it. I am the Author and I want to comment on my book. I am the Publisher and I want to comment on this book. ---------------------------------------, 06/15/97, rating=3: Garbage, pure and utter garbage! HTML & CGI Unleashed is the worst computer book I have ever read in my life...The author's wouldn't know good writing if it jumped out and bit them. Much of the book is devoted to the basics of development rather than stuff you will actually use. Beyond this, the authors knowledge of Web publishing is second rate and harkens from the days when Mosaic was king of the browsers. I wouldn't even recommend this book if someone gave the book to you for free. December and Gingsburg have done a great job of peddling bad books on unsuspecting readers. Don't become their next victim. Brian Gasperosky (, 06/12/97, rating=10: The most comprehensive and valuable HTML resource available. HTML 3.2 and CGI Unleashed is simply the best book I have ever read on the subject of HTML. It is the only book I have found that covers the technical aspect of HTML extensively, and also manages to pay close attention to web page design. Finally, there are few, if any, reference manuals as complete as the appendix supplied with this book. In conclusion, this book is the most valuable HTML resource manual available.

56 EC(II) - 56 © Minder Chen, 1996-2008 Behind the Scene stocks just a couple thousand titles in its Seattle warehouse--far fewer than the inventory maintained by the average superstore--and fills only an estimated 5% of its orders itself. ''sell all, carry few''The secret of Amazon's success in building a business on this ''sell all, carry few'' strategy is a company that few of its customers even know exists: Ingram Book Group, the largest U.S. book wholesaler, with revenues of $1.5 billion. Amazon works with a dozen wholesalers but obtains a staggering 60% of all the books it sells through Ingram, which runs seven warehouses strategically situated around the country. Jeff Bezos (CEO of says that 80% of the company's investment in software development since its founding in 1994 has been not in its famously user- friendly screens but on back-office logistics.

57 EC(II) - 57 © Minder Chen, 1996-2008 Strategies Of The Online Players DISTRIBUTORS –INGRAM BOOK GROUP Far and away the leading supplier to online retailers. Though it recently dropped plans to handle Web site maintenance and order-taking for clients, it will soon begin shipping direct to consumers in the retailer's name (called DROP-SHIPPING). –BAKER & TAYLOR BOOKS Usually eats Ingram's dust, but the No. 2 wholesaler may beat its arch-rival in introducing direct-to- consumer shipping. RETAILERS –BARNES & NOBLE Operates its own giant distribution system, giving it a cost advantage over other online booksellers. –AMAZON Plans to reduce its dependence on Ingram by increasing warehouse capacity. It will boost its book inventories a hundredfold, while continuing to use both Ingram and Baker & Taylor to ship to its customers.

58 EC(II) - 58 © Minder Chen, 1996-2008 Operating Cycle Comparison

59 EC(II) - 59 © Minder Chen, 1996-2008

60 EC(II) - 60 © Minder Chen, 1996-2008 Amazon Strengths Amazon supposedly will dominate because of five factors: –Its brand is well-known; –It is gathering the best customer information; –Its access to capital is endless; –It has the best technology; and –its syndication tactic (selling at other sites) makes it forever ubiquitous. Counter attacks –On-line brands are fleeting. New brands are always just one click away. –Customer information will be ubiquitous. No single company will have a monopoly on customer behavior or attitudes. –Capital markets cut two ways. –Technology IQ is growing. –The spread of best practices are leveling the playing field.

61 EC(II) - 61 © Minder Chen, 1996-2008 Branding Expansion May 24, 1999 1997 More than 4.7 million titles Also invested in

62 EC(II) - 62 © Minder Chen, 1996-2008 Expanding Categories at Industry-in-a-box (July 28, 1999)

63 EC(II) - 63 © Minder Chen, 1996-2008 Expanding… As April 19, 2000 May 5, 2000

64 EC(II) - 64 © Minder Chen, 1996-2008 Integrated Cross-Selling

65 EC(II) - 65 © Minder Chen, 1996-2008 SOTHEBY'S AND AMAZON.COM CONNECT IN STRATEGIC AUCTION ALLIANCE Joint Online Auction Site To Offer Guarantee of Authenticity and Condition June 16, 1999- - Sotheby's Holdings, Inc. (NYSE: BID) and, Inc. (NASDAQ: AMZN) today announced that they will launch a joint online auction site, This ten-year alliance between the world's leading e- commerce company and the international art auction house, each founded --251 years apart-- as book sellers, will create a new standard in online buying and selling of authenticated and guaranteed auction property. The joint site will provide an opportunity for thousands of dealers in collectibles and general art and antiques to participate in an Internet marketplace of unparalleled reach and quality. Sellers on this joint auction site will have the opportunity to market to's more than 10 million customers with the benefit of Sotheby's 255-year art and auction expertise. The two companies also announced that has agreed to purchase (subject to customary closing conditions) one million shares of Sotheby's Holdings Class "A" Common Stock at $35.44 per share, the June 14, l999 closing price. has also agreed to purchase, for a total price of $10 million, three-year warrants to purchase an additional one million shares at $100 per share.'s total investment in Sotheby's is approximately $45 million.

66 EC(II) - 66 © Minder Chen, 1996-2008 Competition - 1999 At 8:25 am on Monday, May 17 – about an hour before the market opened – a story appeared on the Reuters wire saying that (AMZN) would offer books from the New York Times best- seller lists at a 50 percent discount. Within a few hours CEO Jonathan Bulkeley matched the move, saying it would have a minor effect on operating margins. By day's end joined in, too. By the next day, Books- A-Million (BAMM) had gone one better (well, 5 percent better, wrote one wag) offering its customers a 55 percent discount on those titles. At that point, a third of the people in my bureau had already bought best-sellers from Amazon.Amazon.comAMZNJonathan BulkeleyBooks- A-MillionBAMM

67 EC(II) - 67 © Minder Chen, 1996-2008

68 EC(II) - 68 © Minder Chen, 1996-2008 Computer Literacy Book Store "Because Great Minds Think a Lot"

69 EC(II) - 69 © Minder Chen, 1996-2008

70 EC(II) - 70 © Minder Chen, 1996-2008

71 EC(II) - 71 © Minder Chen, 1996-2008's sales triple, losses continue Computer World (Online News, 04/29/99 11:30 AM) By Douglas F. Gray and Kathleen Ohlson Online retailer Inc. tripled its revenue but still posted operating and net losses for the first quarter ended March 31. Amazon's net sales increased 236% over the prior year, to $293.6 million, the company said yesterday when it released its financial results. The online bookseller reported a first-quarter operating loss of $30.6 million, or 10% of net sales, compared with a loss of $10 million, or 11% of net sales, in the first quarter of 1998. Not including $25.3 million in costs related to the many mergers and acquisitions Amazon undertook in the quarter, the company posted a $36.4 million net loss, or 23 cents per share. Total loss for the period, including those acquisition costs, hit $61.7 million, or 39 cents per share. The company's continued losses were expected.

72 EC(II) - 72 © Minder Chen, 1996-2008 More Recent Data Despite the elegant simplicity of Amazon's original business model -- cash comes in before it buys its inventory -- the company's management has learned some tough lessons about inventory flow. In 1999, to fill holes in its operations, it spent $369.6 million on acquisitions of companies and another $287 million on fixed assets. With 17 million customers, 73% of whom bring repeat business, Amazon can certainly claim to have the potential for volume. From 1999 revenues of $1.64 billion, it is expected that Amazon will amass sales of $2.75 billion in 2000, and $4.1 billion in 2001. Estimated gross margin -- revenues less cost of goods sold, which for Amazon includes shipping and packaging -- stands at around 19%. While traditional retailers haven't had tremendous success with online strategies so far, the recent trend of teaming up with an online veteran could reverse this pattern. Sears and Wal-Mart have teamed up with AOL. Kmart has an agreement with Yahoo. Those are threatening combinations to an online-only retailer that still hasn't figured out the economics of its own business.

