e-commerce overview

1. e-commerce overview Dan Smith

2. Overview • e-commerce motivation • Features of e-commerce • Types of e-commerce business • Security issues • Workflows • Case study: Amazon

3. Why e-commerce? • Reduces retailers’ costs because: • Fewer people involved in the transactions so lower staff costs • Usually based on out of town warehouses. Lower property costs compared to town centreshops • Can offer a wider range of products – the infinite store • Open all hours

4. e-commerce systems • Computer support for • Product display (the web site) • Marketing (emailing customer base) • Ordering (automated shopping cart) • Payment (usually credit/debit card; Paypal) • Stock control and purchasing • Fulfilment • Getting the goods to the customers • Cannot be completely automated (yet)

5. e-commerce Features

6. Features of e-commerce • Ubiquity • Global Reach • Universal Standards • Richness • Interactivity • Information Density • Personalization/Customization

7. Ubiquity • Available everywhere • Built into other devices • Hidden, but still there • Why is ubiquity good?

8. Ubiquity 2 • Ubiquity lowers transaction costs for the consumer/buyer • How so? • For shopping • travel costs, parking, coffee • lost time, ...

9. Ubiquity 3 • Cognitive Energy – mental effort needed to complete a task • Ubiquity reduces cognitive energy. • Humans tend to seek options that require the minimum cognitive energy • Consider the mental effort needed to buy your book online vs. hunting for it at various book stores

10. Global reach • e-commerce technologies enable a business to reach across geographic boundaries • What about demographic boundaries? • age • income • race • gender • religion

11. Universal standards • Internet • Based on standards that are now globally recognized (TCP/IP) • Web • Standards are recognised as essential for good sites

12. Universal standards 2 • Universal standards reduce market entry costs • easier to build business from existing technologies. • lower entry costs increase competition • e-commerce website technology overhead costs start at about £10/month

13. Universal standards 3 Standardization  low entry cost  more completion Standardization  Info. integration more discovery opportunities More competition + discovery opportunity = better consumer opportunities (price, information, choice)at lower cognitive load

14. Richness • Advertising and branding are an important part of commerce • e-commerce can deliver video, audio, animation, etc. much better than other technologies (billboards, signs, etc.) • it’s about as rich as television technology

15. Interaction • Consumer/user can interact with the content • the Internet’s strongest point • TV is a passive activity • engaging consumersis a powerful feature

16. Information density • e-commerce technology • reduces information costs • raises the quality of information • How does the technology reduce costs? • How does it raise quality? • Consider the old way to share information, i.e., paper, mail, voice communication, etc.

17. Personalisation • e-commerce has more opportunities for personalisation buying face-to-face • How can e-commerce permit or enhance personalization and customization? • difference between buying a computer from • a stack of boxes in a shopping mall • configuring one in an online store • difference between seeing an advert • aimed at anybody who might watch TV news • people who clicked on the same 5 news items as you

18. e-commerce business model Component Key question Why buy from you? How will you earn money? What’s the market space? Who else is there? What special advantages do you have? How will you attract your target audience? What organisational structures does the company need? What experience and knowledge does the company need? • Value proposition • Revenue model • Market opportunity • Competitive environment • Competitive advantage • Market strategy • Organisational development • Management team

19. Value proposition • Defines how a company’s product or service fulfills the needs of customers • Why will customers choose with your firm? • What will your firm provide that others do not or cannot? • Examples of successful value propositions: • Personalization/customization • Reduction of product search costs • Reduction of price discovery costs • Facilitation of transactions by managing product delivery

20. Revenue model • Describes how the firm will earn revenue, generate profits, and produce a return on invested capital • Major types: • Advertising revenue model • Subscription revenue model • Transaction fee revenue model • Sales revenue model • Affiliate revenue model

21. Market opportunity • A company’s intended market space and the opportunities available to it there • the revenue potential in each of the niches the company intends competing in

22. Competitive environment • Refers to the other companies selling similar products in the same market space • Influenced by: • how many competitors are active • how large their operations are • their market shares • their profitability • their pricing • Includes both direct and indirect competitors

23. Competitive advantage • When a firm can produce a superior product and/or a lower price than most (or all) competitors • Types of competitive advantage include: • First mover advantage • results from a firm being first into a marketplace • Unfair competitive advantage • occurs when one firm develops an advantage based on a factor that other firms cannot purchase • In technology-driven industries, successful firms must be the first to make their own products obsolete • otherwise somebody else will grab their market

24. Market strategy • A plan that details how a company intends to enter a new market and attract customers • Best business concepts will fail if not properly marketed to potential customers

