1. 5-1 5 Chapter Enabling Commerce Using the Internet “There is no physical analog for what Amazon.com is becoming.” Jeff Bezos Cofounder and long-time CEO of Amazon.com

2. 5-2 Learning Objectives

3. 5-3 Learning Objectives

4. 5-4 Electronic Commerce Online exchange of goods, services and money Second quarter of 2006 o 2.7% of total retail revenue o $24.8 billion in revenue

5. 5-5 Most Common Types of E-Commerce Business-to-consumer (B2C) o A person buys a book from Amazon.com Business-to-business (B2B) o Retailer like Wal-Mart ordering from distributors Business-to-employee (B2E) o Employee uses the Web to change employee benefits Consumer-to-consumer (C2C) o One person purchases from another on eBay

6. 5-6 Other Types of E-Commerce Government-to-citizen (G2C) o A person filing income taxes online Government-to-business (G2B) o Government purchases supplies using Internet-enabled procurement system Government-to-government (G2G) o Foreign government accessing U.S. federal regulations

7. 5-7 Key Capabilities of the Web

8. 5-8 Information Dissemination Firms across the world have access to customers Economical medium for marketing products and services Increased geographical reach

9. 5-9 Integration Integration of information via Web sites Real-time access to personalized information No time lag between company decisions and customers’ ability to access these

10. 5-10 Example: Integration Alaska Airlines customers can access their mileage program any time o Real-time link between company database and customer

11. 5-11 Mass Customization Meeting particular customers’ needs on a large scale Timbuk2.com o Custom Messenger Bag Builder Customers create a virtual bag Preference-tracking helps Timbuk2 in marketing efforts

12. 5-12 Interactive Communication Immediate feedback between company and customers o E-mail notifications o Customer service online chat Best Buy o Geek Squad o 24-hour computer support

13. 5-13 Collaboration Virgin Entertainment Group o Microsoft SharePoint o Managers: spend more time selling products o Head office: more time for strategic planning

14. 5-14 Transaction Support Internet and the Web: o Reduced transaction costs o Enhanced operational efficiency Dell – automated transaction support o Cost savings per sale Disintermediation

15. 5-15 E-Commerce Business Strategies Differentiated based on levels of physical/virtual presence

16. 5-16 Brick-and-Mortar Business Strategy Physical locations only Traditional stores Cons: Limited geographical reach

17. 5-17 Click-Only Business Strategy Business conducted in cyberspace - no physical location Virtual companies Cons: Customers uncomfortable with online transactions No face-to-face interaction with customers

18. 5-18 Click-and-Mortar Business Strategy Bricks-and-clicks business strategy Hybrid strategy Cons: Added complexity combining 2 different environments

19. 5-19 Example: Click-and-Mortar Company

20. 5-20 Ingredients of a Business Model A plan of how to achieve EC success

21. 5-21 Common Revenue Models for EC Most important ingredient of business model How will the firm earn revenue?

22. 5-22 Learning Objectives

23. 5-23 Business-to-Business E-Commerce Extranet o Enables firms to do business together (B2B) o One of best ways for organizations to gain return on technology-based investments o Boeing 1,000 authorized business partners o Nearly all Fortune 1,000 companies deploy some type of B2B applications

24. 5-24 Electronic Data Interchange (EDI) Used prior to the introduction of the Internet EDI used for B2B systems Digital or electronic transmission of business documents between organizations o Value-added networks (VAN) o Dedicated circuit between companies

25. 5-25 Advantages and Disadvantages of EDI Advantages o Streamlining business processes o Reduction of error rates Disadvantages o Costly o Mid-size and small companies disadvantaged

26. 5-26 Extranets New, more affordable alternative to EDI Advantages o Improved timelines and accuracy of information o Central management of documents o Cross-platform nature o Low cost of adoption o No specific user training required

27. 5-27 Extranet System Architecture Internet-based application Virtual private network (VPN) used to secure information transmission Used to manage supply chains

28. 5-28 Intranets Business-to-employee (B2E) electronic commerce Internet based private network using Web technologies Boeing o More than 1 million pages o 200,000 employees

29. 5-29 Intranet System Architecture Internet-based application Firewalls used for security o Software placed between LAN and the Internet VPN used to access intranet from remote locations

30. 5-30 Intranet: Training Boeing Company o 200,000 employees get trained o Quality eTraining program Catalogue of courses Online course content Standardized courses o Business improvements o Cost reduction Eliminated travel cost

31. 5-31 Intranet: Application Integration Information from separate applications can be consolidated and presented to the user Netegrity SiteMinder

32. 5-32 Intranet: Online Entry of Information Use of Web browsers to enter information online E.g., Microsoft MSExpense o Prior to MSExpense 136 different report templates Outdated versions o With MSExpense Online submission of expense records Easy and centralized updates to templates Savings of $4.3 million a year Shortened period for reimbursement from 3 weeks to 3 days Etc.

