e-commerce | Electronic Data Interchange | E Commerce





Centre for Distance Education
Anna University Chennai Chennai – 600 025

Author Mr.A.K.Sheik Manzoor Mr.A.K.Sheik Manz oor
Lecturer Department of Management Studies, Anna University Chennai, Chennai- 600025

Reviewer Dr. L. Suganthi
Professor Department of Management Studies Anna University Chennai Chennai - 600 025

Editorial Board Dr.T.V.Geetha .T.V Dr.T.V.Geetha
Professor Department of Computer Science and Engineering Anna University Chennai Chennai - 600 025

Dr.H.Peeru .H.Peer Dr.H.Peer u Mohamed
Professor Department of Management Studies Anna University Chennai Chennai - 600 025

Dr.C Chellappan .C. Dr.C. Chella ppan
Professor Department of Computer Science and Engineering Anna University Chennai Chennai - 600 025

r.A.K D r.A.K annan
Professor Department of Computer Science and Engineering Anna University Chennai Chennai - 600 025

Copyrights Reserved (For Private Circulation only) ii

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The author has drawn inputs from several sources for the preparation of this course material, to meet the requirements of the syllabus. The author gracefully acknowledges the following sources: • • • • • • •

Frontiers of electronic commerce by Kolokota Whinston, Pearson Education,inc. Electronic commerce and Managerial Perspective by Efraim Turban, Jaelee, David King and H. Michael Chung, Pearson Education, inc., Introduction to e-Commerce by Jeffrey F.Rayport, Bernard J.Jaworski, Tata Mcgraw hill edition, Second Edition. Electronic Commerce by Gary Schneider, Seventh edition, Thomson Course Technology. Legal issues in Electronic Commerce by T.Ramappa, Macmilllan. Text book of Enterprise Resource Planning by Mahadeo Jaisual, Ganesh Vanapalli, Macmillan. Albrecht, C.D.Dean and J.Hansen 2005.”Market place and Technology Standards for B2B e-Commerce progress, Challenge, and the State of the Art”, Information & Management.

Inspite of at most care taken to prepare the list of references any omission in the list is only accidental and not purposeful.

A.K.Sheik Manzoor Author



Kalakota et al. 1999.’Electronic Commerce’. Prentice Hall.’E-Commerce Management –Text and Cases’. TCP.1998. UNIT III – E-COMMERCE INFRASTRUCTURE Intranet. Taxation and Encryption polices. contracts and warranties. 2002. ‘Frontiers of Electronic Commerce’. Business and Legal Issues’.Basics of data mining. Pearson Education Asia. Nabil Adam et al. E-check and unified payment systems. ethics and privacy issues –Protection needs and methodology –Consumer protection. REFERENCES 1. 2. 2001. UNIT II – BUSINESS APPLICATIONS IN E-COMMERCE Retailing in E-commerce –Market research on internet customers – e-commerce for services sector-Advertising in e-commerce –B2B e-commerce.Overview of IP. Tata McGraw Hill. credit and debit card usages. Sandeep Krishnamurthy. Cyber laws. OLAP and cryptography. 5. vii . Applications & Business models. Addison Welsley. Principles of e-fund transfer.COMMERCE TECHNOLOGY AND MANAGEMENT UNIT I –FUNDAMENTAL OF E-COMMERCE Dividing forces –benefits and limitations of e-commerce. UNIT IV . UNIT V – LEGAL AND PRIVACY ISSUES IN E-COMMERCE Legal. 3. Architecture. data warehousing and network infrastructure requirements . internet & extranet. HTML. Efaim Turban etal.E-COMMERCE PAYMENTS AND SECURITY E-payments and protocols-Security schemes against internet fraud.DBA 1727 E.’Electronic Commerce –A Managerial Perspective’.’Electronic Commerce –Technical. Thomson Learning. Greenstein Firsman.Structure. 2003 4.

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4.1 Introduction 1.8 Architectural framework of e commerce 1.7 E.6 Trends that Effect Data Mining DATE WAREHOUSING 1.6 Scope of e-commerce 1.3 Techniques used in Data Mining 1.10 Disadvantages of E-Commerce DRIVING FORCES OF E-COMMERCE 1.1 INTRODUCTION TO E-COMMERCE 1.1.2 1.2 Definitions ix 1.2.1 Introduction to Data Mining UNIT I FUNDAMENTAL OF E-COMMERCE 1.2.4 1.5 Profitable Applications 1.2 The Limitations of EC DATA MINING What is data warehousing? 1.commerce in action 1.4.4 How Data Mining Works 1.4 Is e-Commerce the Same as e-Business? BENEFITS AND LIMITATIONS OF E-COMMERCE 1.5.3 Definition of e-commerce Environmental factors that create Business Pressures 1.1 The Benefits of EC 1.2 Critical response activities by Organizations 1.3.3 1.1.5 Types of e-commerce 1.5.4 Classifications of e-commerce applications 1.2 The Scope of Data Mining 1.3.3 E-Commerce Communities 1.1.5 1 1 1 2 4 6 8 9 14 23 24 24 25 27 29 30 31 31 34 35 35 37 38 38 41 42 43 43 44 . Advantages of E-Commerce 1.2 Brief history of e-commerce 1.

1.2 Mark up Languages and the Web Advantages of data warehouse 1.8.2 What is OLAP? OLAP Benefits CRYPTOGRAPHY 1.8 Internet Protocols 1.3 Cryptographic primitives 1.5.4 Uses of Olap 1.1 Introduction: 1.4 Authentication primitives 1.5.3 Hypertext Markup Language (HTML) OLAP: ON-LINE ANALYTICAL PROCESSING 1.3 Planning Your Network Infrastructure Layout TRANSMISSION CONTROL PROTOCOL/ INTERNET PROTOCOL TCP / IP 1.7.1 Web Based Client / Server 1.6 1.1 Introduction to TCP/IP TCP/IP Services 1.3 What is TCP/IP? 1.7.5 Aspects of data warehouse architecture NETWORK INFRASTRUCTURE REQUIREMENTS 1.5.1 Introduction to Cryptography 1.7 TCP/IP – Connectionless technology HYPERTEXT MARKUP LANGUAGE (HTML) 1.6 TCP/IP Terminology 1.5 Features of TCP/IP 1.6.5 Cryptographic protocols 45 46 47 49 49 50 52 55 55 56 57 58 59 60 64 64 64 66 66 73 73 73 77 78 78 79 79 79 83 85 87 x .1 The Existing Network Network Infrastructure Components 1.4 Types of data warehouses: 1.9 1.9.3 Olap Server 1.8.2 Cryptographic services 1.9.

6 Benefit from an e-Commerce Sales Strategy 2.2 Scope of Internet Marketing 2.2 E-retailing 2.5 E-Marketplace Difference between Traditional retailing and E-retailing 2.1.6 EDI Standards The Seven Stages of Internet Marketing 2.7 Critical success factors for internet marketing executives E-COMMERCE FOR SERVICE SECTOR RETAILING IN E-COMMERCE 2.2 2.2.8 Business – to.4 What is B2B Marketing Communications 2.5.1.UNIT II BUSINESS APPLICATIONS IN E-COMMERCE 2.Business to Business E-Commerce 2. Banking Via Online Services ADVERTISING AND ONLINE PUBLISHING 2.5.2 Electronic Commerce and Banking 2.3 E-Business issues & internet marketing 2.5 xi .2 Automated Ecommerce Transactions 2.3.1 E-Services 2.business services 93 93 94 95 96 98 101 101 110 110 111 113 114 120 122 123 125 125 132 135 140 140 143 150 150 152 153 154 155 157 160 161 Models of E-Retailing 2.2.7 Business – to – business aucitons 2.5.3 2.2 Electronic Commerce and Online Publishing B2B E-COMMERCE 2.2.1 Advertising and Online Publishing 2.1 What is Internet Marketing 2.4 Benefits of E-Retailing Electronic Commerce and Retailing 2.4 2.5 Customer Relationship Management 2.1 B2B . Features of E-Retailing 2.7 Changing Retail Industry Dynamics INTERNET CONSUMERS AND MARKET RESEARCH 2.3 Characteristics of B2B EC 2.2.

2 Designing Electronic Payment Systems 213 213 216 xii . Marketing What is the Internet Web based Client/Server 3.2 Internet Structure 3.1.6 Internet/Intranet Applications EXTRANET 3.7 Common uses of the Internet 3.4 The Internet Tools and their Characteristics 3.2 Features of Extranet 3.1 ELECTRONIC PAYMENTS AND PROTOCOLS 4.3.4 Basic intranet structure 3.3 The Internet and its Characteristics 3.4 Extranet applications 3.2.3 Industry use E-Commerce Business Models 165 165 166 167 168 171 173 177 184 184 191 191 191 192 195 195 200 202 202 203 204 205 206 206 3.1.3 UNIT IV E-COMMERCE PAYMENTS AND SECURITY 4.5 Disadvantages 3.1.6 Elements of Internet Architecture 3.1 Electronic Payment Systems 3.1 INTERNET What is an Intranet 3.2 TCP/IP protocol suite 3.9 Online Internet Business Models INTRANET 3.1 What is an Extranet 3.UNIT III E-COMMERCE INFRASTRUCTURE 3.3 The benefits of Intranets 3.5 Internet Architecture 3.1.

1 What is EFT? 4.3 Credit cards in ATMs 4.1 What is credit card? Security Schemes 4.6 Advantages and Disadvantage of credit cards 4.3.2 Secured credit cards SECURITY SCHEMES AGAINST INTERNET FRAUD 4.6.3 Secure Electronic Transaction (SET) Protocol ELECTRONIC FUNDS TRANSFER 4.1 4.4.3 How do Electronic Check works? Advantages of EFT: Infrastructure for On-Line Credit Card Processing 4.2 Types of debit card 4.4 CREDIT CARD BASED-ELECTRONIC PAYMENT SYSTEM 4.8 Risks from Mistake and Disputes: Consumer Protection DEBIT CARD BASED-ELECTRONIC PAYMENT SYSTEM 4.5 Encryption and Credit Cards 4.2 Smart Cards Smart Cards and Electronic Payment Systems xiii 217 220 220 221 228 229 231 231 231 231 232 235 236 237 237 237 239 240 241 242 244 245 247 247 248 249 250 252 252 252 253 254 255 256 256 256 .4.5 Online Catalogs Benefits of Electronic Checks 4.3 Online and offline debit transactions 4.6.3 Creating a Secure System 4.6.1 What is a debit card 4.4.5 Comparison with other payment instruments 4.4 Why do we use e-checks? 4.4 Advantages and Disadvantages 4.4 Storing Secure Information 4.7 STORED VALUE CARDS AND E-CASH 4.4 Electronic Funds Transfers Initiated By Third Parties 4.2 Where do we find EFT? 4.4 Credit Card payment-online networks 4.6 ELECTRONIC CHECKS 4.6 Intelligent Agents 4.1 Security Issues E-Checks 4.5.

3 Issues Related to Jurisdicary 5.4 5.5.5 Formation of an Enforceable Online Contract ETHICAL.6 4.1 Intellectual Property Rights 5.4.1 Ethics.7.3.3 4.2 Current Law .5.A Moratorium on Internet Taxes 273 273 276 277 277 277 278 278 281 282 285 285 286 291 291 292 293 294 294 295 Copyright and the Internet 5.1 Cyber law xiv .3 Warranties on the web TAXATION AND ENCRYPTION POLICIES Types of Intellectual Property Protection CYBER LAW.1 Legal issues 5.7. CONTRACTS AND WARRANTIES 5.4.5 4. AND POLITICAL ISSUES IN ECOMMERCE 5.2 Basic Ethical Concepts: Responsibility Accountability.2 Contracting and Contract Enforcement in EC 5.10 Electronic or Digital Cash Using the Digital Currency Drawback of E-cash Business Issues and Electronic Cash Operational Risk and Electronic Cash Legal Issues and Electronic Cash Electronic Tokens Other Emerging Financial Instruments 259 261 263 263 264 265 267 268 UNIT V LEGAL AND PRIVACY ISSUES IN E-COMMERCE 5.1 LEGAL ASPECTS OF E.3 Privacy and Information Rights PROTECTING INTELLECTUAL PROPERTY 5.2 5. and Liability Analyzing Ethical Dilemmas 5.3 5. Social and Political issues 4.4 Service Provider liability 4.COMMERCE 4.7 4.7. SOCIAL.1 Introduction on Taxation

3 Taxation of Ecommerce .4 5.5.5 5.The Significant Issues The Future for Ecommerce Taxation Encryption policy Customer’s Trust Online Steps to Plan Successful E-Commerce 298 301 301 303 304 xv .5.6 5.5.

is making fundamental changes to the lives of everyone on the planet-changing forever the way business is conducted.1. Internet has become an important medium for doing global business based on the state of the art technology.1 Introduction Two thousand years ago. using networks and the Internet. The availability of Internet has led to the development of E-Commerce (Electronic commerce).1 INTRODUCTION TO E-COMMERCE 1. A thousand years ago. the network of networks.1.2 Brief History Of E-Commerce The history of E-commerce is a history of how Information Technology has transformed business processes. New standards and new facilities are constantly emerging and their proper understanding is essential for the success of an operation and especially for those who are assigned a duty to select. the world’s largest computer network. in which business transactions take place via telecommunication networks. Some authors will track back the history of E-commerce to the invention of the telephone at the end of last century. The stress of this course will show you how to get started in the complex and exciting world of Electronic Commerce. At the dawn of the second millennium. Global business was conducted in a new way: electronically. establish. the spice routes linked the cultures of East and West. Roman roads brought trade and commerce to Europe in an unprecedented manner. the Internet. The Internet was conceived in 1 ANNA UNIVERSITY CHENNAI . and maintain the necessary infrastructure. 1. E-Commerce has two major aspects: economical and technological.E-COMMERCE TECHNOLOGY AND MANAGEMENT NOTES UNIT I FUNDAMENTAL OF E-COMMERCE 1.

and EC applications expanded rapidly. 1. services. purchase items securely. which expanded from financial transactions to other transaction processing and enlarged the participating companies from financial institutions to manufacturers. Almost every medium. With the commercialization of the Internet in the early 1990s and its rapid growth to millions of potential customers. EDI (Electronic Data Interchange) is widely viewed as the beginning of E-commerce if we consider E-Commerce as the networking of business communities and digitalization of business information. and specifications.1. and so on. 2 ANNA UNIVERSITY CHENNAI . for example. retailers. and information via computer networks including the Internet.000 links to its products. E-commerce is basically. Such systems were described as telecommunication applications and their strategic value was widely recognized. One reason for the rapid expansion of the technology was the development of networks. The processes in electronic commerce include enabling a customer to access product information. Advertising on your Web site can be done in two ways. select items to purchase. as you would in any other media like newspapers. doing business-as-usual. software. ranging from stock trading to travel reservation systems. TV or brochures. The other reason was the increase in competition and other business pressures. services. Many other applications followed. services. You advertise your products or services on your Web site.3 Definition Of E-Commerce: Electronic commerce is an emerging model of new selling and merchandising tools in which buyers are able to participate in all phases of a purchase decision. but across the Internet.DBA 1727 NOTES 1969. and have the purchase settled financially. protocols. in 1999 General Motors Corporation offered 18.and large-sized organization in the United States already has a Web site many are very extensive. From 1995 to 1999 we have witnessed many innovative applications ranging from advertisement to auctions and virtual reality experiences. when the Advanced Research Projects Agency (a Department of Defence organization) funded research of computer networking.000 pages of information that included 98. while stepping through those processes electronically rather than in a physical store or by phone (with a physical catalogue). the term electronic commerce was coined. It is an emerging concept that describes the process of buying and selling or exchanging of products. and dealers. The Internet could end up like EDI (Electronic Data Interchange) without the emergence of the World Wide Web in 1990s. EDI.

• The second way of enabling world-wide customers to buy from you is to provide them with an On-Line Catalogue of your products which they can browse at their leisure without having to go to your place of business. they send the order to you. or payments over the telephone lines. computer networks or any other electronic means. enabling customers to. where you are and how they can contact you ( easiest done by giving them your email address). Look at photographs of the products. The form is already partially completed with a breakdown of the items in their shopping cart. 1. products /services. Select which items they want to purchase And drop them into a shopping cart as they go along. Communications Perspective EC is the delivery of information. with one press of a button.. • • • • • • Browse through stock list. if any. And then. what you do. prices inclusive of tax. OnLine Catalogue is an integral part of website.E-COMMERCE TECHNOLOGY AND MANAGEMENT • The first is by use of a relatively simple Web site consisting of a few pages whereby you tell potential customers who you are. When they have completed their shopping. 3 ANNA UNIVERSITY CHENNAI . and shipping & handling charges. the form includes a place for them to fill in their credit card number.. On-Line Catalogue: On-Line Catalogue is that catalogue where people access via the Internet. they go to the Check-Out. Electronic Commerce under different perspectives: Let’s see how Electronic Commerce (EC) is defined under each perspective. If they choose to pay by credit card. read about an item or service. NOTES The next step is to request the order by filling in their details and method of payment on a form which is waiting for them at the Check-Out.

universally accepted format between-trading partners. messages or sharing files through a network. 4 ANNA UNIVERSITY CHENNAI . consumers. between companies and their customers. 3. Electronic Data Interchange (EDI): Electronic Data Interchange (EDI) is the electronic exchange of business documents in a standard. 1. Online Perspective EC provides the capability of buying and selling products and information on the internet and other online services. referred to as Trading Partners (TPs) have to agree upon the format of the business document which is sent as a data file over electronic messaging services. and management to cut service costs while improving the quality of goods and increasing the speed of service delivery. EDI is quite different from sending electronic mail. Electronic Commerce includes electronic trading of goods. Service Perspective EC is a tool that addresses the desire of firms. or between companies and public administrations. they can be classified by application type: Electronic Markets: The principle function of an electronic market is to facilitate the search for the required product or service.DBA 1727 NOTES 2. services and electronic material. the computer application of both the sender and the receiver. In EDI. E-Commerce takes place between companies.4 Classifications of E-Commerce Applications Electronic Commerce (e-Commerce) is a general concept covering any form of business transaction or information exchange executed using Information and Communication Technologies (ICTs). computer processable.1. Business Process Perspective EC is the application of technology toward the automation of business transactions and work flow. 4. E-Commerce systems include commercial transactions on the Internet but their scope is much wider than this. Airline booking systems are an example of an electronic market.

The information transmitted is directly used by the recipient computer without the need for human intervention is rarely mentioned but often assumed that EDI refers to interchange between businesses. EDI cannot be undertaken unilaterally but requires the cooperation and active participation of trading partners. These problems include: • • • • Increased time Low accuracy High labour charges Increased uncertainty. Internet commerce has application for both businessto-business and business to consumer transactions. 5 ANNA UNIVERSITY CHENNAI . Communication creates a number of problems that can be significantly reduced through the usage of EDI. large retail groups and vehicle assemblers when trading with their suppliers. Since large retail stores transact business with a large number of suppliers they were among the early supporters of EDI. NOTES 2. Trading partners are individual organization that agrees to exchange EDI transactions. a company must computerize its basic business applications. for example. are: 1. To take full advantage of EDI’s benefits.E-COMMERCE TECHNOLOGY AND MANAGEMENT The two key aspects of EDI that distinguish it from other forms of electronic communication. such as electronic mail. EDI has enabled the concept of Just-In-Time inventory to be implemented. EDI is widely used by. The repeated keying of identical information in the traditional paper-based business. JIT reduces inventory and operating capital requirements. In the manufacturing sector. Trading partners normally consists of an organization’s principal suppliers and wholesale customers. It involves two or more organization or parts of organization communicating business information with each other in a common agreed format. Internet Commerce The Internet (and similar network facilities) can be used for advertising goods and services and transacting one-off deals. EDI provides for the efficient transaction of recurrent trade exchanges between commercial organizations.

1.Business to Consumer C2B .5 Types of e-commerce There are a number of different types of E-Commerce • • • • • B2B .Business to Employee C2C .Business to Business B2C .Consumer to Business B2E .DBA 1727 NOTES The three categories of E Commerce 1.Consumer to Consumer 6 ANNA UNIVERSITY CHENNAI .

com start ups.au and follows the links to read a report on the recommended wines.Business to Consumer Business to Consumer e-commerce is relatively new. The two businesses pass information electronically to each other. B2B e-commerce currently makes up about 94% of all e-commerce transactions. After reading the tasting notes the user follows the links to place an order along with delivery and payment details directly into the merchants’ inventory system. but they usually have a sound commercial structure as well as in-depth experience of running a business something which many dotcoms lacked.E-COMMERCE TECHNOLOGY AND MANAGEMENT B2B . Managing trading-partner relationships. Typically in the B2B environment.com. or weather forecasts. insurance quotes. It is still a two way function but is usually done solely through the Internet. E-Commerce can be used in the following processes: • • • Procurement. The supplier may be an existing retail outlet such as a high street store. The wine is then dispatched from the supplier’s warehouse and in theory is delivered to the consumer without delay. In the past EDI was conducted on a direct link of some form between the two businesses where as today the most popular connection is the internet.Business to Business E-commerce has been in use for quite a few years and is more commonly known as EDI (electronic data interchange). The user accesses the Internet site http://www.craigs. causing many to fail. Example: A home user wishes to purchase some good quality wine. it has been this type of business that has been successful in using E-Commerce to deliver services to customers. order fulfilment. This is where the consumer accesses the system of the supplier. NOTES B2C . 7 ANNA UNIVERSITY CHENNAI . These businesses may have been slow in gearing-up for E-Commerce compared to the innovative dot. on-line newspapers. B2C can also relate to receiving information such as share prices.

He requires a flight in the first week of December and is only willing to pay Rs.Business to Employee Business to Employee e-commerce is growing in use. An intranet is a web site developed to provide employees of an organisation with information. Example: Harry is planning a holiday in Darwin. The consumer lists items for sale with a commercial auction site. C2C . 250. B2A is the least developed area of E-Commerce and it relates to the way that public sector organisations. are providing their services on-line. supply 8 ANNA UNIVERSITY CHENNAI . 1. In reality this site should be call C2B2C. B2E . Harry places a submission with in a web based C2B facility. The site provider usually charges a transaction cost. 250. The site then provides a connection between the seller and buyer to complete the transaction.Consumer to Business Consumer to Business is a growing arena where the consumer requests a specific service from the business. subcontracts.6 • • Scope of E-Commerce Selling can be focussed to the global customer Pre-sales. Also known as e-Government. at both a central and local level. it has the potential to increase the domestic and business use of e-Commerce as traditional services are increasingly being delivered over the Internet. The UK government is committed to ensuring this country is at the forefront of e-Commerce and it is essential that e-Government plays a significant part in achieving this objective.DBA 1727 NOTES C2B . Due to it being a slow period. the airline offers Harry a return fare for Rs. Other consumers access the site and place bids on the items. it can and is often extended to an Entrant which uses the Internet but restricts uses by sign on and password. The intranet is usually access through the organisations network.Consumer to Consumer These sites are usually some form of an auction site. Dodgy Brothers Airways accesses the facility and sees Harry’s submission.1. This form of E-commerce is more commonly known as an ‘Intranet’.

g.E-COMMERCE TECHNOLOGY AND MANAGEMENT • • • • • • • • • • • • Financing and insurance Commercial transactions: ordering. delivery.7 E.Commerce in Action 9 ANNA UNIVERSITY CHENNAI . etc) Transport and logistics Public procurement Automatic trading of digital goods Accounting Dispute resolution NOTES 1. payment Product service and maintenance Co-operative product development Distributed co-operative working Use of public and private services Business-to-administrations (e. customs.1.

At the web site. or SSL connection) where the order can be reviewed first and then approved for credit card authorization through a processing network. the credit card was authorized. as well as calculate pricing. After choosing to visit the web store. From there. FTP. where the issuing and acquiring banks complete or deny the transaction. the consumer decides that he wants to purchase something. Shop Online. or an image of a shopping cart button are common entry points into a web store). It is at this point that the consumer makes the decision to visit the web store by clicking on a link or button located on the web page (e. the sales order can now take two totally different paths for confirming to the consumer that the order is officially placed. confirming the order being received. and status on when the product will exactly be shipped. the consumer is briefly given an introduction to the product or services the merchant offers. etc. This generally takes place in no more than 5-7 seconds and the consumer is then informed that the order was received. The shopping cart application has been setup by the merchant to display all products and services offered. the credit card being authorized. Buy Now. Depending on the ecommerce implementation. the consumer is typically connected to an online transaction server located somewhere else on the internet which runs software commonly referred to as a shopping cart application. taxes. 10 ANNA UNIVERSITY CHENNAI . Scenario 2 The consumer’s entire order and credit card information is electronically submitted back to the merchant’s server (usually via email. The consumer then receives an email shortly afterwards.DBA 1727 NOTES How E-Commerce Works The consumer first moves through the internet to the merchant’s web site. Scenario 1 The consumer’s credit card information goes directly through a private gateway to a processing network.g. and that the product will ultimately be shipped. shipping charges. so he enters all pertinent credit card information and a sales order is produced..

