Course B: Advanced e-Business Module 4. e-Commerce

1. Course B: Advanced e-Business Module 4. e-Commerce by Vatcharaporn Esichaikul, AIT

2. Outline B2C/B2B e-commerce Business models of e-commerce Internet shopping Selling on the web Online customer service E-payment systems and security for e-com E-auction

3. B2C/B2B e-commerce

4. Categories of eCom/eBiz Business-to-customer (B2C) Retailing of products and services directly to individual customers Business-to-business (B2B) Sales of goods and services among businesses Consumer-to-consumer (C2C) Individuals use Web for private sales or exchange Business-to-employee (B2E) Information and services made available to employees online

5. Pure vs. Partial EC Pure vs. Partial EC: based on the degree of digitization of Product [physical/digital] Process [physical/digital] Delivery agent [physical/digital] Traditional commerce: all dimensions are physical Pure EC: all dimensions are digital Partial EC: all other possibilities include a mix of digital and physical dimensions

7. Business Models of e-Commerce Real-world Cases

9. Amazon.com

10. New Business Model: Amazon.com Online retailer of books, CDs, electronics, and other products Uses software to create detailed customer profiles and make customer-specific offers What led to Amazon�s fantastic growth? Business Concept Amazon.com is the Internet's leading book, music and video retailer. The company provides a high level of customer service to its customers. The company has developed leading electronic commerce innovations like One-Click Ordering (which it is trying to patent), personalized shopping services, and easy-to-use search and browse features.Business Concept Amazon.com is the Internet's leading book, music and video retailer. The company provides a high level of customer service to its customers. The company has developed leading electronic commerce innovations like One-Click Ordering (which it is trying to patent), personalized shopping services, and easy-to-use search and browse features.

11. What led to Amazon�s fantastic growth? First mover � embraced a revolutionary way to reach end consumers They made their brand more important than profit Customer service focus Business Rules Amazon Broke or Rewrote: Amazon was among the first to recognize the power of the Internet in revolutionizing the retail sector and capitalizing on it, unlike Prodigy which IBM and Sears were trying to make the online retail model since the 1980s. Amazon put customer service at the center of its strategy and offering instead of technology. Amazon put brand development ahead of profit. Amazon expanded into non-book product categories, going beyond their �core competency.�Business Rules Amazon Broke or Rewrote: Amazon was among the first to recognize the power of the Internet in revolutionizing the retail sector and capitalizing on it, unlike Prodigy which IBM and Sears were trying to make the online retail model since the 1980s. Amazon put customer service at the center of its strategy and offering instead of technology. Amazon put brand development ahead of profit. Amazon expanded into non-book product categories, going beyond their �core competency.�

12. Dimensions of Competition:Price/Cost Example Amazon cuts costs of retail outlets and intermediaries. Amazon�s distribution system is less expensive than its competitors. Shipment from an Amazon warehouse is more costly than visiting a retail outlet. Amazon gets paid before paying the distributor, whereas in the traditional distribution system it is the other way around. Amazon.com is the Internet's leading book, music, and video retailer. The company provides a high level of customer service to its customers. The company has developed leading electronic commerce innovations like One-Click Ordering (which it is trying to patent), personalized shopping services, and easy-to-use search and browse features. Check boxes indicate an example of technology improving an aspect of price/cost-based competition.Amazon.com is the Internet's leading book, music, and video retailer. The company provides a high level of customer service to its customers. The company has developed leading electronic commerce innovations like One-Click Ordering (which it is trying to patent), personalized shopping services, and easy-to-use search and browse features. Check boxes indicate an example of technology improving an aspect of price/cost-based competition.

13. Dimensions of Competition:  Custom Features Example Amazon uses the data obtained from customers to offer personal buying recommendations. Amazon�s innovations have included one-click shopping, its popular bestseller list ranking sales on the site, and the associates program. Amazon tracks what books its customers search for and buy. Amazon uses this information for suggestive selling to its customers. Amazon has also filed for a patent on its one-click shopping system, and been the first to introduce new features like the bestseller list and its associates program for having other people sell its products on their Web sites.Amazon tracks what books its customers search for and buy. Amazon uses this information for suggestive selling to its customers. Amazon has also filed for a patent on its one-click shopping system, and been the first to introduce new features like the bestseller list and its associates program for having other people sell its products on their Web sites.

14. Dimensions of Competition: Brand Example More personalized products and Web site experiences. Broader offering of products are built into brand experience, allowing more revenue and profit per customer. Amazon�s personalized recommendations make its brand experience stronger and more personal than a bookstore.Amazon�s personalized recommendations make its brand experience stronger and more personal than a bookstore.

15. Dimensions of Competition: Speed of Delivery Example For in-stock items, there is no technology advantage for Amazon. For out-of-stock items, technology allows greater order tracking and notification features. If Amazon and a local retailer both have a book in stock, there is no advantage to delivery from technology. If a customer wants a book not in stock, Amazon has an advantage in order tracking over a retailer because it�s easier for customers to logon to Amazon�s site than to visit the retail outlet every time they want a status update on the order.If Amazon and a local retailer both have a book in stock, there is no advantage to delivery from technology. If a customer wants a book not in stock, Amazon has an advantage in order tracking over a retailer because it�s easier for customers to logon to Amazon�s site than to visit the retail outlet every time they want a status update on the order.