73 EC(II) - 73 © Minder Chen, 1996-2008 Stock Performance 1Q 20001Q 1999 Revenue $573.9M$293.6M Profit(Loss) ($308.4M)($61.7M) EPS ($0.90) ($0.20) Customer acquisition costs: –$19 4Q, 1990 –$13 1Q, 2000 –5.15% Variable Profitable Margin

74 EC(II) - 74 © Minder Chen, 1996-2008 1Q 2000 Amazon customer base grew by 3.1 million to 20 million customers. Repeat customer orders represented 76 percent of orders, up from 73 percent in the fourth quarter. Amazon squeezed more value out of each customer. Amazon reported trailing 12-month sales per customer of $121, up from $107 a year ago. "We benefited tremendously" from "investment in customer experience." The "word-of-mouth benefit" is "incredibly powerful." It is still hard to find out how much the lifetime value of a customer might rise. Gross margins improved to 22.3 percent, up from 13 percent from the fourth quarter. Those improvements came from increased sales by the Amazon Commerce Network, which is an "expanding set of product and service offerings powered by partners," and efficiencies in fulfilling customer orders. Amazon network generated $19 million in the quarter. Fulfillment costs declined from the fourth quarter and accounted for 17 percent of sales.

75 EC(II) - 75 © Minder Chen, 1996-2008 July 1995 opens for business Systems beep every time a customer places an order. Constant beeping drives employees nuts. Beeper disabled. Orders, thankfully, continue. By month's end, books have been shipped to all 50 states in the U.S. and 45 countries worldwide. August 1995 Marcia, Marcia, Marcia... 12-book order shipped. Each title contains the name Marcia. Customer's name is not Marcia. September 1995 Color skin diseases atlas ships to wrong customer. Book is returned. Customer admits to "staring at it in horrified fascination for days." Customer forgives us. At last check, has placed 86 more orders. Seattle Yellow Pages listing under "bookstores" results in customers trying to place orders by phone. We were kind of hoping they'd use the Web site. We don't renew the listing. October 1995 First 100-order day. (First 100-order hour comes less than a year later. A 100-order minute is common today.) November 1995 Moved Web site in back seat of chief programmer's Honda to a new office. Site down for just 20 minutes. July 1996 Associates Program launched. First Associate is Pure-Bred PuppyNet ( Most common response in the office: "awwww..." (Today, there are more than 470,000 Associates.)Associates April 1997 David Sedaris stops in to sign copies of Naked. In the years to come, everyone from Jackie Chan to Doug Adams to Ian Frasier come to visit. (And, yes, Sedaris is just as funny in person.)David SedarisNaked Jackie ChanDoug AdamsIan Frasier May 1997 Declared Amazon.toast by the Forrester report. Declared Amazon.bomb by Barron's. appears on the NASDAQ as AMZN at split-adjusted price of $1.50.

76 EC(II) - 76 © Minder Chen, 1996-2008 July 1997 Forty-four customers coauthor online short story with John Updike, who pens the opening and closing paragraphs. editors go cross-eyed reading through the thousands of daily entries. September 1997 Instant gratification reaches new high: 1-Click shopping introduced. Lucky customer wins law school on us in contest celebrating publication of John Grisham's The Street Lawyer.The Street Lawyer October 1997 One-millionth customer places order. It's hand-delivered to Japan by Jeff Bezos. Package contains Windows NT manual and Kitty Kelly's The Royals. Every Amazon employee signs package.The Royals November 1997 Vice President Al Gore drops by. Works customer-service phone queues. Looks spiffy in headset. Doesn't do a bad job at all. January 1998 announces its 1997 bestseller list, a cool mix of fiction, design, and technology titles. February 1998 The little guy gets a leg up as Advantage launches, leveling the playing field for independent publishers. (Program now includes music and video.) Advantage April 1998 acquires the Internet Movie Database (IMDb). There is much rejoicing.IMDb May 1998 Garry Trudeau joins with customers to pen the first collaborative online comic strip, The People's Doonesbury Thousands enter panel captions each day. The outcome is a good giggle, if we do say so. outcome June 1998 Drumroll, please. Music opens for Music October 1998 We're international! and Stephen King stops by to sign a few copies of Bag of Bones. A corgi owner himself, King writes a lovely inscription in one of the copies to the original company pooch, a corgi named Rufus.Stephen KingBag of BonesRufus

77 EC(II) - 77 © Minder Chen, 1996-2008 November 1998 We're ready for our close-up, Mr. DeMille: Video Video December 1998 More than 1 million new customers shop during the holiday season. Employees from every department in the company work around the clock--wrapping, packing, and shipping orders to ensure they'll be delivered in time for the holidays. March 1999 Auctions opens, bringing virtual, gavel-dropping fun to homes worldwide. Jeff Bezos's original door desk is auctioned off for more than $30,000. The buyer: his Auctions April 1999 e-Cards launches, based on the belief that if cards were free, the world would be a better place. Woof, the waving English Bulldog, quickly pulls to the head of the e-cards e-CardsWoof June 1999 Ten millionth customer served. Customer population is now equivalent to the population of Greece (though we suspect customers actually living in Greece have superior quality of life). The order? A set of golf clubs, purchased on Auctions. becomes first Internet retailer to offer free digital music downloads to customers, with offerings from Lyle Lovett and Randy Newman to Sarah McLachlan and Public digital music downloads July 1999 Toys opens for business. Customers' Slinky needs, thankfully, are Toys Electronics opens for business, quickly upping the number of Pilots in the world's ElectronicsPilots Welcome pop cultural embrace: is the answer to a Jeopardy question and the punch line for a Jay Leno joke. October 1999 launches its Wish List service. Countless customers get presents they actually want for the holidays. Harmony reigns.Wish List

78 EC(II) - 78 © Minder Chen, 1996-2008 November 1999 Four new stores join the family: Software, Video Games, Gift Ideas, and Home Improvement (Now split into Lawn & Patio and Tools & Hardware.) Finally we provide customers with the tools they need to build shelves for all the stuff they've been buying from us.SoftwareVideo GamesGift IdeasHome Improvement We're photographically blessed--both William Wegman and Annie Leibovitz drop by for visits.William WegmanAnnie Leibovitz launches, bringing authenticated art and collectibles to the auction experience at First offerings include Austin Powers's Spy Who Shagged Me Time Machine and salvaged treasure from the "Ship of Gold," the SS Central December 1999 has now shipped 21 million items. 8:00 p.m., December 23. Deluxe Scrabble ordered. It arrives in Honolulu, Hawaii, the next day.Deluxe Scrabble Jeff Bezos,'s founder and CEO, is chosen as Time magazine's Person of the Year. Time magazine is still searching for the person who made the error.Jeff Bezos January 2000 Customers smile. New logo smiles back.New logo April 2000 Lawn & Patio store opens. Buying online gives customers more time to enjoy both lawns and patios.Lawn & Patio Step into a new Health & Beauty store at, thanks to's alliance with & Beauty May 2000 Calling all cooks! Kitchen is open for business. Yum! Kitchen Everything you need to furnish your house is just a click away: Home Living opens at, in partnership with Home Living You ain't heard nothin' yet: and Audible, Inc., team up to provide customers with spoken-word content online.spoken-word content online July 2000 20,000,000 customers now served. And we're ready for more.