25. Organisational development • Describes how the company will organize the work that needs to be accomplished • Move from generalists to specialists as the company grows

26. Management team • Strong management team gives credibility to outside investors • A strong management team may not be able to salvage a weak business model, but should be able to change the model and redefine the business as it becomes necessary

27. Types of e-commerce business

28. Portal • Powerful search tools plus an integrated package of content and services • Typically utilizes a combination of subscription/advertising/transaction fee • May be general or specialized

29. e-tailer • Online version of traditional retailer • Types include: • Virtual merchants • Bricks and clicks • Catalog merchants • Manufacturer direct

30. Content providers • Information and entertainment companies providing digital content • Revenues from • subscription • pay for download, or • advertising revenue model

31. Transaction broker • Processes online transactions for consumers • Primary value proposition—saving of time and money • Typical revenue model—transaction fee • Industries using this model include: • Financial services • Travel services • Job placement services

32. Market creator • Uses Internet to create markets that bring buyers and sellers together • Typically uses a transaction fee revenue model • Example: • eBay.com

33. Service provider • Offers services online • Value proposition: valuable, convenient, time-saving, low-cost alternatives to traditional service providers • Revenue models: subscription fees or one-time payment

34. Community provider • Sites that create a digital online environment where people with similar interests can transact, communicate, and receive interest-related information • Revenue model: advertising • Example: • facebook.com

35. e-commerce Security issues

36. Main issues 1 • Accountability– activities on a system are traceable to individuals who can be held responsible for them • Availability- resources are safeguarded from tampering and are available for authorized users • AccessControl- Access to resources is limited to authorized individualsor processes • Confidentiality- Information is not disclosed to unauthorized individuals or processes

37. Security issues 2 • Identification and Authentication- Verification that the originator of a transaction is the originator • Integrity- Information is not undetectably altered or destroyed by an unauthorized person or process • Non-repudiation- Undeniable proof of participation by the sender and/or receiver in a transaction • Privacy – individual rights to nondisclosure

38. Legal context (UK) • e-commerce Regulations (2000) • Distance Selling Regulations (2003) • Provision of Services Regulations (2009) • Data Protection Act (1996) • Payment Card Industry Data Security Standard • for accepting payments

39. Threats • In order to devise an appropriate security policy, need a threat model • Who? • external agents • internal agents • What? • access controls • data security • network security • Responses • cost, difficulty, …

40. Security policy • Written statement describing what assets are to be protected and why, who is responsible, acceptable behaviours • Physical security • Network security • Access authorizations • Virus protection • Disaster recovery • email use

41. e-commece workflows

42. Initial ordering Get order information from customer Validate card payment Fail Reject order OK Set link from stock database Add order to ‘out of stock’ queue No Check stock level Reduce stock level by order amount Yes Put order onto processing queue Update customer information Order processing slide from Ian Somerville, U. of St Andrews

43. Order processing Get order from orders queue Locate goods Update customer information Create fulfilment orders Send orders to fulfilment centres Confirm order by email to customer Fulfilment slide from Ian Somerville, U. of St Andrews

44. Fulfilment Create customer despatch order Generate pick list Pick items from shelves Send despatch for packing Pack despatch order Send items for despatch Update customer information Charge customer CC Update order status Confirm despatch by email to customer Order complete slide from Ian Somerville, U. of St Andrews

45. e-commerce case study Amazon

46. History • Started in 1995 as one of the first Internet book sellers • Quickly diversified to become an online general store selling books, DVDs, computers, kitchenware, … • Highly technologically advanced Internet store • millions of products • tens of millions of customers • Rents space on its technology platform to other online stores

47. The site • Excellent example a of usability-driven website • http://www.amazon.co.uk

48. Amazon automation • Amazon can only be successful because it has automated practically all of the e-commerce processes • Relies on advanced distributed (worldwide) computer systems to ensure that goods can be ordered and despatched • People are usually only involved in the fulfilment process • selecting and despatching goods from the warehouse • delivering them

49. Technological challenges • Maintain and manage millions of stock items • Handle over 60 million active customers • Respond rapidly response to queries and orders • Manage huge fluctuations in demand • probably increases x 10 at Christmas • Provide a recommendation system • exploits the large amounts of information collected from browsers and buyers

50. Amazon infrastructure • Thousands of compatible commodity computers located in data centres around the world • Based on Linux (open-source) software so no licensing fees • Sufficient capacity to cover peak demand • Amazon sells computing and storage services because it has spare capacity • Data is distributed and replicated • gives fault tolerance • allows load balancing • Virtualisationtechnology allows each physical machine to offer services to different clients