16. Dimensions of Competition:Selection Example Amazon.com offers 3 million titles compared with 175,000 for a Barnes & Noble retail superstore. Both Amazon.com and BarnesAndNoble.com offer a similar selection of book titles. Amazon has a large advantage over a retail outlet because it offers many more books to select from. However, this selection advantage is non-existant online, where all major book retailers offer nearly the same selectionAmazon has a large advantage over a retail outlet because it offers many more books to select from. However, this selection advantage is non-existant online, where all major book retailers offer nearly the same selection

17. Dimensions of Competition:Convenience Example Available 7/24/365. Easy-to-navigate site. Excellent use of e-mail for marketing and customer service. Skilled at tailoring product recommendations to individuals. One-click ordering. Amazon has a clear advantage in terms of convenience. Its website is open longer than retail outlets, and its site is easier to navigate than a bookstore. Amazon also makes better use of e-mail for marketing than an offline retailer. Amazon is also trying to patent its one-click ordering process, which makes shopping much quicker than other Web sites.Amazon has a clear advantage in terms of convenience. Its website is open longer than retail outlets, and its site is easier to navigate than a bookstore. Amazon also makes better use of e-mail for marketing than an offline retailer. Amazon is also trying to patent its one-click ordering process, which makes shopping much quicker than other Web sites.

18. Amazon Implications B2C example Technology can be used to compete in many dimensions Technology provides more than just new business models Will Amazon survive?

19. What are the Consequences of the Amazon Business Model? Immediate Dominant Internet shopping brand. A lot of valuable information about customer buying. Future Wal-Mart of the Internet? Sub-contract to other dot com�s

20. Impact of Technology on Dimensions of Competition Dimension Price/cost Custom features Distribution Brand, promotions Technology�s Impact Allows personalized pricing, eliminates middlemen, and shrinks value chain (removing non-value-added interactions). Reduced Transaction costs Allows faster product lifecycle, more customer-specific products, and changeable and upgradeable products. Causes disintermediation, re-intermediation, and globalization. Allows 1-to-1 (personalized) marketing. The main dimensions of competition (price, custom features, distribution systems, branding, and so on) are all affected by technology. Technology changes price competition by allowing personalized pricing, eliminating middlemen, and removing non-value-added interactions from the value chain. Technology impacts the strategy of competing on custom features by allowing faster product lifecycles and more personalized and customized products. Technology impacts the distribution system by disintermediating wholesalers and creating global distribution systems. Technology can also make the company brand a personal experience.The main dimensions of competition (price, custom features, distribution systems, branding, and so on) are all affected by technology. Technology changes price competition by allowing personalized pricing, eliminating middlemen, and removing non-value-added interactions from the value chain. Technology impacts the strategy of competing on custom features by allowing faster product lifecycles and more personalized and customized products.

21. Impact of Technology on Dimensions of Competition Dimension Speed of delivery Selection Convenience Service Technology�s Impact Reduces delivery time and inventory, and causes disintermediation. Improved Information Allows greater sales, lower inventory, and customer-driven business systems. Allows 24/7 shopping, order tracking, broader selection, and comparative pricing. Personalizes service using historic and/or predictive information. Technology increases the speed of delivery, reduces inventory, and shortens and lead times, which disintermediates wholesalers and distributors. Technology increases selection and offers customers more choices, which turns the �supply chain� into a �demand chain.� Technology improves service by giving more people access to more information, allowing faster problem solving and more anticipatory and predictive actions. Looking at the impacts, you can see several repeated ideas across dimensions of competition.Technology increases the speed of delivery, reduces inventory, and shortens and lead times, which disintermediates wholesalers and distributors.

22. eBay

23. New Business Model: eBay Online auction system for individuals. People can post items for sale or search for items being auctioned and make bids. Why did eBay�s business model & strategy work? Business Concept eBay is the world's largest personal online trading community. The company created a new market: one-to-one auction buying and selling on the Web. Individuals use eBay to buy and sell items in thousands of categories. As the leading person-to-person auction site, buyers are compelled to trade on eBay because of its critical mass of content.Business Concept eBay is the world's largest personal online trading community. The company created a new market: one-to-one auction buying and selling on the Web. Individuals use eBay to buy and sell items in thousands of categories. As the leading person-to-person auction site, buyers are compelled to trade on eBay because of its critical mass of content.

24. What made eBay Work? Connected people who previously couldn�t be connected economically (new possibility) Users motivation to participate was strong Rapid success Technology was kept simple instead focusing on core objectives Business Rules eBay Broke or Rewrote: eBay recognized that the Internet was about individuals and not corporate opportunity. eBay brought auctions to the Web in a way that immediately appealed and worked commercially. eBay set the core objectives of the company above having cool technologies. eBay has taken its brand forward into other forms of auctions.Business Rules eBay Broke or Rewrote: eBay recognized that the Internet was about individuals and not corporate opportunity. eBay brought auctions to the Web in a way that immediately appealed and worked commercially. eBay set the core objectives of the company above having cool technologies. eBay has taken its brand forward into other forms of auctions.