11 ANNA UNIVERSITY CHENNAI 2. This refers to transactions where the customer is not present and only the credit card number and expiration date are being used for approving the charges. 1. you must apply for an account with a credit card merchant account provider. ManageMore’s eCommerce Manager relies on the second scenario to handle all of its ecommerce orders. you must ensure that your merchant account provider has credit card processors that connect with IC Verify™. the following should also be noted: 1. Your merchant account provider must allow you to handle non-swiped credit card transactions.). Let us assume an ecommerce implementation that uses the second scenario mentioned above. When choosing a merchant account provider. There are several basic steps you will need to accomplish before becoming Commerce enabled. the process is transparent to the consumer and appears virtually the same. In order for credit card authorization to be automatic from within ManageMore.E-COMMERCE TECHNOLOGY AND MANAGEMENT In both scenarios.. This can be relatively easy or somewhat difficult. These products are sold separately from ManageMore and eliminate the need for merchant terminal devices or separate time consuming steps to approve credit cards. or AuthorizeNet™ (i. the first scenario is a more simplistic method of setting up a shopping cart application and does not take into consideration any back office issues that may delay shipment (i. etc. depending on which country you live in. . orders submitted after office hours or during holidays. PC Charge™.Intellicharge Interface) software. items out of stock. Getting a Merchant Bank Account Web Hosting Web Design Considerations Registering a Domain Name Obtaining a Digital Certificate NOTES Getting a Merchant Bank Account In order to be able to accept credit cards. 5. This second scenario keeps the consumer accurately informed throughout the entire ordering process. 3. 4. back orders.e.e. 2. However. and the type of business you are running.

8. An Internet Service Provider (ISP) is a company that provides you with internet access and limited hard drive space on their web servers for hosting your web site. 7.DBA 1727 NOTES 3.75% and no more than . Avoid merchant account providers that ask for a non-refundable fee before you get approved. processing fee.75% to 2. a separate data line will not be necessary if you use the Intellicharge Interface for electronic payment. You should be able to find a merchant account provider that can offer you discount credit cards rates ranging from 1. Web Hosting Web hosting is a very important step in this process. Since there are so many merchant account providers available. as this is how you gain a presence on the internet in the first place. and company size. There are actually two scenarios that can be used for web hosting. Constantly changing to a new merchant account provider when your old one goes out-of business can be costly and time consuming. 5. The following should be noted when searching for an Internet Service Provider: 1. 6. Expect merchant account providers to have some form of a sign up fee after being approved only. etc. Note: If your computer or local area network is already connected to the internet.25 cent per transaction. while Scenario 2 involves farming out all web hosting administration to an ISP. years in business. 4. contact Intellisoft regarding our merchant account provider affiliates and the free Intellicharge Interface just for signing up with them. software fee. it doesn’t make sense to lock your company into a commitment for any period of time. you should do a little research on the company’s reputation. If not. You will need a dedicated phone line or data line for processing credit cards and electronic checks. 12 ANNA UNIVERSITY CHENNAI . Always try to find an ISP that can provide a local telephone number for you to connect to the internet. Avoid merchant account providers that require 1 or 2 year contract terms. Scenario1 involves setting up and maintaining your own web server. When choosing a merchant account provider. These fees can come in the form of an application fee. Typically expect to pay around $100 to $500 for getting an account setup to accept credit cards and sometimes electronic checks.

Most shopping cart applications. 13 ANNA UNIVERSITY CHENNAI . appearance. 4. 3. Choose an ISP that is known for having few interruptions of service. 5. In many cases. There are a lot of online transaction providers out there. Be forewarned that purchasing an online shopping cart application is very expensive. The following should be noted when dealing with shopping cart applications: 1. when adding a web store to your web site. referred to as a Commerce Service Provider (CSP). you may want to seek the help of professional web designers to make the look and feel of your web store consistent with the rest of your corporate web site. Choose an ISP that is known for good technical support and has knowledgeable people familiar with ecommerce sites. the same ISP or CSP you choose can provide web design and consultation. layout. Many small businesses tend to choose CSP’s for creating a web store because it gives them the flexibility of choosing a provider that offers competitive pricing and the best shopping cart application for their needs.E-COMMERCE TECHNOLOGY AND MANAGEMENT 2. you can probably create your own corporate web site with the help of products like Microsoft FrontPage™ or DreamWeaver™. However. allow its templates to be modified just for this purpose. Rental pricing for the use of shopping cart programs vary depending on number of transactions generated a month. like SoftCart by Mercantec. Choose an ISP that consistently has fast connection speeds. and ease of use. Online transaction providers will either sell or rent you the use of an online shopping cart application for your business. Web Design Considerations With little knowledge of HTML and a lot of patience. number of products listed on the shopping cart application. As with any company you do business with. and the sophistication of the shopping cart application itself. 3. 2. functionality. and they all have varying packages. Most businesses will rent these online web store programs rather than committing to such a steep investment. make sure the ISP is reputable. Deciding on a provider’s package that fits your needs is perhaps the most important aspect. Online transaction providers will usually provide one shopping cart solution they feel is better than the many others that exist and differ by price. NOTES The online transaction providers that offer the actual web store itself can sometimes be hosted by your same ISP or may require a completely different provider.

Obtaining a Digital Certificate A digital certificate. If you are a larger company. In layman terms. for most people obtaining a digital certificate is not a problem. The basics for registering a domain name are: Contact a domain name registrar on the internet to register for a domain name. enables SSL (Secure Socket Layer encryption) on the web server. just do a web search on “domain name registrar” to get you started. Rather.456.mybiz. There are many to choose from. software agent based transaction monitors. computer languages.the whole world. for customers to find your web site by typing “123. Domain names serve as a convenient way of locating information and people on the Internet. Select a unique domain name you would like others to use for finding your web site. It is important to understand that the aim of the architectural frame-work itself is not to build new database management systems.456” or by typing something simple to remember like “www.123. the architecture should focus on synthesizing the diverse resources already in place in corporations to 14 ANNA UNIVERSITY CHENNAI .com?” Registering a domain name is one of the most important decisions you can make for your online identity. 1. also known as a SSL Server Certificate. 2. Your domain name says who you are to your clients. SSL protects communications so you can take credit card orders securely and ensure that hackers cannot eavesdrop on you. one can usually use the certificate owned by the web hosting company where your page resides. For a minimal fee. or communication protocols. data repository. you may want to get your own digital certificate. will it be important to you. Any ecommerce company that provides you with an online web store will require you to have SSL before you can use their services.DBA 1727 NOTES Registering a Domain Name Domain names are the names for computers on the Internet that correspond to IP (Internet protocol) numbers to route information to addresses on the Internet network.8 Architectural Framework of E Commerce A framework is intended to define and create tools that integrate the information found in today’s closed systems and allows the development of e-commerce applications. however.1. Thankfully. your peers .

data or transaction management.1. NOTES These layers co-operate to provide a seamless transition between today’s computing resources and those of tomorrow by transparently integrating information access and exchange within the context of the chosen application. 1. We begin our discussion with the application level services. electronic commerce applications are based on several elegant technologies.8 a). or services: 1) 2) 3) 4) 5) 6) applications. and.8a Electronic Commerce: A conceptual framework 15 ANNA UNIVERSITY CHENNAI . security and electronic document interchange. In the ensuing discussion of each of these layers. we will not elaborate on the various aspects of the network infrastructure that transports information. brokerage services. middle ware and structured document interchange. These were discussed extensively earlier and will not be addressed here.1. As seen in Fig. But only when they are integrated do they provide uniquely powerful solutions. Table 1. The electronic commerce application architecture consists of six layers of functionality.. support layers” secure messaging. and network infrastructure and basic communications services (see Table. interface.E-COMMERCE TECHNOLOGY AND MANAGEMENT facilitate the integration of data and software for better applications.

and other transactions. and error-prone. time consuming. mailing is costly. financial reports.1 Electronic Commerce Application Services The application services layer of e-commerce will be comprised of existing and future applications built on the innate architecture. Small companies are also beginning to see the benefits of adopting the same methods. checks. The current accounts payable process occurs through the exchange of paper documents. Here. purchase orders.1.” In this new environment. the organization itself has to adapt to a world where the traditional concepts of brand Differentiation no longer hold-where “quality” has a new meaning. buy them differently using electronic cash and secure payment systems. and a dependable way to conduct business’ transactions.to-computer communication as a fast. governments. 16 ANNA UNIVERSITY CHENNAI . and receiving proposals. Each year the trading partners exchange millions of invoices. brand equity can rapidly evaporate forcing firms to develop new ways of doing business Business-to Business Transactions We call this category market-link transaction. Business-to-business transactions include the use of EDI and electronic mail for purchasing goods and services. Also. an economical. customers learn about products differently through electronic publishing. and intra organization Consumer-to-Business Transactions We call this category marketplace transaction.DBA 1727 NOTES 1.8. In a marketplace transaction. how customers allocate their loyalty may also be different. buying information and consulting services. business-to-business. and have them delivered differently. businesses. and other organizations depend on computer . where “content” may not be equated to “product. Three distinct classes of electronic commerce application can be distinguished: customer to business.” Where “distribution” may not automatically mean “physical Transport. Most of the documents are in electronic form at their point of origin but are printed and key-entered at the point of receipt. In light of this. The current manual process of printing. Examine this scenario. submitting requests for proposals.

small businesses are looking toward electronic commerce as a possible savior. Most professionals have enough trouble keeping track of files of 1 interest on one or two database services. and customer service. It 17 ANNA UNIVERSITY CHENNAI . Intra-organizational Transactions We call this category market-driven transactions. With all the complexity associated with large numbers of on-line databases and service bureaus. and owner-ship of all these systems.E-COMMERCE TECHNOLOGY AND MANAGEMENT Given this situation and faced with the need to reduce costs. Information brokers. consumers and information professionals will have to keep up with the knowledge.2 Information Brokerage and Management The information brokerage and management layer provides service integration through the notion of information brokerages. As on-line databases migrate to consumer information utilities. given some constraint such as a low price. for example. In essence. marketing. and advertising.8. Three major components of market-driven transactions are • • • customer orientation through product and service customization. A company becomes market driven by dispersing throughout the firm information about its customers and competitors. fast service.1. a market-driven business develops a comprehensive understanding of its customers’ business and how customers in the immediate and downstream markets perceive value. cross-functional coordination through enterprise integration. both before and after sales. are rapidly becoming necessary in dealing with the voluminous amounts of information on the networks. and by continuously monitoring their customer commitment by making improved customer satisfaction an ongoing objective. NOTES 1. if it is impossible to expect humans to do the searching. management must pay close attention to service. We use the notion of information brokerage to represent an intermediary who provides service integration between customers and information providers. the development of which is necessitated by the increasing information resource fragmentation. To maintain the relationships that are critical to delivering superior customer value. or profit maximization for a client. by spreading strategic and tactical decision making so that all units can participate.

service integration becomes critical. time-delayed updates or future compensating transactions. to use the more popular term-that act on the searcher’s behalf. If the shop offers roses starting at Rs. and performing transactions. For instance. and the declarative resource constraint base which describes a business’s rules and-environment information. In other words. Taking the same foreign exchange example further. 30. These tools include software agents. 25 or less.” Agents are encapsulations of users’ instruction that perform all kinds of tasks in electronic market places spread across networks. This is just one example of how information brokerages can add value. Software agents are mobile programs that have been called “healthy viruses.DBA 1727 NOTES will have to be software programs-information brokers or software agents. service integration allows one to link the hedging program (offered on a time-sharing basis by a third party) with the search program (could be another vendor) that finds the currency rates from the cheapest on-line service to automatically send trades to the bank or financial services company. distributed query generator. It addresses the issue of adding value to the information that is retrieved. your agent can either choose a different bouquet or find a different store by consulting an online “Yellow Pages” directory. software agents are used to implement information brokerages. suppose you send an agent to an on-line store with a request to order a bouquet of roses for Rs. Although the notion of software agents sounds very seductive. At the heart of this layer lies the work-flow scripting environment built on a software agent model that coordinates work and data flow among support services. information is retrieved about the latest currency exchange rates in order to hedge currency holdings to minimize risk and maximize profit. For example. negotiating deals. the distributed transaction generator. Information brokerage does more than just searching. As pointed out earlier. depending on prior instructions. a personalized automated trading system can be created without having to go to any financial institution.” “digital butlers/” and “intelligent agents. Brokerages may provide tools to accomplish more sophisticated. With multiple transactions being the norm in the real world. They examine themselves and their environment and if necessary change from their original course of action to an alternative plan. The agents are intelligent because they have contingency plans of action. Another aspect of the brokerage function is the support for data management and traditional transaction services. in foreign exchange trading. it will take a while to solve the problems of interregna 18 ANNA UNIVERSITY CHENNAI . In effect. Information brokerages dispatch agents capable of information resource gathering. the act of retrieving the information is the input to other transactions.

which deal with people. From a computing perspective. An interactive catalog is an extension of the paper-based catalog and incorporates additional features such as sophisticated graphics and video to make the advertising more attractive. the prospect of a single-agent language like Telescript as a world standard is disturbing. This search would require several queries to various online directories to-find empty seats on various airlines and then the avail-ability of seats would.3 Interface and Support Services The third layer. the “self-destruct” mechanism built into their codes. interoperable agents. To some critics. directory support services interact directly with soft-ware applications. For instance. 1. The primary difference between the two is that unlike interactive catalogs. A classic example of a directory is the telephone White Pages.E-COMMERCE TECHNOLOGY AND MANAGEMENT communication. which instead of running errands may run amok. Vendors such as General Magic go to great lengths to explain the precautions it has taken to make this impossible: the limits placed on the power of agents. take the case of buying an airline ticket with several stopovers with the caveat that the time between layovers be minimized. operate behind the scenes and attempt to organize the enormous amount of information and transactions generated to facilitate electronic commerce. they need not have the multimedia glitter and jazz generally associated with interactive catalogs. and other headaches that come with distributed computing and net-working. Interactive catalogs are the customized interface to consumer applications such as home shopping. Directory services databases make data from any server appear as a local file. They worry that agents sound a bit too much like computer viruses. Directories. These two concepts are very different.1. but graphics and object manipulation will definitely dominate. it is impossible to know how well software agents will work.8. on the other hand. be coordinated with the amount of time spent in the air-port terminals. we can expect that there will be no one common user interface that will glaze the surface of all electronic commerce applications. interface and support services will provide interfaces for electronic commerce applications such as interactive catalogs and will sup-port directory servicesfunctions necessary for information search and access. which allows us to locate people and telephone numbers. Yet until electronic commerce services are up and running on a large scale. For this reason. In the case of electronic commerce. Tool developers 19 NOTES ANNA UNIVERSITY CHENNAI . directories would play an important role in information management functions.

when a message is sent. This must be done today. receive. but he forgot to let you know. secured messaging. With asynchronous messaging. work continues (software doesn’t wait for a response). Some better-known examples are electronic mail. memos. 1. but the shape of catalogs or directories will depend on the users’ desires and functional requirements. and electronic data interchange. In general. and invoices. Messaging is gaining momentum in electronic commerce and seems to have many advantages. Broadly defined. and combine messages. Consider a familiar business scenario: You hand over an urgent fax Monday and find out Tuesday that it’s still sitting on your fax operator’s desk. Messaging services offer solutions for communicating non formatted (unstructured) data-letters. It supports both synchronous (immediate) and asynchronous (delayed) message delivery and processing. messaging is the software that sits between the network infrastructure and the clients or electronic commerce applications. Everyone in business knows that electronic messaging is a critical business issue. Examples of structured document messaging include EDI.4 Secure Messaging and Structured Document Interchange Services The importance of the fourth layer. Structured documents messaging consist of the automated inter-change of standardized and approved messages between computer applications. e-mail. divorcing you from the architectural primitives of your system.DBA 1727 NOTES and designers might incorporate common tools for interface building. What happened? The line was busy and he thought he’d try again later.8.1. via telecommunications lines. is clear. shipping notices. masking the peculiarities of the environment. Or you’re in London and you need to send a spreadsheet that details a marketing plan for a product introduction strategy to a co-worker in New York. they are more enablers of the applications that solve problems. not tomorrow when the courier service would deliver.This allows the transfer of messages through store-and-forward methods. It’s called Integrated Messaging: a group of computer services that through the use of a network send. Unstructured messaging consists of fax. and reports as weft asformatted (structured) data such as purchase orders. There is a solution to these common and frustrating problems. and large data files. Others define messaging as a frame-work for the total implementation of portable applications. messaging products are not applications that solve problems. and form-based systems like Lotus Notes. 20 ANNA UNIVERSITY CHENNAI . faxes. Or. enhanced fax. the number was wrong.

1. 1. it came into being out of necessity. When an employee sends an electronic mail form. the information travels along with the form. privacy. networks that permitted shared resources and applications that could be accessed by 21 NOTES ANNA UNIVERSITY CHENNAI . fill it in/ sign it. translation. In distributed systems. With the growth of networks. As the cry for distributed computing spread. the backlog was enormous. people can communicate and work together more effectively-no matter where they are located. Users in the 1970s. users demanded interaction between dissimilar systems.8. mail it to the next person. when vendors. especially to traditional programmers and the jungle of standards it involves. Like so many other innovations. and so on. This is known as message-enabled work-flow solutions. the problems of getting all the pieces to work together grew from formidable to horrendous. although there is an increasing need for programs to interpret the message. with the messaging tools. mail it to the next. and interpretation problems that were driving application developers crazy. Messaging is central to work-group computing that is changing the way businesses operate.5 Middleware Services Middleware is a relatively new concept that emerged only recently. delivered homogeneous systems that worked. the messages are treated as “objects” that pass between systems. Also. client-server technology. transformation. Something was needed to solve all the interface. And. No pre-processing is necessary. So one person can start the form. didn’t have a need for middleware3&heR conditions changed-along with the hardware and the software the organizations couldn’t cope: The tools were inadequate. there is often no interoperability between different messaging vendors leading to islands of messaging. the users were dissatisfied. and the pressure was overwhelming. security. and all other forms of communicating between/among unlike platforms. Today. The ability to access the right information at the right time across diverse work groups is a challenge. Messaging is well suited for both client server and peer-to-peer computing models. and confidentiality through data encryption and authentication techniques are important issues that need to be resolved for ensuring the legality of the message-based transactions themselves. Because of the lack of standards. The main disadvantages of messaging are the new types of applications it enableswhich appear to be more complex.E-COMMERCE TECHNOLOGY AND MANAGEMENT Another advantage of messaging is that it is not associated with any particular communication protocol.

computation. middleware services focus on three elements: transparency. Transparency is essential for dealing with higher-level issues than physical media and interconnection that the underlying network infrastructure is in charge of. The key to realizing the theoretical benefit of such architecture is transparency. That is. Another reason for middleware is the computing shift from application centric to data centric. Transparency Transparency implies that users should be unaware that they are accessing multiple systems. and inter enterprise LANs that appears to the end user or client application to be a seamless and easily accessed whole. For electronic commerce. Users need not spend their time trying to understand where something is. enterprise. Transaction Security and Management Support for transaction processing (TP) is fundamental to success in the electronic commerce market. Transparency is accomplished using middleware that facilitates a distributed computing environment. Security and management are essential to all layers in the electronic commerce model. The strategic architectures of every major system vendor are now based on some form of middleware. In simple terms. using remote information. At the transaction security level. two broad general categories of security services exist: authentication and authorization. departmental. and other resources across collections of multi-vendor. middleware provides the qualities expected in 22 ANNA UNIVERSITY CHENNAI . transaction security and management. The goal is for the applications to send a request to the middleware layer.DBA 1727 NOTES multiple software programs. remote data controls all of the applications in the network instead of applications controlling data. and distributed object management and services. which then satisfies the request any way it can. To achieve data-centric computing. Some commercial sites have had gigantic centralized TP systems running for years. Nor should application developers have to code into their applications the exact locations of resources over the network. heterogeneous systems. Transaction integrity must be a given for businesses that cannot afford any loss or inconsistency in data. This gives users and applications transparent access to data. middleware is the ultimate mediator between diverse software pro-grams that enables them talk to one another. The ideal picture is one of a “virtual” network: a collection of workgroup.

or video toward integrated documents known as com-pound document architectures. and durability). The best example of this approach is an active document. consistency. Last but not the least is the Network Infrastructure. the tool bar will automatically change from a spreadsheet too bar. Businesses can use electronic commerce to identify new suppliers and business partners. Electronic Commerce increases the speed and accuracy with which businesses can exchange information. isolation.9 Advantages of E-Commerce • • • • Electronic Commerce can increase sales and decrease costs. If you create a new document that is an integration of the spreadsheet. to a presentation package tool bar. These applications will also be able to access and retrieve data from any file in the computing network. A natural instance of an object in electronic commerce is a document.E-COMMERCE TECHNOLOGY AND MANAGEMENT a standard TP sys-tem: the so-called ACID properties (atomicity. 1. Objects are an evolution of the more traditional programming concept of functions and procedures. Advertising done well on the web can get even a small firm’s promotional message out to potential customers in every country in the world. the trend is to move away from single data-type documents such as text. and presentation package. Here.1. word processor. to a word processing tool bar. Distributed Object Management and Services Object orientation is proving fundamental to the proliferation of network-based applications for the following reasons: It is too hard to write a net-work-based application without either extensive developer retraining or a technology that camouflages the intricacies of the network. Today. A document carries data and often carries instructions about the actions to be performed on the data. what you’ll see in the next generation of operating systems is that as you scroll through your document. which will be dealt in this unit later. 23 NOTES ANNA UNIVERSITY CHENNAI . the term object is being used interchangeably with document resulting in a new form of computing called document oriented computing. pictures. Objects are defined as the combination of data and instructions acting on the data. which reduces costs on both sides of transactions.

Firms facing difficulty of integrating existing databases and transactionprocessing software designed for traditional commerce into the software that enables electronic commerce.2 DRIVING FORCES OF E-COMMERCE E-Commerce is becoming popular. Consumers are fearful of sending their credit card numbers over the Internet and having online merchants. 24 ANNA UNIVERSITY CHENNAI . which are a function of technology. Companies that offer software design and consulting services to tie existing systems into new online business systems can be expensive. design and business process skills needed to create an effective electronic commerce presence.10 Disadvantages of E-Commerce • Some business processes such as perishable foods and high-cost.1. • • • • • 1. unique items such as custom-designed jewelry might be impossible to inspect adequately from a remote location.DBA 1727 NOTES • • E-Commerce provides buyers with a wider range of choices than traditional commerce because buyers can consider many different products and services from a wider variety of sellers. 1. Costs. Electronic payments of tax refunds. can change dramatically even during short-lived electronic commerce implementation projects because the technologies are changing so rapidly. public retirement and welfare support cost less to issue and arrive securely and quickly when transmitted over the Internet. Consumers are simply resistant to change and are uncomfortable viewing merchandise on a computer screen rather than in person. it is worthwhile to examine today’s business environment so let us understand the pressures it creates on organizations and the responses used by organizations. Many firms have trouble recruiting and retaining employees with the technological.

Internal integration is best exemplified by corporate intranets. is the networking of the various departments within a corporation. 25 ANNA UNIVERSITY CHENNAI . low-cost technological infrastructure. speedier and more economic electronic transactions with suppliers. and of business operations and processes.E-COMMERCE TECHNOLOGY AND MANAGEMENT 1.1 Environmental factors that create Business Pressures: Market. Internal integration. thus reducing errors and the cost of correcting them. on the other hand. These factors change quickly. sometimes in an unpredictable manner and therefore companies need to react frequently not only in the traditional actions such as lowering cost and closing unprofitable facilities but also innovative activities such as customizing products. New sales opportunities: the website is accessible all the time and reaches the global audience which is not possible with traditional storefront. and independent contractors into one community communicating in a virtual environment (with the Internet as medium). suppliers. Economic Forces One of the most evident benefits of e-commerce is economic efficiency resulting from the reduction in communications costs. Lower sales costs: increase in the customer volume do not need an increase in staff as the sales function is housed in the computer and has virtually unlimited accessibility Lower ordering processing cost: online ordering can be automated with checks to ensure that orders are correct before accepting. economical. Categories of Economic Forces • • Lower marketing costs: marketing on the Internet maybe cheaper and can reach a wider crowd than the normal marketing medium. This allows critical business information to be stored in a digital form that can be retrieved instantly and transmitted electronically. NOTES • • Economic integration is either external or internal. creating new products or providing superb customer service.2. societal and technological factors are creating a highly competitive business environment in which consumers are the focal point. lower global information sharing and advertising costs. External integration refers to the electronic networking of corporations. customers/clients. and cheaper customer service alternatives.

frequent and significant changes in markets and increased power of consumers are the reasons to create market forces. Technology Forces The development of information and communications technology (ICT) is a key factor in the growth of ecommerce. medium or large) to trading partners. It is a lot easier for companies to provide their target consumers with more detailed product and service information using the Internet. The e-hub serves as the centre for management of content and the processing of business transactions with support services such as financial clearance and information services. faster. Market Forces Corporations are encouraged to use e-commerce in marketing and promotion to capture international markets.NET is Asia’s largest B2B e-hub. and more economical as the need to set up separate networks for telephone services. compression and the promotion of open systems technology have paved the way for the convergence of communication services into one single platform. a virtual exchange integrating and connecting businesses (small. Because of this very important link. easier. extremely low labor cost in some countries. buying and selling goods and services online in real time. cable television. having only one information provider means lower communications costs. both big and small. For instance. 26 ANNA UNIVERSITY CHENNAI . From the standpoint of firms/ businesses and consumers. the world’s largest network of trading communities on the Internet. It is strategically and dynamically linked to the Global Trading Web (GTW). The Internet is likewise used as a medium for enhanced customer service and support. EG. This in turn has made communication more efficient. technological advances in digitizing content. Strong competition between organizations. e-marketplaces and internal enterprise systems for the purpose of sourcing out supplies. and Internet access is eliminated. Nestle and Intel. SESAMi reaches an extensive network of regional.NET: Linking Asian Markets through B2B Hubs SESAMi.DBA 1727 NOTES Among the companies with efficient corporate intranets are Procter and Gamble. television broadcast. IBM. SESAMi. vertical and industry-specific interoperable B2B e-markets across the globe.