33. 5-33 Intranet: Real-Time Access to Information Manage, update, distribute, and access corporate information o Boeing News releases uploaded to the Intranet Previously sent to all corporate offices as video tapes Reduced distribution costs Efficient information sharing Company-wide access

34. 5-34 Intranet: Collaboration Boeing o Information shared between employees across the world o Reduced product development cycles o Ability to stay current on projects o Ability to stay current with the changing market conditions

35. 5-35 Learning Objectives

36. 5-36 Use of Internet Technologies Characteristics of the Internet, intranet and extranet B2B, B2E rely on extranet and intranet Internet provides an opportunity for B2C commerce

37. 5-37 Stages of B2C E-Commerce Websites range from passive to active

38. 5-38 E-Tailing Selling goods and services online Click-and-mortar o Walmart.com Click only o Amazon.com Virtual company o Priceline.com Reverse pricing vs. menu-driven pricing

39. 5-39 E-Tailing Benefits Product benefits o Unlimited number and variety of products o Easier comparison shopping E.g., AllBookstores, BizRate, or SideStep Place benefits o Anywhere, anytime o Purchasing on global scale Price benefits o Higher inventory turnover rate o No expenditures for physical retail space

40. 5-40 The Long Tail Traditional stores o Focus on mainstream needs o Target the average customer o E.g., Blockbuster E-Tailers o Can focus on niche markets o E.g., Netflix

41. 5-41 E-Tailing Drawbacks Product delivery drawbacks o Delay between product order and delivery Except for products that can be downloaded Direct product experience drawbacks o Lack of sensory information Smell, taste, feel o Lack of the social element Cannot replace going to the mall with friends

42. 5-42 Attracting and Retaining Online Customers Basic rule of commerce o Offer valuable products/services at fair prices Additional e-commerce rules 1. The Web site should offer something unique 2. The Web site must be aesthetically pleasing 3. The Web site must be easy to use and fast 4. The Web site must motivate people to visit, stay and return 5. You must advertise your presence on the Web 6. You should learn from your Web site

43. 5-43 Web Site Rules: Rule 1 Offer something unique o Offer hard-to- find goods Global audience Reasonable prices

44. 5-44 Web Site Rules: Rule 2 Website must be aesthetically pleasing o Use of color schemes, backgrounds, high quality images o Clear, concise and consistent layout Increases chances of return Can separate a Web site from the competition

45. 5-45 Web Site Rules: Rule 3 Website must be easy to use and fast o Easy navigation o Fast download speed Average user will wait only a couple of seconds for a website to download o Present brief summary information with hyperlinks Allows users to “drill down”

46. 5-46 Web Site Rules: Rule 4 Web site must motivate people to visit stay and return o Create a community GardenWeb oUsers share tips oBuy from each other

47. 5-47 Web Site Rules: Rule 5 Advertise your presence on the Web o Pull marketing A passive method of attracting to a specific site Include the Web site address on all promotional materials Advertise your Web site on other sites

48. Information Systems Today: Managing in the Digital World 5-48 Web Site Rules: Rule 5 Advertise your presence on the Web (II) o Pay-per-click Only pay for advertising when user clicks on it Affiliate marketing – Web site owners post ads on their site Problem: click fraud – artificially clicking on ads to create revenue oNetwork click fraud oCompetitive click fraud 5-48

49. 5-49 Web Site Rules: Rule 6 Learn from your Web site o Who are your customers? o What are they doing? Web analytics o Analyze behavior of visitors Path the visitors take Length of the visit Number of pages viewed Page from which they exit

50. 5-50 Search Engine Marketing Paid inclusion o Fee paid to the search engine to appear in the results o Cannot influence order, thus companies may use: Search engine advertising Search engine optimization

51. 5-51 Search Engine Advertising Sponsored search o Pay to ensure a spot on top of search results page o Company in control of ad positioning o Pay-per-click o Can get costly

52. 5-52 Search Engine Optimization Position within search results based on complex formula Site owner has no control over the position of the ad Optimization based on o Web site updates o Use of key terms o Unethical “tricks”

53. 5-53 Securing Payments in the Digital World 90 % of users have changed online behavior because of fear of identity theft 1/3 of online purchasers cut back on the volume of purchasing More than 1/2 of shopping carts are abandoned Need for secure forms of online payment

54. 5-54 Credit and Debit Cards Customer Verification Value (CVV) o Three-digit code on the back of a card o Added to combat fraud in online purchases o Not included in the magnetic strip information o Code used for authorization by bank