25. What are the Consequences of the eBay Business Model? Immediate Rapid growth of person-to-person auctions. Rise of �questionable� auction items. Future End of flea markets and garage sales? Creates new markets Specialized trading? Facilitate others? Immediate trends are easier to identify or predict than future trends. eBay certainly represents a threat to flea markets and garage sales, but may never completely eliminate them.Immediate trends are easier to identify or predict than future trends. eBay certainly represents a threat to flea markets and garage sales, but may never completely eliminate them.

26. eTrade

27. New Business Model: E*TRADE Top online brokerage company. Why is stock-trading ideally suited to online business? Business Concept E*TRADE is an online discount brokerage. Customers can buy and sell stocks, options, bonds, and other financial instruments using its website and systems. It offers other services like portfolio tracking, market news, and other general news and information. E*TRADE partners with online service providers America Online and CompuServe, and lets customers connect through other channels such as touch-tone telephone and interactive television. By contrast, �full-service� brokers do not offer online buying or selling of stocks. Customers must visit a branch (in the same way you could go to the bank) to buy or sell stocks. Because of the associated overhead, commission fees are significantly higher, in the hundreds of dollars. You need a large amount of money to trade using a full-service broker, but a very small amount to trade with an online broker.Business Concept E*TRADE is an online discount brokerage. Customers can buy and sell stocks, options, bonds, and other financial instruments using its website and systems. It offers other services like portfolio tracking, market news, and other general news and information. E*TRADE partners with online service providers America Online and CompuServe, and lets customers connect through other channels such as touch-tone telephone and interactive television. By contrast, �full-service� brokers do not offer online buying or selling of stocks. Customers must visit a branch (in the same way you could go to the bank) to buy or sell stocks. Because of the associated overhead, commission fees are significantly higher, in the hundreds of dollars. You need a large amount of money to trade using a full-service broker, but a very small amount to trade with an online broker.

28. Why E*TRADE? No physical delivery of goods makes this an ideal online business Implication: All information-based services can benefit from being online Reduced transaction costs Effective delivery of services Customer segmentation Built a new brand in an industry which competes on brand.. Business Rules E*TRADE Broke or Rewrote: E*TRADE recognized the need for partnerships and alliances. E*TRADE foresaw the impact of the Internet on the financial services industry and had the courage to build a brand competing with well-established companies. E*TRADE understood that the financial services industry had suffered from appalling customer service and made service the core of the E*TRADE experience. Business Rules E*TRADE Broke or Rewrote: E*TRADE recognized the need for partnerships and alliances. E*TRADE foresaw the impact of the Internet on the financial services industry and had the courage to build a brand competing with well-established companies. E*TRADE understood that the financial services industry had suffered from appalling customer service and made service the core of the E*TRADE experience.

29. What are the Consequences of the E*TRADE Business Model? Immediate More online customers. More day-traders. Greater trading volume. More stock market volatility. Future Disintermediate the NYSE? Create an ECN (Electronic Communications Network) like Instinet?

30. Dell

31. New Business Model: Dell Largest direct PC manufacturer and one of the largest PC manufacturers. Sells directly to customers, bypassing retailers and passes on the savings. Has much less inventory than its competitors and much faster deliveries. Business Concept Dell is the world's largest direct computer manufacturing company. Dell offers a full range of computer systems. The company sells its products and services to large corporate, government, medical and education customers, small- to medium-sized businesses, and individuals. Business Concept Dell is the world's largest direct computer manufacturing company. Dell offers a full range of computer systems. The company sells its products and services to large corporate, government, medical and education customers, small- to medium-sized businesses, and individuals.

32. What Rules Did Dell Break? You can�t customize every order for every customer, so offer pre-configured models that can�t be changed. Retailers recommend specific models to customers, so the channel cannot be bypassed. Business Rules Dell Broke or Rewrote: By selling directly to customers, Dell better understands their needs and provides the most effective computing solutions. Dell offers more than 14,000 different configurations of personal computer systems. Other computer manufacturers offer a few dozen configurations with limited options. Production is triggered only after a customer's specific order is received, reducing inventory. Customization also enables Dell to always offer customers the latest technology.Business Rules Dell Broke or Rewrote: By selling directly to customers, Dell better understands their needs and provides the most effective computing solutions. Dell offers more than 14,000 different configurations of personal computer systems. Other computer manufacturers offer a few dozen configurations with limited options. Production is triggered only after a customer's specific order is received, reducing inventory. Customization also enables Dell to always offer customers the latest technology.

33. What are the Consequences of the Dell Business Model? Immediate Decline of computer retailer. PC industry margin squeeze � consolidation and bankruptcy. Future Offer non-PC products in an electronics marketplace.

