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Grenoble Ecole de Management MEDFORIST Workshop An Introduction to eCommerce. Asuman Dogac Middle East Technical University Software R &D Center Ankara, T ü rkiye. A Success Story: eBay.

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Grenoble Ecole de ManagementMEDFORIST WorkshopAn Introduction to eCommerce

Asuman Dogac

Middle East Technical University

Software R&D Center

Ankara, Türkiye

Grenoble Ecole de Management MEDFORIST Workshop

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A Success Story: eBay

  • In 1995 Pierre Omidyar decided to use the Web pages that came as a part of his USD 30-a-month Internet service

  • The idea was to improve upon the online classifieds for selling personal items

  • With a little code, he developed a simple auction mechanism that would spare the seller from having to choose among multiple interested buyers

Grenoble Ecole de Management MEDFORIST Workshop

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A Success Story: eBay

  • The code did the work, the space on the Web server came with his account so the whole thing cost him nothing and the service is offered for free

  • In 1995, he sent an announcement of his free service to the then-center of the Webdom, the National Center for Supercomputing Applications “What's New” Web page

  • At the end of 1995, his Web page was getting a couple of thousands hits a day

Grenoble Ecole de Management MEDFORIST Workshop

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A Success Story: eBay

  • His Internet Service Provider was not happy about this (his page was using a lot of CPU cycles) and raised Omidyar's monthly fee from USD 30 to USD 250

  • Omidyar in return asked sellers to pay a small fee for items sold

  • This relied upon the honesty of the seller

  • The checks came in volume

  • In the first month he covered the 250 USD bill for his Internet Service

  • Afterwards the increase in revenues were exponential: In month two, USD 1000, in month three, USD 2000, in month four, USD 5000 and so on

  • When his ISP told him that the traffic his page was attracting was too much for its servers, he installed his own server on ISP's premises

Grenoble Ecole de Management MEDFORIST Workshop

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A Success Story: eBay

  • In mid 1996, Omidyar left his day time job and founded the eBay company

  • In the fall of 1996 eBay's revenues were USD 400,000 per month where its expenses were USD 200,000

  • In 1997, the venture capital firm Benchmark invested USD 6.7 Million in eBay when eBay's valuation was put at USD 20 Million

  • In September 1998, after the first day of public trading, eBay's capitalization was USD 2 Billion

Grenoble Ecole de Management MEDFORIST Workshop

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A Success Story: eBay

  • Three months later the stock has gained more than 1300 percent value

  • In June 1999, the company has valued at more than USD 21 Billion

  • eBay, one of the most successful examples of e-commerce, has been flourishing ever since

  • During December 2001 quarter, revenue jumped 64% to USD 219.4 million and net income to 8%

  • Furthermore, eBay appears to be in a better shape operationally and it is expected to grow by 52% a year over the next five years

Grenoble Ecole de Management MEDFORIST Workshop

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Ecommerce Hype

  • Electronic commerce has been the subject of a lot of hype and attention in the second half of the 90s

  • And although the most important part of electronic commerce is the trading among companies termed as “business-to-business” (B2B) e-commerce; it is business-to-consumer (B2C) electronic commerce which received the most public attention

  • First with its success stories then with failures of online companies

  • B2C can be defined as online shopping on the Web

  • Some of the B2C companies (also called went bankrupt after the fall in the stock market prices in April 2000

  • However the so called “ collapse” should not be interpreted as the collapse of B2C

Grenoble Ecole de Management MEDFORIST Workshop

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  • B2C e-commerce companies with strong technology are still alive such as, eBay, and

  • These are the rather well-known ones but there are many other companies doing well in this business

  • Examples include a fish market place, FishRound which has transaction volumes of tens of millions of Dollars per month

  • Still others are reinventing themselves to survive

  • For example, Germany's No.1 comparison shopping site had 30,000 daily users but was doing badly

  • They began tracking what people buy, later selling this information to retailers, wholesalers and manufacturers

  • These offline companies use this information to help fine tune their inventories

Grenoble Ecole de Management MEDFORIST Workshop

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  • is an online travel marketplace that helps travelers research, plan and purchase travel services

  • Expedia site provides multiple tools for finding the lowest airfares.