79 EC(II) - 79 © Minder Chen, 1996-2008 Dell Computer In the second quarter of 1997, Dell group sales rose 68 percent to $2.8 billion. Group net profit soared 108 percent to $214 million. Dell said the company was seeing especially strong growth in its two most profitable products -- servers and workstations based on Microsoft Corp.'s Windows NT operating system. Selling more than $1 million worth of computers -- about 1,000 PCs -- over the Internet every day, 1Q, 1997. $5 million by 1Q of 1998 While the U.S. was leading in Internet sales, online sales in Japan were accelerating. A third of its desktop PC sales in Japan went over the Internet, Dell said. Premier Pages for major customers

80 EC(II) - 80 © Minder Chen, 1996-2008 Dell Web SiteDell Web Site at

81 EC(II) - 81 © Minder Chen, 1996-2008 Build Your Own Computer at Dell Web Site

82 EC(II) - 82 © Minder Chen, 1996-2008 Michael Dell "As the cost of these transactions goes down, as the cost of interaction goes down, the ability to connect different businesses together increases dramatically."

83 EC(II) - 83 © Minder Chen, 1996-2008 Major PC Distribution Channel (Excluding Direct Channel) Source: Dell Online, HBS, 1998

84 EC(II) - 84 © Minder Chen, 1996-2008 Economics: Direct vs. Online Source: Dell Online, HBS, 1998

85 EC(II) - 85 © Minder Chen, 1996-2008 Internet Service Efficiencies Technical service by phone cost $5 ~ $15 Dell logged 500,000 technical service visits a quarter. "Easability" factor: Some web site visit were the result of ease of acess and use that may not generate a phone call in the first place. Source: Dell Online, HBS, 1998

86 EC(II) - 86 © Minder Chen, 1996-2008 Dell's Premier Pages: An Extranet Source: Dell Online, HBS, 1998

87 EC(II) - 87 © Minder Chen, 1996-2008 Build-To-Order Advantages No finished good inventory Dell does not manufacture monitors and keyboards. UPS Worldwide merges the shipments of the processor, monitor, and keyboard from different origin points. The entire system is delivered together to customer door step. Tailor-made computer systems contain the latest high- margin components. Direct contact with customers allows dell to sense the trends in marketplace immediately. Selling direct to major firms such as Boeing give Dell better credit rating on its account receivables. Customers and small businesses pay for their order by credit card. Dell's cash-conversion cycle - the time it pays its creditors and the time it takes to get paid - is 8 days.

88 EC(II) - 88 © Minder Chen, 1996-2008

89 EC(II) - 89 © Minder Chen, 1996-2008 Federal Express Web-Based Package Tracking System Use CGI program to access tracking data from 4 different mainframe databases.

90 EC(II) - 90 © Minder Chen, 1996-2008 Complete Trace of Package Delivery

91 EC(II) - 91 © Minder Chen, 1996-2008 Airbill Number : 40064540324 Delivered To : Ship'g/Receiv'g Delivery Address: Delivery Location : TAIPEI (111) TW Delivery Date : 11/17 Delivery Time : 11:50 Signed For By : S.LEE Status Exception : NCOMM/NONDUTBL rcd entry port Scan Activity : Delivered TAIPEI (111) TW 11/17 11:50 Package on Van TAIPEI (111) TW 11/17 08:42 Arrived at Destination TAIPEI (111) TW 11/17 06:40 In Station Exception TAOYUAN TW 11/16 18:57 Int. Package Manifest Created MEMPHIS TN 11/14 09:38 Package Left Hub MEMPHIS TN 11/14 05:07 Package Left Hub MEMPHIS TN 11/14 03:13 Package left FedEx Ramp CHANTILLY VA 11/13 23:07 Left Origin Location CHANTILLY VA 11/13 21:19 Left Origin Location CHANTILLY VA 11/13 21:11 Picked up CHANTILLY VA 11/13 16:25

92 EC(II) - 92 © Minder Chen, 1996-2008 Results: Bottom-Line Impacts It is a successful example of self-service on the web that increases customer satisfaction. 500,000 packages per month were tracked on the site over the first six months. Saving about $125,000 per month assuming that half of them would have called FedEx 800 number that costs 50 cents per call. $50,000 for the development of the tracking feature and $50,000 for its promotion. It has become industry norms. Information about the package is as important as the package itself. FedEx is transforming into LogistEx. Information can replace inventory.

93 EC(II) - 93 © Minder Chen, 1996-2008 Source:

94 EC(II) - 94 © Minder Chen, 1996-2008 Customer places the Web order at Proflowers systematically selects appropriate grower for the order, based on the flower arrangement and distance to the customer. Proflowers then sends the appropriate delivery information to the grower and the customer. The service requirements are sent to FedEx via the Internet. FedEx ShipAPI server confirms service availability, processes the transaction, and returns laser printable shipping airbill via the Internet. Proflowers sends computer-generated fax directly to the grower's 600-dpi fax machines. Fax contains both the Purchase Order and the Shipping Airbill. Grower prepares arrangement, packs the order, and places the shipping airbill on package. FedEx picks up the order and delivers the flowers fresh within 24 hours. In A Virtual Dead Heat, Snags First Place For Flowers In Forrester's Latest PowerRankings™, Cambridge, Mass., May 12, 2000 The companies closely following are 1-800- FLOWERS.COM, PC Flowers & Gifts, and FTD.COM.

95 EC(II) - 95 © Minder Chen, 1996-2008 Cisco Distributors Customers Orders Top Tier Suppliers Shipping Lower Tier Suppliers 2 nd -Tier Suppliers... Cisco Component Suppliers Board Suppliers EDI On-line communications Consolidated orders Shipping Cisco’s B2B E-Commerce Practice

96 EC(II) - 96 © Minder Chen, 1996-2008 Cisco’s Full Customer Service: Internet Commerce Lead times PricingConfiguration Order placementOrder statusService order Invoice

97 EC(II) - 97 © Minder Chen, 1996-2008 Cisco E-Business Solutions Product Development ManufacturingMarketingSalesSupport Cisco Value Chain Manufacturing Connection OnlineCisco Connection Online Employee Connection Online Supply Chain Logistics Contact MFG Internet Commerce Customer Care Workflow HR Benefits Training Communication Collaboration Source: Adapted from Net Ready, 2000

98 EC(II) - 98 © Minder Chen, 1996-2008 “Of Every $7 Spent on E-commerce in Asia, $6 goes to non-Asian companies...” Jeff Perlman Head of Asian E-commerce VISA International

99 EC(II) - 99 © Minder Chen, 1996-2008 Web Technology and EC Software Overview Internet infrastructure and services Web technology overview EC software Internet Security and Electronic Payment Systems

100 Internet Infrastructure and Services "Nobody owns it, nobody runs it, nobody has the power to kick anybody off for good." -- Time Magazine

101 EC(II) - 101 © Minder Chen, 1996-2008 Internet: The Virtual Network & Internal Structure Computer Router A Regional Network Internet NAP ISP LAN NAP: National Access Point ISP: Internet Service Provider Telephone Company T1, T3 ISDN ADSL Cable Modem

102 EC(II) - 102 © Minder Chen, 1996-2008 Domain Name DNS (Domain Name Server): Mapping the 32-bit numeric IP address (such as to a name such as The formats of a domain name and its corresponding IP address are unrelated. The master registrar DNS database is managed by Network Solutions at edu uiuc gmu cs vax The name of a host computer with an IP address cs vax