34. Sabre

35. New Business Model: Sabre Electronic reservation system for airlines, hotels, car rental companies. Sets prices for individual airline tickets to maximize total company revenue or profit. What is Optimal Dynamic Pricing? Business Concept Sabre is the global leader in information technology for the travel and transportation industries. The company makes about $75 billion in travel revenue and 400 million bookings annually. Approximately 40% of all reservations made in the world are processed through the Sabre computer reservations system. Sabre offers travel services from more than 440 airlines, more than 47,000 hotel properties, more than 50 car rental companies, railroads, tour operators, ferry companies, cruise lines, travel insurance agencies, events vendors and limousine companies. Business Concept Sabre is the global leader in information technology for the travel and transportation industries. The company makes about $75 billion in travel revenue and 400 million bookings annually. Approximately 40% of all reservations made in the world are processed through the Sabre computer reservations system. Sabre offers travel services from more than 440 airlines, more than 47,000 hotel properties, more than 50 car rental companies, railroads, tour operators, ferry companies, cruise lines, travel insurance agencies, events vendors and limousine companies.

36. What Rules Did Sabre Break? You can�t charge customers different prices for the same product. Companies cannot share their complete pricing strategies with all competitors. Business Rules Sabre Broke or Rewrote: One of the biggest advantages of the Sabre package is the AirPrice fares management system. It is a ticket price management tool that lets users analyze airline prices and adjust their own prices to take advantage of any demand fluctuations. The decision support tool shows the particular airline in question where there are price differences that may provide an opportunity for change that can result either in minimizing loses or maximizing revenues. The Sabre AirPrice system can serve as a cornerstone for all the knowledge management of an airline. Many airlines, in the past, considered their price schemes a competitive secret. Unless a customer called directly for a specific flight and called a competitor for an identical flight, there was no real way of price comparison. The comparison screen that Sabre brought was a breakthrough in ticket price warfare. It was the first time ticket sellers could directly compare prices. Source: http://wings.buffalo.edu/academic/department/som/isinterface/mgs607fall98/sabre.htm Business Rules Sabre Broke or Rewrote: One of the biggest advantages of the Sabre package is the AirPrice fares management system. It is a ticket price management tool that lets users analyze airline prices and adjust their own prices to take advantage of any demand fluctuations. The decision support tool shows the particular airline in question where there are price differences that may provide an opportunity for change that can result either in minimizing loses or maximizing revenues. The Sabre AirPrice system can serve as a cornerstone for all the knowledge management of an airline. Many airlines, in the past, considered their price schemes a competitive secret. Unless a customer called directly for a specific flight and called a competitor for an identical flight, there was no real way of price comparison. The comparison screen that Sabre brought was a breakthrough in ticket price warfare. It was the first time ticket sellers could directly compare prices. Source: http://wings.buffalo.edu/academic/department/som/isinterface/mgs607fall98/sabre.htm

37. What are the Consequences of the Sabre Business Model Immediate Travel agent disintermediation. Higher revenue and profits for airlines, hotels, and other travel companies. Future Airline alliances. Airline management by Sabre. Single travel marketplace for all players.

38. Hotmail

39. New Business Model: Hotmail Free Web-based e-mail. Spent only $500,000 on initial marketing, much less than the $20 million spent by its nearest competitor Juno. How did they do this? Business Concept Hotmail is a free Web-based e-mail system. After rapid growth, its founder sold the company to Microsoft for $400 million.Business Concept Hotmail is a free Web-based e-mail system. After rapid growth, its founder sold the company to Microsoft for $400 million.

40. New Business Model: Hotmail Used viral marketing (every message ends with a message stating �Get Your Private, Free Email at http://www.hotmail.com�). How did this business make money as an independent entity? Business Concept Hotmail is a free Web-based e-mail system. After rapid growth, its founder sold the company to Microsoft for $400 million.Business Concept Hotmail is a free Web-based e-mail system. After rapid growth, its founder sold the company to Microsoft for $400 million.

41. What Rules Did Hotmail Break? You can�t grow a business or brand without spending a lot on marketing. Customers won�t like being used as part of a marketing campaign. Customers won�t give out personal information to get a �free� service. Business Rules Hotmail Broke or Rewrote: Hotmail turned its customers into a sales force. Every Hotmail subscriber fills out a demographic profile, which can be sold to advertisers. Business Rules Hotmail Broke or Rewrote: Hotmail turned its customers into a sales force. Every Hotmail subscriber fills out a demographic profile, which can be sold to advertisers.

42. What are the Consequences of the Hotmail Business Model? Immediate Single standard and source for e-mail. Consumers expect other free services. Traffic for MSN sites. Future Single standard and source for all communications? Does the online advertising business model work?

43. Priceline.com

44. New Business Model: Priceline.com Online shopping service that allows customers to �Name Your Own Price� for a variety of products, like vacations and electronics. Business Concept Although Priceline.com has seen a rapid rise and fall, its business model of �Name Your Own Price� is revolutionary. This business model is so unique, Priceline.com has successfully patented it, which prevents other companies from using it. Instead of manufacturers or retailers determining the price of the products they sell, Priceline.com take the auction model from eBay and applies it to a retail environment. Customers bid on items like a plane ticket from New York to Miami, including the desired price, and suppliers choose whether or not to accept the bids. This has the effect of turning the supply chain around into a �demand chain.�Business Concept Although Priceline.com has seen a rapid rise and fall, its business model of �Name Your Own Price� is revolutionary. This business model is so unique, Priceline.com has successfully patented it, which prevents other companies from using it. Instead of manufacturers or retailers determining the price of the products they sell, Priceline.com take the auction model from eBay and applies it to a retail environment. Customers bid on items like a plane ticket from New York to Miami, including the desired price, and suppliers choose whether or not to accept the bids. This has the effect of turning the supply chain around into a �demand chain.�

45. What Rules Did Priceline.com Break? Suppliers determine the price of products and publish them to customers. Business Rules Priceline Broke or Rewrote: Rather than retailers or manufacturers determining prices, customers now have much more input in setting prices.Business Rules Priceline Broke or Rewrote: Rather than retailers or manufacturers determining prices, customers now have much more input in setting prices.