  • For example:

    • “Fare Calendar” matches the airlines' lowest published fares with dates and availability, and shows users the going rates

    • “Flight Price Matcher” lets customers name their own fare and see if an airline will accept it

  • Expedia appears to be the top player in the online travel industry

Grenoble Ecole de Management MEDFORIST Workshop

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  • Some failed dot.coms are now selling the software they have developed for their businesses

  • For example, Value America wanted to be the WalMart of the Net by selling from skin cream to satellite dishes

  • In the end, it simply could not cope with that many suppliers

  • However its technology had been built to handle billions of transactions

  • Value America's technology infrastructure is sold to the offline distributor Merisel for USD 2,4 Million

Grenoble Ecole de Management MEDFORIST Workshop

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To summarize…

  • B2C revenues are expected to grow from USD 65 billion in 2001 (about 1.5 % of all retail revenue) to USD 269 billion by 2005 (about 8% of total retail sales)

  • Both the number of online customers and the volume of online trading are increasing by about 50 % per year

Grenoble Ecole de Management MEDFORIST Workshop

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Some Innovative Ecommerce Examples

Grenoble Ecole de Management MEDFORIST Workshop

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  • Priceline is one of the most inventive “business model” for e-commerce

  • has pioneered a unique new type of e-commerce known as a “demand collection system” that enables consumers to use the Internet to save money on a wide range of products and services while enabling sellers to generate incremental revenue

  • Using a simple consumer proposition “Name Your Own Price”, it collects consumer demand (in the form of individual customer offers guaranteed by a credit card) for a particular product or service at a price set by the customer and

  • communicate that demand directly to participating sellers or to their private databases

Grenoble Ecole de Management MEDFORIST Workshop

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  • Consumers agree to hold their offers open for a specified period of time to enable to fulfill their offers from inventory provided by participating sellers

  • Once fulfilled, offers cannot be canceled

  • By requiring consumers to be flexible with respect to brands, sellers and/or product features, it enables sellers to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures

  • Priceline is struggling to survive the market collapse

Grenoble Ecole de Management MEDFORIST Workshop

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  • Akamai's sofware constantly monitors the entire Internet, locating potential congestions and devising faster routes for information to travel

  • Frequently used portions of a client's Web site, or large files that would be difficult to send to users quickly, are stored on Akamai's 8000 servers in over 50 countries around the globe

  • In 2000, its revenue was nearly USD 90 million

  • In 2002 during the second quarter revenue has risen to USD 36.3 million; however Akamai is not making profits yet

  • Who could have thought there is business in watching Internet traffic!

Grenoble Ecole de Management MEDFORIST Workshop

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  • Google is the Web's most successful search engine

  • Some search engines merely count how many times a search term appears on a given Web page to determine where to rank a particular page

  • Google's engine on the other hand uses outside criteria to validate that a search result is likely to be relevant

  • As a relevancy criterion, outside links to the page as well as other factors like link structure, heading and text of nearby pages are considered

  • Currently, Google's revenues are from advertisement and licencing

  • For example, Yahoo! replaced its search engine with Google

Grenoble Ecole de Management MEDFORIST Workshop

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B2B Ecommerce

  • Despite the economic slowdown and the market shakeout, this branch of e-commerce still continues to thrive

  • According to a recent report from eMarketer, a New York-based e-business research firm, worldwide B2B revenues will reach USD 820 billion in 2002, a 74% increase over the previous year's total revenues

  • Other analysts seem to be more optimistic

  • Research firm IDC for example, projects B2B revenues of USD 917 billion in 2002

  • The Gartner Group predicts B2B potential of the year 2002 at USD 1.929 trillion and

  • Forrester is the most optimistic: it predicts that the B2B sector will earn USD 2.061 trillion by the end of the year 2002

Grenoble Ecole de Management MEDFORIST Workshop

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Covisint is an industry sponsored e-marketplace with members such as DaimlerChrysler AG, Ford Motor Company, General Motors, Nissan, Renault, Peugeot and Siemens Automotive

It became operational in 2000, and by the end of July 2001,

it had managed more than USD 129 billion in transactions;

It had qualified 1700 supplier companies at the site, generated more than USD 37.6 billion in auction revenues

Covisint has been an outstanding success story in B2B commerce

In the November 26, 2001 issue of InfoWorld, Covisint is ranked number 5 in the list of top 100 companies who are recognized for their creative use of enterprise technologies to make their businesses more efficient and develop new streams of revenue

Grenoble Ecole de Management MEDFORIST Workshop

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GE Global eXchange Services

  • GE Global eXchange Services is the world's largest B2B internet supply chain network that links more than 100,000 trading partners in 58 countries around the world

  • In 2002, the network's 1 billion annual transactions account for USD 1 trillion in goods and services

  • GXS customers include Eastman Kodak, DaimlerChrysler, Target, J. C. Penney, Inc., Sara Lee and 3M

  • GXS provides three portfolios of e-commerce products and services:

    • GE Integration Solutions (EAI) - provides software that permits any business application to send and receive business information to other business applications in a secure and reliable manner

    • GE Interchange Solutions (EDI and XML) - automates paper, fax, telephone and email transactions to improve quality and efficiency in a supply chain

    • GE Marketplace Solutions (exchanges) - provides the business applications and technology infrastructure to enable the development, integration and service of B2B electronic marketplaces

Grenoble Ecole de Management MEDFORIST Workshop

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World Wide Retail Exchange

  • In March 2000, seventeen international retailers founded the World Wide Retail Exchange to enable participating retailers and suppliers to simplify, rationalize, and automate supply chain processes

  • WWRE runs auctions for individual members as well as indirect-collaborative auctions in which members combine their orders for economies of scale

  • The exchange is expected to link members with more than 100,000 consumer-goods suppliers, partners and distributors; making it one of the largest e-marketplaces on the Web

  • In 2002, with a membership consisting of 62 retail industry leaders from around the world, WWRE has a revenue of over USD 845 billion

Grenoble Ecole de Management MEDFORIST Workshop

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  • The leading tire manufacturers launched their own exchange in April 2000, operated by a new company, called

  • The initiative RubberNetwork was launched by some of the leading world tire manufacturers including Goodyear, Sumitomo, Bridgestone, Firestone, Pirelli, Michelin, Cooper and Continental, which together account for approximately 80% of the world’s tire output

  • provides procurement and supply chain services as well as trading services including auctions and reverse auctions where suppliers bid prices lower

  • In 2002, the RubberNetwork includes nine of the largest companies in the tire and rubber industry

  • These companies represent more than 63% of total purchases within the tire and rubber industry, which, including raw materials, equipment, machinery, goods and services, are estimated to be in excess of USD 50 billion a year

Grenoble Ecole de Management MEDFORIST Workshop

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  • is the leading marketplace for the European consumer packaged goods industry

  • Created by Nestle, Danone, Henkel and SAPmarkets in March 2000, delivers value-added services to both buyers and suppliers:

    • by facilitating and accelerating the purchasing transactions between the manufacturers and suppliers of the CPG industry,

    • reducing the procurement and administrative costs, and

    • optimising production and inventory cycles through state-of-the-art supply chain processes

Grenoble Ecole de Management MEDFORIST Workshop

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  • A version of e-market model is Third-party marketplaces where founding member, usually a financial institution, acts as an aggregator by offering supply-chain and procurement services to smaller enterprises that can not afford to start their own e-marketplaces

  • Example: Tradezone

Grenoble Ecole de Management MEDFORIST Workshop

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Introduction to EDI

  • One of early attempts to do business electronically is the Electronic Data Interchange protocol (EDI) which runs over private networks

  • EDI is developed by United Nations Electronic Data Interchange for Administration, Commerce and Transport (UN/EDIFACT) working group about twenty five years ago

  • This was before the invention of the Internet

  • An electronic data interchange standard, like EDI, basically defines the syntax and the semantics of messages exchanged

Grenoble Ecole de Management MEDFORIST Workshop

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Introduction to EDI

  • “Syntax” refers to the message layout and “semantics” to the valid data types and consistent vocabulary (data type values) used in messages

  • Each message is either a message with

    • the intent of action (like “new purchase order”), or

    • an acknowledgment message indicating the successful transmission of a message (“received purchase order”), or

    • an error message indicating an error situation (“reject purchase order”)

  • The interpretation of the intent of action has to be standardized too, in order to guarantee correct behavior from trading partners

Grenoble Ecole de Management MEDFORIST Workshop

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Introduction to EDI

  • While traditional EDI has demonstrated the feasibility and efficiencies possible when using electronic business transactions, it has proved to be expensive not only due to the high network infrastructure setup/running costs but also the high cost of integration especially for small and medium enterprises (SMEs).

  • Ideally, companies of all sizes should be able to conduct electronic business in a completely ad hoc fashion, without prior agreement of any kind

  • But this vision has not been realized with EDI; only large companies are able to afford to implement it, and most of the EDI-enabled businesses are centered around a dominant enterprise that imposes proprietary integration approaches on its trading partners

Grenoble Ecole de Management MEDFORIST Workshop

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Internet and XML

  • On the other hand, during the last decade, two major developments opened up new avenues for electronic commerce:

    • the adoption of the Internet as communication medium, and

    • the wide-spread acceptance of XML as the data exchange format

Grenoble Ecole de Management MEDFORIST Workshop

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The Internet

  • Today, the public Internet and corporate Intranets have become the ubiquitous communication infrastructures