55. 5-55 Conducting Safe Transactions Online 1. Use a secure browser with the latest encryption capabilities 2. Check the site’s privacy policy 3. Read and understand refund and shipping policies 4. Keep personal information private 5. Give payment information only to those you know and trust 6. Keep records of online transaction 7. Review your monthly credit card and bank statements

56. 5-56 Payment Services Online transactions without sharing private information with actual seller o PayPal (owned by eBay) Can send and receive money if you have an e- mail account o Google Checkout Linked with Google search Users can see if merchants offer this option o E-Gold Service backed by real gold

57. 5-57 Example: Payment Services e-Gold Backed by real gold Person-to-person transfer

58. 5-58 Managing Financial Transactions in the Digital World Financial institutions now offer: o Online banking Management of credit card, checking and savings accounts o Electronic bill pay Bill payment online o Online investing Growing in popularity

59. 5-59 Learning Objectives

60. 5-60 Types of C2C E-Commerce C2C commerce has always been present 17% of American adults have sold online C2C relationships characterized by o Number of buyers o Number of sellers

61. 5-61 Opportunities and Threats of C2C E-Commerce

62. 5-62 E-Auctions Forward auction o Sellers post goods or services for sale o Buyers bid on these items o Highest bid wins Reverse auction o Buyers post a request for quote (RFQ) o Seller proposes a bid o Lowest seller bid wins o Used frequently in B2B e-commerce

63. 5-63 E-Auctions (II) eBay o Transaction fee-based revenue system o 2006 revenue - $6 billion o Mostly forward auctions

64. 5-64 E-Auction Fraud E-auctions marred with more fraud than any other Internet activity o 42% of all Internet-fraud related complaints o Average loss: $1,155 Types of e-Auction fraud o Bid luring o Reproductions o Bid shielding o Shipping fraud o Payment failure o Nonshipment

65. 5-65 Social Online Communities MySpace.com o 4.5% of all Internet site visits in mid 2006 o Over 100 million users o About 230,000 new users a day o Original purpose – social network based on music interests o 2005 – purchased by NewsCorp for $580 million o Income from targeted ads $2.17 per user per year

66. 5-66 Cyworld Successful social online community Asian market South Korea – Cyworld’s per capita penetration greater than MySpace in the US Sale of virtual items o $7 per user per year

67. 5-67 Self-Publishing Consumers can voice their opinions with no editorial review Original material by the author Traditional B2B becoming C2C Publishing from home o Print-On-Demand o Blogging

68. 5-68 Printing-On-Demand Customized printing Small batches Attractive for first time authors Select providers o Lulu o Blurb o BookSurge Amazon End-to-end service

69. 5-69 Blogging Weblogging o Online text diary o Chronological entries o Power of bloggers “Rathergate” Vlogging o Video blogging

70. 5-70 M-Commerce Electronic transactions using wireless mobile devices Mobile networks o Wireless o Switched public network Smart phones o High-speed data transfer o “Always-on” connectivity

71. 5-71 Popular Technologies for M-Commerce

72. 5-72 M-Commerce Applications

73. 5-73 Location-Based M-Commerce Highly personalized mobile services Based on location o GPS functionality o Bluetooth Pull-based – consumers seeking information Push-based – companies sending (unrequested) information to the consumer

74. 5-74 Enhanced 911 and Phone Locator e911 o Federal mandate o Correct routing of emergency calls o GPS specifies location within 50 meters Phone locator o Location of family members’ cell phones o Alerting system when child leaves a certain area

75. 5-75 Location-Based Services Next thing: cell phone social networking

76. 5-76 Key Drivers of M-Commerce General interest in adoption of the Internet and e-commerce Real-time transfer of data over 3G and 4G cellular networks o “Always-on” connectivity Growth in mobile telephony 2007 M-commerce market: $250 billion

77. 5-77 Crowdsourcing Use of everyday people as cheap labor force iStockphoto.com o Amateurs take pictures o Cost of picture $1 - $5 o Revenue shared with the photo creator Eli Lilly – InnoCentive o Companies post scientific problems o Anyone can try to solve them o Reward paid to a successful solver o Decreased R&D costs E-lancing

78. 5-78 Online Entertainment Industry Digital rights management (DRM) o Technological solution for control of digital media Restrictions oDevices which will play it oHow many times it can play o Prevention of illegal copying and distribution Watermark – illegal copy can be traced to original purchaser

79. 5-79 Slingbox Acts as a personal media server “Placeshifts” television content to any Internet- enabled device o Television signal received at the user’s house o Relayed over the Internet to be accessed from anywhere

80. 5-80 Learning Objectives

81. 5-81 E-Government Providing information about public services o To citizens o To organizations o To other governmental agencies 1998 – Government Paperwork Elimination Act

