E-COMMERCE

The sales aspect of e-business

Plan of the talk

Introduction to e-commerce and e-commerce applications

Issues in developing e-commerce applications Architecture of e-commerce applications Perspectives for e-commerce References

What is commerce?

Commerce is the exchange of items of value between persons or companies. Any exchange of money for a product, service, or information is considered as a deal of commerce and commerce has been a constant part of history Commerce is an essential element of capitalism. Capitalism began in seventeenth century Europe and is associated with the European Enlightenment

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capitalism is a socio-economic system in which private ownership means profit to the owner. The owner controls the means of production, so the profit belongs to the private business owner. In capitalism, the free market determines the production, distribution and price of goods and services. A free market is unregulated supply and demand with little government interference in matters of trade. Price agreements are made by buyers and sellers and the market dictates supply and demand. Competition policies may exist in a free market capitalist system.

Limitations

Before technological advances, people were only able to trade with their neighbors. Historically, commerce between distant places was very expensive

What is Barter? (counter-trade)

It is the process of trading products, goods or services, for other products, goods or services. It is a simple method of transaction, frequently one in which no money is exchanged.

Electronic commerce/ e-commerce/ e-business

consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks and online retailers are known as e-tailers or e-tail. It also consists of the exchange of data to facilitate the financing and payment aspects of the business transactions.

Practical concerns for e-commerce deals

Identity and capacity of seller or buyer Authenticity of offer and acceptance (digital signatures) When and where contract formed Governing law Terms and conditions (click through)

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Agreement on electronic payment system Security of information exchanges Consequences on breach Storing electronic data to prevent alteration

Taxonomy of e-commerce applications

Business to Business (B2B)

Business to Customers (B2C)

Main categories

Customers to Customers(C2C)

Business to government (B2G)

Other Categories

Mobile Commerce

B2C applications

Offer directly to the customer an interface of activity Typical examples:

Online book store (e.g. amazon.com) Online car purchasing (e.g. automall.com) Booking and purchase of airline tickets (e.g. ryanair.com)

Correspond to retail sale Growth of B2C applications thanks to Internet

B2C applications: advantages and disadvantages

Advantages:

Allow company to extend existing services to customers Allow company to increase its customers Offer a wider choice and allow cheaper prices May give to the company a worldwide visibility Online shops are accessible 24 x 7

Disadvantages:

Low (order conversion rates) High risk (see Cyberphobia)

B2B applications

Realize transactions needed to perform financial or commercial activities by companies over the Internet Some typical applications:

E-procurement E-Marketplace

The turnover is much greater than that dealed with B2C applications

B2B applications: advantages and disadvantages

Advantages: Help to automate communications between companies making them easier and quicker Allow to cut prices drastically Help in reducing mistakes Disadvantages: Often need legacy integration

C2C applications

Concern the consumers who run negotations with other consumers sometimes utilizing as intermediary a company Examples:

Ebay Autotrader.com

C2C applications: advantages and disadvantages Advantages

Allow consumers to interact directly among them Give to the consumers a new way of purchasing and selling services and goods Disadvantages Little earning capacity

B2G applications

Correspond to all kind of transactions between company and public administrator Utilized mostly in the USA

Mobile commerce applications

Concern doing businesses by means of mobile wireless devices Can be both B2B and B2C Have a growing importance in the future of e-commerce applications Will introduce completely new forms of electronic commerce E.g. E-tickets The development of such applications faces some of the greatest challenges in the security area to secure the trust of consumers

security issues:

Authentication: The process of proving one's identity. (The primary forms of host-to-host authentication on the Internet today are name-based or address-based, both of which are notoriously weak.) Privacy/confidentiality: Ensuring that no one can read the message except the intended receiver. Integrity: Assuring the receiver that the received message has not been altered in any way from the original. Non-repudiation: A mechanism to prove that the sender really sent this message.

Issues in developing e-commerce applications (1/2)

Many of the following issues: Security Flexibility Scalability Fault tolerance Integration Interfaces (graphical and not) Time-to-market are common to many applications, but they are all critical in the case of e-commerce because of its nature

Issues in developing e-commerce applications (2/2)

A state-of-the-art application always fail if people do not utilize it A constant attention must be payed to the users over the whole development process A close integration with every business aspect is needed: For an online buyer security and easy access to the informations are the primal needs A manager will need a flexible application to adapt the business to the new trends in a faster way

Security Issues

Security is a crucial feature Most transactions take place in a fully automated way Restricted data are transmitted through a public network Users must be sure that their money will not be lost or stolen

Flexibility Issues

E-commerce systems are subject to frequent structural changes because of mutations of: Products and services provided by the firm Commercial partnerships

Scalability

Capability to support a certain number of users (thousands, even millions) without compromising performances It is important because a slow application often means to lose customers (especially in B2C) since they have very small patience

Fault tolerance

A less fault-tolerant application will be less available to the user Every minute that a site is not available costs 1400$ to the company (survey on 400 major companies by Oracle) It is easy to lose customers forever It is necessary to redirect the users without they perceive it

Integration

Always needed since no application offering every commercial functionality can be realized Critical because the commercial funcionalities are often realized by many different legacy and third-party applications Examples:

ERP systems Legacy systems

User Interfaces

Must be intuitive,easily comprehensible and of simple utilization In the case of B2C must support profiling in order to anticipate the customer requests They also need to be customizable

Multi-channel interfaces

Application interfaces must support several kinds of connections: Web browsers Web TV Cellular phones (via WAP) PDA

Time-to-market

Has greater importance than elsewhere Emphasis on COTS and reuse

Two-tier Architecture (client server)

Data reside on a server Business logic and user interfaces reside on clients Drawbacks : Clients sustain the main load and consequently result to be monolithic and heavyweight Excessive overhead Simple but unsuitable for e-commerce applications

Three-tier architecture

Separates the business logic of the application from user interfaces and from data access Middle tier can be furtherly divided In this case we call it multi-tier architecture: Easier to modify one component Lower cost to deploy and maintain

Three-tier architecture

Application server

Software that runs on the middle tier of a three-tier environment In multi-tier environments it is often a distributed and complex software Commercial implementations exist: Microsoft Commerce Server 2000 Sun iPlanet IBM WebSphere Application Server

Application Server-based e-commerce platform architecture

E-commerce platform
ERP
Presentation Layer Business Logic Layer Data & Legacy Access Layer

Legacy systems

Transactions

Security

Session

Resource Load Pooling balancing

Horizontal Services

Database

Application Server
Client tier Server tier Data tier

Example: iPlanet architecture

Future Perspectives (1/2)

Electronic commerce is going to reduce a lot of overhead in the economy It will allow a purchase order to go from being about a $75 cost to about $10 if you had to pick who's the big winner in all of this, you'd definitely have to pick consumers It lets you go out to the Internet and look at products and services of every kind, that never would have been available through traditional distribution channels (Bill Gates at the White House Conference on the New Economy, April 2000)

Future Perspectives (2/2)

In spite of Bills words, people still lack trust in ecommerce However, in Europe there is a strong tendency towards the acceptance of Mobile Commerce EITO (European Information Technology Observatory) 2002 highlights the growing importance of Mobile Commerce (see next page)

Trends in Mobile Commerce for the EU Markets: entertainment

Trends in Mobile Commerce for the EU Markets: banking and finance

Trends in Mobile Commerce for the EU Markets: banking and finance

Trends in Mobile Commerce for the EU Markets: banking and finance

Electronic Data Interchange (EDI)

Electronic exchange of Business documents Business data In a standard format (ANSI X12,EDIFACT) Established between 1968 and 1975 in the transportation industries (U.S.) Application-to-application communication without human intervention

Electronic Funds Transfer (EFT)

The banking equivalent of EDI Denotes the transfer of : Electronic checks Customer accounts Payment informations in automated way

Order conversion rates

Defined as: # of orders / # of contacts By month or year, four-month periods, etc. Measure the capability of a certain B2C application to convert an user into a buyer A survey carried out in August 2000 showed that order conversion rates in USA were of 1.9% (Boston Consulting Group and Shop.org)

E-procurement applications (1/3)

Automate enterprise purchasing processes, i.e. perform all of the activities related to generating an order on the buyers side Purchased goods can be : Direct goods (critical items in the supply chain) Indirect goods (MRO Maintenance Repair and Operations - such as office items)

E-procurement applications (2/3)

Automating procurement of indirect goods can dramatically reduce costs since: Lessens maverick buying Reduces supplier response time

E-procurement applications(3/3)

3. Order approvation compliant to company standards and procedures 2. Purchase request is performed by employees via a Web interface

4. Purchase order is electronically placed

Indirect goods e-procurement

1. Product selection from available catalogues

5. Order is fulfilled by the supplier

6. Product delivery 8. Payment request electronically forwarded

7. Product receipt

E-marketplace

An environment that brings buyers and sellers together in a virtual space for e-commerce, enabling them to reach new customers and reduce transaction costs E-marketplaces are becoming more fashionable

Cybermalls

Include more virtual shops Appear as web portals with links to single e-shops grouped by different product categories (e.g. music or books) Advantages for smaller businesses: Reduced initial investment Easily traceability through the malls brand

Presentation Layer

Its purpose is to provide a user interface to the end user of the application Controls the look-and-feel of the application and responds to user events Serves actually as the front-end of the application

Business Logic Layer

The heart of the application itself Contains the business rules and /or processes Its components link between presentation and data/legacy layers

Data & Legacy access Layer

Its purpose is to give to the business logic components access to backend data sources such as: Databases ERP systems Other custom systems

Horizontal services

Services provided by the application server by means of an underlying technology (CORBA, EJB, COM,etc.) Typical services: Transactions Security Session Management Resource pooling Load balancing and fail over

Session Management

Mantains the correlation among requests generated by the same user

Resource Pooling

Caching the instances of used resources (e.g. database connections) improves performances

Load Balancing and Fail Over

Make possible to distribute incoming requests Handle clients reconnection in the case of system crash

Cyberphobia and the .com crash

Cyberphobia is the markets irrational fear of the Internet due to the several bankruptcies occured in the past years B2C represent 75% of bankruptcies
Internet shutdowns

2000 Jan-Apr 6

2001 220

2002 66

Source:Webmergers.com