At present the high costs of installing landlines in sparsely populated rural areas is incentive to telecommunications companies to install telephones in these areas. The four categories are described below. These several responses can be interrelated and Ecommerce can also facilitate the other categories. business alliances and EC. • • • • • • Changing nature of workforce Government deregulations Shrinking government subsidies Increased importance of ethical and legal issues Increased social responsibility of organizations Rapid political changes NOTES 1. it becomes necessary to review the factors that create societal and environmental forces.2 Critical response activities by Organizations: A response can be a reaction to a pressure already in existence. the principle of universal access can be made more achievable with convergence. or prevent 27 ANNA UNIVERSITY CHENNAI . better negotiate with their suppliers.2. but also include cable TV and Internet charges. continuous improvement efforts. Installing landlines in rural areas can become more attractive to the private sector if revenues from these landlines are not limited to local and long distance telephone charges. business process reengineering (BPR). This development will ensure affordable access to information even by those in rural areas and will spare the government the trouble and cost of installing expensive landlines Societal and environmental forces To understand the role of E-commerce in today’s organizations.E-COMMERCE TECHNOLOGY AND MANAGEMENT Moreover. Organizations’ major responses are divided into five categories: strategic systems for competitive advantage. Strategic Systems Strategic systems provide organizations with strategic advantages. thus enabling them to increase their market share. or it can be an initiative that will defend an organization against future pressures. It can also be an activity that exploits an opportunity created by changing conditions.

manufacturers and retailers. The major areas in which E-Commerce supports BPR are • Reducing cycle time and time to market: Reducing the business process time (cycle time) is extremely important for increasing productivity and competitiveness. Intel is taking its products’ consumption in 11 of its largest customers.) into the just-in-time assembly operation. For example. Similarly. Business Process Reengineering (BPR) Business Process Reengineering refers to a major innovation in the organization’s structure and the way it conducts business. Electronic Commerce provides flexibility in manufacturing. almost in real time. permits faster delivery to customers and supports rapid and paperless transactions among suppliers. However. The efforts taken by companies for continuous improvement are Improved productivity Improved decision making Managing Information Change in management Customer service Innovation and Creativity. Information technology and especially EC play a major role in BPR. There is a variety of EC supported strategic systems. many companies continuously conduct innovative programs. Continuous Improvement Efforts In order to improve the company’s productivity and quality. and determining production schedules and deliveries accordingly. reducing the time from the inception of an idea until its implementation— 28 ANNA UNIVERSITY CHENNAI . Dell Computer takes its orders electronically and improved moves them via Enterprise Resources Planning software (from SAP Corp. using its extranets.DBA 1727 NOTES competitors from entering into their territory. Most of FedEx’s competitors have already mimicked the system. the competitors quickly followed and now FedEx is introducing new activities. An example is FedEx’s overnight delivery system and the company’s ability to track the status of every individual package anywhere in the system. So FedEx moved the system to the Internet.

1. or who can provide customers with a service faster than competitors. such as sharing resources. In mass production. Electronic commerce is an ideal facilitator of mass customization. In mass customization. and overall performance matter. integration with business processes. yes. One of the most interesting types is the temporary joint venture. 29 ANNA UNIVERSITY CHENNAI . Customer-focused approach: Companies are becoming increasingly customer oriented. Information Technology allows the decentralization of decision making and authority but simultaneously supports a centralized control. Knowledge management: Employees can access organizational know-how via their company’s intranet. Some knowledge bases are open to the public for a fee over the Internet.2. attributes such as viable application design. information and knowledge they need for making quick decisions.3 E-Commerce Communities What it is that will drive e-commerce in the future? — in a word. it’s community.E-COMMERCE TECHNOLOGY AND MANAGEMENT • • • time to market—is important because those who can be first on the market with a product. We certainly have the technology to build great business-to-consumer and business-tobusiness ecommerce applications into our business models. And. a company produces a large quantity of identical items. even competitors can be beneficial. the Internet and the intranets enable empowered employees to access data. enjoy a distinct competitive advantage. There are several types of alliances. Empowerment of employees and collaborative work: Empowerment is related to the concept of self-directed teams. For example. generating income. This can be done in part by changing manufacturing processes from mass production to mass customization. Management delegates authority to teams who can execute the work faster and with fewer delays. establishing permanent supplier-company relationships and creating joint research efforts. in which companies form a special organization for a specific. limited-time mission. items are produced in a large quantity but are customized to fit the desires of each customer. NOTES Business alliances Many companies realize that alliances with other companies.

Production processes. ordering and replenishment of stocks. audio. information and communications technology (ICT) is used in inter-business or inter-organizational transactions (transactions between and among firms/ organizations) and in business-to-consumer transactions (transactions between firms/ organizations and individuals). Such a strategy currently requires multiple technical approaches. on the other hand. they are distinct concepts. This will also serve to potentially drive new business opportunities for both parties. In e-business. Building community has to be at the heart of any successful ecommerce strategy. However. 1. In e-commerce. we believe community solutions will soon become more integrated and far-reaching. A more comprehensive definition of e-business is: “The transformation of an organization’s processes to deliver additional customer value through the application of technologies. processing of payments. 30 ANNA UNIVERSITY CHENNAI . among others. governmental or non-profit entity) conducts over a computer-mediated network.2. instant messaging. Online conversation with business partners will also give net positive results. two-way mailing lists. online collaboration tools. and more.4 Is e-Commerce the Same as e-Business? While some use e-commerce and e-business interchangeably. ICT is used to enhance one’s business. chat functions. It includes any process that a business organization (either a for-profit.DBA 1727 NOTES A successful community strategy must embrace the idea of moving the one-onone communication that occurs offline into the virtual world of e-commerce. You may choose to invest slowly at first and increase your community commitment over time. The tools that form online communities include discussion or forum software.” Three primary processes are enhanced in e-business: 1. video. A private discussion area or secured online meetings can go a long way toward building stronger relationships between companies. electronic links with suppliers. which include procurement. and production control processes. philosophies and computing paradigm of the new economy.

selling over the Internet. training. The Internet economy pertains to all economic activities using electronic networks as a medium for commerce or those activities involved in both building the networks linked to the Internet and the purchase of application services such as the provision of enabling hardware and software and network equipment for Web-based/online retail and shopping malls (or “e-malls”). among others. opportunity to reach hundreds of millions of people (projected within 10 years). Internal management processes. individuals. Workgroup communications and electronic publishing of internal business information are likewise made more efficient. Strengthen relationships with customers and suppliers ? Streamline business processes and administrative functions 31 NOTES ANNA UNIVERSITY CHENNAI . processing of customers’ purchase orders and payments. These benefits are just starting to materialize. Retaining the customer and the customer services could be improved drastically. low cost. Customer-focused processes. which include employee services. 1. Electronic applications enhance information flow between production and sales forces to improve sales force productivity. and recruiting.3. and customer support. and society. Internet shrinks the globe and broaden current geographical parameters to operate globally Marketing and promotional campaigns can be done globally at the reduced cost. variety of possibilities.E-COMMERCE TECHNOLOGY AND MANAGEMENT 2. internal information-sharing. and 3. but they will increase significantly as EC expands. which include promotional and marketing efforts. 1. videoconferencing.3 BENEFITS AND LIMITATIONS OF E-COMMERCE Few innovations in human history encompass as many potential benefits as EC does. and resourcefulness and rapid growth of the supporting infrastructures (especially the Web) result in many potential benefits to organizations.1 The Benefits of EC • • • • • • The new markets could be accessed through the online and extending the service offerings to customers globally. interactive nature. The global nature of the technology.

dog toys which can be purchased only in pet shops or department and discount stores in the physical world. processing. Ability for creating highly specialized businesses. distributing. The facility to advertise daily. Electronic commerce reduces the time between the outlay of capital and the receipt of products and services.DBA 1727 NOTES • • • • No added sales staff A catalogue which is quickly and easily updateable. You don’t have to wait for the printer to deliver the catalogue before the new prices can come into effect. weekly or monthly ‘specials’ and sales. productivity of salespeople.or anything else you want to tell your customers. are sold now in a specialized www. With minimal capital outlay.3. knowledge workers. Benefits to Organizations • Electronic commerce expands the marketplace to national and international markets. or any special discounts . Electronic commerce decreases the cost of creating. such as the range and quality of your products or services . and administrators can increase by 100 percent or more. This means that when prices or stocks are changed. companies can cut the purchasing administrative costs by as much as 85 percent.dogtoys.and they can be changed within minutes.1.1. • • • • • • 32 ANNA UNIVERSITY CHENNAI . you don’t have to have hundreds or thousands of obsolete catalogues lying around. In a pull-type system the process starts from customer orders and uses just-in-time manufacturing.com Electronic commerce allows reduced inventories and overhead by facilitating “pull”-type supply chain management. 1. when and if necessary. Electronic commerce lowers telecommunications cost-the Internet is much cheaper than VANs. by introducing an electronic procurement system. You can also add a marketing message which highlights your strengths. For example. By changing processes. a company can easily and quickly locate more customers. and the most suitable business partners worldwide. and retrieving paper-based information. storing. For example. the best suppliers. Electronic commerce initiates business processes reengineering projects.

and increased flexibility. for example.3. Electronic commerce enables people in Third World countries and rural areas to enjoy products and services that otherwise are not available to them. increased productivity. expediting access to information. In some cases. reduced transportation costs. and distribution of government social services at a reduced cost and/or improved quality. so less affluent people can buy more and increase their standard of living. such as health care.3 Benefits to Society • Electronic commerce enables more individuals to work at home and to do less travelling for shopping. Electronic commerce allows customers to interact with other customers in electronic communities and exchange ideas as well as compare experiences. Electronic commerce frequently provides customers with less expensive products and services by allowing them to shop in many places and conduct quick comparisons. Electronic commerce provides customers with more choices. Electronic commerce allows some merchandise to be sold at lower prices. Customers can receive relevant and detailed information in seconds. especially with digitized products.1. all year round.E-COMMERCE TECHNOLOGY AND MANAGEMENT • Other benefits include improved image. rather than days or weeks. Electronic commerce facilitates competition. which results in substantial discounts. • • • • • 1. from almost any location. improved customer service.2 Benefits to Consumers • • Electronic commerce enables customers to shop or do other transactions 24 hours a day. EC allows quick delivery. resulting in less traffic on the roads and lower air pollution.3. Electronic commerce makes it possible to participate in virtual auctions. • • • 33 ANNA UNIVERSITY CHENNAI . they can select. eliminating paper. compressed cycle and delivery time. simplified processes. NOTES 1. newfound business partners. can reach patients in rural areas. Electronic commerce facilitates delivery of public services. Health-care services.1. education.

Vendors may need special Web servers and other infrastructures. • Cost and justification: The cost of developing EC in-house can be very high. and mistakes due to lack of experience may result in delays. or may be incompatible with some operating systems or other components. but where and how to do it is not a simple issue. to justify the system one must deal with some intangible benefits (such as improved customer service and the value of advertisement). standards. The software development tools are still evolving and changing rapidly.2 Non-technical Limitations Of the many non-technical limitations that slow the spread of EC.2. There are many opportunities for outsourcing.2 The Limitations of EC The limitations of EC can be grouped into technical and non-technical categories. 1. reliability. very secure. which are difficult to quantify.3. the customers perceive these issues as very important.3. It is difficult to integrate the Internet and EC software with some existing applications and databases. especially security issues which are perceived to be more serious than they really are when appropriate encryption is used. paperless 34 ANNA UNIVERSITY CHENNAI • • . Furthermore. in addition to the network servers. and some communication protocols. and. the following are the major ones.1 Technical Limitations of EC • • • • • • There is a lack of system security. 1.DBA 1727 NOTES 1.2.3. Yet. Some EC software might not fit some hardware. Privacy measures are constantly improved. Security and privacy: These issues are especially important in the B2C area. Insufficient telecommunication bandwidth. the EC industry has a very long and difficult task of convincing customers that online transactions and privacy are. in fact. Lack of trust and user resistance: Customers do not trust an unknown faceless seller (sometimes they do not trust even known ones).

cell telephone access. There are not enough support services. For example. are rare. allowing businesses to make proactive. finding predictive information that experts may miss because it lies outside their expectations. rapid progress in EC is taking place. and electronic money. Many people are looking for a stable area before they enter into it. resulting in a greater rate of EC adoption.E-COMMERCE TECHNOLOGY AND MANAGEMENT • • • • • • • transactions. Some customers like to touch items such as clothes and like to know exactly what they are buying. Electronic commerce. the ratio of EC benefits to costs will increase. is still evolving and changing rapidly. Lack of touch and feel online. the extraction of hidden predictive information from large databases. They scour databases for hidden patterns. prospective analyses offered by data mining move beyond the analyses of past events provided by retrospective tools typical of decision support systems.000 at the beginning of 1996 to about 10 million in fall 1999. is a powerful new technology with great potential to help companies focus on the most important information in their data warehouses. as a discipline.4 DATA MINING 1. copyright clearance centres for EC transactions do not exist.) Despite these limitations. The potential benefits may not be convincing enough reasons to start EC activities NOTES 1. and constant media attention. and high-quality evaluators. Accessibility to the Internet is still expensive and/or inconvenient for many potential customers. the critical mass will eventually develop. the number of people in the United States who buy and sell stocks electronically increased from 300. or qualified EC tax experts. Data mining tools can answer business questions that traditionally were too time-consuming to resolve.1 Introduction to Data Mining Data mining. 35 ANNA UNIVERSITY CHENNAI . kiosks. For example. Electronic commerce could result in a breakdown of human relationships. The automated. As experience accumulates and technology improves. So switching from physical to virtual stores may be difficult. Other limiting factor:. In most applications there are not yet enough sellers and buyers for profitable EC operations.4. (With Web TV. and government regulations and standards are not refined enough for many circumstances. Data mining tools predict future trends and behaviours. Many legal issues are as yet unresolved. knowledge-driven decisions.

we mean data sets which are too large to fit into the memory of a single workstation. Data mining also differs from traditional statistics in that sometimes the goal is to extract qualitative models which can easily be translated into logical rules or visual representations. changes. and statistically significant structures and events in data. By large. semiautomated process which begins with raw data. massive data sets. 1. data mining is data driven. Here. Instead. Said another way. By distributed. Data mining differs from traditional statistics in several ways: formal statistical inference is assumption driven in the sense that a hypothesis is formed and validated against the data. 36 ANNA UNIVERSITY CHENNAI . we mean data sets which are too large to fit onto the disks of a single workstation or a small cluster of workstations. data mining attempts to extract knowledge from data.DBA 1727 NOTES Most companies already collect and refine massive quantities of data. and distributed data sets. By massive. although this field. databases. including statistics. Results of the data mining process may be insights. has been focused on data sets far smaller than most that are the target of data mining researchers. machine learning. we are primarily concerned with large data sets. like most of the rest of statistics. and can be integrated with new products and systems as they are brought on-line. That is. anomalies. while statistics is human driven.4. Data mining is a step in the data mining process. The field of data mining draws upon several roots. The branch of statistics that data mining resembles most is exploratory data analysis. Data mining in contrast is discovery driven in the sense that patterns and hypothesis are automatically extracted from data. rules.1. What is Data Mining? Data mining is the semi-automatic discovery of patterns. massive clusters or tertiary storage such as tape are required. which is an interactive.1. and high performance computing. in this sense data mining is human centered and is sometimes coupled with human-computer interfaces research. we mean data sets which are geographically distributed. associations. or predictive models. rules. Data mining techniques can be implemented rapidly on existing software and hardware platforms to enhance the value of existing information resources.

Otherwise. Data mining uses data on past promotional mailings to identify the targets most likely to maximize return on investment in future mailings. Data mining techniques can yield the benefits of automation on existing software and hardware platforms. High speed makes it practical for users to analyze huge quantities of data. An example of pattern discovery is the analysis of retail sales data to identify seemingly unrelated products that are often purchased together. it is an essential feature of induction of expressive representations from raw data. or intelligently probing it to find exactly where the value resides.2 The Scope of Data Mining Data mining derives its name from the similarities between searching for valuable business information in a large database — for example. finding linked products in gigabytes of store scanner data — and mining a mountain for a vein of valuable ore. they can analyze massive databases in minutes.4. Data mining automates the process of finding predictive information in large databases. Other pattern discovery problems include detecting fraudulent credit card transactions and identifying anomalous data that could represent data entry keying errors. Both processes require either shifting through an immense amount of material. Automated discovery of previously unknown patterns. yield improved predictions. Larger databases. and can be implemented on new systems as existing platforms are upgraded and new products developed. Other predictive problems include forecasting bankruptcy and other forms of default. A typical example of a predictive problem is targeted marketing. in turn. and identifying segments of a population likely to respond similarly to given events. 37 NOTES • • ANNA UNIVERSITY CHENNAI . It is only by analyzing large data sets that we can produce accurate logical descriptions that can be translated automatically into powerful predictive mechanisms. statistical and machine learning principles suggest the need for substantial user input (specifying meta-knowledge necessary to acquire highly predictive models from small data sets). 1. Faster processing means that users can automatically experiment with more models to understand complex data. When data mining tools are implemented on high performance parallel processing systems. Data mining tools sweep through databases and identify previously hidden patterns in one step.E-COMMERCE TECHNOLOGY AND MANAGEMENT The focus on large data sets is not a just an engineering challenge. data mining technology can generate new business opportunities by providing these capabilities: • Automated prediction of trends and behaviours. Given databases of sufficient size and quality.

For instance. • • • Many of these technologies have been in use for more than a decade in specialized analysis tools that work with relatively small volumes of data. mutation. Specific decision tree methods include Classification and Regression Trees (CART) and Chi Square Automatic Interaction Detection (CHAID) .DBA 1727 NOTES 1.4 How Data Mining Works The technique that is used to perform these feats in data mining is called modeling. Nearest neighbour method: A technique that classifies each record in a dataset based on a combination of the classes of the k record(s) most similar to it in a historical dataset (where k ³ 1). Sometimes called the k-nearest neighbour technique. You note these similarities and build a model that includes the characteristics that are common to the locations of these sunken treasures. With these models in hand you sail off looking for treasure where your model indicates it most likely 38 ANNA UNIVERSITY CHENNAI .4. Modeling is simply the act of building a model in one situation where you know the answer and then applying it to another situation that you don’t. 1.4.3 Techniques used in Data Mining The most commonly used techniques in data mining are: • • Artificial neural networks: Non-linear predictive models that learn through training and resemble biological neural networks in structure. and certain routes that have likely been taken by the ship’s captains in that era. Rule induction: The extraction of useful if-then rules from data based on statistical significance. These capabilities are now evolving to integrate directly with industry-standard data warehouse and OLAP platforms. Decision trees: Tree-shaped structures that represent sets of decisions. You might note that these ships often tend to be found off the coast of Bermuda and that there are certain characteristics to the ocean currents. and natural selection in a design based on the concepts of evolution. if you were looking for a sunken Spanish galleon on the high seas the first thing you might do is to research the times when Spanish treasure had been found by others in the past. Genetic algorithms: Optimization techniques that use processes such as genetic combination. These decisions generate rules for the classification of a dataset.

(a) illustrates the data used for building a model for new customer prospecting in a data warehouse. Once the model is built it can then be used in similar situations where you don’t know the answer.you could use your business experience stored in your database to build a model. say that you are the director of marketing for a telecommunications company and you’d like to acquire some new long distance phone customers. You could just randomly go out and mail coupons to the general population . You’d like to concentrate on those prospects who have large amounts of long distance usage. You can accomplish this by building a model.4. however. sex. Hopefully. As the marketing director you have access to a lot of information about all of your customers: their age. This act of model building is thus something that people have been doing for a long time.(a) . is not much different than the way people build models.4. What happens on computers. In neither case would you achieve the results you desired and of course you have the opportunity to do much better than random . credit history and long distance calling usage. Table 1.just as you could randomly sail the seas looking for sunken treasure. if you’ve got a good model.4.4.E-COMMERCE TECHNOLOGY AND MANAGEMENT might be given a similar situation in the past. sex. you find your treasure. certainly before the advent of computers or data mining technology. Computers are loaded up with lots of information about a variety of situations where an answer is known and then the data mining software on the computer must run through that data and distil the characteristics of the data that should go into the model.Data Mining for Prospecting NOTES 39 ANNA UNIVERSITY CHENNAI . credit history etc. Table 1. The good news is that you also have a lot of information about your prospective customers: their age. Your problem is that you don’t know the long distance calling usage of these prospects (since they are most likely now customers of your competition). For example.

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The goal in prospecting is to make some calculated guesses about the information in the lower right hand quadrant based on the model that we build going from Customer General Information to Customer Proprietary Information. Test marketing is an excellent source of data for this kind of modeling. Mining the results of a test market representing a broad but relatively small sample of prospects can provide a foundation for identifying good prospects in the overall market. Table 1.4.4.(b) shows another common scenario for building models: predict what is going to happen in the future. Table 1.4.4.(b) - Data Mining for Predictions

If someone told you that he had a model that could predict customer usage how would you know if he really had a good model? The first thing you might try would be to ask him to apply his model to your customer base - where you already knew the answer. With data mining, the best way to accomplish this is by setting aside some of your data in a vault to isolate it from the mining process. Once the mining is complete, the results can be tested against the data held in the vault to confirm the model’s validity. If the model works, its observations should hold for the vaulted data.




1.4.5 Profitable Applications A wide range of companies have deployed successful applications of data mining. While early adopters of this technology have tended to be in information-intensive industries such as financial services and direct mail marketing, the technology is applicable to any company looking to leverage a large data warehouse to better manage their customer relationships. Two critical factors for success with data mining are: a large, well-integrated data warehouse and a well-defined understanding of the business process within which data mining is to be applied (such as customer prospecting, retention, campaign management, and so on). Some successful application areas include: • A pharmaceutical company can analyze its recent sales force activity and their results to improve targeting of high-value physicians and determine which marketing activities will have the greatest impact in the next few months. The data needs to include competitor market activity as well as information about the local health care systems. The results can be distributed to the sales force via a wide-area network that enables the representatives to review the recommendations from the perspective of the key attributes in the decision process. The ongoing, dynamic analysis of the data warehouse allows best practices from throughout the organization to be applied in specific sales situations. A credit card company can leverage its vast warehouse of customer transaction data to identify customers most likely to be interested in a new credit product. Using a small test mailing, the attributes of customers with an affinity for the product can be identified. Recent projects have indicated more than a 20fold decrease in costs for targeted mailing campaigns over conventional approaches. A diversified transportation company with a large direct sales force can apply data mining to identify the best prospects for its services. Using data mining to analyze its own customer experience, this company can build a unique segmentation identifying the attributes of high-value prospects. Applying this segmentation to a general business database such as those provided by Dun & Bradstreet can yield a prioritized list of prospects by region. A large consumer package goods company can apply data mining to improve its sales process to retailers. Data from consumer panels, shipments, and



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competitor activity can be applied to understand the reasons for brand and store switching. Through this analysis, the manufacturer can select promotional strategies that best reach their target customer segments. Each of these examples has a clear common ground. They leverage the knowledge about customers implicit in a data warehouse to reduce costs and improve the value of customer relationships. These organizations can now focus their efforts on the most important (profitable) customers and prospects, and design targeted marketing strategies to best reach them.

1.4.6 Trends that Effect Data Mining In this section, we describe five external trends which promise to have a fundamental impact on data mining. Data Trends. Perhaps the most fundamental external trend is the explosion of digital data during the past two decades. During this period, the amount of data probably has grown between six to ten orders of magnitude. Much of this data is accessible via networks. On the other hand, during this same period the number of scientists, engineers, and other analysts available to analyze this data has remained relatively constant. For example, the number of new Ph.D.’s in statistics graduating each year has remained relatively constant during this period. Only one conclusion is possible: either most of the data is destined to be write-only, or techniques, such as data mining, must be developed, which can automate, in part, the analysis of this data, filter irrelevant information, and extract meaningful knowledge. Hardware Trends. Data mining requires numerically and statistically intensive computations on large data sets. The increasing memory and processing speed of workstations enables the mining of data sets using current algorithms and techniques that were too large to be mined just a few years ago. In addition, the commoditization of high performance computing through SMP workstations and high performance workstation clusters enables attacking data mining problems that were accessible using only the largest supercomputers of a few years ago.