  • The Internet is the world's largest public network and it is the global backbone

  • The ubiquitous use of Internet is made possible by the World Wide Web, which is called shortly the Web

  • In this respectWeb has been the “killer application” for the Internet

  • Almost all the computers have Web browsers installed and remote sites are accessed through these browsers

  • World Wide Web Consortium produces Web standards

Grenoble Ecole de Management MEDFORIST Workshop

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The Web

  • The Web uses the client/server model where browsers are the clients connecting to Web servers through TCP/IP (Transmission Control Protocol/Internet Protocol)

  • The first generation Web applications were mostly read-only and static: the client and the server exchanged HTML documents through HTTP protocol

  • HTTP is a stateless Remote Procedure Call that:

    • establishes a client/server connection,

    • transmits and receives parameters including a returned file, and

    • breaks the client/server connection

Grenoble Ecole de Management MEDFORIST Workshop

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  • HTML is a simple markup language to describe a document

  • A plain ASCII text file is augmented with “tags” and describe the structure of a document, provide font and graphics information, and define hyperlinks to other Web pages and Internet resources

  • The browser executes the HTML commands to properly display text and images, it also navigates from one page to another using the embedded hypertext links

  • HTML documents live in Web servers and later it has become possible to include audio, video, and Java programs in HTML documents

  • Web browsers access Web resources residing on Web servers through Unified Resource Locators (URL)

  • The URL protocol provides a consistent universal naming scheme to identify all Web resources, e.g.,

Grenoble Ecole de Management MEDFORIST Workshop

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Interactive Web

  • Web has a client/server architecture, where a browser runs on the client such as Netscape or Microsoft Explorer and a Web server like Apache server runs on the server machine

  • In the early days of the Web, there was processing neither on the client nor on the server

  • A user accessed only static documents which are the pages that exist on the Web server and are simply delivered to the Web browser

  • However in 1995 W3C published HTML 2.0 which included forms that made it possible to use Web interactively

  • A Web form, is an HTML page with one or more data entry fields and a mandatory “Submit” button

Grenoble Ecole de Management MEDFORIST Workshop

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Interactive Web

  • When the “submit” button is clicked, the form's data contents are send to a Web server

  • The server invokes the program or resource named in the URL and passes the method request and its parameters to the back-end program using a protocol called the Common Gateway Interface (CGI)

  • The back-end program executes the request and returns the results in HTML format to the Web server using the CGI protocol

  • The Web server returns the result to the client

  • Pages that are computed in this manner at the time they are requested are called dynamic pages, in contrast to the static pages that exist and are simply delivered to Web browsers

Grenoble Ecole de Management MEDFORIST Workshop

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Application Servers

  • CGI protocol is not very efficient because the server creates a new process for each page request to execute a program at the Web server's site

  • Since this solution does not scale well with a large number of requests, specialized programs called Application Servers have been developed

  • An application server has pre-forked threads or processes and thus avoids the start up cost of creating a new process for each request

  • Application servers have evolved into middle tier packages providing other useful functionalities such as ensuring transactional semantics and session management

  • The well-known examples of Web application servers include WebSphere from IBM and WebLogic from BEA

Grenoble Ecole de Management MEDFORIST Workshop

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Evolution of Web Interaction

Grenoble Ecole de Management MEDFORIST Workshop

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Traditional Web Application

  • Browsing of linked documents

  • Manually initiated transactions & purchases

  • Downloading files

  • All initiated manually via a Web browser

Grenoble Ecole de Management MEDFORIST Workshop

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Web-Browser Side Processing

  • The processing on the client side basically involves validating user input, and interactivity with the server

  • Some of the well-known browser-side processing technologies are as follows:

    • Scripts: A script is a program that may accompany an HTML document

    • The program executes on the client's machine when the document is downloaded, or at a later time when a link is activated

    • It increases the interactivity provided by HTML

    • As an example, scripts can be used to check whether the user input data is within predefined range of values

    • The most popular scripting languages are Java Script and VBScript

Grenoble Ecole de Management MEDFORIST Workshop

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Web-Browser Side Processing

  • Applets are programs that require a Web browser to run

  • The <Applet> tag is embedded in a Web page and identifies the applet to be run

  • When the page is accessed by a user, the applet is automatically downloaded from the server and runs on the client machine

  • Java applets can not access client machine resources

Grenoble Ecole de Management MEDFORIST Workshop

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Web Server-side Processing

  • Web server-side processing is used in generating customized responses for the user by accessing databases

  • There are several technologies for server-side processing:

    • The Java Servlet API allows Web developers to extend the functionality of a Web server by writing small Java programs called Servlet that interact with the Web server through a well-defined API

    • A servlet contains the business logic and the code to transform data to HTML or XML

    • Java Server Pages are another platform-independent alternative for generating dynamic content on the server side

Grenoble Ecole de Management MEDFORIST Workshop

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Web Server-side Processing

  • An open-source implementation of Java Servlet and Java Server Pages technologies, called Tomcat, is developed under the Jakarta project at the Apache Software Foundation and can be downloaded free of charge from

  • PHP is an open source server-side scripting language which is written specifically for interacting with the Web

  • ASPs a server-side processing technology from Microsoft

  • It enables to combine HTML pages, scripts, and Microsoft ActiveX server components to create Web-based applications

Grenoble Ecole de Management MEDFORIST Workshop

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P2P Computing

Grenoble Ecole de Management MEDFORIST Workshop

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Not P2P

Peer-to-Peer (P2P)

  • Peer-to-Peer computing is inspired by the controversial music-sharing service Napster

  • Instead of Internet information being held in a few central locations, Peer-to-Peer computing makes it theoretically possible to access the files and data residing on every personal computer connected to the Internet

Grenoble Ecole de Management MEDFORIST Workshop

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  • Here is how Napster used to work:

    • It is first necessary to download and install Napster software and to sign up for a free account at Napster

    • By clicking the Napster icon, a connection is established with Napster Web site, where the name of the music searched can be entered in a search window

    • The Napster software tracks all users who are online at that particular time and provides access to tracks stored on users' hard drives

    • When the song requested is found, Napster establishes a connection between the two computers so that it could be downloaded

    • However, after the Recording Industry Association of America sued Napster for copyright infringements, the court ruled that Napster was indeed violating copyrights and it is shut down

Grenoble Ecole de Management MEDFORIST Workshop

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P2P Computing

  • Distributed computing(e.g., [email protected], Search for Extraterrestrial Intelligence)

  • File sharing (e.g.,Gnutella, Freenet, Publius, Free Haven)

  • Collaboration (e.g., Magi, Groove, Jabber)

  • Platforms(e.g., JXTA)

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[email protected]

  • Search for Extraterrestrial Intelligence that has over two million computers crunching away and downloading data gathered from the Arecibo radio telescope in Puerto Rico

  • The [email protected] project is widely regarded as the fastest computer in the world

  • In fact, the project has already performed the single largest cumulative computation to date

  • From the architecture point of view [email protected] is based upon client-server

  • The centralised servers hold enormous amounts of data gathered from the Arecibo radio telescope "listening" to the skies

  • That data needs to be analysed for distinct or unusual radio waves that might suggest extraterrestrial communications


Grenoble Ecole de Management MEDFORIST Workshop

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  • Gnutella is a file sharing protocol

  • Applications that implement the Gnutella protocol allow users to search for and download files from other users connected to the Internet

  • Its architecture is completely decentralised and distributed, meaning that there are no central servers and that all computations and interactions happen between clients

  • When a client wishes to connect to the network they run through a list of nodes that are most likely to be up or take a list from a website and then connect to how ever many nodes they want

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  • Routing in the network is accomplished through broadcasting

  • When a search request arrives into a client that client searches itself for the file and broadcasts the request to all its other connections

  • Broadcasts are cut off by a time to live that specifies how many hops they may cover before clients should drop them rather than broadcast them

Grenoble Ecole de Management MEDFORIST Workshop

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  • Groove is a collaborative P2P system (

  • It is mainly targeted to Internet and intranet users, although it can also be used on mobile devices, such as PDAs, mobile phones, and tablets

  • It is intended to enable communication, content sharing, and tools for joint activities

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  • The vision of the JXTA ( project defines an infrastructure for P2P computing

  • Three main goals

    • Interoperability

      • Across different P2P systems and communities

    • Platform Independance

      • Programming languages, System platforms, Network Platforms

    • Ubiquity

      • Every electronical devices with a digital hearbeat

Grenoble Ecole de Management MEDFORIST Workshop

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MainFrame, UNIX, C++

refridgerator, TinyOS, Perl

Sensor, TinyOS, Obj-c

Mobile, Symbian, C

PC, Win2K, Java

Mac, MacOsX, Python


Grenoble Ecole de Management MEDFORIST Workshop

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  • With this introduction, we have set the scene for more technical aspects of e-commerce

  • A historical perspective is provided from where ecommerce has started and where it may be going

  • Some success stories are presented

  • Some very basic technology is mentioned

Grenoble Ecole de Management MEDFORIST Workshop