103 EC(II) - 103 © Minder Chen, 1996-2008 Internet Services Basic services –ftp: file transfer protocol; telenet: rlogin –MIME: Multipurpose Internet Mail Extension –SMTP: Simple Mail Transfer Protocol –POP3: Post Office Protocol version 3 –IMAP: Internet Messaging Access Protocol Threaded mail, News group –NNTP: Network News Transfer Protocol Interactive information delivery –Gopher –WWW: HTTP and HTML Directory services –WHOIS, X.500, LDAP (Lightweight Directory Access Protocol) Interactive multiuser services –MUD, MUG Instant Messaging –AOL, Microsoft Directory or Indexing services –Yahoo –AltaVista: Using web robots, spiders, crawlers, and worms Push Technology –PointCast, Microsoft Active Channel Network management protocol –SNMP, SNMP2

104 EC(II) - 104 © Minder Chen, 1996-2008 Internet Development ‘75-92Future Millions of users <0.1 10s Uses FTP, e-mailWeb Speeds 2400-14.4+28.8-128K+ The PC Limited GUI, cheap modems Bandwidth NarrowMidband 100s Rich interactivity 1MB+ internet appliances Broadband ‘93-97 Protocol TCP/IP TCP/IP, ATM Media Text Pictures, audio Video

105 EC(II) - 105 © Minder Chen, 1996-2008 The Internet Phenomena Is the biggest development since original PC (Replace the operating systems on your desktop) Involved high levels of investment (Infrastructure and business models) Accelerated by rapid innovation (18-month product cycle shrinks to 3-month cycle) Started a revolution in communication, network computing, and information delivery Supported by standards such as TCP/IP, HTML, HTTP, and SNMP Served as a platform for developing and delivering client/server applications (Portability and accessibility) global reachuniversal accessProvide global reach and universal access

106 EC(II) - 106 © Minder Chen, 1996-2008 World Wide Web Definition: The WWW is a hypertext information and communication system popularly used on the Internet according to a client/server model. Web clients (browsers) can access multiprotocol and hypermedia information using an addressing scheme. Web = Hypertext + Multimedia + Network HTML: HyperText Markup Language URL: Uniform Resource Locator HTTP: HyperText Transfer Protocol Multiprotocol: HTTP, ftp, Gopher, Telnet, etc. Multimedia: Text, Graphic, Audio, Video, etc.

107 EC(II) - 107 © Minder Chen, 1996-2008 Business Scenarios Customercommunication Decisionsupport Business-to-businesstransactions Groupcollaboration Source: Microsoft, 1996 Informationpublishing Internal External

108 EC(II) - 108 © Minder Chen, 1996-2008 User Profiles and Deployment Strategies User Profile InternalExternal Client Platform Consistency YES NO General Public Customers & Vendors Mobile Workforce & Field Office In-house Users Intranet Internet Source: Adapted from “Browsing Powersoft’s Strategy for the Internet,” Powersoft, 1996. Extranet Comparison to Internet, intranet usually has –Higher bandwidth –More standardized end users' tools, particularly web browser's plug-ins –Less security concern

109 EC(II) - 109 © Minder Chen, 1996-2008 Intranet Using Internet technologies to support applications that are used by organizations internally. About 70% of Web technologies are deployed for intranet applications. Many organizations are using the hypertext-style user interfaces to deliver internal multimedia information and to provide a consistent user interface to the deployment of traditional information systems. Comparison to Internet, intranet usually has –Higher bandwidth –More standardized end users' tools, particularly web browser's plug-ins –Less security concern

110 EC(II) - 110 © Minder Chen, 1996-2008 A Spectrum of Internet Technology Applications Inside the Organization With major customers and suppliers With potential customers and general public Intranet Extranet"Internet" Internal External Information distribution and sharing Data management Collaborative learning Knowledge management Supply-chain management Procurement Customer-chain management Partnership building Inter-organization information systems Improving Customer services Tap into potential market Improve corporate image and awareness by general public Strategic Intents: B2B B2C or B2B

111 EC(II) - 111 © Minder Chen, 1996-2008 Client/Server vs. Internet

112 Web Technology Overview

113 EC(II) - 113 © Minder Chen, 1996-2008 Web Application Spectrum Linked (static) content: most of what you experience today Dynamic HTML: higher-impact content, simple server-driven dynamic elements Data-bound applications: data-driven Web applications Interactive applications: active server applications built on reusable components Personalization: fully synthesized content based on user preferences and behaviors (e.g., One-to-one from Active Static Dynamic and Active Web Applications Are Inevitable Web Web Web-based Publishing PresenceElectronic Commerce Adapted from Microsoft, 1996

114 EC(II) - 114 © Minder Chen, 1996-2008 Web Site Client-Server Model of WWW Web Server Web Client 1 Requesting a document via a URL address Connection open helper app Web contents HTML documents Graphics Flash* Video clips Sound bites Java applets JavaScripts CGI scripts Database access Static Dynamic 2 Returning MIME- compliance document Connection close Internet or Intranet Plug-In

115 EC(II) - 115 © Minder Chen, 1996-2008 Simple WWW Architecture: Static Web Pages Web Browser Web Server Web Client Web Server This is my company's home page Internet or Intranet HTTP Protocol HTML Files AI TC Web This is my company’s home page AI TC Web This is my company’s home page WAP: Wireless Access Protocol WML: Wireless Markup Language

116 EC(II) - 116 © Minder Chen, 1996-2008 HTML Sampler

117 EC(II) - 117 © Minder Chen, 1996-2008 HTML Source Code HTML Sampler Web Page HTML Sampler List: Item 1 Item 2 Item 3 Name Specialty Minder Chen MIS Justin Chen Aerospace A sample of a form: <form method="post" action="" > Name: Know HTML Developed by Advanced IT Consulting Listing Table Form

118 EC(II) - 118 © Minder Chen, 1996-2008 Web server CGI Perl Web browser client Perl scripts Simple applications Process Process HTTP Any EXEcutable Web Server Extensibility CGI (Common Gateway Interface) The CGI scripts usually are on the same computer where the web server is or can be located on a different computer across the network. Reference:

119 EC(II) - 119 © Minder Chen, 1996-2008 Server-Side Scripting: ColdFusion Architecture xxx.cfm … … …

120 EC(II) - 120 © Minder Chen, 1996-2008 Using Cookies for State Maintenance and Tracking Browser Workstation Web Server Set cookie entry Return cookie entry

121 EC(II) - 121 © Minder Chen, 1996-2008 Web Development Tools & Technologies HTML Authoring Tools & Web Site Management tools –Deamweaver from Macromedia –PageMill from Adobe –FrontPage from Microsoft –Domino from Lotus Web Server APIs: –NSAPI programs from Netscape –ISAPI programs from Microsoft Java: Downloadable Java Applets and Java Servlets Scripting Languages (Client-side and Server-side): –JavaScript and LiveWire Pro for Compiled Server-side JavaScript from Netscape, Java Server Page (JSP) –Visual Basic Script and Active Server Script from Microsoft Database Integration Tools: –MS Visual InterDev –Cold Fusion from Allaire Web-Enabled Client/Server Development Tools –Visual Basic 6.0 –PowerBuilder from PowerSoft

122 EC(II) - 122 © Minder Chen, 1996-2008 Java Java is a web and general-purpose language. Based on C/C++ syntax. Use standard class libraries (AWT, file I/O, networking, threads). Java is simple, object-oriented, compiled, architecture neutral, multi-threaded, garbage collected, robust, small, fast, secure, and extensible. More info: – – –