Network Trends. The next generation internet (NGI) will connect sites at OC-3 (155 MBits/sec) speeds and higher. This is over 100 times faster than the connectivity provided by current networks. With this type of connectivity, it becomes possible to correlate distributed data sets using current algorithms and techniques. In addition, new protocols, algorithms, and languages are being developed to facilitate distributed data mining using current and next generation networks. Scientific Computing Trends. As mentioned above, scientists and engineers today view simulation as a third mode of science. Data mining and knowledge discovery serves an important role linking the three modes of science: theory, experiment and simulation, especially for those cases in which the experiment or simulation results in large data sets. Business Trends. Today businesses must be more profitable, react quicker, and offer higher quality services than ever before, and do it all using fewer people and at lower cost. With these types of expectations and constraints, data mining becomes a fundamental technology, enabling businesses to more accurately predict opportunities and risks generated by their customers and their customers’ transactions. 1.5 DATE WAREHOUSING 1.5.1 What Is Data Warehousing? The primary concept of data warehousing is that the data stored for business analysis can most effectively be accessed by separating it from the data in the operational systems. A data warehouse is a collection of computer-based information that is critical to successful execution of enterprise initiatives. A data warehouse is more than an archive for corporate data and more than a new way of accessing corporate data. A data warehouse is a subject-oriented repository designed with enterprise-wide access in mind. It provides tools to satisfy the information needs of the employees organizational levels-not just for complex data queries, but as general facility for getting quick, accurate and often insightful



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information. A data warehouse is designed so that its users can recognize the information they want and access that information using simple tools. One of the principal reasons for developing a data warehouse is to integrate operational data from various sources into a single and consistent architecture that supports analysis and decision-making within the enterprise. Operational systems create, update and delete production data that feed the data warehouse. A data warehouse is analogous to a physical warehouse. Operational systems create data ‘parts’ that are loaded into the warehouse. Some of those parts are summarised into information ‘components’ and are stored in the warehouse. Data warehouse users make requests and are delivered information ‘products’ that are created from the components and parts stored in the warehouse. A data warehouse is typically a blending of technologies, including relational and multidimensional databases, client/ server architecture, extraction / transformation programs, graphical user interfaces, and more. 1.5.2 Definitions Data Warehouse: The term Data Warehouse was coined by Bill Inmon in 1990, which he defined in the following way: “A warehouse is a subject-oriented, integrated, time-variant and nonvolatile collection of data in support of management’s decision making process”. He defined the terms in the sentence as follows: Subject Oriented: Data that gives information about a particular subject instead of about a company’s ongoing operations. Integrated: Data that is gathered into the data warehouse from a variety of sources and merged into a coherent whole. Time-variant: All data in the data warehouse is identified with a particular time period.


Non-volatile Data is stable in a data warehouse. More data is added but data is never removed. This enables management to gain a consistent picture of the business. This definition remains reasonably accurate almost ten years later. However, a single-subject data warehouse is typically referred to as a data mart, while data warehouses are generally enterprise in scope. Also, data warehouses can be volatile. Due to the large amount of storage required for a data warehouse, (multi-terabyte data warehouses are not uncommon), only a certain number of periods of history are kept in the warehouse. For instance, if three years of data are decided on and loaded into the warehouse, every month the oldest month will be “rolled off” the database, and the newest month added. Ralph Kimball provided a much simpler definition of a data warehouse. A data warehouse is “a copy o f transaction data specifically structured for query and analysis”. This definition provides less insight and depth than Mr. Inmon’s, but is no less accurate. Data warehousing is essentially what you need to do in order to create a data warehouse, and what you do with it. It is the process of creating, populating, and then querying a data warehouse and can involve a number of discrete technologies such as: 1.5.3 ADVANTAGES OF DATA WAREHOUSE Implementing a Data warehouse provides significant benefits many tangible, some intangible. • More cost effective decision making - A Data Warehouse allows reduction of staff and computer resources required to support queries and reports against operational and production databases. This typically offers significant savings. Having a Data Warehouse also eliminates the resource drain on production systems when executing long - running, complex queries and reports. Better enterprise intelligence - Increased quality and flexibility of enterprise analysis arises from the multi - tired data structures of a Data Warehouse that supports data ranging from detailed transactional level to high - level summary information. Guaranteed data accuracy and reliability result from ensuring that a Data Warehouse contains only ‘trusted’ data.




Data Warehouse development can be an effective first step in reengineering the enterprise’s legacy systems.DBA 1727 NOTES • • • Enhanced customer service . physical database into which all the corporate data for the data warehouse are gathered. They are also called executive information systems (EIS) 46 ANNA UNIVERSITY CHENNAI .A Data Warehouse that is based upon enterprise. Physical data warehouse: This is an actual.wide data requirements provides a cost . package and pre-process the data for end user access. 1. Logical data warehouse: This contains all the metadata. Information systems reengineering . results in better enterprise goals and measure. along with schemas (information about data) and the processing logic used to organize. Decision support systems (DSSs): These systems are not data warehouses but applications that make use of the data warehouse.effective means of establishing both data standardization and operational system interoperability. package. organize. the organization builds a series of data libraries over time and eventually links them via an enterprise wide logical data warehouse. it performs the role of departmental. wherever it actually resides. Typically. and pre-process the data. In addition. business rules and processing logic required scrub. Business reengineering .Allowing unlimited analysis of enterprise information often provides insights into enterprise processes that may yield breakthrough ideas for reengineering those processes. regional. Data library: This is a subset of the enterprise wide data warehouse. Knowing what information is important to an enterprise will provide direction and priority for reengineering efforts. Just defining the requirements for Data Warehouse. As part of the data warehouse process. or functional data warehouse.5. it contains the information required to find and access the actual data.4 Types of Data warehouses: The term data warehouse is currently being used to describe a number of different facilities each with diverse characteristics.An enterprise can maintain better customer relationships by correlating all customer data via a single Data Warehouse architecture.

It is also the equally important choice of what data sources.g.. e.) Data consistency architecture This is the choice of what data sources. but these have to be made with all of an organization’s systems in mind (and with people other than the data warehouse team being the main decision makers. business rules. Reporting data store and staging data store architecture The main reasons we store data in a data warehousing systems are so they can be: 1) reported against. business rules. There are many other architecture issues that affect the data warehouse. determining this architecture has more to do with determining the place of the data warehouse in your business than any other architectural decision. In my opinion. dimensions. dimensions. This is by far the hardest aspect of architecture to implement and maintain because it involves organizational politics. the decisions involved in determining this architecture should drive all other architectural decisions. semantics.5 Aspects of Data Warehouse Architecture This list of aspects of architecture that the data warehouse decision maker will have to deal with themselves.E-COMMERCE TECHNOLOGY AND MANAGEMENT 1. and metrics an organization chooses to put into common usage. semantics. and (sometimes) 3) transported NOTES 47 ANNA UNIVERSITY CHENNAI . However. network topology. and metrics an organization chooses not to put into common usage.5. 2) cleaned up.

This can range from an architecture as simple as host-based reporting to one as complicated. you will probably have to use some other means to accomplish this other than the usual security mechanisms at your organization. 48 ANNA UNIVERSITY CHENNAI .DBA 1727 NOTES Data modeling architecture This is the choice of whether you wish to use demoralized. normalized. Security architecture If you need to restrict access down to the row or field level. As you may guess. it can cause political consternation. Note that while security may not be technically difficult to implement. objectoriented. In the long run. it makes perfect sense for an organization to use a variety of models. data models. decisions on data consistency architecture will probably have much more influence on the return of investment in the data warehouse than any other architectural decisions. proprietary multidimensional. Conscious determination of data consistency architecture is almost always a prerequisite to using a data warehouse to effect business practice change. To get the most return from a data warehouse (or any other system). Tool architecture This is your choice of the tools you are going to use for reporting and for what I call infrastructure. etc. Processing tiers architecture This is your choice of what physical platforms will do what pieces of the concurrent processing that takes place when using a data warehouse. business practices have to change in conjunction with or as a result of the system implementation.

1. and so forth. grade. ISDN. We should build up a complete map of the existing network by covering these areas: 1. Communication links. such as analog.6 NETWORK INFRASTRUCTURE REQUIREMENTS The network infrastructure is the underlying foundation of the system. we identify if we need to upgrade existing network components or purchase new network components. such as cable length. and available bandwidth and latency between sites 3. and so forth 2. including mobile users NOTES 49 ANNA UNIVERSITY CHENNAI . including: • Host names • IP addresses • Domain Name System (DNS) server for domain membership 4. Locations of devices on your network. Server information. determining your network infrastructure from the project goals ensures that you will have an architecture that can scale and grow. Physical communication links.6.1 The Existing Network We need to understand our existing network infrastructure to determine how well it can meet the needs of our deployment goals. Number of users at each site. T3. VPN.E-COMMERCE TECHNOLOGY AND MANAGEMENT 1. including: • Hubs • Switches • Modems • Routers and bridges • Proxy servers 5. By examining our existing infrastructure. In a Communications Services deployment. It forms the services that create the operating makeup of your network.

In such cases.DBA 1727 NOTES After completing this inventory. 1. switches connect systems within a network. which result in significantly longer times for clients to submit messages to servers on different networks.2 Network Infrastructure Components The following common network infrastructure components have a direct impact upon the success of your deployment: • • • • • Routers and switches Firewalls Load balancers Storage Area Network (SAN) DNS Routers and Switches Routers connect networks of your infrastructure. In a similar vein.6. you need to review that information in conjunction with your project goals to determine what changes are required so that you can successfully deliver the deployment. it is becoming more common to protect application servers on their own (trusted. enabling systems to communicate. Routers or switches running at capacity tend to induce escalating bottlenecks. These days. Firewalls Firewalls sit between a router and application servers to provide access control. Router configurations can potentially block undesired services 50 ANNA UNIVERSITY CHENNAI . the lack of foresight or expenditure to upgrade the router or switch could have a personnel productivity impact far greater than the cost. Firewalls were originally used to protect a trusted network (yours) from the untrusted network (the Internet). isolated) network from the untrusted networks (your network and the Internet). You need to ensure that the routers have spare capacity after the deployment to cope with projected growth and usage. Router configurations add to the collective firewall capability by screening the data presented to the firewall.

libraries. place the hardware load balancers in front of the servers and behind routers because they direct routed traffic to appropriate servers. In addition. and secure Solaris systems. If one center should go down. you have a variety of dedicated applications and hence different application servers. SANs are being deployed so that the storage is 51 NOTES ANNA UNIVERSITY CHENNAI . you might use load balancers according to the kind of application the user requests. and so forth) and use packet-level filtering to block traffic from untrusted hosts or networks. Achieving minimization in services. If you have multiple data centers. Software load balancing solutions reside on the Web servers themselves. Storage Area Networks (SANs) Understanding the data requirements of the storage system is necessary for a successful deployment. This enables you to balance load by the kind of information within the packet. Geographic load balancing distributes load according to demand. one of the servers typically acts a traffic scheduler. when installing a Sun server in an environment that is exposed to the Internet. Load Balancers Use load balancers to distribute overall load on your Web or application servers. or any untrusted network. With software solutions. including the user and the type of request. reduce the Solaris software installation to the minimum number of packages necessary to support the applications to be hosted. you should consider geographic load balancing. The Solaris™ Security Toolkit provides a flexible and extensible mechanism to minimize. for example. A load balancing solution is able to read headers and contents of incoming packets. For load balancers on Web farms. the geographic load balancer provides failover ability.E-COMMERCE TECHNOLOGY AND MANAGEMENT (such as NFS. or to distribute demand according to the kind of task to be performed. and closest location to the user. A load balancing solution that reads packet headers enables you to identify privileged users and to direct requests to servers handling specific tasks. If. NIS. harden. site capacity. and applications helps increase security by reducing the number of subsystems that must be maintained. Increasingly.

mail-relay-out. With services configured in such a way. You should consider this policy even if the host names all are currently hosted on one machine. When determining your requirements.DBA 1727 NOTES independent of the servers used in conjunction with it. The DMZ is a tightly secured area into 52 ANNA UNIVERSITY CHENNAI . consider allocating host names for functions such as mailstore.6.3 Planning Your Network Infrastructure Layout In deriving your infrastructure topology. mail-relay-in. 1. The DMZ separates the corporate network from the Internet. you need to consider the following topics: • • • • • • DMZ Intranet Internal network Proxies Firewall Configuration Mobile users Demilitarized Zone (DMZ) These days. most company networks are configured for a DMZ. Deploying SANs can represent a decrease in the time to recover from a non-functional server as the machine can be replaced without having to relocate the storage drives. and so forth. relocation of the services to alternate hardware significantly reduces the impacts of the change. Use these questions to evaluate if your deployment storage requirements would be best served through a SAN: • • • • Are reads or writes more prevalent? Do you need high I/O rate storage? Is striping the best option? Do you need high uptime? Is mirroring the best option? How is the data to be backed up? When is it going to be backed up? Domain Name System (DNS) Servers which make heavy usage of DNS queries should be equipped with a local caching DNS server to reduce lookup latency as well as network traffic.

file serving. To limit exposure in case of a security breach from such attacks. limit outbound initiated traffic to the Internet to those machines requiring access to the Internet to carry out the service they are providing (for example. internal DNS. DNS and mail). with respect to the type of connection requests. as they do not reside on the same segment as hosts that could be compromised by an external attack. web servers). security issues exist with VPN and remote access traffic. mail. given the potential of a denial-of-service attack interrupting DNS or email. However. FTP servers. You might want to segment an inbound-only DMZ and an outbound-only DMZ. Also. For example. These machines are hardened to withstand the attacks they might face. consider creating separate inbound and outbound servers to provide these services. You should continue to locate all machines hosting Web servers. and remote access. and so on) that are meant solely for internal users. This design protects your internal hosts. Progressively. The firewall providing the DMZ segmentation should allow only inbound packets destined to the corresponding service ports and hosts offering the services within the DMZ. DMZ implementations have moved the segment behind the firewall as firewall security and facilities have increased in robustness. mail servers. the name server facilities only include the server and the routers to the Internet. Separation of services in this manner also permits tighter controls to be placed on the router filtering. Just as the Internet services are segmented. and external DNS on a DMZ segment. Should an email-based Trojan horse or worm get out of control and overrun your outbound mail server. VPN access. 53 NOTES ANNA UNIVERSITY CHENNAI . Internally. inbound email can still be received. you also have similar services to offer (Web. are the internal services. these servers typically contain no information about the internal network. the DMZ still remains segmented from the internal networks. A simpler network design might only define separate DMZ segments for Internet services. Apply the same approach to DNS servers. However. Intranet The DMZ provides a network segment for hosts that offer services to the Internet. so too. You need to separate appropriate connections of these types from the rest of the network.E-COMMERCE TECHNOLOGY AND MANAGEMENT which you place servers providing Internet services and facilities (for example. However.

This relay out to the Internet helps shield the machine from any potential danger it might encounter. this creates a problem based on your previous topology decisions.DBA 1727 NOTES Just as you separate the Internet-facing services into the DMZ for security. Use a firewall between each internal network segment to filter traffic to provide additional security between departments. Inbound traffic should come solely from machines relaying information from the DMZ (such as inbound email being passed to internal mail servers) and machines residing on the internal network. 54 ANNA UNIVERSITY CHENNAI . better yet. This indirect communication is acceptable. these machines avoid direct communication with machines in the DMZ. Place a proxy on an internal network segment. Ultimately. and test network segments are also included in this list. Proxies Only the machines directly communicating with machines on the Internet should reside in the DMZ. your private internal services should reside in their own internal DMZ. an intranet segment. In this situation. Machines on internal networks should not communicate directly with machines on the Internet. Preferably. If users require Internet access. The firewall rules providing the segmentation should be configured similarly to the rules used for the DMZ’s firewall. These machines request information from hosts residing on the intranet. lab. A host on the intranet can in turn communicate with a host in the DMZ to complete a service (such as outbound email or DNS). proxies become helpful. Development. which in turn makes the request on the machine’s behalf. Internal Network The segments that remain make up your internal network segments. the services they require should reside on hosts in the intranet. In addition. A machine requiring access to the Internet can pass its request onto the proxy. These segments house users’ machines or departmental workstations. just as multiple DMZs can be beneficial—depending on your services and your network’s size—multiple intranets might also be helpful. though. Identify the type of internal network traffic and services used on each of these segments to determine if an internal firewall would be beneficial. or.

By preventing IP spoofing. it should reside in the DMZ. the only packets containing a source IP address from your internal machines should come from within the network itself. this possibility is eliminated.E-COMMERCE TECHNOLOGY AND MANAGEMENT Because the proxy communicates directly with machines on the Internet. most firewalls provide features to prevent IP spoofing.alone networks 55 NOTES ANNA UNIVERSITY CHENNAI . pay attention to how you will provide them access to the facilities. it was likely spoofed. Firewall Configuration In addition to the typical packet-filtering features. Use IP-spoofing protection whenever possible. which in turn makes the actual connection out on the Internet.1 Introduction to TCP/IP: The realization that stand .alone computers made no sense made the network possible. examine whether your mobile user population is stable or is expected to increase over time. use a double proxy system. A second proxy residing in the intranet passes connection requests of the internal machines to the proxy in the DMZ. if there is only one entry point into your network from the Internet and a packet is received from the Internet with a source address of one of your internal machines. this conflicts with the desire to prevent internal machines from directly communicating with DMZ machines. Based on your network’s topology. Use the same IP-spoofing protection on any internal firewall as well. However.7 TRANSMISSION CONTROL PROTOCOL/INTERNET PROTOCOL TCP / IP 1.7. To keep this communication indirect. and the potential for bypassing IP address-based authorization and the other firewallfiltering rules is reduced. not from the Internet. Will there be any facilities they cannot access? What kind of security policies do you need to address? Will you require SSL for authentication? Also. people realized that stand . 1. Mobile Users When you have remote or mobile users. When there were too many of them. For instance.

1. The protocols around which the Internet was designed embody a series of design principles. Everything they had was heterogeneous-computers. However. networks. and finally to the global Internet. and even the geographical location. This layered architecture is shown in • 56 ANNA UNIVERSITY CHENNAI .neutral. TCP and IP were developed to connect a number different networks designed by different vendors into a network of networks (the “Internet”). • Interoperable-the system supports computers and software from different vendors. On the battlefield a communications network will sustain damage. For EC. the US Department of Defence (DOD) initiated work on a project with a simple objective: develop a set of standard rules (Protocols) which could be used by all machines and networks to communicate. This design allows the construction of very large networks with less central management. then to regional networks. network problems can go undiagnosed and uncorrected for long periods of time. and that they also needed to talk to one another. This was the problem confronting the US Government and the academic community in the late 60s. electronic mail. operating systems and networking software. remote logon) across a very large number of client and server systems. because of the automatic recovery. Several computers in a small department can use TCP/IP (along with other protocols) on a single LAN.7.DBA 1727 NOTES made little sense either. Rather than surrender to the monopoly of vendors. independent of the hardware or the operating system. It was initially successful because it delivered a few basic services that everyone needs (file transfer. this means that the customers or businesses are not required to buy specific systems in order to conduct business. The solution had to be vendor . It became so successful that both the Internet and the World Wide Web adopted it is their protocol. so the DOD designed TCP/IP to be robust and automatically recover from any node or phone line failure.2 Internet Protocols: A protocol is a set of rules that determines how two computers communicate with one another over a network. Connecting these networks was either impossible or done using expensive proprietary network devices. The IP component provides routing from the department to the enterprise network. Something had to be done. Layered-the collection of Internet protocols works in layers with each layer building on the layers at lower levels. The solution they found was TCP/IP/.

It was developed by a community of researchers centered around the ARPAnet. This means that application programmers are hidden from the complexities of the underlying hardware. This means that the interpretation of the data happens at the application layer(i.known TCP/IP network. The most accurate name for the set of protocols are describing is the “Internet protocol suite”. NOTES 1. TCP and IP are two of the protocols in this suite. End-to end. It is much like the post office.3 What is TCP/IP? TCP/IP is a set of protocols developed to allow cooperating computers to share resources across a network. The job of the post office is to deliver the mail. Because TCP and IP are the best known of the protocols.E-COMMERCE TECHNOLOGY AND MANAGEMENT • • Simple-each of the layers in the architecture provides only a few functions or operations.e the sending and the receiving side) and not at the network layers.the Internet is based on end-to-end protocols. Certainly the ARPAnet is the best. only the sender and the receiver are concerned about its contents.7. it has become common to use the term TCP/IP or IP/ TCP to refer to the whole family. 57 ANNA UNIVERSITY CHENNAI .

e. it has lower overhead than TCP. and that sort of thing.DBA 1727 NOTES TCP/IP is a family of protocols. • IP . The organizations assign groups of their numbers to departments. It does not provide the same features as TCP.4 TCP/IP Services Initially TCP/IP was used mostly between minicomputers or mainframes. IP forwards each packet based on a four byte destination address (the IP number). sending mail. and generally were self.. This is another reason why it’s more suited to streaming-data applications: there’s less screwing around that needs to be done with making sure all the packets are there. 58 ANNA UNIVERSITY CHENNAI . and is thus considered “unreliable. and UDP.” Again. Security is handled by requiring the user to specify a user name and password for the other computer. One of the things that makes UDP nice is its simplicity. in the right order.contained. Thus the most important “traditional” TCP/IP services are: • File transfer. These include IP. • • Others are protocols for doing specific tasks. or finding out who is logged in on another computer. TCP adds support to detect errors or lost data and to trigger retransmission until the data is correctly and completely received. it does have much more applicability in other applications than the more reliable and robust TCP.is responsible for moving packet of data from node to node. transferring files between computers. TCP .7. A few provide “low. These machines had their own disks. whether they ever made it to their destination. UDP (User Datagram Protocol) is a simple transport-layer protocol. TCP.is responsible for verifying the correct delivery of data from client to server. Data can be lost in the intermediate network. 1. The Internet authorities assign ranges of numbers to different organizations. Because it doesn’t need to keep track of the sequence of packets. etc. or to send files to another computer.level” functions needed for many applications. IP operates on gateway machines that move data from department to organization to region and then around the world. although this is unsuitable for some applications. The file transfer protocol (FTP) allows a user on any computer to get files from another computer.g.