82. 5-82 Government-to-Citizens Interactions between the government and its constituents o IRS – e-filing o Grants.gov o e-voting initiatives

83. 5-83 Government-to-Business Relationships between businesses and the government o E-procurement o Forward auctions Businesses buy surplus government equipment Auctionrp.com o Online application for export licenses

84. 5-84 Government-to-Government Interactions between countries o Regulations.gov o Export.gov Interactions between different levels of government

85. Threats to E-Commerce The USA PATRIOT Act Taxation Net Neutrality Censorship 5-85

86. 5-86 Threats to E-Commerce The USA PATRIOT Act o Introduced after 9/11 terrorist attacks in 2001 o More power given to governmental agencies to protect Americans o Critics – Civil Liberties Union Reduced checks and balances on surveillance Lack of focus on terrorism Surveillance on Americans

87. 5-87 Examples of Provisions Allowed by the USA PATRIOT Act

88. 5-88 Internet Taxation The Internet Tax Freedom Act – 1998 o Created as an incentive for EC businesses o Internet sales treated as mail-order sales No sales taxes paid in states where the company has no presence Problem Loss of tax incomes Unfair advantage for e-tailers

89. Information Systems Today: Managing in the Digital World 5-89 Internet Taxation (II) Solutions: Use tax o Consumers required to pay their state’s sales tax o Part of some income tax returns Streamlined Sales Tax Project o Simplification of tax codes o Collection of taxes by out-of-state sellers 5-89

90. 5-90 Arguments For and Against Internet Taxation

91. 5-91 Net Neutrality Data sent over the Internet is handled in a neutral manner All traffic treated the same way ISPs and telephone companies argue for prioritization o Traditional Internet traffic suffers (e-mail) due to high bandwidth applications o Example: YouTube.com not paying their fair share, should be deprioritized

92. 5-92 Approaches to Net Neutrality

93. 5-93 Censorship Governmental attempts to control Internet traffic o Limiting citizens from viewing content o E.g., China, North Korea Strict guidelines on what can be viewed Key words and topics blocked o United States Child Online Protection Act (COPA) oAge verification for certain content

94. End of Chapter Content 5-94

95. 5-95 Opening Case: Managing in the Digital World: eBay Under Attack Phishing o Scam artists pretending to be eBay o Ask for credit card information and passwords o eBay would never send such an email o 2006 – London £200,000 stolen eBay feedback scores eBay buyer insurance

96. 5-96 Monitoring Productive Employees “You have zero privacy, get over it” ( Scott McNeely) Use of company provided Internet connection can be legally monitored American Management Association survey (2005) o 75% of employers monitor employee’s Internet use o 65% use software to block access to certain Web sites o 30% monitor key strokes o 50% review and retain employee e-mails o 8% of the companies disclose the practices to the employees o 26% fired employees for Internet misuse o 25% fired employees for e-mail abuse

97. 5-97 Employees Using Company Networks Can Affect Liability Illegal downloading of music and movies using company’s computer and Internet access Star Wars Episode III: Revenge of the Sith o September 2005 o “Screener” version stolen and distributed Forensic marker revealed the identity of the thief 3 years in prison o 7 employees copied the movie 1 year in prison and $100,000 in fines Company not held liable

98. 5-98 IM at Work Disadvantages of using public IM o Security cannot be assumed o Data resides on the provider’s server o Access to the network cannot be blocked IM protocols for organization’s own IM network o Secure message transfer o Ability to handle thousands of employee accounts o Platform compatibility o Access from outside of the WAN o Proper access rights IM hosting service – third alternative o Data still resides on provider’s server – privacy concerns

99. 5-99 E-Business is BIG Business Growing numbers of online consumers o 2005 revenues - $176.4 billion o 2006 expected revenue – $211.4 billion

100. 5-100 Photonic Crystal Fibers New type of fiber-optic cable o Based on characteristics of photonic crystals Larger data carrying capacity Photonic crystals allow the fiber to contain light in a hollow core No need for cladding Higher-powered lasers can be used Data speeds greater than 1,000 times the current fiber capacity Can be connected to any fiber-optic equipment

101. 5-101 Meg Whitman, President and Chief Executive Officer, eBay, Inc. Princeton – Undergrad Harvard – MBA Worked for o Hasboro Inc. o FTD o Stride Rite Corporation o Walt Disney Company o Procter & Gamble eBay o 53 country specific sites o Purchase of Skype

102. 5-102 Online Travel Online travel agencies o Expedia, Travelocity, Orbitz o 75% of surveyed travelers visit online travel sites before booking travel Direct customer relationships o JetBlue, InterContinental Hotels o Customers purchase services directly Travel search engines o Kayak, SideStep, Mobissimo, Yahoo!’s FareChase Link to suppliers’ Web sites