123 EC(II) - 123 © Minder Chen, 1996-2008 Downloading and Running Java Applets Java source codes Java Compiler Java byte- codes Source Computer Java byte- codes Target Computer Internet Verification Execution Restricted Area (Sand Box)

124 EC(II) - 124 © Minder Chen, 1996-2008 JavaScript Is a scripting language Responds to user input Used for developing client-side Dynamic HTML based Internet applications Can communicate with Java applets Source code is embedded as part of an HTML page and executed on the client-side Can be used on server-side

125 EC(II) - 125 © Minder Chen, 1996-2008 Web Server Web Server Application Server Application Server Data Base Server Data Base Server Wrapper LegacyApplication ApplicationServer For Supplier Partner XML Client A Web Reference Architecture There are two common (and competing) Web infrastructure technologies available today –Java/Unix –Windows DNA / Microsoft.NET Internet

126 EC(II) - 126 © Minder Chen, 1996-2008 Java 2 Enterprise Edition JDBC Java Servlets and Java Server Pages Java Beans and Enterprise Java Beans Database E-Mail Directory LDAP

127 EC(II) - 127 © Minder Chen, 1996-2008 JSP, Servlets, EJB JavaServer Pages (JSPs) –JSPs are essentially HTML pages with small amounts of Java code -- scriptlets. When subsequently invoked by a controller at run time, the JSP is compiled into a servlet -- a servlet responsible for building a page. Servlets –server applications that execute within a Web application server that supports dynamic HTML. –The Java Servlet API gives Web developers a simple, consistent way to extend the functionality of a Web server. Enterprise Java Beans EJB –non visual server side transactional components that are reusable and provide portability across application servers while abstracting transaction services »Persistence »Session Management

128 EC(II) - 128 © Minder Chen, 1996-2008 MTS DCOM 3 Tier Architecture: Microsoft TechnologyPresentation Business logic Data services Web Browser Others Internet Information Server \ LDAP Server SQL Server Directory Microsoft Exchange MSMQ Components HTTP LDAP

129 EC(II) - 129 © Minder Chen, 1996-2008 Web-Based Collaborative Tools Internet Phone – Internet Video Conference & Shared Electronic Whiteboard –CU-SeeMe from –NetMeeting from Microsoft –CoolTalk from Netscape Streaming Video and Audio –RealAudio and RealVideo from Progressive Networks at –NetShow from Microsoft Virtual Reality –Virtual Reality Modeling Language (VRML)

130 EC(II) - 130 © Minder Chen, 1996-2008 Building EC Applications Internet Appliances

131 EC(II) - 131 © Minder Chen, 1996-2008 E-Commerce Network

132 EC(II) - 132 © Minder Chen, 1996-2008 Server-Side Caching Environment

133 EC(II) - 133 © Minder Chen, 1996-2008 Dell Architecture Tandem Mainframe NetWeave Internal Credit Verification System Microsoft SQL Server 6.5 Cisco Routers 2501 or 4700 and distributed Director Dell PowerEdge Dual 200 MHz Pentium Pro Processors Windows NT Server 4.0 running 512K cache Microsoft Internet Information Server Microsoft Site Server Commerce Edition Web Clients BACK -END Web/Commerce Servers FRON - END Firewall

134 EC(II) - 134 © Minder Chen, 1996-2008

135 EC(II) - 135 © Minder Chen, 1996-2008 HTML and XML Plain English Course List: AITC offers Intr. to XML a basic-level course on May 29, 1999 Price $220 at Reston Lab HTML Co urse List Course List AITC offers Intr. to XML basic-level May 29, 1999 Price $220 Reston Lab XML AITC Intr. to XML May 29, 1999 220 Reston Lab Courselist.htm Courselist.xml Courselist.doc

136 EC(II) - 136 © Minder Chen, 1996-2008 Example of a DTD <!DOCTYPE PLANTLIST [ ]> Columbine Aquilegia canadensis Cowslip Clatha palustris DTD: Document Type Definition

137 EC(II) - 137 © Minder Chen, 1996-2008 Business to Business Web Server DataBots Information System Database Company_A Web Server DataBots Information System Database Company_B Supplier Purchaser 1. Supplier push Catalog 2. Buyer download DTD 3. Buyer send XML order 4. Supplier Process XML documents 5. Messages processed to/from other system and database 6. Supplier send confirm message in XML 7. Payment, delivery… messages in XML 8. Repeat 4-6

138 EC(II) - 138 © Minder Chen, 1996-2008 Web Server Content CGI Scripts etc. WML Decks with WML-Script WAP Gateway WML Encoder WMLScript Compiler Protocol Adapters Client WML WML- Script WTAI Etc. HTTPWSP/WTP The WAP Architecture

139 Electronic Commerce: Software

140 EC(II) - 140 © Minder Chen, 1996-2008 E-Commerce Software Landscape Hosted: Web portal and service provider Packaged: –Sell-side »Open Market Transact & LiveCommerce »iPlanet / Netscape Seller Xpert »Microsoft Site Server Commerce Edition »IBM Net.Commerce (Commerce Suite) »BroadVision –Buy-Side »iPlanet Netscape BuyerXpert »Ariba ORMS »GE's TPN »PurchasePro –Marketplace »CommerceOne »iPlanet: Market Maker System integration services: USWeb, AppNet, Proxicom Custom development Source: Doculabs

141 EC(II) - 141 © Minder Chen, 1996-2008 EC Software Netscape CommerceXpert – Microsoft Site Server Commerce Edition – Open Market: OM-Transact, OM-Axcess, OM-SecureLink Executive, ActiveCommerce DB, Secure Web Server. –Http://; $250,000 per server license –Charge $3,000 per storefront to service providers IBM Net.Commerce / Commerce Suite – BroadVision: One-to-One Commerce for B2C and B2B – $150,000 per server license iCat/Intel: iCat Electronic Commerce Suite 3.0 at – Macromedia Drumbeat 2000 + Drumbeat 2000 eCommerce – Spectra from Allaire – Miva Miva Merchant –

142 EC(II) - 142 © Minder Chen, 1996-2008 Special EC Software Content management Wireless web site ORMS (Operating Resource Management) System for eProcurement from Ariba. $500,000 eCRM from MicroStrategy Siebel from Siebel Systems Inc. mySAP from SAP

143 EC(II) - 143 © Minder Chen, 1996-2008 EC Hosting Yahoo!.Store – – zShop – MerchantPlanet by MSN LinkExchange – –

144 EC(II) - 144 © Minder Chen, 1996-2008 Commerce Service Providers (CSP) AT&T SecureBuy Services – GE Information Services: E-Procurement – 50% of top sites are using hosting services Commerce Server Products for ISP: –OpenMarket –IBM –Microsoft –InterShop –Miva

145 EC(II) - 145 © Minder Chen, 1996-2008 Test Drive Yahoo Store at

146 EC(II) - 146 © Minder Chen, 1996-2008 Auction Software Microsoft –Site Server Commerce Edition 3.0 Auction Component Moai Technologies –LiveExchanges 2.1 OpenSite Technologies –OpenSite Auction 3.1 WebVision –WebTopolis Auction Net Source:

147 EC(II) - 147 © Minder Chen, 1996-2008 The Online Shopping Expedition Product Displays & Search

148 EC(II) - 148 © Minder Chen, 1996-2008 Cross-Selling and Up-Selling

149 EC(II) - 149 © Minder Chen, 1996-2008 Personalization

150 EC(II) - 150 © Minder Chen, 1996-2008 E-Commerce Infrastructure Components Electronic Payment Systems Business Logic and Data Site Administration Site Analysis Marketing & Ad. Banner Management Affiliate Program Product Category and Search Order Taking and Tracking Shipping and Tax Calculation Order Fulfillment Collaborative Filtering & Cross- Selling Systems Services and Administration Loading balancing Scalability Failover / backup Database connection pooling Personalization and Memberships Customer feedback and Interactions Hosting Bandwidth Server Hardware Server Software Database Transaction server Development tools Backoffice Operations

151 EC(II) - 151 © Minder Chen, 1996-2008 EC Hosting Setting up your own web site: If you have experiences of running 24 x 7 computer systems or if you are willing to hire such expertise (A full-time web master cost you $70,000) Hosting services: –50% of top sites are using hosting services Malls: regardless of where the virtual stores are located, the store can have the appearance of being in the mall by being hot-linked to it. Virtual stores can be in more than one virtual mall without opening branch stores.