E-COMMERCE TECHNOLOGY AND MANAGEMENT • Remote login The network terminal protocol (TELNET) allows a user to log in on any other computer on the network. The most serious is that a micro is not well suited to receive computer mail. type of machine and network .This was necessary to finally break the monopoly of vendors who claimed that their product alone will save the world. 1. They would maintain “mail files” on those machines. You start a remote session by specifying a computer to connect to. it may be turned off. For this reason. Note that you are really still talking to your own computer. people tended to use only one or two specific computers. The goals of TCP/IP were set by the US Department of Defence. Every character you type is sent directly to the other system. Generally. anything you type is sent to the other computer. These rules are independent of the applications that have no idea of what is going on at the two ends of the communication channel. the connection to the remote computer behaves much like a dialup connection. the mail software expects to be able to open a connection to the addressee’s computer. or it may be running an application other than the mail system. Microcomputer mail software then becomes a user interface that retrieves mail from the mail server. and today. There are some problems with this in an environment where microcomputers are used. in order to send the mail. But the telnet program effectively makes your computer invisible while it is running. the remote system will ask you to log in and give a password. The computer mail system is simply a way for you to add a message to another user’s mail file. in whatever manner it would normally ask a user who had just dialed it up. When you send mail.5 Features Of Tcp/Ip A protocol is a set of rules that have to use by two or more machines to talk to one another. This allows you to send messages to users on other computers. 59 NOTES ANNA UNIVERSITY CHENNAI . • Computer mail. they are its inherent features: • Independence of vendor. That is. From that time until you finish the session.7. mail is normally handled by a larger system. Originally. If this is a microcomputer. where it is practical to have a mail server running all the time.

pine and elm mailers Remote printing which allows people to access printers on remote computers as if they were connected locally The Hyper Text Transport Protocol (HTTP) of the World Wide Web which browsers like Netscape use to fetch HTML documents The point – to – Point Protocol (PPP) which makes all these facilities available through a telephone line 1. \ 60 ANNA UNIVERSITY CHENNAI .The transmission. it should be able to divert data immediately through other routes if one or more parts of the network went down. These terms provide a foundation for subsequent chapters illustrates the components of an IP network. Later.DBA 1727 NOTES • • • • Failure recovery . with facilities for full error control. Enable reliable transmission of files. Some of the most important application available in the TCP / IP family are: • • • • • • • • ftp and rep for file transfer telnet and rlogin for logging in to remote machines rsh (rcmd in SCO UNIX) for executing a command in a remote machine without logging in The Network File System (NFS) which lets one machine treat the file system of a remote machine as its own The electronic mail service using the Simple Mail Transport Protocol (SMTP). TCP/IP originally began by the development of a collection of programs (the DARPA set) that enabled computers to talk among themselves. Berkeley developed an entire suite of tools that are today known as the r – utilities because all their command names are prefixed with an “r. must be 100% reliable.Being originally meant for the defence network. irrespective of the distance travelled. Facility to connect new sub networks without significant disruption of services High error rate handling . Post Office Protocol (POP) and the mail. remote login and remote execution of commands.7.6 TCP/IP Terminology The Internet standards use a specific set of terms when referring to network elements and concepts related to TCP/IP networking.

which runs an implementation of IP. Another term for network is internet work.E-COMMERCE TECHNOLOGY AND MANAGEMENT NOTES Elements of an IP network Common terms and concepts in TCP/IP are defined as follows: • • Node Any device. Upper-layer protocol A protocol above IP that uses IP as its transport. Host A node that cannot forward IP packets not explicitly addressed to itself (a non-router). LAN segment A portion of a subnet consisting of a single medium that is bounded by bridges. a router also typically advertises its presence and host configuration information. A host silently discards traffic that it receives but that is not explicitly addressed to itself. 61 ANNA UNIVERSITY CHENNAI • • • • • . Network Two or more subnets connected by routers. On an IPv6 network. Examples include Internet layer protocols such as the Internet Control Message Protocol (ICMP) and Transport layer protocols such as the Transmission Control Protocol (TCP) and User Datagram Protocol (UDP). A host is typically the source and the destination of IP traffic. Other terms for subnet are network segment and link. Subnet One or more LAN segments that are bounded by routers and use the same IP address prefix. including routers and hosts. Router A node that can forward IP packets not explicitly addressed to itself.

if the network is hooked up to the Internet. it has to be unique throughout the world. They could be different programs running on the same computer.45. and uses the TCP/IP protocol for communication. And.) Here are the kinds of servers typically present in a modern computer setup. Each machine is fitted with a network interface card that is connected by wire to the corresponding cards in other machines. minicomputers. sometimes a node. This address has to be unique not only within the network. which is the super – network of all networks. Packet The protocol data unit (PDU) that exists at the Internet layer and comprises an IP header and payload. popularly known as an intranet. All communication between hosts normally takes place through these network interfaces only. we have an internet. A server is a system that provides a specific service for the rest of the network. When two or more networks are connected together.168. These computers are likely to be configured to perform specialized tasks.168 (or strictly speaking. 62 ANNA UNIVERSITY CHENNAI . Although people are still likely to work with one specific computer. that computer will call on other systems on the net for specialized services. An example of a physical interface is a network adapter.0. This name is unique throughout the network. For instance. Note that these computer services can all be provided within the framework of TCP/IP. and a host within the network could have the host address of 45. A local internet or intranet may easily be connected to the Internet which also uses the same protocol. and the combination of these two addresses forms the complete network address of the host. including microcomputers. workstations. Every host in the network has an address as well. 192. Address An identifier that can be used as the source or destination of IP packets and that is assigned at the Internet layer to an interface or set of interfaces. and every such host has a hostname. This has led to the “server/client” model of network services.0) could be the address of a network.DBA 1727 NOTES • • • • Air A node connected to the same subnet as another node. A client is another system that uses that service. In a network. In that case.67. and mainframes. 192. a computer is known as a host.67 represents the complete network address of the host. Interface The representation of a physical or logical attachment of a node to a subnet. (Note that the server and client need not be on different computers. but also to all connected networks.168. Every TCP/IP network has an address that is used by external networks to direct their messages. Now many installations have several kinds of computers. 192.

but still give others access to the disk space. Thus the databases are kept on a small number of systems. Aside from the obvious economic benefits. However there are also “remote procedure call” systems that allow a program to call a subroutine that will run on another computer. names and network addresses for computers. there are a number of different collections of names that have to be managed. because you don’t have to worry about updating and backing up copies on lots of different machines. you request that a specific command or set of commands should run on some specific computer. Other systems access the data over the network. remote printing. These computers have no disk drives at all. (The most commonly used protocol is the remote lineprinter protocol from Berkeley Unix) remote execution. this allows people working on several computers to share common files. you simply type the name of a computer. It makes system maintenance and backup easier. There are a number of different kinds of remote execution. Instead they connect them to terminal servers. This capability is useful for several different purposes. A network file system provides the illusion that disks or other devices from one system are directly connected to other systems. A number of vendors now offer high-performance diskless computers. It becomes very tedious to keep this data up to date on all of the computers. name servers. This includes users and their passwords. The terminal server will have provisions to switch between 63 NOTES ANNA UNIVERSITY CHENNAI . Many installations no longer connect terminals directly to computers.E-COMMERCE TECHNOLOGY AND MANAGEMENT • • • • • network file systems. This is useful when you can do most of your work on a small computer. There is no need to use a special network utility to access a file on another system. Your computer simply thinks it has some extra disk drives. It lets you put large disks on a few computers. Generally it is possible to have active connections to more than one computer at the same time. These extra “virtual” drives refer to the other system’s disks. In large installations. but a few tasks require the resources of a larger system. terminal servers. They are entirely dependent upon disks attached to common “file servers”. If your terminal is connected to one of these. That is. A terminal server is simply a small computer that only knows how to run telnet (or some other protocol to do remote login). and you are connected to it. Some operate on a command by command basis. and accounts. This allows you to access printers on other computers as if they were directly attached to yours.

e. In that case. 1. the World Wide Web (WWW) has come to dominate the traffic on the Internet. However while those datagrams are in transit. There are provisions to open connections (i. In such applications. and to notify you when output is waiting for another connection. Full-scale network window systems provide an interface that lets you distribute jobs to the systems that are best suited to handle them. that datagram has to be sent again. an error will occur. Each of these datagrams is sent through the network individually. The vast majority of EC applications are Web based.7. and those datagrams are treated by the network as completely separate. but still give you a single graphically-based user interface. At that point. high-performance graphics programs had to execute on a computer that had a bit-mapped graphics screen directly attached to it. they will be put back together into the 15000-octet file.8 HYPERTEXT MARKUP LANGUAGE (HTML) 1. 1. So the protocols will break this up into something like 30 500-octet datagrams. the clients are called Web browsers and the servers are simply called Web servers. Most networks can’t handle a 15000 octet datagram. network-oriented window systems. suppose you want to transfer a 15000 octet file. the network doesn’t know that there is any connection between them. For example. It is also possible that somewhere in the network. Network window systems allow a program to use a display on a different computer.DBA 1727 NOTES • connections rapidly. Like other client/server applications.1 Web Based Client / Server Over the past three or four years. However at some level. Until recently.8.7 TCP/IP – Connectionless technology: TCP/IP is built on “connectionless” technology. and some datagram won’t get through at all. Each of these datagrams will be sent to the other end. information from those connections is broken up into datagrams. Web browsers and servers need as way 64 ANNA UNIVERSITY CHENNAI . It is perfectly possible that datagram 14 will actually arrive before datagram 13. Information is transferred as a sequence of “datagrams”. A datagram is a collection of data that is sent as a single message. to start a conversation that will continue for some time).

directory.8. When a user selects a hypertext link. graphics.. These links can be textual or graphic and when clicked on. home page.html. text files.1.ch” stored in the directory “Data Sources”. identify a resource. HTTP is based on client/server principle. for example. To fulfil these needs.g. This is the default syntax for a URL. The HTML codes are used to create links.htm) take default values. and ask the server to respond with an 65 NOTES ANNA UNIVERSITY CHENNAI . port (80). animation and sound. or protocol that governs the transfer of hypertext between two or more computers.2 Hypertext Transfer Protocol (HTTP) Hypertext Transfer Protocol (HTTP) is the set of rules. the access – method (http).html” on the server “info.ge. Hypertext is text that is specially coded using a standard system called Hypertext Markup Language (HTML). The complete syntax for an “absolute” URL is access – method: // server –name [: port]/directory/file. and anywhere else a company can advertise.1 Universal Resource Locator (URL) Universal Resource Locators (URLs) are ubiquitous. What this URL represents is the Web page “Geographical.cern. where the access – method can be http. The server request identifies the resource that the client is interested in and tells the server what “action” to take on the resource. the client program on their computer uses HTTP to contact the server. ftp. on billboards. We are all familiar with “www . appearing on the Web. as opposed to the following example where all the values are explicitly specified: http://info. In the case of a URL like www. 1.anywhere. in print. a new addressing scheme – the URL .cern. The World Wide Web encompasses the universe of information that is available via HTTP. can “link” the user to another resource such as other HTML documents.ch:80/hypertext/Data Sources/ Geographical.com.1.8.and a new protocol – the Hypertext Transport Protocol (HTTP) were introduced. HTTP allows the client to establish a connection with the server and make a request. 1. and file (e.com”. on television. gopher.E-COMMERCE TECHNOLOGY AND MANAGEMENT 1) to locate each other so they can send requests and responses back and forth and 2) to communicate with one another. or telnet.

A text mark up language specifies a set of tags that are inserted into the text. Each of these elements is stored on the Web server as a separate file.8. which is increasingly used to mark up information that companies share with each other over the Internet 1. Telnet. The most important parts of a Web page. sound clips. Network News Transfer Protocol (NNTP). also called tags. The Web client software uses those instructions as it renders the text and page elements contained in the other files into the Web page that appears on the screen of the client computer. provide formatting instructions that Web client software can understand. of marked up. such as graphics. are the structure of the page and the text that makes up the main part of the page. which is a language that can be used to define other languages.3 Hypertext Markup Language (Html) A web page is created using HTML. The page structure and text are stored in a text file that is formatted. and even small programs that run in the web browser. Gopher. In addition to its role as a markup language. 1. Another markup language that was derived from SGML for use on the Web is Extensible Markup Language (XML). HTML is a special kind of text document that is used by Web browsers to present text and graphics. Simple Mail Transfer Protocol (SMTP).2 Mark Uplanguages and The Web Web pages can include many elements. HTML stands for Hypertext Markup Language.HTML consists of standardized codes or ‘tags’ that are used to define the structure of information on a web page. These mark up tags. however. WAIS.DBA 1727 NOTES action. etc. HTML. The server accepts the request. photographs. which is a subset of a much older and far more complex text markup language called Standard Generalized Markup Language (SGML). XML and XHTML have descended from the original SGML specification.8. SGML was used for many years by the publishing industry to create documents that needed to be printed in various formats and they were revised frequently. SGML is a meta language. HTTP also provides access to other Internet protocols like File Transfer Protocol (FTP). 66 ANNA UNIVERSITY CHENNAI . using a text mark up language. The markup language most commonly used on the web is HTML. and then uses HTTP to respond to or perform the action.

If the file extension is “.html”.. • • • • • • start with a title add headings and paragraphs add emphasis to your text add images add links to other pages use various kinds of lists NOTES Start with a title Every HTML document needs a title. The tags used in HTML usually consist of a code in between two “wickets”.html” or “. and </p> to indicate the end of a paragraph. To try this out. These codes are called container tags because the formatting described by the tag affects only the text contained between the tags. then view the file in a web browser. 1..3. Lynx etc. With just 67 ANNA UNIVERSITY CHENNAI .1 HTML Tags: HTML tags are used to define areas of document as having certain characteristics. The title should be placed at the beginning of your document. Most browsers show the title in the window caption bar. The browser retrieves Web pages from Web servers that thanks to the Internet can be pretty much anywhere in World.E-COMMERCE TECHNOLOGY AND MANAGEMENT The text includes markup tags such as <p> to indicate the start of a paragraph. Here is what you need to type: <title>My first HTML document</title> Change the text from “My first HTML document” to suit your own needs. The title text is preceded by the start tag <title> and ends with the matching end tag </title>. A browser interprets the tags in an HTML file and presents the file as a formatted readable web page.htm” then the browser will recognize it as HTML. A document that has been prepared using HTML markup “tags” can be viewed using variety of web browsers such as Netscape. HTML is standardized and portable. type the above into a text editor and save the file as “test. HTML documents are often referred to as “Web pages”.8.

the least important. The width and height aren’t strictly necessary but help to speed the display of your Web page. In HTML there are six levels of headings. The next section will show how to add displayable content.jpg” in the same folder/directory as your HTML file. Add headings and paragraphs If you have used Microsoft Word. The </p> is optional. The simple way to add an image is using the <img> tag. For example: <p>This is the first paragraph. Something is still missing! People who 68 ANNA UNIVERSITY CHENNAI . you will be familiar with the built in styles for headings of differing importance. for instance: This is a really <em>interesting</em> topic! Adding interest to your pages with images Images can be used to make your Web pages distinctive and greatly help to get your message across.</p> <p>This is the second paragraph.DBA 1727 NOTES a title. unlike the end tags for elements like headings.</p> Adding a bit of emphasis You can emphasize one or more words with the <em> tag. and so on down to H6. H2 is slightly less important. It is 200 pixels wide by 150 pixels high. H1 is the most important. Here is how to add an important heading: <h1>An important heading</h1> and here is a slightly less important heading: <h2>A slightly less important heading</h2> Each paragraph you write should start with a <p> tag. Don’t worry. the browser will show a blank page. Let’s assume you have an image file called “peter.jpg” width=”200" height=”150"> The src attribute names the image file. <img src=”peter.

Lets define a link to the page defined in the file “peter. while GIF and PNG are good for graphics art involving flat areas of color.html” in the same folder/directory as the HTML file you are editing: This a link to <a href=”peter. The text between the <a> and the </a> is used as the caption for the link. Adding links to other pages What makes the Web so effective is the ability to define links from one page to another. for instance with a digital camera.jpg” width=”200" height=”150" alt=”My friend Peter” longdesc=”peter. in this case “My friend Peter”. Most browsers understand GIF and JPEG image formats.E-COMMERCE TECHNOLOGY AND MANAGEMENT can’t see the image need a description they can read in its absence.jpg” width=”200" height=”150" alt=”My friend Peter”> The alt attribute is used to give the short description. lines and text. All three formats support options for progressive rendering where a crude version of the image is sent first and progressively refined. JPEG is best for photographs and other smoothly varying images. You can add a short description as follows: <img src=”peter. It is common for the caption to be in blue underlined text. 69 NOTES ANNA UNIVERSITY CHENNAI . To avoid long delays while the image is downloaded over the network. newer browsers also understand the PNG image format. A single click can take you right across the world! Links are defined with the <a> tag. by scanning an image in.html”>Peter’s page</a>. you may need to also give a longer description. Assuming this has been written in the file “peter.html”> You can create images in a number of ways. and to follow links at the click of a button. you should avoid using large image files. or creating one with a painting or drawing program.html”. you can add one as follows using the longdesc attribute: <img src=”peter. For complex images. Generally speaking.

To link to a page on another Web site you need to give the full Web address (commonly called a URL)./” in front of it./mary. the home page. for example. the following allows you to click on the company logo to get to the home page: <a href=”/”><img src=”logo.org/”>W3C</a>..org you need to write: This is a link to <a href=”http://www.html”>John’s page</a> Which first looks in the parent directory for another directory called “college”.e. for instance: <ul> <li>the first list item</li> <li>the second list item</li> <li>the third list item</li> </ul> 70 ANNA UNIVERSITY CHENNAI . i.html”. you need to put the name of the subdirectory followed by a “/” in front of it. Three kinds of lists HTML supports three kinds of lists.w3. for instance: <a href=”friends/sue.w3. for instance: <a href=”.gif” alt=”home page”></a> This uses “/” to refer to the root of the directory tree.. You can turn an image into a hypertext link. and then at a subdirectory of that named “friends” for a file called “john. you need to put “.DBA 1727 NOTES If the file you are linking to is in a parent folder/directory. for instance: <a href=”. The first kind is a bulletted list. It uses the <ul> and <li> tags.html”>Sue’s page</a> The use of relative paths allows you to link to a file by walking up and down the tree of directories as needed.html”>Mary’s page</a> If the file you are linking to is in a subdirectory./college/friends/john.. often called an unordered list. for instance to link to www.

often called an ordered list. This allows you to list terms and their definitions. but that the </li> is optional and can be left off. The third and final kind of list is the definition list.E-COMMERCE TECHNOLOGY AND MANAGEMENT Note that you always need to end the list with the </ul> end tag. For instance: <ol> <li>the first list item</li> <li>the second list item</li> <li>the third list item</li> </ol> Like bulletted lists. This kind of list starts with a <dl> tag and ends with </dl> Each term starts with a <dt> tag and each definition starts with a <dd>. you always need to end the list with the </ol> end tag. The second kind of list is a numbered list. For instance: <ol> <li>the first list item</li> <li> the second list item <ul> <li>first nested item</li> <li>second nested item</li> </ul> 71 NOTES ANNA UNIVERSITY CHENNAI . but the </li> end tag is optional and can be left off. Note that lists can be nested. It uses the <ol> and <li> tags. one within another. For instance: <dl> <dt>the first term</dt> <dd>its definition</dd> <dt>the second term</dt> <dd>its definition</dd> <dt>the third term</dt> <dd>its definition</dd> </dl> The end tags </dt> and </dd> are optional and can be left off.

Here is a template you can copy and paste into your text editor for creating your own pages: <!DOCTYPE html PUBLIC “-//W3C//DTD HTML 4. 72 ANNA UNIVERSITY CHENNAI . HTML has a head and a body If you use your web browser’s view source feature (see the View or File menus) you can see the structure of HTML pages. for longer list items.. while the <body> . and has also been integrated into a variety of HTML editing tools. The <html> .DBA 1727 NOTES </li> <li>the third list item</li> </ol> You can also make use of paragraphs and headings etc... and information on style sheets and scripts. The <head> . The document generally starts with a declaration of which version of HTML has been used.. I recommend you regularly run Tidy over any markup you are editing.. </html> acts like a container for the document.w3. Tidy is available for a wide range of operating systems from the TidyLib Sourceforge site. Tidy is very effective at cleaning up markup created by authoring tools with sloppy habits. and is then followed by an <html> tag followed by <head> and at the very end by </html>. </body> contains the markup with the visible content.dtd”> <html> <head> <title> replace with your document’s title </title> </head> <body> replace with your document’s content </body> </html> Tidying up your markup A convenient way to automatically fix markup errors is to use HTML Tidy which also tidies the markup making it easier to read and easier to edit.. </head> contains the title.org/TR/html4/loose.01 Transitional//EN” “http://www.

9. managers and executives to gain insight into data through fast. quality tracking.1 Introduction: The term OLAP (On-Line Analytical Processing) was coined by E. quality analysis. in fact for any management system that requires a flexible top down view of an organization. and budgeting and planning. manpower planning. manpower and pricing applications and many others.2 What is OLAP? On-Line Analytical Processing (OLAP) is a category of software technology that enables analysts. invoices or general ledger transactions. OLAP systems enable managers and analysts to rapidly and easily examine key performance data and perform powerful comparison and trend analyses. Codd in 1993 to refer a type of application that allows a user to interactively analyze data. 1. profitability analysis. through hierarchies and/ or across members trend analysis over sequential time periods 73 NOTES ANNA UNIVERSITY CHENNAI . An OLAP system is often contrasted to an OLTP (On-Line Transaction Processing) system that focuses on processing transactions such as orders. OLAP is being used for applications such as product profitability and pricing analysis. They can be used in a wide variety of business areas.9 OLAP: ON-LINE ANALYTICAL PROCESSING 1. including sales and marketing analysis. OLAP technology is being used in an increasingly wide range of applications. OLAP is now acknowledged as a key technology for successful management in the 90’s. even on very large data volumes. financial reporting and consolidation.F. It describes a class of applications that require multidimensional analysis of business data. The most common are sales and marketing analysis. financial reporting. consistent.E-COMMERCE TECHNOLOGY AND MANAGEMENT 1. OLAP functionality is characterized by dynamic multi-dimensional analysis of consolidated enterprise data supporting end user analytical and navigational activities including: • • calculations and modeling applied across dimensions. activity based costing. interactive access to a wide variety of possible views of information that has been transformed from raw data to reflect the real dimensionality of the enterprise as understood by the user.9.

When a consumer makes a purchase online. CRM. Order Name. It is not always necessary to create a data warehouse for OLAP analysis. as well as through analysis of historical and projected data in various “what-if” data model scenarios. OLAP allows business users to slice and dice data at will. The main difference. Price. Examples of OLTPs can include ERP. optimized for transactions the record ‘Consumer name. OLAP helps the user synthesize enterprise information through comparative.What are the most popular products purchased by customers between the ages 15 to 30? Part of the OLAP implementation process involves extracting data from the various data repositories and making them compatible. call data modeling. OLTPs are designed for optimal transaction speed. personalized viewing.DBA 1727 NOTES • • • • slicing subsets for on-screen viewing drill-down to deeper levels of consolidation reach-through to underlying detail data rotation to new dimensional comparisons in the viewing area OLAP is implemented in a multi-user client/server mode and offers consistently rapid response to queries. This is achieved through use of an OLAP Server. An example of incompatible data: Customer ages can be stored as birth date for purchases made over the web and stored as age categories (i. It would a time consuming process for an executive to obtain OLAP reports such as . OLTP. Address. Point-of-Sale applications. Payment Method’ is created quickly on the database and the results can be recalled by managers equally quickly if needed. Call Center. Order Number.e. Normally data in an organization is distributed in multiple data sources and are incompatible with each other. Making data compatible involves ensuring that the meaning of the data in one repository matches all other repositories. databases do not have any difference from a structural perspective from any other databases. Online Transaction Process. difference is the way in which data is stored. 74 ANNA UNIVERSITY CHENNAI . are in types of databases called OLTPs. Telephone. such as point-of-sales. Data stored by operational systems. With a database design. SCM. regardless of database size and complexity. and only. A retail example: Point-of-sales data and sales made via call-center or the Web are stored in different location and formats. between 15 and 30) for in store sales. they expect the transactions to occur instantaneously.


data modeling) has to be set up differently. OLAP cubes are not strictly cuboids . To obtain answers. OLAPs are designed to give an overview analysis of what happened. In which zip code did product A sell the most. The quantity shipped on a particular date.e. The most common method is called the star design. Using the above data model. month. from a data model OLAP cubes are created.it is the name given to the process of linking 76 ANNA UNIVERSITY CHENNAI . Hence the data storage (i. it is possible to build reports that answer questions such as: • • • The supervisor that gave the most discounts. such as the ones above. OLAPs have a different mandate from OLTPs.DBA 1727 NOTES Data are not typically stored for an extended period on OLTPs for storage cost and transaction speed reasons. year or quarter. Star Data Model for OLAP The central table in an OLAP start data model is called the fact table. The surrounding tables are called the dimensions.

The design of the server and the structure of the data are optimized for rapid ad-hoc information retrieval in any orientation. NOTES OLAP Cube with Time. or offer a choice of both.9. A multi-dimensional structure is arranged so that every data item is located and accessed based on the intersection of the dimension members which define that item. flexible calculation and transformation of raw data based on formulaic relationships. staging the multi-dimensional data in the OLAP Server is often the preferred method. Steps in the OLAP Creation Process 1. as well as for fast. Or a giant cube can be formed with all the dimensions. 77 ANNA UNIVERSITY CHENNAI .E-COMMERCE TECHNOLOGY AND MANAGEMENT data from the different dimensions. The cubes can be developed along business units such as sales or marketing. Customer and Product Dimensions OLAP can be a valuable and rewarding business tool. Given the current state of technology and the end user requirement for consistent and rapid response times. multi-user data manipulation engine specifically designed to support and operate on multi-dimensional data structures. or it may populate its data structures in real-time from relational or other databases. Aside from producing reports. The OLAP Server may either physically stage the processed multi-dimensional information to deliver consistent and rapid response times to end users.3 OLAP Server An OLAP server is a high-capacity. OLAP analysis can aid an organization evaluate balanced scorecard targets.

Analyzing and modelling complex relationships are practical only if response times are consistently short. its ability to provide “just – in .9. financial performance analysis. sales forecasting. and whole organizations. 78 ANNA UNIVERSITY CHENNAI . and market / customer segmentation. In addition. Among other applications. promotions analysis. 1. Sales analysis and forecasting are two of the OLAP applications found in sales departments. Managers are no longer dependent on IT to make schema changes.making. marketing departments use OLAP for market research analysis. A truly flexible data model ensures that OLAP systems can respond to changing business requirements as needed for effective decision making.4 Uses Of Olap OLAP applications span a variety of organizational functions. because the nature of data relationships may not be known in advance. developers. For all the above applications is the ability to provide managers with the information they need to make effective decisions about an organization’s strategic directions. Although it is possible to build an OLAP system using software designed for transaction processing or data collection. i. the data model must be flexible.time” information for effective decision. it is certainly not a very efficient use of developer time. Perhaps more importantly. Finance departments use OLAP for applications such as budgeting.DBA 1727 NOTES 1. and financial modelling. This requires more than a base level of detailed date. The key indicator of a successful OLAP application is its ability to provide information. Typical manufacturing OLAP applications include production planning and defect analysis. to create joins or worse. OLAP enables managers to model problems that would be impossible using less flexible systems with lengthy and inconsistent response times.5 OLAP Benefits: OLAP applications increase the productivity of business managers. IT developers also benefit from using the right OLAP software. activity – based costing (allocations). By using software specifically designed for OLAP.. customer analysis.e. developers can deliver applications to business users faster.9. as needed. The inherent flexibility of OLAP systems means business users of OLAP applications can become more self sufficient. More control and timely access to strategic information equal more effective decision-making.