46. What are the Consequences of the Priceline.com Business Model? Immediate All prices are negotiable online. Future End of price setting by sellers? If the amount of customers and goods available on Priceline.com�s system grows, retailers will have to compete seriously with the Priceline.com model, and continually adjust their prices. This could lead to all prices being negotiable online, and possibly even the end of sellers setting prices.If the amount of customers and goods available on Priceline.com�s system grows, retailers will have to compete seriously with the Priceline.com model, and continually adjust their prices. This could lead to all prices being negotiable online, and possibly even the end of sellers setting prices.

47. Conclusions Technology allows new ways of doing new things and new ways of doing old things. Different businesses � different models & strategies �If you�re not changing faster than your environment, you are falling behind� � Jack Welsh, CEO of General Electric.

48. Internet Shopping

49. Why do people shop online? Why don�t people shop online?

50. Why Internet Shopping? Enables consumers to shop or do other transactions 24 hours a day, all year round from almost any location Provides consumers with more choices Provides consumers with less expensive products and services by allowing them to shop in many places and conduct quick comparisons

51. Why Internet Shopping? Allows quick delivery of products and services, especially with digitized products Consumers can receive relevant and detailed information in seconds, rather than in days or weeks Allows consumers to interact with other consumers n electronic communities and exchange ideas as well as compare experiences Facilitates competition, which results in substantial discounts

52. Why not Internet Shopping? Security and Privacy Difficult to convince customers that online transactions and privacy very secure Customers do not trust: Unknown faceless sellers Paperless transactions Electronic money Switching from a physical to a virtual store may be difficult Lack of touch and feel online Many unresolved legal issues Expensive and/or inconvenient accessibility to the Internet ePayment is not in place

53. Online Consumer Behavior Model

54. Consumer Behavior Online (cont.) Consumer types Individual consumer Organizational buyers Governments and public organizations Private corporations Resellers Consumer behavior viewed in terms of Why is the consumer shopping? How does the consumer benefit from shopping online?

55. Consumer Behavior Online (cont.) 3 categories of consumers Impulsive buyers�purchase quickly Patient buyers�make some comparisons first Analytical buyers�do substantial research before buying

56. Online Customer Service and CRM

57. Online Customer Service Customer service Traditional: do the work for the customer EC delivered: gives tools to the customer to do the work for him/herself (log: tracking, troubleshooting, FAQ) with Improved communication Automated process Speedier resolution of problems

58. Online Customer Service (cont.) E-service�online help for online transactions Foundation of service�responsible and effective order fulfillment Customer-centered services�order tracing, configuration, customization, security/trust Value-added services--dynamic brokering, online auctions, online training and education

59. Online Customer Service (cont.) Product life cycle and customer service Phases of product life cycle Requirements: assisting the customer to determine needs Acquisition: helping the customer to acquire a product or service Ownership: supporting the customer on an ongoing basis Retirement: helping the client to dispose of a service or product Service must be provided in all of them

60. Online Customer Service (cont.) Customer relationship management (CRM) Customer-focused EC Make it easy for customers to do business online Business processes redesigned from customer�s point of view Design a comprehensive, evolving EC architecture Foster customer loyalty by: Personalized service Streamline business processes Own customer�s total experience

61. Customer Relationship Management (CRM) Customer service functions Provide search and comparison capabilities Provide free products and services Provide specialized information and services Allow customers to order customized products and services Enable customers to track accounts or order status

62. Customer Relationship Management (cont.) Customer service tools Personalized Web pages Used to record purchases and preference Direct customized information to customers efficiently FAQs Customers find answers quickly Not customized, no personalized feeling and no contribution to relationship marketing

63. Customer Relationship Management (cont.) Tracking tools Customers track their orders saving time and money for all Example: FedEx�s package tracking Chat rooms discuss issues with company experts and with other customers E-mail and automated response Disseminate general information Send specific product information Conduct correspondence regarding any topic (mostly inquiries from customers)

64. Customer Relationship Management (cont.) Help desks and call centers A comprehensive customer service entity EC vendors take care of customer service issues communicated through various contact channels Telewebs combine Web channels (automated e-mail reply) Web knowledge bases (portal-like self service) Call center agents or field service personnel Troubleshooting tools �assist customers in solving their own problems

65. Customer Relationship Management (cont.) Justifying customer service and CRM programs�2 problems Most of the benefits are intangible Substantial benefits reaped only from loyal customers, after several years Metrics�standards to determine appropriate level of customer support Response and download times Up-to-date site and availability of relevant content Others

66. Customer Relationship Management (cont.) Amazon.com Convenience, selection, value, special services E-mail order confirmation Personalized services Federal Express (FedEx) Package tracking service Ability to calculate delivery costs, online shipping forms, arrange pickup, find local drop bo