152 EC(II) - 152 © Minder Chen, 1996-2008 Security and Other Issues Accepting On-line Payments Cryptography: Encryption Digital Signatures Certificate Authorities: VeriSign Internet Security –Firewall »Packet-filter based on IP addresses »Proxy firewalls or application firewalls based on context, authorization, and authentication rules –Secure Socket Layer (SSL): Use Verisign as Certificate Authority –Secured Electronic Transaction (SET) Working with Your Merchant Bank to obtain a merchant account Payment Service Providers

153 EC(II) - 153 © Minder Chen, 1996-2008 Electronic Payment Systems As the Internet continues to transform commerce as we know it, the method of payment is one component which is critical to successfully conducting business across a network. Existing on-line payment options and help you select the best ones for your virtual store. –On-line credit card payments processing: CyberCash, VeriFone, ICVERIFY, CyberSource –Electronic cash which is offered by CyberCash, DigiCash and First Virtual. –Micropayment –Person-to-person payment such as from Citygroup and

154 EC(II) - 154 © Minder Chen, 1996-2008 The Internet Payment Process Consumer Merchant or Commerce Server Gateway Acquiring Bank Banking Network Issuing Bank Browser Credit card info checking account info Digital cash Receipt management Security Transaction management Security Chargeback/ return management Capture/ settlement Protocol conversion over SSL or private network Stand-in authorization/ management Security Financial host interface Authorization Settlement Authorization Settlement Other Business Processes Inventory Accounting Fulfillment Marketing Monthly statements

155 EC(II) - 155 © Minder Chen, 1996-2008 EC: Implementation Evolution of EC implementation EC site life cycle EC site design issues Promotion and marketing Net readiness evaluation

156 EC(II) - 156 © Minder Chen, 1996-2008 Business Vision

157 EC(II) - 157 © Minder Chen, 1996-2008 Transact Manage Payment Advertising Order processing Fulfillment Merchandising Lead generation Customerservice Objectives Of An eCommerce Site Engage

158 EC(II) - 158 © Minder Chen, 1996-2008 The Evolution of EC Implementation Maturity Functionality Publishing (Brochure-ware) Advertising Marketing Information Customer Interactivity Registration / Forms Email Games / Chat room / eForum Web-based Transaction Product database queries / Search Electronic Payments Fund transfer Process Integration Fulfillment Settlement Workflow Extension eCRM eProcurement / SCM eMarketplace / Auction 1:1 Relationship Real-time organizations Communities of Interests Marketplace creator

159 EC(II) - 159 © Minder Chen, 1996-2008 EC Site Life Cycle

160 EC(II) - 160 © Minder Chen, 1996-2008 EC High-level Functions Content Management Product/Service Management Workflow and Process Automation Role-based Security Personalization Syndication (Partnership) Business Intelligence (Web site analysis)

161 EC(II) - 161 © Minder Chen, 1996-2008 Web Development Life Cycle Identify goals –Every web site has goals –Work with clients to define them –Multiple goals Identify target users –User platforms –Technical knowledge of the user –Domain knowledge of the user Determine task requirements Design the web site –Determine the major themes of the web sites –Define navigation maps Implement the web site Evaluate the web site Modify and improve the web site

162 EC(II) - 162 © Minder Chen, 1996-2008 Participants of EC Site Development

163 EC(II) - 163 © Minder Chen, 1996-2008 Deployment Strategies Build Buy a Package EC ASP Application Service Provider E-Trade If IT is your differentiating factor Visteon Fast deployment Internal infrastructure is still needed France Telecom Canned solutions No infrastructure costs

164 Web Site Architecture Design Example

165 EC(II) - 165 © Minder Chen, 1996-2008 Site Elements Home page –Menu-driven –News-oriented –Path-based –Splash screens or image maps Graphics and texts Submenus pages and subsites (alternative home pages for special audiences) Tables of contents, site indexes, site maps Product/service/information pages "What's new" pages Search features Contact information –Street address, phone number, fax numbers, maps, travel directions, parking information User feedback and victual community pages Bibliographies and appendixes FAQ (Frequently Asked Questions) pages Customized server error pages Source: Web Style Guide

166 EC(II) - 166 © Minder Chen, 1996-2008 Planning the Virtual Stores Identify the type of virtual store (VS) –Soft goods, Hard goods, Services Use net for selling & distribution? –No: Use VS to reduce cost –YES: Sell on-line Set realistic goals Use VS to cut costs –Presale: marketing costs –Postsale: Customer support costs Locate your VS –Hosting services, Malls, Maintain your own web site Design good shopping experiences –To maximize price, efficiency, and sensual experiences, etc. Get to know your customers –Subscription-based, Session-based, Questionnaires Advertise and promote your store –On the net, Off the net Accept payment on-line –Credit cards, Coins, Cash, and Checks Keep up with regional, national, and international laws

167 EC(II) - 167 © Minder Chen, 1996-2008 Promotion and Marketing Key words used in searches of your sites must be present in your top- level home page. Get Listed on the News groups: For general announcement of new websites: comp.infosystems.www.anounce Negotiate Mutual Pointers with sites trying to attract audience similar to your audience. Online Resource: Buying banners on search engine sites or other relevant web sites. Purchasing a storefront at a virtual mall. Publicizing your web sites through traditional marketing media, such as printed brochures, business cards, newspaper ads. Sites to Help You Submit Your: SiteThese sites will submit your site to many search engines and directories for you. –B C entral: –The Promoter: -- submits to search engines and link pages for free.The Promoter –Submit-it!: -- submits to more than 400 search engines and link pages.Submit-it! –WebStep 100: -- submits to top web sites for free.WebStep 100 –Virtual Stampede: Stampede

168 EC(II) - 168 © Minder Chen, 1996-2008 Net Readiness Leadership –Senior management driving EC –Internet strategy defined –Integrated with business strategy Governance / Operating Model –Roles, responsibilities and accountabilities clearly defined –Funding model established –Organized to deliver Technology –Scalable infrastructure in place –Standards and tools defined Organizational Competency –Recruiting and development of resources –Skill sets in place –EC and E-Business culture established

169 EC(II) - 169 © Minder Chen, 1996-2008 E-Business Value Matrix Low High Adapted from: Net Ready, 2000 Practice Innovation Business Criticality High Low Operational Excellence Breakthrough Strategies New Fundamentals Rational Experimentation Efficiency New Value Creation Reengineering Leveraging strength Efficiency focused High risk Low / Moderate risk Cost saving Webification Experience building New market segments Business model shift New revenue source Market creation New business model Shift industry dynamics

170 EC(II) - 170 © Minder Chen, 1996-2008 Project Prioritization Matrix Low High Adapted from: Net Ready, 2000 Ease of Execution Business Impact High Low Money Pits Must Haves Quick Wins Low-Hanging Fruit