By using software designed for OLAP. data authentication (data integrity and data origin authentication). Once it knows your identity. Cryptology is as old as writing itself. and has been used for thousands of years to safeguard military and diplomatic communications. The cryptographer seeks methods to ensure the safety and security of conversations while the cryptanalyst tries to undo the former’s work by breaking his systems.10. IT gains more self-sufficient users without relinquishing control over the integrity of the data.E-COMMERCE TECHNOLOGY AND MANAGEMENT providing better service. unlike standalone departmental applications running on PC networks. non-repudiation of origin. As a result. Faster delivery of applications also reduces the applications backlog OLAP reduces the applications backlog still further by making business users selfsufficient enough to build their own models. which means hidden and “logos” which means word. For example. The same principal applies when one person tries to 79 NOTES ANNA UNIVERSITY CHENNAI . the famous Roman emperor Julius Caesar used a cipher to protect the messages to his troops. 1.10. and data confidentiality.2 Cryptographic services The main goals of modern cryptography can be seen as: user authentication. it can verify whether you are entitled to enter the system.10 CRYPTOGRAPHY 1. 1. OLAP applications are dependent on data warehouses and transaction processing systems to refresh their source level data. The word cryptology is made up of two components: “kryptos”. However.1 Introduction to Cryptography The origin of the word cryptology lies in ancient Greek. User Authentication If you log to a computer system there must (or at least should) be some way that you can convince it of your identity. IT also realizes more efficient operations through OLAP. IT reduces the query drag and network traffic on transaction systems or the data warehouse. Within the field of cryptology one can see two separate divisions: cryptography and cryptanalysis.

a (predesigned) user-id. All these systems provide static authentication only. a pincode or a user-id. Note that in this case the procedure does not authenticate the user but rather his device. One might argue that you could change your password. Other techniques include measurements of how a person types his name or writes his signature. and so on. Since the user’s memory is limited. this information should not vary too much over time. If the user possesses a device which can perform simple computations. The device will then compute the corresponding response. This indicates that someone who can eavesdrop this information will later be able to impersonate the user. However. the shape of the hand and retinal pattern of a person are good decision criteria. You can give him something only you can know: a password. all these items are being defined at a certain time and often don’t change from there on.DBA 1727 NOTES communicate with another: as a first step you want to verify that you are communicating with the right person. Whether it is a password. using secret information which has been assigned to him. using something 80 ANNA UNIVERSITY CHENNAI . If a person tries to identify himself to the system. This process is called user authentication. There are several ways to obtain user authentication. the user will have to enter the challenge on the keyboard. This response is then sent back to the system. Or you could have some specific items with which you can identify yourself: a magnetic strip card. these biometric systems are not perfect: some legitimate users will inevitably fail the identification and some intruders will be accepted as genuine. but this is not done each time you access the computer. In case of a token (a mini-calculator). a token. a pincode. A similar observation holds true for a magnetic strip card or memory chip. a smart card (a hand-held computer the size of a credit-card). Therefore there must be some way in which you can prove your identity. which verifies it. These however require specialized equipment and thus a big investment. One might make use of biometric properties. the system generates a random challenge and sends it to the person or to his device. the security can be increased significantly by introducing the well-known challenge-response idea. the verifier does not need secret information (this requires public-key protocols). the user should authenticate himself with respect to the device. In order to increase the security. it is a well-known fact that fingerprints. or can take into account the location of the user. or will even not learn the secret of the users (this requires zero-knowledge protocols). If more sophisticated protocols are used. and many practical systems use a combination of both. For the time being the first two methods are the ones generally applied.

In general wire-tapping is only a matter of cost: tapping a telephone line is obviously easier than tapping a coaxial cable or a micro-wave. this enemy can just change the message and then relay it to B. B will not see that the message has been tampered with and will assume A really intended it the way he got it. We have A(lice) who sends a message to B(ob). Data authentication Data authentication consists of two components: the fact that data has not been modified (data integrity) and the fact that you know who the sender is (data origin authentication). one also requires that the computer authenticates itself to the person logging on. NOTES 81 ANNA UNIVERSITY CHENNAI . One could argue that active wire-tapping is difficult. which is commonly seen as being private. In general. unless you know it has been sent directly to you by the right person. A well-known example is the Internet that connects universities and companies world-wide. has not been tampered with. There is also an enemy who taps the line between them. You should always be alert for possible intruders in your network or in your communication system. Data integrity by itself is not meaningful: it does not help you to know that the data you have received has not been modified. an educated computer user can tap into the messages that are being transmitted over the line. Data integrity A data integrity service guarantees that the content of the message. Electronic mail over the Internet does not offer any security. Therefore it should always be combined with data origin authentication. we use the term mutual authentication.E-COMMERCE TECHNOLOGY AND MANAGEMENT he alone knows. It is very easy to read and modify someone’s electronic mail. Active wire-taps (modifying and then relaying the messages) are also more difficult than passive wire-taps (listening in on the messages). This makes the device useless if it is stolen. If both parties are authenticated to each other. As a consequence. that was sent. If you don’t support data integrity.

with a seal and a signature. how can B be sure of the real origin of this data? A variation on this theme is: the enemy could send a message to B claiming it A is the originator. while non-repudiation with proof of delivery protects against any attempt by the recipient to deny. together with non-repudiation of origin can be explained as follows: the latter services have been provided implicitly by the physical properties of the channel: a letter was written in a recognizable handwriting. falsely. An example will illustrate the importance of non-repudiation of origin. Non-repudiation with proof of origin protects against any attempts by the sender to repudiate having sent a message. one wants to make sure that this enemy never understands his contents. For him it is really important that he can show to an arbitrary third party that A really ordered the things he is claiming otherwise it would be easy for a customer to deny the purchase of the goods. Data confidentiality This aspect of data security certainly is the oldest and best known.DBA 1727 NOTES Data origin authentication Here one wants to make sure that the person who is claiming to be the sender of the message really is the one from whom it originates. but the enemy intercepts it and sends it to B. there are techniques to ensure against this type of fraud. If A sends a message to B. claiming A has sent it. In a paper and pencil world. but the enemy intercepts it. If A sends a message to B. The example of Caesars cipher given in the introduction clearly demonstrates this. Thanks to cryptography. Confidentiality protection is very 82 ANNA UNIVERSITY CHENNAI . With data confidentiality we try to protect ourselves against unauthorized disclosure of the message. The fact that confidentiality was considered to be much more important than authentication of both sender and data. Suppose B is the owner of a mail-order company and he decides to let his customers order through electronic mail. non-repudiation is provided by a manual signature. Non-repudiation of origin Non-repudiation protects against denial by one of the entities involved in a communication of having participated in all or part of the communication. having received a message.

10. authentication primitives can be used to provide data authentication. With encryption we transform the clear-text (or plaintext) into cipher-text. We discuss two types of encryption primitives. The oldest ones and most used until now are the symmetric ciphers. These transformations themselves are public: this makes it possible to analyze these algorithms and to develop efficient implementations. and so on. To get back to the original text. . We will also discuss protocols for user authentication and for key management. who has made what kind of withdrawal. primitives for authentication. World-wide there are several million transactions each day and all of these have to be passed from one financial institution to another. This key is the only thing one needs to know in order to encipher or decipher. Symmetric ciphers Basically there are two kinds of encryption-schemes. everybody would be able to see who had purchased what. If there were no way to protect confidentiality. it is necessary to transform the message with a cipher. However they use a secret parameter: the keys which are known only by the sender and/ or the receiver. In these schemes. Clearly this would violate individuals and companies rights to privacy.E-COMMERCE TECHNOLOGY AND MANAGEMENT important in the medical world and also in the banking sector. the key used to decipher the cipher-text is equal to the one used to encipher the plaintext. In order to provide confidentiality. Thus it is really important to manage one’s keys and keep them secret where necessary. Encryption primitives can be used to provide confidentiality. symmetric or conventional ciphers and asymmetric or public-key ciphers. we apply the inverse transformation. 83 NOTES ANNA UNIVERSITY CHENNAI . called decryption.3 Cryptographic primitives The above cryptographic services can be realized by several cryptographic primitives: we distinguish between primitives for encryption. and cryptographic protocols. 1. Encryption primitives In cryptography one often makes use of encryption.

it requires a huge amount of computation to find the two prime factors. Asymmetric ciphers The asymmetric or public-key ciphers are the most recent cryptographic tools. eliminating (expensive) secret channels like couriers. If A wants to send a message to B. In contrary to the symmetric systems the key used to encipher and the one used to decipher are different. Indeed. He keeps one key secret and makes the other one public. Since B is the only one who has access to the secret key. suppose we have a network of n users each of whom wanting to communicate with the others. the total number of keys required equals n*(n-1)/2. Each partner thus has two keys. The most popular public-key cipher is the RSA system (RSA stands for Rivest. 84 ANNA UNIVERSITY CHENNAI . Symmetric versus asymmetric ciphers The biggest drawback of the asymmetric systems up until now has been the relative low performance compared to the symmetric ones. B is the only one who can decipher the message and read the contents. The security of this scheme is related to the mathematical problem of factorization: it is easy to generate two large primes and to multiply them. Since each communication requires a secret key. the names of the three inventors). only an authentic channel is required. Since then it has been used all over the world and until now no major flaws have been discovered. Public-key systems provide significant benefits in terms of key management: if every user generates his own key. the number of keys can be reduced. Shamir and Adleman. but given a large number that is the product of two primes.DBA 1727 NOTES The best known cipher in this category is the Data Encryption Standard (DES) that was adopted in 1977 by the American NBS (National Bureau of Standards) as FIPS 46. In systems without a central trusted server. he just enciphers it with B’s public key.

The widely used construction for a MAC is the CBC mode of the DES (with an additional output transformation). and . it should be hard to find an x’ different from x which has the same image under f. NOTES 85 ANNA UNIVERSITY CHENNAI . or to protect the authenticity of a short string (MDC). Sometimes an MDC is used in combination with encryption. One applies then the oneway function to the input of the user and verifies whether the outcome agrees with the value stored in the table. even in software implementations. which can yield protection of both confidentiality and authenticity. In addition one requires that it is hard to find a second pre-image: given an x and the corresponding value of f(x).E-COMMERCE TECHNOLOGY AND MANAGEMENT 1. These hash functions achieve a very high throughput (Mbit/s). A MAC (Message Authentication Code) that uses a secret key. but for virtually all y in the range of f. One-way functions are used to protect passwords: one will store a one-way image of the password in the computer rather than the password itself. a hash function has to satisfy some additional requirements. which means that it should be hard to find two arguments hashing to the same result. For an MDC one requires that it is a one-way function.10. A hash function is a function which maps an input of arbitrary length into a fixed number of output bits.in most cases . One can distinguish two types of hash functions.4 Authentication primitives One-way functions and hash codes A one-way function is defined as a function f such that for every x in the domain of f. For a MAC one requires that it should be impossible to compute the MAC without knowledge of the secret key. and RIPE-MD 160. There are several schemes which have been proposed for use as hash functions. Hash functions can be used to protect the authenticity of large quantities of data with a short secret key (MAC). it is computationally infeasible to find an x such that y=f(x). as specified in ISO-9797. Other dedicated designs are SHA (Secure Hash Algorithm or FIPS 180). In order to be useful for cryptographic applications.that it is collision resistant. Several MDC’s have been constructed based on the DES. and an MDC (Manipulation Detection Code) that works without a key. f(x) is easy to compute.

data integrity and data origin authentication. Schemes which can only be used for digital signature purposes are the DSA and the Fiat-Shamir scheme. who will be able to obtain Alice’s public key. It is easy to see that it provides in addition data authentication.DBA 1727 NOTES Digital signature Public-key techniques can also be used for other purposes than for enciphering information. As in the case of encryption. Assume Bob has received from Alice a digitally signed message.. In this way one can create a digital signature. In this way a digital signature can provide non-repudiation of origin. Several signature schemes have been proposed. This explains why in general one will first compute the hashcode of the message with a fast hash function and subsequently apply the digital signature to this short hashcode. these schemes are less efficient in terms of memory and computations. it will depend on this data and on the secret key of the originator.g. i. However.e. hash functions tend to be three orders of magnitude faster than digital signatures. Since it is not physically connected to the signed data or the originator. in addition tamper resistant hardware). Subsequently he can verify the validity of the signature. Bob can go to a third party (e. Note that it is possible to produce a digital signature based on conventional ciphers like the DES. which is the equivalent of the hand-written signature on a document. Other constructions use a conventional cipher in combination with tamper resistant hardware: this offers only a limited protection. Hash functions versus digital signatures Hash functions can only be used in a situation where the parties mutually trust each other: they cannot be used to resolve a dispute (unless one uses. anyone who knows Alice’s public key can verify that this message was sent by Alice (by verifying the redundancy). This provides digital signatures which are not only faster and shorter. but also more secure. The RSA public-key cryptosystem is the only one which can be used for both enciphering and digital signatures. a judge).. If Alice subsequently denies having sent the message. 86 ANNA UNIVERSITY CHENNAI . If Alice adds some redundancy to her message and transforms the result using her secret key.

10. and ultimately. whose confidentiality and/or integrity has to be protected. User authentication protocols The design of cryptographic protocols for user authentication is very complex. we will restrict this section to two types of protocols: protocols for user authentication and protocols for key management. in addition. In this way one builds a key hierarchy: secret keys for bulk encryption with a symmetric cipher system will be encrypted using an asymmetric cipher system and signed with a digital signature scheme. They are based on an encryption algorithm.E-COMMERCE TECHNOLOGY AND MANAGEMENT 1. sequence numbers or time stamps. An alternative is to sign these public keys with a single master key: now one only has to distribute a single master key via an authentic channel. one can use a new cryptographic primitive. a MAC or a digital signature and the use. 87 NOTES ANNA UNIVERSITY CHENNAI . While a huge number of protocols have been developed. The simplest protocol providing unilateral authentication consist of sending a password. of so called nonces (never used more than once): random numbers. More complex challenge-response protocols can be designed in which the user does not transmit his secret information. encryption and digital signatures can be seen as a special case of cryptographic protocols. More complex protocols are required to achieve mutual authentication. A large number of protocols have been presented in the available literature. a physical channel. For the distribution of this keying material. In fact. many of which exhibit some weaknesses.5 Cryptographic protocols A cryptographic protocol is an interaction between one or more entities to achieve a certain goal. The public keys of the asymmetric cipher can be distributed via an authentic channel which can be provided for example by combining conventional mail with voice authentication. Key Management Protocols One of the main links in the cryptographic keychain is the key management protocol: every cryptographic service will make use of cryptographic keying material.

Note that there also exist public-key protocols which result in the agreement of a secret key between two parties. SUMMARY 1. The key agreement protocols have the advantage that they result in an increased security level. This protocol is different from a key transport protocol. or services: 1) 2) Applications brokerage services.Consumer to Business B2E . while stepping through those processes electronically rather than in a physical store or by phone (with a physical catalogue). in which one party generates the secret key and enciphers it with the public key of the other party. The commonly used scheme nowadays in based on the ITU-T X. A well known example in this class is the Diffie-Hellman key agreement scheme.Business to Business B2C . Define EC and describe its types: Electronic commerce is an emerging model of new selling and merchandising tools in which buyers are able to participate in all phases of a purchase decision. revocation of public keys is very important: once the user’s secret key is compromised.509 recommendation. by exchanging public keys or parameters.DBA 1727 NOTES These signed public keys are called certificates. In the context of public-key cryptography.Business to Employee C2C . Although public-key systems require no on-line central management system. B2B .Business to Consumer C2B . The central authority certifies that a certain public key belongs to a particular user. 88 ANNA UNIVERSITY CHENNAI . There are a number of different types of E-Commerce • • • • • 2. the system has to provide a means to protect the user in the case by warning the other users that his public key is no longer valid. anybody can read his messages or forge his signatures. data or transaction management.Consumer to Consumer Architectural framework of e commerce: The electronic commerce application architecture consists of six layers of functionality.

Decision trees. The Limitations of EC: The limitations of EC can be grouped into technical and non-technical categories. business alliances and EC. variety of possibilities. and society. Benefits of EC: The global nature of the technology. interactive nature. and Rule induction: Trends that Effect Data Mining: Five external trends which promise to have a fundamental impact on data mining are Data Trends. is a powerful new technology with great potential to help companies focus on the most important information in their data warehouses. continuous improvement efforts. The term data warehouse is currently being used to describe a number of different facilities each with diverse characteristics-Physical data warehouse. nearest neighbour method. low cost. Hardware Trends. Organizations’ major responses are divided into five categories: strategic systems for competitive advantage. Genetic algorithms. Scientific Computing Trends and Business Trends. opportunity to reach hundreds of millions of people. Logical data warehouse. The most commonly used techniques in data mining are: Artificial neural networks. business process reengineering (BPR). Network Trends. individuals. Data library. and support layers” secure messaging. economical. and resourcefulness and rapid growth of the supporting infrastructures (especially the Web) result in many potential benefits to organizations. Data mining and techniques used in Data mining: Data mining. societal and technological factors are creating a highly competitive business environment in which consumers are the focal point. and network infrastructure and basic communications services NOTES Environmental factors and major responses: Market. the extraction of hidden predictive information from large databases. Decision support systems (DSSs) 3 4 5 6 7 89 ANNA UNIVERSITY CHENNAI . middle ware and structured document interchange.E-COMMERCE TECHNOLOGY AND MANAGEMENT 3) 4) 5) 6) 2 interface. security and electronic document interchange. Data warehouses and types of data warehouses: A data warehouse is a collection of computer-based information that is critical to successful execution of enterprise initiatives.

which means hidden and “logos” which means word. and has been used for thousands of years to safeguard military and diplomatic communications. 2.DBA 1727 NOTES 8 • • • • • 9 Network Infrastructure Components Routers and switches Firewalls Load balancers Storage Area Network (SAN) DNS What is TCP/IP? TCP/IP is a set of protocols developed to allow cooperating computers to share resources across a network. OLAP: On-Line Analytical Processing (OLAP) is a category of software technology that enables analysts. HTML: HTML stands for Hypertext Markup Language. Cryptography: The word cryptology is made up of two components: “kryptos”. 3. It was developed by a community of researchers centred around the ARPAnet. Certainly the ARPAnet is the bestknown TCP/IP network. 5. HTML is a special kind of text document that is used by Web browsers to present text and graphics. consistent.HTML consists of standardized codes or ‘tags’ that are used to define the structure of information on a web page. interactive access to a wide variety of possible views of information that has been transformed from raw data to reflect the real dimensionality of the enterprise as understood by the user. 4. What is eCommerce? What so you understand by EDI? Explain different types of EC? Explain Electronic Commerce Application Services List the advantages and disadvantages of EC: 90 ANNA UNIVERSITY CHENNAI . Cryptology is as old as writing itself. managers and executives to gain insight into data through fast. 10 11 12 Questions for review 1.

18. 10. 20. 13. 17. 11. What are cryptography protocols? NOTES 91 ANNA UNIVERSITY CHENNAI . consumer and societal benefits of EC Carefully examine the non-technological limitations of EC. List the organizational. List the major activities of BPR What is data mining? List the techniques used in data mining Describe five external trends which promise to have a fundamental impact on data mining. 16. 8. List the major activities taken by organizations to deal with the business pressures. Discuss the Network infrastructure components What is TCP/IP? Discuss the traditional TCP/IP services? What is HTML? What are HTML tags and where are they used? What is OLAP and discuss the data model of OLAP? What are the benefits of OLAP? What is Cryptography? Discuss the major goals of modern cryptography? Discuss about encryption primitives. 15. 7. 12. 19.E-COMMERCE TECHNOLOGY AND MANAGEMENT 6. Which of them are company-dependent and which are generic. 14. 9. What is data warehouse? List the advantages of data warehouse.


E-COMMERCE TECHNOLOGY AND MANAGEMENT NOTES UNIT II BUSINESS APPLICATIONS IN E-COMMERCE 2. reacting to the pressure of retailers. Furthermore. a hotel.1. or airplane. car. the retailer seeks out the customer. Almost every retailer is re-evaluating every aspect of its operation from customer service to advertising. In the traditional model.1 RETAILING IN E-COMMERCE 2.1 Electronic Commerce and Retailing Retailing is expected to change with the rapid development of new online sales and distribution channels that literally can be used from anywhere. catalogue retailing. In the online model. suppliers are assessing technology based solutions to drive down costs (labour. and TV-based home shopping. These developments should impact retailing as much as the advent of strip malls. However. The success of catalog retailers demonstrates that a significant portion of consumers have embraced the reverse model: the retailer going to the consumer. merchandising to store design. school. delivery. and production) and become more efficient producers of goods. the customer went to the store and located the product. Online channels such as online services and the Web are also impacting traditional retail business models. retailers need to consider the following issues in developing a business model: • • Product/Content Issues: What kind of products are suited for online retailing? Software Interface Issues: What kind of features will constitute an effective interface? What features make it easy to find and select items for on-line purchase? 93 ANNA UNIVERSITY CHENNAI . and logistics to order fulfilment. anytime-from work.

1. or education. which may be downloaded from the internet. Entertainment such as -games that would be played on the internet are also examples of e-services. as shown in Figure 2.1. the most recent foreign exchange rate. 2. Sometimes we refer to this as the sale of tangible and intangible goods. Examples of services that may be sold are information such as the most recent stock prices. Here we discuss the sale of tangible goods. if they are sold directly to the consumer who is the end user. The sale of intangible goods is sometimes called E-servicing. Selling of different type of goods 94 ANNA UNIVERSITY CHENNAI . etc. The sale of tangible and intangible goods are all referred to as Customer oriented e-commerce or eretailing. • • • Examples of physical goods would be a book. a washing machine. a television set. Examples of digital goods are software and music.2 E-Retailing E-retailing essentially consists of the sale of goods and services. So are the sales of services such as telecommunication services or banking services.DBA 1727 NOTES • Process Issues: What are the specific steps in the shopping process from a consumer’s perspective? What kind of processes should companies de-velop to fulfill orders efficiently? Before examining the implications of changing consumer behavior and online retailing in the existing retail business.2(a) We can divide tangible goods into two categories: physical goods and digital goods. let us step back for a moment and ask the question: Why should retailers consider the online environment as a way of doing business? The answer lies in understanding the market changes that affect retailing and that will continue to affect it in the future. a video recorder.

This normally involves a fairly extensive chain starting from a manufacturer to a wholesaler and then to the retailer who through a physical outlet has direct contact with the final customer. Direct mailing. In some respects.3 Difference between Traditional retailing and E-retailing Traditional retailing Traditional retailing essentially involves selling to a final customer through a physical outlet or through direct physical communication. they allow specialization in particular classes of 95 ANNA UNIVERSITY CHENNAI . more recent forms of traditional retailing include • • • • direct mailing telemarketing door-to-door sales vending machines Direct mailing to a customer normally involves sending a brochure or catalogue to a customer. door-to-door sales.1.g. Instead of specializing just in a special product line. department store) specialized stores franchise stores NOTES It is useful to reflect that even in traditional retailing we have moved away from just using a static physical outlet within which a customer can have direct contact with the retailer.E-COMMERCE TECHNOLOGY AND MANAGEMENT 2. The customer browses through this catalogue and then carries out mail ordering. or the use of vending machines includes other forms that have actually moved away from a physical fixed outlet and in a way are intermediate forms of the movement away from traditional physical retailing outlet to the virtual retailing we see on the internet. E-retailing The internet has allowed a new kind of specialization to emerge. telemarketing. this notion of browsing through a catalogue is a forerunner of e-retailing. Thus. Examples of physical outlets that retailers currently use are: • • • • Malls generalized stores (e.

we also get generalized e-stores where a store sells several product lines under a single management. In addition to these specialized stores. It is convenient for the customer as he does not have to move from shop to shop physically in order to examine goods.4 Benefits of E-Retailing To the customer Customers enjoy a number of benefits from e-retailing. Normally. which allows last minute purchases of travel tickets. gift. On the net. the customer can choose at any time to visit a site to examine the goods that are available and actually carry out his purchasing at one’s own convenient time. The second aspect of convenience he gets is in terms of time. or perhaps even locate the sites where they may be available at the best price The second type of benefit to customers is better information. and entertainment to be matched against last minute sellers of the same items.1. we see lastminute. E-malls essentially provide a web-hosting service for your individual store much in the way that mall provide a hosting service in the sense of a physical location for your store. Examples of these generalized stores include JC penny and Walmart. we see specialization not in a product line but in a class of purchasers and a class of sellers. The Internet and the World Wide web are essentially communication media that allow retailers to put on quite extensive information related to their products. This kind of specialization would not have been possible before we had the internet. which is available to the customers. The third type of convenience that the customer gets is that he has access to a search engine. 96 ANNA UNIVERSITY CHENNAI . The first of these is convenience. which will actually locate the products that he describes’ and also the site where they may be available. and CNET stores: 2. Here. Thus. He is able to sit in front of a terminal and search the net and examine the information on goods.DBA 1727 NOTES customers and sellers. Examples of these e-malls are Yahoo! Store. the traditional shop has an opening time and a closing time and the customer can only visit the shop within these periods. GEO Shops.com. We also have the electronic counterpart of malls or e-malls.