67. Electronic Payment Systems

68. E-payment Players and processes involved in using credit cards online Online alternatives to credit card payments Key elements in securing an e-payment

69. Overview of Electronic Payments E-payment methods Electronic funds transfer (EFT) Credit cards E-payments Smart cards Digital cash Digital checks E-billing All have the ability to transfer payment from one person or party to another

70. Electronic Payments (cont.) Five parties involved in e-payments Issuer Customer/payer/buyer Merchant/payee/seller Regulator Automated Clearing House (ACH) Key issue of trust must be addressed Privacy Authentication and authorization Integrity Nonrepudiation

71. Electronic Payments (cont.) Independence Interoperability and portability Security Anonymity Ease of use Transaction fees

72. E-Cards Three common types of payment cards Credit cards �provides holder with credit to make purchases up to a limit fixed by the card issuer Charge cards �balance on a charge card is supposed to be paid in full upon receipt of monthly statement Debit card �cost of a purchase drawn directly from holder�s checking account (demand-deposit account)

73. E-Cards (cont.) The Players Cardholder Merchant (seller) Issuer (your bank) Acquirer (merchant�s financial institution, acquires the sales slips) Card association (VISA, MasterCard) Third-party processors (outsourcers performing same duties formerly provided by issuers, etc.)

74. Online Credit Card Processing

75. E-Cards (cont.) E-wallets A software component in which a user stores credit card numbers and other personal information when shopping online, the user simply clicks the e-wallet to automatically fill in information needed to make a purchase

76. E-Cards (cont.) Security risks with credit cards Stolen cards Reneging by the customer�authorizes a payment and later denies it Theft of card details stored on merchant�s computer

77. E-Cards (cont.) Purchase cards Instrument of choice for B2B purchasing Special-purpose, non-revolving payment cards issued to employees solely for purchasing and paying for nonstrategic materials and services Purchase cards�operate like other credit cards Cardholder of corporation places an order for goods or services Supplier processes transaction with authorization of card issuer Issuer verifies purchase authorization

78. E-Cards (cont.) Purchase cards All cardholders� transactions processed centrally�one payment for all purchases Each cardholder reviews monthly statement Card issuer analyzes transactions�standard and ad hoc reports are made Card issuer creates electronic file to upload to corporation�s ledger system

79. E-Cards (cont.) Benefits of purchasing cards Cost savings Productivity gains Bill consolidation Payment reconciliation Preferred pricing Management reports

80. E-Cards (cont.)

82. E-Cards (cont.) Categorize smart cards by how they store data Contact card �insert in smart card reader Contactless(proximity) card �embedded antenna read by another antenna (mass-transit applications)

83. E-Cash and Payment Alternatives The digital equivalent of paper currency and coins, which enables secure and anonymous purchase of low-priced items E-cash alternatives for credit cards (micropayments�under $10) E-cash (eCoin.net) Identity of user hidden from merchant Easier to use than earlier e-cash systems Requires specialized software Qpass (Qpass.com) Set up Qpass account User name and password What credit card to charge

86. E-Cash & Payment Alternatives (cont.) Stored-value cards and other innovations Visa Cash: A stored-value card designed to handle small purchases or micropayments; sponsored by Visa Visa Bucks: prepaid card designed for teens Mondex: A stored-value card designed to handle small purchases or micropayments; sponsored by Mondex, a subsidiary of MasterCard

87. E-Cash & Payment Alternatives (cont.) E-loyalty and rewards programs Electronic script A form of electronic money (or points), issued by a third party as part of a loyalty program can be used by consumers to make purchases at participating stores MyPoints-CyberGold (mypoints.com) Customers earn cash Cash used for later purchases

88. E-Cash & Payment Alternatives (cont.) Person-to-person (P2P) payments and gifts Enable transfer of funds between two individuals Repaying money borrowed Paying for an item purchased at online auction Sending money to students at college Sending a gift to a family member

89. Sending money with PayPal

90. E-Checking The electronic version or representation of a paper check Eliminate the need for expensive process reengineering Can be used by all bank customers who have checking accounts To be integrated with the accounting information system of business buyers and with the payment server of sellers Used mainly in B2B

91. E-Checking (cont.) Benefits of e-checking Online check collection process Online notices of check returns Truncating paper checks at bank of first deposit

92. B2B Electronic Payments Financial supply chains (FSC) Follows a buyer�s transaction activities related to cash flow, which start with a purchase order and end in settlement with the seller

93. E-Billing Customers are either individuals or companies Two common models of e-billing Biller direct�customer receives bill from a single merchant Third-party consolidators�presents bills from multiple merchants

94. E-Bill Presentment

95. Payment Gateway server-based transaction processing system which enables businesses to authorize, process, and manage credit card transactions securely in a real-time, online environment from any computer with an Internet connection and a Web browser. specifically designed to accommodate the increasing demand by e-commerce companies offered by banks and companies who are authorized to accept credit card online payment Ex: Citibank payment gateway

96. E-Commerce Security

97. Need forE-Commerce Security Annual survey conducted by the Computer Security Institute Organizations continue to experience cyber attacks from inside and outside of the organization The types of cyber attacks that organizations experience were varied The financial losses from a cyber attack can be substantial It takes more than one type of technology to defend against cyber attacks