171 EC(II) - 171 © Minder Chen, 1996-2008 EC: Investment and Opportunities Internet / EC industry analysis EC Firms and Stock market EC investment pyramid

172 EC(II) - 172 © Minder Chen, 1996-2008 EC Business Opportunities New business models and ideas are driving EC initiatives. Internet technologies are enablers. Innovative Ideas, Business models, and Business strategies Funding Business and technical talents Technological enablers

173 EC(II) - 173 © Minder Chen, 1996-2008 Internet Economy Indicators Revenue and Growth Summary by Layer and Total Internet Economy (in billions) Source:

174 EC(II) - 174 © Minder Chen, 1996-2008 The Four Layers of the Internet Economy Layer One: The Internet Infrastructure Layer –This layer includes companies with products and services that help create an IP based network infrastructure, a prerequisite for electronic commerce. –The categories in this infrastructure layer include: »Internet backbone providers (e.g., Qwest, MCI Worldcom) »Internet service providers (e.g., Mindspring, AOL, Earthlink) »Networking hardware and software companies (e.g., Cisco, Lucent, 3Com) »PC and Server manufacturers (e.g., Dell, Compaq, HP) »Security vendors (e.g., Axent, Checkpoint, Network Associates) »Fiber optics makers (e.g., Corning) »Line acceleration hardware manufacturers (e.g., Ciena, Tellabs, Pairgain)

175 EC(II) - 175 © Minder Chen, 1996-2008 Layer 2 Layer Two: The Internet Applications Layer –Products and services in this layer build upon the above IP network infrastructure and make it technologically feasible to perform business activities online. –The categories in this applications layer include: »Internet consultants (e.g., USWeb/CKS, Scient, etc) »Internet commerce applications (e.g., Netscape, Microsoft, Sun, IBM) »Multimedia applications (e.g., RealNetworks, Macromedia) »Web development software (e.g., Adobe, NetObjects, Allaire, Vignette) »Search engine software (e.g., Inktomi, Verity) »Online training (e.g., Sylvan Prometric, Asymetrix) »Web-enabled databases (e.g., Oracle, IBM DB2, Microsoft SQL Server, etc; only Internet/intranet related revenues are counted)

176 EC(II) - 176 © Minder Chen, 1996-2008 Layer 3 Layer Three: The Internet Intermediary Layer –Internet intermediaries increase the efficiency of electronic markets by facilitating the meeting and interaction of buyers and sellers over the Internet. They act as catalysts in the process through which investments in the infrastructure and applications layers are transformed into business transactions. –The categories in this intermediary layer include: »Market makers in vertical industries (e.g., VerticalNet, PCOrder) »Online travel agents (e.g.,, »Online brokerages (e.g., E*Trade,, DLJDirect) »Content aggregators (e.g., Cnet, ZDnet, »Portals/Content providers (e.g., Yahoo, Excite, Geocities) »Internet ad brokers (e.g., Doubleclick, 24/7 Media) »Online advertising (e.g., Yahoo, ESPNSportszone)

177 EC(II) - 177 © Minder Chen, 1996-2008 Layer 4 Layer Four: The Internet Commerce Layer –Internet commerce involves the sales of products and services to consumers or businesses over the Internet. –The categories in this Internet commerce layer include: »E-tailers (e.g.,, »Manufacturers selling online (e.g., Cisco, Dell, IBM) »Fee/Subscription-based companies (e.g.,, »Airlines selling online tickets »Online entertainment and professional service

178 EC(II) - 178 © Minder Chen, 1996-2008 Costs of Setting a Web Site for EC Transaction-based site of 20 large companies Costs (in thousand): Hardware: $150-200 Software:$10-50 Staffing, custom development and design,$500-800 Annual support and maintenance $180-200 Total: $840-1,250 The average site cost about $1 million to development and one year to launch A transaction-based site is about 10 times that of a promotional site.

179 EC(II) - 179 © Minder Chen, 1996-2008 Marketing Costs ( 40% 20% $300 $200 $100 $0 Quarterly revenue (millions) Marketing expenditure as a percentage of sales 1996 1997 1998 1999 Q1 Source: Now or Never, 2000

180 EC(II) - 180 © Minder Chen, 1996-2008 Technology Investment (eBay) 40% 20% $40 $30 $20 $0 Quarterly revenue (millions) Technology expenditure as a percentage of sales 1996 1997 1998 1999 Q1 Source: Now or Never, 2000 $10 Significant web site upgrades

181 EC(II) - 181 © Minder Chen, 1996-2008 Marginal costs Once an Internet business achieves a large enough scale, marginal costs fall by an order of magnitude. Reduction in marginal costs in four areas: –Cost of promotion –Cost of taking order –Cost of market reach –Cost of shelf space

182 EC(II) - 182 © Minder Chen, 1996-2008 Zeroing Out Marginal Costs Revenue Cost Time Dollars Revenue Cost Time Dollars Early Investment Builds revenue momentum Under-Investment Results in insufficient revenue growth Source: Now or Never, 2000

183 EC(II) - 183 © Minder Chen, 1996-2008 usiness/plan/2/hi16001_p.htm

184 EC(II) - 184 © Minder Chen, 1996-2008 Three Proven Models for Internet Ventures Wholesale transformation Risk balancing Venture participation Strategy Realignment of entire business around EC Create an internet business separate from the rest of the organization Formation of a venture capital group to fund several different internet business Who Companies who believe most or all of their business will one day be done electronically Companies with customers distributed between technology optimists & pessimists Companies with a complex compilation of business units Benefits Companies that commit early to this strategy emerge as more powerful industry players Risk is spread and early adopters are served without jeopardizing traditional business Use currently profitable business to fund a future internet position Pitfalls Investors, customers, or employees may rebel Rewards are shared and brand erosion is possible. Company-owned venture groups can be limited by culture or tradition Source: Now or Never, 2000

185 EC(II) - 185 © Minder Chen, 1996-2008 Strategic Investment in EC  Does the initiative target a valuable customer segment?  Does it improve the quality of customer service?  Does it reuse existing IT infrastructure?  Does it give the company a commanding market- share lead from being first to market?  Does it help the company learn more about its customers?  Is it a strategic fit with other existing ventures?

186 EC(II) - 186 © Minder Chen, 1996-2008 Ten Fallacies of Internet Startups We are the only ones doing this on the web. It's OK, they signed an NDA (Non-Disclosure agreement). We don't need no stinking revenue model We are going to have a million users by year-end. The front end (web site) isn't as important as the back end (logistic system). We have to launch all the features as soon as possible. We don't need to test our site, it's perfect. We will hire a help desk person later. Programmers will make it in by 9:00 a.m. Everyone will put in 90-hour weeks for meager wages and a lot of stock. Source: Red Herring, Feb. 2000, pp. 68-69

187 EC(II) - 187 © Minder Chen, 1996-2008 Capital Markets Market Cap (4/16/99) $11.6 Billion $ 4.3 Billion $ 2.5 Billion Who Can Afford Not to Play in the Internet EC Space? Cap: 9.771B Share: $57 7/16

188 EC(II) - 188 © Minder Chen, 1996-2008 How Important is E-Business? Revenue: $30M Margin: ($80M) Market Cap: $4.6 Billion Revenue: $11B Margin: $376M Market Cap: $3.6 Billion eToys* ToysRUs *Estimate Based on SEC S1 Filing and Q1 Results, 1999 821.4M 3.652B May 6, 2000