They can be from anywhere around the globe. of course. the pressure is always there on the retailer to maintain a competitive price for his products. Secondly. he can probably have lower inventories. Thus. The retailer now is no longer restricted to customers who are able to reach the store physically. 97 ANNA UNIVERSITY CHENNAI • • • .E-COMMERCE TECHNOLOGY AND MANAGEMENT The third type of benefit that the customer gets is competitive pricing. and these savings can be passed on to customers in the form of reduced prices. He does not have to have many shop assistants who are physically answering questions and. NOTES • To the business There are a number of benefits of e-retailing to the business itself. The fourth benefit to the retailer is mass customization. • The first is lowered costs to the retailer because he does not have to maintain a physical showroom. competitive pricing pressure that arises from the fact that the customer is now able to look at prices at several sites. it keeps an inventory of a few thousand best selling titles only. This is due to two factors. Showing the customer goods. The retailer must. These allow one to easily inquiries and deal with complaints. Therefore. while Amazon. The second benefit is better customer service. Based on requests by the customers. The use of email and the use of electronic interchange of messages between the customer and the retailer allow better communication between the customer and the retailer. • The first of these is global reach. These also allow a much more rapid response time than was possible in the days of faxes and postal mail. The third benefit is the lowered capital cost to the retailer. deliver the goods of a purchase to the customer. Therefore. the retailer has lower warehousing costs.com lists over a few million titles. The retailer does not have to maintain showrooms. he does not have to hire several shop assistants. the retailer is now able to carry out mass customization with reduced time to market for the customized products.

essentially you have a store that decides to pick one particular product line. say books.1. it could choose to position itself at the very expensive end of the market selling brand names _ Gucci and Armani. Alternatively it could do more mass marketing by selling non . In contrast to this. travel tickets. When you have specialization by product line. and other items for last 98 ANNA UNIVERSITY CHENNAI . a new kind of specialization is emerging on the internet. as mentioned. clothes. or it could go into discount selling.5 Models of E-Retailing There are several models for e-retailing and these include • • • • • • • Specialized e-store Generalized e-store E-mall Direct selling by the manufacturer Supplementary distribution channel E-broker E-services Specialized e-stores The first class of model what we mention in e-retailing was the specialized e-store and here you can distinguish between two different kinds of specialization: the more traditional specialization along product lines and specialization by function. earlier. So.DBA 1727 NOTES • • The next advantage is targeted marketing.positioning within that product line to cater for a particular part of the marker. A good example of this is lastminute. and sells only this particular product line. flowers. clothes. e. you can have a specialization by product line. namely specialization by function. 2.g. or add-on options to products that he is selling. The retailer is also able to provide more value-added services in the way of better information.com they sell gifts. add-on services to basic services. CDs. The last advantage to the retailer consists of different new forms of specialized stores that he is now able to utilize. and then you could have specialization .brand names at a much lower price.com In lastminute. The retailer is now able to pick on a specific targeted group of customers and direct marketing towards these customers. It may also choose to position itself in a particular part of the product line.

this means that the air ticket is likely to cost much more than if he had purchased it some time before traveling and made use of different discounts or promotions.com realized that there are groups of customers who make these purchases at the last minute and feel some degree of angst at having to pay the premium for doing this shopping at the last minute. thus. each store is under its own management. provides a web hosting service. On the other hand. what lastminute. travel). So. This store could be a specialized or generalized e-store. So.E-COMMERCE TECHNOLOGY AND MANAGEMENT minute shoppers who want to purchase these items at a very short notice. E-mall management is responsible only for creating the cyber sites that can be rented and can support services and marketing of the mall. Now.com does is bring together travelers who want to book at the last minute and an airline which has got spare capacity at the last minute. E-malls The next e-retailing model we consider is the e-mall. when one purchases an item at a very short notice (e. which is an extra amount for the convenience of booking the travel at the last minute. in an e-mall. you will find that you may have sellers. 99 NOTES ANNA UNIVERSITY CHENNAI . cyberspace is rented out to cyber e-stores that wish to sell their goods. therefore.g. In an e-mall. It. e. In this situation. several product lines can be present. Generally. and allow the former to buy from the latter at the last minute. Generalized e-stores sell a large number of product lines rather than con-fining themselves to just one or a very few product lines. there is a win-win situation for both the purchaser and the seller. This is a unique kind of specialization. unlike the generalized e-store which is under a single unified management.g. he often pays a premium. It is very difficult to do this unless one utilizes the internet to carry out this kind of specialization. that have empty seats at the last minute which they are unable to fill. is likely to pick up visitors to the mall. However. which can be utilized by a prospective e-store to create and maintain it_ e-store. Several e-malls also provide software tools. in a single e-mall. So. The producers of the web site lastminute. The advantage for an e-store is that it is grouped together with other stores in a wellknown e-mall site and. airline companies. the purchaser may get his airline ticket at a reduced price. Generalized e-stores The next category of e-retailing models that we intend to look at is generalized e-stores.

There are several different models for electronic brokers and these include: • Brokers that provide a registration service with directory. Brokers or intermediaries This class of e-retailers is essentially an extension of the notion of a broker from the physical to the cyber world. anewshop. Thus. and services to a customer. and security-related facilities. order taking and fulfilment. of the best known here is Ford. brokers provide comparison shopping. Secondly. 100 ANNA UNIVERSITY CHENNAI .com). The other well -known examples are Cisco systems and Dell computers. Any business can register with such an e-broker (e. search facilities. otherwise he has to rely on the customer knowledge of a retailer. One. the manufacturer must have a thorough understanding of customer preferences. e-payment facilities. this approach can be used by manufacturers of well-known brands of products because the customer already knows the pro-duct. A broker is an intermediary who • • • may take an order from a customer and pass it on to a supplier may put a customer with specific requirements in touch with a supplier who can meet those requirements may provide a service to a customer. such as a comparison between goods. This direct selling by the manufacturer has an important disintermediation effect leading to reduced costs to the end customer and increased profitability to the manufacturer. which utilizes the internet to achieve direct selling but uses its dealer network to facilitate distribution and delivery. etc. quality.DBA 1727 NOTES Direct selling by the manufacturer A number of manufacturers with well-known brand name products have chosen to use the internet to carry out direct selling via the internet. with respect to particular criteria such as price. By and large. That is the reason why they are sometimes referred to as electronic intermediaries.g. Note that this approach permits mass customization to meet customer preferences. A note of caution is important here.

7 Changing Retail Industry Dynamics Important factors that affects the retailing industry dynamics are: • • • • Overbuilding and excess supply. The provision of a search engine. Technology improvements that provide greater convenience and more information than traditional retailing.e. E-services is discussed in the next lecture. which is a useful feature before submission. Thus. which more premium placed on efficient use of time Changes in consumer behavior. An ability to provide an automatic price update.g.com or bestbooksbuy. it is dynamic and linked with order process. and marketing.6 Features of E-Retailing 1. these goods can be downloaded instantly. 5. The use of Forums (collaborative purchasing circles) to create a customer community and thus increase “stickiness. Change in consumer demographics. Brokers that provide comparison shopping between products (e. NOTES 2. An order status checking facility. Thus. 4. The provision of an on-line catalogue.The last model i. “who” can help customers to navigate through the site. 7. promotions. Personalization of store layouts. The provision of a shopping cart. 6.” 2.1.Priceline. 3. which allows one to browse through different categories of goods.1. 101 ANNA UNIVERSITY CHENNAI .com).E-COMMERCE TECHNOLOGY AND MANAGEMENT • • Brokers that meet a certain requirement such as a fixed price (e. with less focus on brand name and more on lowest prices. mySimon. An on-line customer salesperson. 2.com). which allows convenient goods selection. The ability to distribute digital goods directly. deals.g. which is a very important feature that does not exist in traditional retailing. 8.

is also reducing profit margins.DBA 1727 NOTES Overbuilding and Excess Capacity With online retailing. The 1980s was a period of overexpansion and turmoil for retailers. Americans have openly embraced shopping channels like QVC and Home Shopping Network and retailers like CUC International. no critical locations. Demographic Changes Shopping patterns are beginning to change with the increase of time -strapped. with crowded domestic markets and competition constantly grinding away at operating profit. Value and time management are the consumer concerns driving interest in online retailing. and growing frustration with the lack of courteous service and insufficient product information. By the end of the decade. It is important to understand the trouble traditional retailers will face if online retailing takes off. complaints about excessive retail space were being voiced. partially reflecting a less favorable product mix and more competition. Clearly. For many retailers. these numbers is either growing slowly or declining. new ways of retailing are being explored by forward-thinking companies such as Wal-Mart. An important measurement of profit gains is gross margin per square foot. This new way of retailing can severely affect companies that have invested in expansion and adding capacity. entry-level workers for the retail industry. safety concerns. constraints of time and space disappear. The shortage of entry -level workers means that retailers are using under trained workers who are less able to empathize with shopper needs-leading to a perception that retailers in general and shopping centres in particular are unable or unwilling to provide quality service. There is no bricks and mortar storefront to worry about. Recent retail data shows a decline in the amount of time Americans are spending in shopping malls [EDR95]. 102 ANNA UNIVERSITY CHENNAI . Sales growth and market share development were given second priority behind profit enhancement. Inadequate productivity. Retailers reduced staff and minimized merchandising in order to enhance profits. Understanding the implications of time constraints on consumer shopping behavior is important as they portend the trends to come. Overbuilding also resulted in a growing shortage of lowcost. two-career couples and the aging of America. For instance. companies are under pressure to grow and produce profit. Profits were declining and control of operating expenses became a paramount management objective. In the 1990s. both per worker and per unit of space. The suggested reasons vary: time constraints.

it may not be long before driving to the store gives way to online shopping with home delivery as provided by Peapod. there is evidence to indicate a shift in consumer interest away from material goods and toward experiences. bookstores. and sales per square foot dropped. the product mix offered by many department stores and malls is increasingly out of touch with the aging population and does not reflect the shift in purchasing power. In contrast. restaurants. find and select items for purchase. there is a growing segment of the population for whom time constraints are less of a problem. Retailers will need to concentrate on value by offering new product mixes. libraries. According to one survey. pay for the items. All of these alter-natives have one thing in common: they provide consumers with a very large selection of producers priced with deep discounts. take them to a checkout. and catalogue shopping-has become one solution for closely monitoring consumer trends and reacting to them quickly. the typical consumer spent only four hours a month in a shopping mall in 1990 versus ten hours in 1985. However.E-COMMERCE TECHNOLOGY AND MANAGEMENT Today’s time-strapped shoppers have less time and want better values. so most working professionals have learned to dread shopping trips. However. 103 NOTES ANNA UNIVERSITY CHENNAI . discount stores. a shopping trip requires a consumer to decide what he or she or the family needs. sometimes bag them. Also. In addition. building shopping malls based on these new business models is a risky venture and requires huge investments. It can be a hassle and a lot of work. as people get older. and carry them back home. By this we mean a product mix that includes not only merchandise but also bundles in entertainment and “recreational” shopping with movie theatres. This sort of change is already occurring in bookstore design (such as Borders Bookstores and Barnes and Noble). The demographic outlook in the United States is for an increasing share of older shoppers (age 50 and above) who prefer shopping at stores rather than online. such as travel and recreation. Today. fewer hassles. with the aging of the population. Specialty retailing-power centres. and community meeting facilities. hunt for parking. they tend to become more frugal. and more options. wait in line. brave the traffic on the way to a store. and companies need new ways of responding to consumer needs and satisfying demand. As technology improves. discount malls. which include a variety of facilities such as coffee shops. Consumer Behavior Consumer behavior is more volatile than ever before.

and selection-regardless of the brand name will be successful. identifying characteristics of customers in each target segment. 104 ANNA UNIVERSITY CHENNAI . The real differentiating characteristic for retailers will be in their ability to define what the broad or niche consumer segment is looking for. The emergence of the value shopper is changing retailing. and learning how to bundle products and package brands so that they become the preferred choice for online customers Technology Improvements in Electronic Retailing Today. retailers that are focused on providing value-the best price. Today. but it is becoming increasingly attractive as technology and applications improve.DBA 1727 NOTES Consumers are no longer as influenced by brand names as they used to be. and retailers gain experience. reflecting lower initial mark-ups and more discriminating shoppers in that segment clearly. The decline in gross margins is the first evidence of the impact of that change. electronic retailing is still far from being a competitive threat to more traditional store retailing (see Table). the shopper is less willing to pay the premium for the brand name and much more attentive to quality and value. service.

and bringing them to bear on a sale. Generally.8 million television households throughout the United States. 3.and made it work. there’s another advantage to television retailing. local audience in 1982. Unlike online audiences.000). Television Retailing: Television retailing grossed an estimated Rs. How does it work? The TV retail marketing and programming are divided into segments that are televised live. which is monitored by the number of calls being received. Now we can discuss about the most prominent one: the television retailing. HSN reached 65. begins to 105 NOTES ANNA UNIVERSITY CHENNAI . seven days a week. and satellite dish.000 . broadcast. and online service based retailing. The breadth and reach of TV retailing are amazing. with coast-to-coast customers and annual sales of $1 + billion. 2 million in a single weekend. When customer interest. The purchased item may be returned within thirty days for a full refund of the purchase price. the Home Shopping Network states that a celebrity can de-but a line of jewelry on HSN and sell more than Rs. Three years later they took this still unproven idea national. and benefits. Viewers place orders for products by calling a toll-free telephone number. These households received the signals via cable. and online retailer (owns Internet Shopping Network). including the original shipping and handling charges. features.2 billion in 1994. One of the pioneers in this area is Home Shopping Network. CDROM retailing. The success of television shopping is the result of the effective utilization of electronic media for capturing the power and influence of celebrity and the magic of showmanship. In. 80. entertainment company. Today. which began broadcasting electronic retailing to a small. with a show host who presents the merchandise and conveys information relating to the product. including price. in which we include Web-based retailing. 60.E-COMMERCE TECHNOLOGY AND MANAGEMENT Three dominant forms of electronic retailing channels are: television re-tailing. merchandise is delivered to customers within seven to ten business days of placing an order. which tend to be predominantly affluent and well educated (net annual in-come is estimated at Rs. quality. Of course. 1994.Rs. In its annual report. the target audience for television re-tailing is moderate income households and mostly women. HSN is a television-based retail. Show hosts engage callers in on-air discussions regarding the currently featured product or the caller’s previous experience with the company’s products. Inc. (HSN). twenty-four hours a day.

as they do not have a clue that a major revolution has begun. Online Retailing: Peapod’s Experience Peapod. Online Retailing Success Stories Peapod. Management Challenges in Online Retailing While changes in retailing may be driven by technology. the technology is new. retailing has been a low-tech environment in which retailing executives often relegated technology issues to back-room operators. CUC International. infomercials have become a crucial retailing topic. online technology must complement management and operational strategy. and do not know what the Internet is or what it can do. Peapod (http://www. The sales Medium is new. customer behavior. This Coincides with the television viewing public’s appetite for information. and management issue. never been on an online service. and Virtual Vineyards help to explain the intricacies of online retailing.com/) is a 106 ANNA UNIVERSITY CHENNAI . cost-efficient. Infomercials are an especially logical medium since retailers have the opportunity to economically test and evaluate a product through mass channels such as television retailing before committing major capital resources to infomercial production. mass market online mall.peapod. These managers are most at risk. and entertaining documentaries that sell. Founded in 1989 by two brothers. Illinois. the retailer knows it instantly and can simply move on to the next product. is using the online medium for food retailing services. Most of them have never used a computer (or had to). Traditionally. While the technology required to implement online retailing is maturing. many management issues remain unanswered. managerial vision is required for successful implementation. The winners will be the players who understand how to leverage the unique capabilities of the on-line medium to effectively meet the changing needs of the consumer.DBA 1727 NOTES wane. and retailers have a lot to learn about tricky technology. But one thing is clear: For online retailing to succeed. More recently. Modem filming techniques and ingenuity make it possible to create high-quality. The infomercial has become a new and interesting way to retail specialty products. based in Evanston. No one really knows yet how to build and run a successful.

produce specialists. allowing it to provide the supermarkets’ stock keeping units and shelf prices electronically to its customers. fat. Before the actual purchase of an item. or calories. they can then give specific shopping instructions.” or red grapes only. users can view images of it and the nutritional content as well. or even by what is on sale in the store on a given day. users get access to a whole grocery store and drug store of items. tips. Customers also can cre-ate repeated use shopping lists (baby items. or nutritional value. and Boston areas. Customers can request a list of items by category (cereals). nutritional content. package size. and the like).000 grocery and drugstore items. fat. by item (Frosted Flakes). unit price. Peapod has a staff of professional shoppers. and delivery people who fulfil the order. Within categories. The system allows users to sort items by various criteria like price. a consumer can access all of the items in a grocery store and drug store. Peapod initially had a DOS-based system with graphics. such as “substitute with same calories. and other benefits like recipes.E-COMMERCE TECHNOLOGY AND MANAGEMENT member of an online grocery / drug-store shopping and delivery service that already has thousands of customers in the Chicago. Peapod was founded on the idea that people do not want to go to the grocery store. or access the “Help” screen for immediate assistance. Peapod customers create their own grocery aisles in their own virtual store. Peapod membership also allows users to use the shopping and home delivery service. San Francisco. At any time during the order. Using the PC. Peapod’s back office is linked with the mainframe databases of the super-markets at which it shops for its customers (Jewel in Chicago and Safeway in San Francisco). On verification. Once consumers have made a selection. How Does It Work? Peapod provides customers with home shopping ser-vices via Pc. by brand (Kellogg’s). retailer preferred customer discounts. total calories. 107 NOTES ANNA UNIVERSITY CHENNAI .” They can click on the “Comment” button and type in any extra information they would like the Peapod shopper to know. a consumer can subtotal the amount purchased. They introduced a new version of the software in 1995-a Windows platform in which product pictures are available. they can choose to have the items arranged alphabetically by brand or sorted by lowest cost per ounce. Online ordering is simple: users double-click on the Peapod icon and then enter their user IDs and passwords. Customers need to buy a software application that enables them to access Peapod’s database through an online computer service. and allows comparison shopping based on price. Other features include electronic coupons. protein. Peapod has an online database of over 25. price/ unit. and information. barbecue needs.

they click on “Done” and the order is electronically routed to Peapod. consumers save time and have more control because they can shop from home or work whenever they want. Reducing impulse purchases is important when you consider that 80 percent of the items purchased in a grocery store are impulse items-non-planned purchases. During the transaction closing process. In addition. do better comparison shopping. the delivery ad-dress. Consumers save money-despite the extra overhead-because they use more coupons. where the appropriate items are kept cold or frozen until the deliverer picks up a set of orders and takes them to the customers within their 90-minute pre-selected windows. plus a monthly service fee. 5. and delivery-the processes are tailored to provide personalized service at a relatively low cost. When users have finished shopping. service representatives found that some customers were receiving five bags of grapefruits when they really wanted only five grapefruits. a per-order charge of Rs. The order is then taken to a holding area in the supermarket. Each order is filled by a Peapod employee. and cholesterol. Peapod orders are taken centrally. Peapod treats each call as an opportunity to learn (and remember) each customer’s preferences and to figure out what the company can do to improve service as a whole. Payment can be made by check. charge. or Peapod Electronic Payment. Pea pod aims to target the health and fitness conscious consumer who chooses foods tailored to specific dietary needs. With these features. 108 ANNA UNIVERSITY CHENNAI . and instructions for getting there. the rest are faxed or phoned. users need to choose a delivery time within a 90minute slot. who shops the aisles of the store. The store gets a printout with the order.DBA 1727 NOTES carbohydrates. shopping. At each stage-ordering. A “Find Item” option at the top of the screen lets users search either by brand name or product type. Customers are willing to pay these extra charges for convenience and because Peapod provides a lower cost shopping experience for the consumer. Peapod members are charged actual shelf prices. and then faxed to the stores. Peapod began asking customers to confirm orders in which orderentry errors may occur.00 plus 5 percent of the order amount. The employee pays for the groceries. and a service representative will try to resolve the matter. There are also search features to help locate a particular item. Eighty-five to ninety percent of Peapod’s orders come in via computer. In response. he or she can call Membership Services. Pinpoint delivery within a 3Dminute window) can be selected for a small additional charge. holding. If a customer has a problem. For example. and buy fewer impulse items than they would if they shopped at a real supermarket. often at special Peapod counters in the back of the store.

It creates the supply chain after identifying a specific demand from a specific customer. existing retailers do have some advantages. it is a mass customizer. However. They provide access to customers and make their money by buying on deals. However. as other online providers are doing. An important. A lot of credibility comes with the name of the retailer in its individual market. patronage. Peapod is using interactive technology to change the shopping experience altogether. advantage enjoyed by food retailers is the shopper’s resistance to switching food stores because of familiarity with the shelf locations of products purchased. Is Peapod a competitor to the retail grocer? Not really. these customers would be back in the stores in a second. let alone continued. it is quite possible that in the future Peapod may be tempted to compete with grocers by emulating certain aspects of their warehousing. Indeed. The online environment must offer significant advantages to overcome shopper inertia and induce trial. though subtle. To avoid the overhead . Peapod makes all of its money on the customers it serves. if it were not for wellmanaged logistics. The behindthe-scenes logistics are central to what Peapod is all about. Peapod’s strategy has been to partner with the retailer rather than compete directly. and it feeds off the existing infrastructure to do it. Why? As these new retail formats emerge . such as having an overflow warehouse when something is available on a deal or buying products before there is actual need. How does Peapod Compete with Traditional Retailers? Traditional retailers make money from the suppliers. The homes it delivers to cut across many demographics. As soon as the Peapod does that it is likely to fall into the same traps as the retailers. volume discounts. Still. 109 NOTES ANNA UNIVERSITY CHENNAI . Peapod could have its own warehouse. The one thing these demographics have in common is they have better things to do than grocery shop.E-COMMERCE TECHNOLOGY AND MANAGEMENT What is the Business Model? Rather than automating the trip to a retail store. Peapod has to make sure the orders get to the stores and that they are shopped correctly. the formula for Peapod’s success is the busy American lifestyle. Peapod will be tempted to say it is costing a lot to go to the store and pick up product off the shelf. Peapod can help grocers expand into places that might not otherwise be practical from a capital investment standpoint. and once Peapod gains enough customers. and getting coop advertising. It is also inconvenient for consumers to relearn dozens of product locations at a new store.

crafting the customer interface.2. products. designing the marketing program. Successful marketing programs move target customers through three stages of relationship building: awareness. the marketing strategist often has to loop back and forth during the seven stages. The seven stages of the Internet marketing program process are setting corporate and business-unit strategy. designing the customer experience. exploration. The Internet marketing program may well be part of a broader campaign to satisfy customers who use both online and offline services. and commitment. loyal customers. Building and Maintaining Customer Relationship The goal of marketing is to build and create lasting customer relationships. formulating the marketing strategy. It is important to stress that the goal of Internet marketing is not simply building relationships with online customers. This definition can be divided into five components: A Process Like a traditional-marketing program. While the process can be described in a simple linear fashion. Hence. 110 ANNA UNIVERSITY CHENNAI .2 INTERNET CONSUMERS AND MARKET RESEARCH 2. and evaluating the results of the marketing program. an Internet-marketing program involves a process. the focal point shifts from finding customers to nurturing a sufficient number of committed.DBA 1727 NOTES 2. what is Internet marketing? Internet marketing is the process of building and maintaining customer relationships through online activities to facilitate the exchange of ideas. These seven stages must be coordinated and internally consistent. Rather.1 What is Internet Marketing? If traditional marketing is about creating exchanges that simultaneously satisfy the firm and customers. and serv-ices that satisfy the goals of both parties. the goal is to build offline (as relevant) as well as online relationships. framing the market opportunity.