98. Security Is Everyone�s Business Security practices of organizations of various sizes Small organizations (10 to 100 computers) The �haves� are centrally organized, devote a sizeable percentage of their IT budgets to security Medium organizations (100 to 1,000 computers) Rarely rely on managerial policies in making security decisions, and they have little managerial support for their IT policies Overall exposure to cyber attacks and intrusion is substantially greater than in smaller organizations

99. Security Is Everyone�s Business (cont.) Large organizations (1,000 to 10,000 computers) Complex infrastructures and substantial exposure on Internet While aggregate IT security expenditures are fairly large, their security expenditures per employee are low Large/Very Large organizations IT security is part-time and undertrained�sizeable percentage of the large organizations suffer loss or damage due to incidents Base their security decisions on organizational policies extremely complex environments that are difficult to manage even with a larger staff

100. Security Issues From the user�s perspective Is the Web server owned and operated by a legitimate company? Does the Web page and form contain some malicious or dangerous code or content? Will the Web server distribute unauthorized information the user provides to some other party?

101. Security Issues (cont.) From the company�s perspective Will the user not attempt to break into the Web server or alter the pages and content at the site? Will the user will try to disrupt the server so that it isn�t available to others?

102. Security Issues (cont.) From both parties� perspectives Is the network connection free from eavesdropping by a third party �listening� on the line? Has the information sent back and forth between the server and the user�s browser been altered?

103. Security Requirements Authentication: The process by which one entity verifies that another entity is who they claim to be Authorization: The process that ensures that a person has the right to access certain resources Confidentiality: Keeping private or sensitive information from being disclosed to unauthorized individuals, entities, or processes

104. Security Requirements (cont.) Integrity: As applied to data, the ability to protect data from being altered or destroyed in an unauthorized or accidental manner Auditing: The process of collecting information about attempts to access particular resources, use particular privileges, or perform other security actions Nonrepudiation: The ability to limit parties from refuting that a legitimate transaction took place, usually by means of a signature

105. Types of Threats and Attacks Nontechnical attack An attack that uses chicanery to trick people into revealing sensitive information or performing actions that compromise the security of a network Technical attack An attack perpetrated using software and systems knowledge or expertise

106. Types of Threats and Attacks (cont.) Denial-of-service (DoS) attack An attack on a Web site in which an attacker uses specialized software to send a flood of data packets to the target computer with the aim of overloading its resources Distributed denial-of-service (DDoS) attack Attacker gains illegal administrative access to as many computers on the Internet as possible and uses these multiple computers to send a flood of data packets to the target computer

107. Types of Threats and Attacks (cont.) Malware: A generic term for malicious software The severity of the viruses increased substantially, requiring much more time and money to recover 85% of survey respondents said that their organizations had been the victims of e-mail viruses in 2002

108. Types of Threats and Attacks (cont.) Malicious code takes a variety of forms�both pure and hybrid Virus: A piece of software code that inserts itself into a host, including the operating systems, to propagate; it requires that its host program be run to activate it Worm: A software program that runs independently, consuming the resources of its host in order to maintain itself and is capable of propagating a complete working version of itself onto another machine Macro virus or macro worm: A virus or worm that is executed when the application object that contains the macro is opened or a particular procedure is executed Trojan horse: A program that appears to have a useful function but that contains a hidden function that presents a security risk

109. Security Risk Management Definitions involved in risk management Assets�anything of value worth securing Threat�eventuality representing danger to an asset Vulnerability�weakness in a safeguard Required to determine security needs 4 phases of risk management Assessment Planning Implementation Monitoring

110. Security Risk Management (cont.) Assessment phase�evaluation of assets, threats, vulnerabilities Determine organizational objectives Inventory assets Delineate threats Identify vulnerabilities Quantify the value of each risk

111. Security Risks for EC & Other Internet Sites

112. Security Risk Management (cont.) Planning phase of risk management�arrive at a set of security policies Define specific policies Establish processes for audit and review Establish an incident response team and contingency plan

113. Security Risk Management (cont.) Implementation phase of risk management choose particular technologies to deal with high priority threats Monitoring phase of risk management ongoing processes used to determine which measures are successful, unsuccessful and need modification

114. Methods of securing EC Authentication system System that identifies the legitimate parties to a transaction, determines the actions they are allowed to perform Access control mechanism Mechanism that limits the actions that can be performed by an authenticated person or group

115. Biometric Controls Biometric systems Authentication systems that identify a person by measurement of a biological characteristic fingerprint, iris (eye) pattern, facial features, or voice

116. Encryption Encryption The process of scrambling (encrypting) a message in such a way that it is difficult, expensive, or time-consuming for an unauthorized person to unscramble (decrypt) it Private and public key encryption

117. Encryption Plaintext An unencrypted message in human-readable form Ciphertext A plaintext message after it has been encrypted into a machine-readable form Encryption algorithm The mathematical formula used to encrypt the plaintext into the ciphertext, and vice versa

118. Encryption Methods (cont.) Key - The secret code used to encrypt and decrypt a message Types of encryption systems Symmetric (private key) Use the same lkey to encrypt and decrypt message Shared by sender and receiver of message Asymmetric (public key) Use a pair of keys Public key to encrypt the message Private key to decrypt the message