189 EC(II) - 189 © Minder Chen, 1996-2008 Investors Reward "Dwell" Time “search engine” “content aggregation” $452 Million “custom content” $3.1 Billion “sticky services” $23.6 Billion “the truly personal” $37.9 Billion (4/16) 1995 1996 1997 1998 1999 “community” ?? Traffic (no. of hits and visitors) How long a visitor stay in a web site Browser/Buyer Ratio or click-through ratio 68.281B as May 5, 2000

190 EC(II) - 190 © Minder Chen, 1996-2008 Product Categories Processing products: –Search engine Media Products –News, movies, investment information Communication products –My-Yahoo –Instance messaging –Electronic calendar –Email

191 EC(II) - 191 © Minder Chen, 1996-2008 Apr 14, 2000 closed at 3321.29 Change -355.49 (-9.67%)

192 EC(II) - 192 © Minder Chen, 1996-2008 Internet Winners and Losers: 04/14/2000 WinnersLosersIndexes Peapodup 27.5% Proxicomdown 27.4% DJIA -616.23 PSINetup 5.6% down 26.7% (-5.64%) eBayup 0.5% BroadVision down 25.9% NASDAQ-355.63 Sun Microsystems up 0.3% CyberGold down 24.8% (-9.67%) FreeMarketsup 0.8% VerticalNet down 24.5%

193 EC(II) - 193 © Minder Chen, 1996-2008 Internet Winners and Losers: 04/17/2000 WinnersLosersIndexes CMGI up 24.9% Value America down 19.9% DJIA +276.74 Ubid up 22.9% down 18% (+2.69%) Exodus up 22.1% ZDNet down 17.5% NASDAQ +217.87 Broadcom up 21.5% down 15.1% (+6.56%) Linux Systems up 21%SportsLine down 14.7%

194 EC(II) - 194 © Minder Chen, 1996-2008 Stock Market Allocation of capital to firms based on their tangible and intangible assets, earning, profit, and potential growth. Group psychology Group psychology Gambling Segment tracking

195 EC(II) - 195 © Minder Chen, 1996-2008 Stock Price Lower Costs High Revenues Faster Growth Rate Internet Business Higher Earning Market Assigned P/E Ratio Higher Stock Price Source: e-Profit

196 EC(II) - 196 © Minder Chen, 1996-2008 E-Commerce Application vs. Intangible AssetsIntangibleAssets E-Commerce Applications Sources of Value Customer relationships Web-based sellingIncreased revenues; More efficient order fulfillment Customer information PersonalizationIncreased revenues per customer Supply purchasing volume Electronic procurement Volume discount; More efficient administration costs Technical service information Web-based self-service Lower technical service costs

197 EC(II) - 197 © Minder Chen, 1996-2008 Value American May 1, 2000. Business Week,

198 EC(II) - 198 © Minder Chen, 1996-2008 The Facts and Fictions The ''frictionless'' business model The store would carry no inventory and ship no products. Instead, it would pick up orders from consumers and immediately transmit them to manufacturers who would ship products direct to customers. It featured more than 1,000 brand names, many in multimedia presentations online. Most orders were handled by the ultimate middlemen: old- fashioned distributors. Buzz words: –''the marketplace of the millennium'' –''alliances of consumption with alliances of production'' –''friction-free capitalism'' The worst excesses of the New Economy, particularly the notion of building a business empire where sales--not profits--came first. –Value America spent even more, second only to E*Trade Group in the size of its marketing budget in the first nine months of 1999. For the year, its ad spending hit $69.6 million.

199 EC(II) - 199 © Minder Chen, 1996-2008 August 14, 2000. Friday, Value America announced that in was filing for Chapter 11 bankruptcy protection, and laying off 46 percent of its already reduced workforce. The Internet retailer also shut down its Web site, saying it doubted the site's ability to turn a profit. "It has become apparent that the prospect for near term profitability of a company engaged exclusively in the retail side of the electronic commerce industry is not assured," CEO Glenda Dorchak said in a release. The company will now focus on its services business, developing online operations and infrastructure systems for third party manufacturers, vendors and distributors. In a release, the company said investors and acquirers already expressed interest in the electronic services business proposition. Value America was one of the first online retailers to crash, laying off half of its staff in December 1999, when its two founding members resigned and the company issued earnings warnings for the end of the year.laying off half of its staff In May, Value America was able to convince investors Vulcan Ventures, Pacific Capital Group and Frederick W. Smith, chairman of FDX Corp. and Federal Express to pump an additional $30 million into the pump an additional

200 EC(II) - 200 © Minder Chen, 1996-2008 MicroStrategy: DSS and Data Warehouse Personalized information provider eCRM Intelligent e-Business software vendor

201 EC(II) - 201 © Minder Chen, 1996-2008 History Repeated Itself Name almost any major industry -- radio, autos, airlines, oil -- and it likely started out just like the Web. Exciting new technology. Dreams of glory, wealth and fame. Many small competitors. Much upheaval. Many failures. So far, the dot-coms are right on schedule. If history is any gauge, the current period of turmoil and consolidation will leave a few dominant companies at the top -- for a while. Leaders will emerge in niche markets profitable enough to sustain competition. Meanwhile, the next generation of innovators will be toiling away in stealth mode somewhere, dreaming their own dreams of glory and success. Boom and Bust: The dot-com downturn is no surprise to business historians. They've seen it all before. By MELINDA PATTERSON GRENIER at WSJ.COM, November 7, 2000

202 EC(II) - 202 © Minder Chen, 1996-2008 Sampling of Internet Business Financial Data (1Q, 2000) Revenue Profit (Loss) EPS Revenue Profit (Loss) EPS $573.9M($308.4M)($0.90) $293.6M($61.7M)($0.20) $313.8M($13.6M)($0.08) $49.4M($17.2M)($0.27) $207.6M($32.8M)($0.28) $107.9M($19.3M)($0.22) Network Solutions $98.2M$14.7M$0.21 $38.1M$4.8M$0.07 eBay $85.8M$6.3M$0.05 $42.8M$3.8M$0.04

203 EC(II) - 203 © Minder Chen, 1996-2008 The Market Capitalization of Net Companies (May 3, 2000) Company Current market value ($million) % change from 52-week high$112-80 Autoweb.com86-87 Beyond.com79-94 CDNow110-85 E*Trade5,500-68 E-Loan250-92 Egghead.com172-83 eToys844-92 InsWeb95-94 Musicmaker.com72-92 Peapod59-80 Stamps.com593-85 Value America91-95

204 EC(II) - 204 © Minder Chen, 1996-2008 EcoNet Examples: –CMGI –Internet Capital Group –Divine InterVenture –IdeaLab –eCompanies –HotBank (a subsidiary of SoftBank) Mission: –To incubate Internet companies, accelerate them to market, and prepare them for lightning-speed IPOs. –Spinning companies into their networks and gluing them tightly knit, yet loosely controlled conglomerates. –Speed to market

205 EC(II) - 205 © Minder Chen, 1996-2008

206 EC(II) - 206 © Minder Chen, 1996-2008 EC Pyramid B2C B2B EC Systems Integration EC VC / Incubator EC Hosting/ Tools EC Marketing E-Payment and Security Broadband Network Wireless Access Brick & Mortar Virtual Store / Pure Play Entry Point Long term goal Short term target ISP ICP ASP

207 EC(II) - 207 © Minder Chen, 1996-2008 Future EC Trends Broadband internet connection: I.e., ADSL, Cable modem Streaming media and web-based learning More interactive virtual community Customization and personalization Mini-portal and corporate portal Affiliate partner Multiple-channel integration E-commerce is driving E-business Affordable EC software and hosting service for small- medium-size companies Emerging standards such as XML to enable Business-to- Business electronic commerce

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