120. Encryption Methods Public key infrastructure (PKI): A scheme for securing e-payments using public key encryption and various technical components

121. Elements of PKI Digital signature: An identifying code that can be used to authenticate the identity of the sender of a document or a message ensure the original content of the electronic message or document is unchanged Cannot be easily repudiated or imitated Can be time-stamped

122. Digital Signatures

123. Elements of PKI (cont.) Digital certificate: Verification that the holder of a public or private key is who they claim to be Certificate authorities (CAs): Third parties that issue digital certificates

124. Security Protocols Secure Socket Layer (SSL) Protocol that utilizes standard certificates for authentication and data encryption to ensure privacy or confidentiality Transport Layer Security (TLS): As of 1996, another name for the SSL protocol Secure Electronic Transaction (SET) A protocol designed to provide secure online credit card transactions for both consumers and merchants; developed jointly by Netscape, Visa, MasterCard, and others

125. Securing EC Networks Technologies for organizational networks Firewall: A network node consisting of both hardware and software that isolates a private network from a public network Packet-filtering routers: Firewalls that filter data and requests moving from the public Internet to a private network based on the network addresses of the computer sending or receiving the request Application-level proxy: A firewall that permits requests for Web pages to move from the public Internet to the private network

126. Securing EC Networks (cont.)

127. Securing EC Networks (cont.) Personal firewalls: Personal firewall: A network node designed to protect an individual user�s desktop system from the public network by monitoring all the traffic that passes through the computer�s network interface card

128. Securing EC Networks (cont.) Virtual private network (VPNs) A network that uses the public Internet to carry information but remains private by using encryption to scramble the communications, authentication to ensure that information has not been tampered with, and access control to verify the identity of anyone using the network

129. Securing EC Networks (cont.) Intrusion detection systems (IDSs): A special category of software that can monitor activity across a network or on a host computer, watch for suspicious activity, and take automated action based on what it sees Network-based IDS uses rules to analyze suspicious activity at the perimeter of a network or at key locations in the network

130. What are the consequences of poor security?

131. Dynamic Pricingand E-auctions

132. Dynamic Pricing 4 categories one buyer, one seller -- negotiation, bargaining many buyers, many sellers -- dynamic exchanges one seller, many potential buyers -- forward(regular) auctions one buyer, many potential sellers -- reverse auction, tendering

133. Online Auction(e-Auction) ..... any system that uses algorithms to competitively bid price to consummate a transaction between a seller & a purchaser, including Internet exchanges which are online markets where auctions take place Similar to real-life auctions BUT sellers and bidders don�t go to a physical auction house --- they go to a web site where bidding takes place

134. Real-life vs. Online Auctions Who do buy from? most online auctions -- buy directly from the seller traditional, real-life auctions -- buy from an auctioneer period of auctions most online auctions -- last for days, except flash auction examine the goods -- can�t for online auctions buyers & sellers have to arrange for the goods to be shipped privately

135. Process of Online Auctions Activities Initial buyer/seller registration Setting up a particular auction event Scheduling and advertising Bidding Evaluation of bids and closing the auction Trade settlement

136. Benefits of e-Auction Create more efficient markets Relax geographic constraints Consumers getting a �good deal� / save money Make extra money -- one man� s trash is another man� s treasure Contribute to buyers and sellers sense of online community

137. Disadvantages of e-Auction Blind shopping Less competitive Vulnerability to bidder collusion Vulnerability to a lying auctioneer Security Untrustworthy

138. Framework of e-Auction 6 components auctioneer supplier/seller customer/buyer trade objects transaction phase rule base + the network/Internet covers the entire auction framework for communication

139. Forward Auction Formats English Auction seller lists an item and an opening bid, also specifies a bid increment buyers start bidding the highest bid wins at their bid price Yankee Auction commonly used when a seller places one or more identical items on sale all winning bidders pay the identical price -- the lowest successful bid = bottom of the winning bid range

140. Auction Formats con�t Reserve Auction a reserve price -- the lowest price a seller is willing to sell an item, not disclosed to bidders reserve the right to refuse the item beneath Proxy Format a buyer sets the maximum price they� re willing to pay the site will do your bidding for you if somebody outbids you, your bid will automatically be increased by the increment set continue until someone bids above your max bid or until the auction is over and you win

141. Auction Formats con�t Dutch Auction prices start at a high level, slowly declined bidders specify quantity to buy at declining price Express or Flash Auction very much like real-life auction, bid against others live online held for short amount of time, often last an hour or less

142. Reverse Auction Potential sellers bid, reducing the price sequentially until bidders do not reduce the price sealed-bid -- bid only once, silent auction

143. Some Issues Auction or not Your own auction site or 3rd Party site Auction strategy Support services Payment What is auctioned

144. e-Bay www.ebay.com the world�s largest online auction Main Page of the site many services auction listings

145. e-Bay con�t Find what you want to buy Featured items Browsing by category Doing a search

151. You want to buy the first stamp in the world

154. How to Place Your Bids Steps Check out the item details page Place your bid Follow up on your bidding Close the deal