Monster’s success can be tied directly to the effectiveness of its television advertising and. in particular. 2. its widely successful of the past two years. promotion.com can monetize this loyalty-most likely. offline marketing vehicles.2 Scope of Internet Marketing Marketing is the process of planning and executing the conception. Satisfaction of Goals of both Parties One of the authors of this book is a loyal user of the website weather. and services to create exchanges that satisfy individual and organizational goals NOTES 111 ANNA UNIVERSITY CHENNAI .com. goods. if the firm is unable to meet its financial obligations to employees. an online marketing program must be evaluated according to its overall exchange impact-not just the online exchange impact. online marketing may produce exchanges in retail stores. Both parties must be satisfied for exchange to continue. then the exchange is unbalanced. However. as noted above. in the form of advertising revenueboth parties will be satisfied. He is clearly satisfied with and loyal to the site. exchange is still the heart of marketing. That is. To the extent that weather. However. Firms must be increasingly sensitive to these cross channel effects if they are to measure the independent effects of online and offline marketing programs. the success of an Internet marketing program ‘may rest with traditional. pricing. suppliers. Hence. the recruiting and job-seeking service Monster. for example. In both the online and offline worlds. Each day he arises and checks the weather in his city as well as the weather in cities he will be traveling to during the week. Consider.2. but the firm is unable to sustain its revenue model. Customers are still happy. firms must be very sensitive to cross-channel exchanges. and distribution of ideas.com. Internet marketing deals with levers that are available in the world of the Internet. or shareholders. In the new economy.E-COMMERCE TECHNOLOGY AND MANAGEMENT Online By definition. Exchange At the core of both online and offline marketing programs is the concept of exchange.

The classical marketing approach involves four broad steps: market analysis. generally involving a series of steps or operations. Pricing. Market implementation includes the systems and processes to go to market with the marketing pro-gram. exchange also occurs in a wide variety of contexts. this translates into significant problems with order fulfilment at the most pressing times of the year. planning. market planning. These are: Marketing is a Process A process is a particular method of doing an activity. and political donations. Market planning requires segmentation. How often have you witnessed the hot Christmas toy advertised-but not found it on the shelf? In the Internet environment. or services. Promotion. and Distribution Strong marketing programs do not involve one action. and in the right sequence. marketing control refers to the informal and formal mechanisms that marketing mangers can use to keep the marketing program on course. The buyer may exchange time. such as the design of a great product. upon which a particular firm-with unique skills-can capitalize.DBA 1727 NOTES The definition summarized above has four critical features. or marketing program). volunteering services. target market choice. and control. 5 Market analysis involves searching for opportunities in the marketplace. It Involves a Mix of Product. the most successful marketing programs involve mixing the ingredients of marketing to deliver value to customers. A given consumer exchanges money for a particular good or service. money. The traditional retail context provides the simplest illustration of this principle. implementation. It is about Exchange Marketing is not successful unless two parties exchange something of value. positioning. However. These include bartering. marketing programs fail because they allocate too many (or too few) resources in an uncoordinated way. Rather. Finally. and the design of the marketing mix (also termed the 4Ps. 112 ANNA UNIVERSITY CHENNAI . at the right time. implementation. This mixing entails blending the right amounts of the 4P ingredients. Analysis. many of which are non monetary. Too often. and control collectively provide a process for marketing managers to follow in the design and execution of marketing programs. while the seller must exchange something of value to the buyer.

those organizations are not likely to have a long life. a new era of marketing has emerged.. a traditional bricks-and mortar marketer uses a variety of market-ing variables-including pricing.) At the ‘other extreme. mass marketing.g. That is. and positioning in the minds of customershave remained the same. including segmentation. and competitive responses happen in real time. interactive television). Firms can have highly satisfied customers if they provide services for free. new levers have been added to the marketing mix. In this context. as well as customer-specific marketing techniques such as the use of sales reps. In the long run. the standard marketing-mix toolkit includes such mass-marketing levers as television advertising. these are new. At the same time. consumer expectations about convenience have forever been altered. segments have been narrowed to finer gradations. 2. At the same time. some of the fundamentals of business strategy-seeking competitive advantage based on superior value.3 E-Business Issues & Internet Marketing At its core. and channel choice-to satisfy cur-rent and new customers. The key to modern marketing is simultaneously satisfying the customer. mobile phones. and its shareholders. the firm must have a positive cash flow or show a clear path to profitability for investors to maintain confidence. building unique resources. exciting changes that have a profound impact on the practice of marketing. pundits and academics alike have argued that both the basic building blocks of marketing strategy and the pathways to competitive advantage have remained the same The approach taken in the current volume falls between these polar views.2. advertising. and regionalized programs. To accomplish this goal. the firm. the mission of marketing is to attract and retain customers. Well-respected academics and practitioners have called for new rules and urged debate about fundamental tenets of marketing. the text would not be complete (and indeed might be actionable from the standpoint of business practice!) if it did not propose a broader 113 NOTES ANNA UNIVERSITY CHENNAI . direct mail. and public relations. screento-face interfaces (e.E-COMMERCE TECHNOLOGY AND MANAGEMENT It is Intended to Satisfy Individual and Organizational Needs The aim of marketing is to provide a satisfactory outcome for both the firm and the customer. In short. With the emergence of the Internet and its associated technology-enabled. The intent of this text is to provide a clear indication of what has changed and what has not changed. However.

They also serve as guides to managerial action.4 The Seven Stages of Internet Marketing 114 ANNA UNIVERSITY CHENNAI . Thus.DBA 1727 NOTES framework to understanding the practice of Internet marketing. Frameworks such as the 4Ps of marketing or the five forces of competitive analysis are important because they provide easy-to-remember. simplifying structures for complex problems.2. reduce buyer power by increasing the number of buyers). under-standing the five forces enables firms to comprehensively map their competitive environment while simultaneously identifying specific actions for their managers (e.g. 2..

electronics. crafting the customer interface. collecting sufficient online and offline data to establish the burden of proof of opportunity assessment. that you are running a major dot-com business such as Amazon. Let’s say. However. the management team needs to obtain a sufficient picture of the marketplace and a clear 115 NOTES ANNA UNIVERSITY CHENNAI . formulating the marketing strategy. framing the market opportunity. mix. The Seven Stage Cycle Of internet Marketing Stage One: Setting Corporate and Business-Unit Strategy Corporate strategy addresses the interrelationship between the various business units in a firm. a simple six-step methodology helps evaluate the attractiveness of the opportunity The six steps include: seeding the opportunity. assessing opportunity attractiveness. Once these business units are established and incubated in Amazon’s corporate head~ quarters. designing the marketing program. What mechanism do they put in place to evaluate these opportunities? In this second part of the Internet-marketing process. In order for the firm to make an informed choice about the opportunity. the senior leadership team of each unit sets the strategic direction and steers the business unit toward its goals. and number of business units such as kitchen. and tools/hardware. identifying the target segment.E-COMMERCE TECHNOLOGY AND MANAGEMENT The given figure provides an overview of the seven stages of Internet marketing. it is very important to stress that marketing plays a critical role in this market-opportunity assessment phase. for example. or augmented. Business-unit strategy focuses on how a particular unit in the company attacks a market to gain competitive advantage.com. Consider. and evaluating the results of the marketing program. The final go/ no-go choice is often a corporate or business-unit decision. and making the final go/no-go decision. Stage Two: Framing the Market Opportunity Stage two entails the analysis of market opportunities and an initial first pass of the business concept-that is. Amazon. sold. The senior management team is continually confronted with go/no-go decisions about whether to add a new business unit or develop a new product line within an existing business unit. Corporate-strategy issues relate to the choice. declaring the company’s resource-based opportunity for advantage. The seven stages are these: setting corporate and business-unit strategy. designing the customer experience. music. specifying unmet or underserved customer needs. books. including decisions about which units should be kept. for example.

DBA 1727 NOTES articulation of the customer experience that is at the core of the opportunity. Business-unit. Thus. the design of the customer experience constitutes a bridge between the high-level marketing strategy (step three) and the marketing program tactics (step five). Finally. resources. and Marketing Strategy Corporate Stage Four: Designing the Customer Experience Firms must understand the type of customer experience that needs to be delivered to meet the market opportunity. and overall marketing strategies of the firm. Corporate. during the market-opportunity assessment phase. and sequencing of actions must be tightly aligned with the businessunit strategy. Thus. The marketing strategy goals. Stage Three: Formulating the Marketing Strategy Internet marketing strategy is based upon corporate. the firm also needs to collect sufficient market research data. the overall marketing strategy comprises both offline and online marketing activities. The experience should correlate with the firm’s positioning and marketing strategy. business unit. This set of linkages is shown in figure . 116 ANNA UNIVERSITY CHENNAI .

This bond can originate from cognitive or emotional sources. functional based commitment (e. it has decided upon the target segment and the specific position that it wishes to own in the minds of the target customer. The four stages of customer relationships are briefly outlined below Awareness When customers have some basic information. Building and Nurturing Customer Relationships A relationship can be defined as a bond or connection between the firm and its customers. The framework used to accomplish this task is the Market space Matrix. community) that can be used to create target customer awareness. regular use of weather. knowledge. commitment to the firm’s offering. Managing this building and pruning process is one of marketing’s key tasks. prior to discussion of the Market space Matrix.g. Once customers reach commitment.g. commitment. traditional marketing such as television advertising. intense commitment to the brand (e. Moreover. the Internet marketer has six classes of levers (e. successful marketers manage to move desirable customers from awareness through exploration and.. finally. including word-of-mouth. the stages of the customer relationship and the associated classes of levers that can be employed must be defined.. the Harley-Davidson HOG club-member) or a simple. The connection may manifest itself in a deep. they are in the awareness stage. Stage five entails designing a particular combination of marketing actions (termed levers) to move target customers from aware-ness to commitment.com).. exploration. marketing is responsible for acquiring and retaining target customers. Simply put. Awareness is the first step in a potentially deeper relationship 117 NOTES ANNA UNIVERSITY CHENNAI . the firm is in a position to observe their behavior patterns and determine which customers to nurture and which customers to terminate (or serve at a lower level of cost). In this process.g. Whether defined as a function or an organization-wide culture. pricing. Consumers become aware of firms through a variety of sources. and. it is hoped. or attitudes about a firm or its offerings but have not initiated any communications with the firm. The firm has made a go/no-go decision on a particular option. and online marketing programs such as banner ads.E-COMMERCE TECHNOLOGY AND MANAGEMENT Stage Five: Designing the Marketing Program The completion of stages one through four results in clear strategic direction for the firm. However.

therefore. or test.marketing context. revenue. non strategic customers are a different matter. However. as one can imagine. a large well-regarded customer may not be profitable but opens the door to new accounts). their repeated. managers often refer to the 80/20 rule of profitability. and possibly even the return of merchandise. By implication. awareness without action is not in the best interests of the firm. The most valuable customers may be identified based on profit. In the online world.. 20 percent of customers provide 80 percent of the profit. going on a first date. Exploration In the exploration stage. In an industrial. Firms should segment their most valuable and less valuable customers. That is. This stage is also likely to include some trial on the part of the customer. enduring attitudes and behaviors reflect loyalty. Unprofitable. 118 ANNA UNIVERSITY CHENNAI . It may include phone call followups on delivery times or e-mails about product inventory.g. The exploration stage may take only a few visits or perhaps years to unfold. Commitment Commitment involves feeling a sense of obligation or responsibility for a product or firm. The firm does not want this set of customers to terminate the relationship. some e-commerce retail exchanges. and/or strategic significance (e. Dissolution Not all customers are equally valuable to the firm.DBA 1727 NOTES with the firm. the customer (and firm) begin to initiate communications and actions that enable an evaluation of whether or not to pursue the four key stages of customer relationship. a large number of customers are unprofitable or have high cost to serve. Exploration is analogous to sampling songs.driving a car. When customers commit to a website. exploration may take the form of frequent site visits.

This interface can be a desktop PC. but only to purchase books. The key difference is that the nature of the exchange relationship is now mediated by a technology interface. Three dimensions capture intensity: 1. screen-tb-face interaction). or other Internet enabled appliance. 3. of the site? Should the site include commerce activities? How important are communities in the business model? Stage Seven: Evaluating the Marketing Program This last stage involves the evaluation of the overall Internet marketing program.. or context.e. As this shift from people-mediated to technology -mediated interfaces unfolds. Another customer might visit Amazon frequently but not stay on the site for a long duration or engage in deeper connections such as writing reviews.. or communicating with other Amazon users. What is the look-and— feel. face—to-face interaction) to the market space (i.E-COMMERCE TECHNOLOGY AND MANAGEMENT Often it is in the best interests of the firm to terminate the relationship or encourage this set of customers to disengage with the firm. mobile phone. relationship intensity is correlated with the stage of the relationship. In all cases. The four stages vary by the ‘intensity of the connection between the firm and the customer Intensity of connection may be defined as the degree or amount of connection that unfolds between the firm and its target customers. This includes a balanced focus on both customer and financial metrics. (How many different points of contact does the customer have with the firm?) The depth of contact. Stage Six: Crafting the Customer Interface The Internet has shifted the locus of the exchange from the marketplace (i. it is important to consider the types of interface design considerations that confront the senior management team. personal digital assistant. wireless applications protocol (WAP) device. The frequency of the connection. sub-notebook. (How often does the customer visit the site?) The scope of the connection. commenting on products. This customer would have high frequency but low depth. 2. This visitor would have a high level of frequent contact but a low level of scope. (How thoroughly is the customer using the site?) NOTES A customer might visit a website such as Amazon on a regular basis.e. 119 ANNA UNIVERSITY CHENNAI .

5 Customer Relationship Management(CRM) Cross-selling and Up-selling This application has the capability to qualify prospects. As customers approach retirement. qualifying leads. easily and efficiently. and arranging logistical aspects of events. The goal of effective fulfilment is to provide a myriad of information to customers and prospects quickly. banks could recommend assets such as money markets. 120 ANNA UNIVERSITY CHENNAI . If customers with young children can be identified. as organizations grow larger. Cross-sell and up-sell application may be used to schedule sales calls. Campaign management.2. then banks could cross-sell education savings plans or even loan consolidation plans. in the finance industry. Whether it is product or service inquiries. collateral packages. complete with the applications necessary to track customer contacts. Marketing automation is critical. Direct Marketing and Fulfilment This includes pre-sale interaction such as advertising that either influences or provides potential customers with the necessary information to make a purchase decision. banks are attempting to build lasting relationships with customers by matching their life-path needs to complementary products and services. responding to requests in a timely manner is critical. pricing or billing issues.DBA 1727 NOTES 2. triggers can be established to identify prospects for additional sales. allows companies to manage. or other correspondence into the hands of the customers and prospects when they are most receptive. Another critical core competency is fulfilment. a direct marketing process. keep detailed records of sales activities. Marketing departments today are being deluged with requests for information via the Web and other channels. or requests for literature. This is because. it becomes more difficult to manage multiple simultaneous programs and track costs across multiple channels. Cross-selling and up-selling depend on identifying life-path needs. track contact or the “moments of truth and refer them to sales persons when appropriate. integrate and leverage marketing programs by automating such tasks as managing responses. This creates a need for fulfilment capabilities that can get product information. in a bank an event would be a large deposit. literature. bonds and annuities. For example. which would then trigger a sales person to call the customer and ask if she or he would be interested in investment options. For instance. and check on the status of the customer orders. direct mail responses. By implementing a cross-sell strategy.

what level of support they are entitled to) track specific tasks needed to resolve problems across multiple workgroups. Armed with this complete customer and product information. sales force automation. contact and activity management. account management. The applications include support for service request management. and capture support costs for charge backs. Field Service Operations There is nothing like the hands-on approach to in they with of the customers about the company your company. return material authorizations. and detailed service agreements. managing inventory and logistics. Field service and dispatch applications have become mission critical tools that affect a company’s ability to deliver effective customer service and contain costs.g. as well as look up detailed information about customer service contracts. Customer support capabilities are used to manage customers who are having problems with a product or service and to resolve those problems. activated when a problem can be solved over the phone and requires sending a repair person to the customer site to perform maintenance or repair.. customer surveys. and posting systems. Help-desk software automates the management and resolution of support calls and improves efficiency and effectiveness. very few organizations are able to make these 121 NOTES ANNA UNIVERSITY CHENNAI . and handling contracts and accounting. monitor service-level agreements. it requires a sophisticated interface with campaign management. Today.E-COMMERCE TECHNOLOGY AND MANAGEMENT Effective fulfilment is not trivial. Retention Management Effective Customer Relation must be based on differentiating customers based on account and transaction histories. The field service application provides the organization with features for scheduling and dispatching repair personnel. contacts and activities. maintain permanent incident histories. Customer Service and Support Customer support provides customer care and other services. Field service is the hands on extension of external customer support. These discrete applications work together to ensure that customer service representatives can quickly assign. create and manage service requests. These applications typically include capabilities to verify customer status (e. service professional can resolve customer issues efficiently and effectively.

whatever sells in print in a catalogue will also sell on the internet. As a general rule. track and manage. Detailed knowledge about customers allows companies to treat all customers individually and. in many cases. The ability to effectively segment customers depends on the decision support technology.6 Benefit from an e-Commerce Sales Strategy The internet is changing the balance of power between business and the customer. Customers can use comparison sites or shopping agents. But with the advent of e-commerce. at least until something went wrong. companies could be reasonably certain that buying almost anything was not easy. 122 ANNA UNIVERSITY CHENNAI . Before online shopping. Convenience: Buying and selling can go on 24 hours a day. 365 days a year from any location. and then buy from anyone. or “bots” as they are known. 2. which most executives see as a powerful enabler of Customer Relation Management. customers can check out the options anywhere. low-margin prospects. Effective decision support depends on the ability to gather customer information at great levels of detail. in any time or currency zone.DBA 1727 NOTES distinctions. thus speeding payment.2. so once a customer found a supplier they were comfortable with they tended to stick with them. Speed: It takes far less time to complete the entire buy/sell process. Accuracy: Virtually eliminates processing errors. to search the web for a bundle of products and report back on which supplier is offering them the cheapest. Buying and selling firms have the same views of the transactions. There are several major advantages to developing an e-commerce sales strategy: Efficiency: Electronic purchase orders and sales orders are more economical to place. which make online commerce more precise. disengage from customers are high maintenance. Global Reach: Gives businesses an instant global reach to find supplies anywhere in the world. 7 days a week.

enabling problem avoidance or swifter solutions. balanced thinking.E-COMMERCE TECHNOLOGY AND MANAGEMENT Low Cost Entry: Before the web. you can sell direct to consumers worldwide for a hundred pounds a month. Today’s Internet marketing exec-utive must have all the traditional skills of the offline marketing professional. Also provides order histories. The Internet presents an adaptive challenge for the marketing executive. designing and promoting these interactions around customers’ needs and progressively gaining deeper insights are critical components of creating positive customer experience. fax and e-mail notification to identify potential problems. Because the Internet enables a much greater degree of interaction with customers. a deep understanding of customer needs should serve as the guidepost driving marketing decisions. which in turn become a platform for advocacy. and technology has been their principle tool for managing it.2. but must place extra emphasis on some of them to account for the new economy. and a willingness to accept risk and ambiguity. Up-to-date Status and Alerts: Generates instant pager.7 Critical success factors for internet marketing executives Marketers have always been in the business of anticipating and managing change. A true customer advocate will be looking to provide demonstrable added value to each customer interaction to form the basis for a meaningful relationship. Customer Advocacy and Insight An insatiable curiosity for customers and marketplaces is a bare necessity for today’s marketing professional. and effectively trans-late them into marketing strategies and tactics. As both customer behaviors and enabling technologies simultaneously evolve. 2. Marketing professionals will need to strategically collect information from many disparate sources. create insightful customer mosaics. These critical new skills include customer advocacy and insight. This innate curiosity fuels an individual’s desire to transform mounds of customer data into meaningful and actionable insights. Setting up a retail outlet or printing a glossy catalogue could cost hundreds of thousands of pounds. NOTES 123 ANNA UNIVERSITY CHENNAI . selling direct to consumers could be expensive. On the web. integration.

is what will differentiate leaders from followers in the new economy. Managers who are able to hone their marketing plan in a highly integrated fashion are more likely to capitalize on the synergies between marketing elements and thus drive greater effectiveness. creating “bleeding edge” tools as they lead their teams to success. Willingness to Accept Risk and Ambiguity In the new economy. Beyond strategy. It requires understanding the dynamic tension between one-toone marketing and mass marketing and being able to strike a strategic balance between them. The new-economy marketing professional needs to have an integrated or’ holistic view of the customer and the enterprise in order to create a uniquely advantaged strategic plan. Understanding the strategic and tactical implications of the Internet. Internet marketing professionals need to retool them-selves and their companies to enter into a whole new era of customer-centric marketing. a consistent message and experience must be maintained across customer touch points in order to create a consistent brand image. Trying to change the status quo is never easy and only people with conviction and passion will be heard over the din of the inevitable naysayer. Successful marketing managers use this passion to fuel their entrepreneurial instincts and vision. or fire in the belly. It also requires determining the appropriate customer data requirements. Culling specific customer insights from a veritable fire hose of data is critically important for new economy managers. In today’s multi channel environment.DBA 1727 NOTES Integration The Internet represents both a new channel and a new communications medium. leveraging the rapid learning environment and accelerated decision-making process it creates. The 124 ANNA UNIVERSITY CHENNAI . and then creatively applying the insights gleaned from analysis are critical success factors for all Internet marketing professionals. Balanced Thinking An Internet marketing professional needs to be highly analytical and very creative. a marketing manager must fundamentally understand how to integrate these new tools into the overall marketing mix. passion. Passion and Entrepreneurial Spirit Although very hard to objectively assess. Internet marketing professionals must also be technologically savvy.

we organize them into the following categories. There is a wide range of e-services currently offered through the internet and these include banking. education. on-line publishing. but-the tools need to be applied with more vigor and sometimes with greater speed. The primary purpose here is that these services help to save time and effort for the user. 2. Successful Internet professionals need to rely on a whole new set of marketing tools that work in an extraordinarily dynamic environment. Successful Internet marketers will build their business models and value propositions around a deep understanding of customer needs-not around the product. consultancy advice. travel. This list is by no means exhaustive and it is growing all the time. real estate. thus shifting the balance of power toward the customer and creating the need for a whole new set of “pull” -based marketing tools. computer games. which were previously provided by humans in office agencies and/or their branches. In many cases. jobs and career sites. NOTES 125 ANNA UNIVERSITY CHENNAI . and improve the quality of life. insurance. and the most successful Internet marketers will be willing to play at the edges. loans.3. In this lecture. namely 1. The risk and ambiguity of managing in such uncharted territory is tremendous. it can result in a reduced cost for the consumer. But they must also react more quickly and manage more information and channels in order to stay one step ahead of the competition. bring convenience. The skill set has not changed tremendously. Web-enabling services.3 E-COMMERCE FOR SERVICE SECTOR 2.1 E-Services The delivery of services via the internet to consumers or other businesses can be referred to by the generic term of e-services. broker services. etc. Today’s online marketing professionals must have the basic skill set of the offline marketing professional. Having the courage to try new things is the key to developing break-through Internet marketing. and on-line delivery of media content such as videos. stock trading. we will give an overview of eservices. In order to bring some order to the discuss of these wide variety of e-services.E-COMMERCE TECHNOLOGY AND MANAGEMENT Internet has enabled customers to have much more information and many more choices than ever before.

2. E-services that fall into this category include • • • • • • Jobs and employment sites Travel Insurance Loans including mortgage loans Real estate sales Brokers The advantage of this kind of matchmaking through the internet is that the ability to search electronically over a wider area to satisfy the customer need and to more precisely meet the customer need is greatly facilitated by both computerization and communication over the internet. Information-selling on the web. E-education is an example of this. Matchmaking services. It may also bring into the catchments new groups of consumers of the service to whom it might not have been previously accessible.DBA 1727 NOTES E-services that fall into this category include • • • Banking Stock trading Education In some cases. 3. These take a need from an individual or business customer and provide mechanisms (from providers) for matching that need. enhancing and altering it. this may bring a new dimension to the original service. This group essentially sells information content of one sort or another and includes ecommerce sites that provide on-line publishing such as web-based newspapers • • consultancy advice specialized financial or other information 126 ANNA UNIVERSITY CHENNAI .

Specialized services such as auctions. 2. Looking at e-banking. and education. while the homepage of Bank of America (www. 2. These provide internet-based access to videos. you can do your banking with your fingers instead of your feet. we can distinguish between twp distinct models: 1. foreign exchange transactions. It provides most of the banking services on the web. Therefore. 2. banks in both the mentioned groups offer a varied range of services including 1. or theme sites. Web-Enabled Services Web-enabled services include personal banking.bankofamerica. While not all banks offer the full range of services on the internet. 127 ANNA UNIVERSITY CHENNAI . It is not possible to discuss all the different eservices in this lecture and so we will briefly sample only a few examples for each category.E-COMMERCE TECHNOLOGY AND MANAGEMENT 4. personal banking commercial banking for both small businesses and large corporations financial services loan application services international trade including settlement instruments.sfnb. www. 3. with a convergence of TV and internet-based technologies. Pure cyber banks Traditional banks that provide e-banking to complement their retail banking SFNB. etc. E-banking Security First Network Bank (SFNB. electronic games. Many different auction sites have appeared and these are discussed further in this lecture.com/)was the first internet bank. is a pure cyber bank. NOTES 5. 5. This E-entertainment sector is expected to grow rapidly in the next few years. 4. Entertainment services. stock trading.1. movies.com) illustrates the second model.3.1.

a number of banks offer personal financial services including making personal loan applications on the internet. such as free checks. increased deposit rates. In response to this. saving him trips to the bank branch. mutual funds.DBA 1727 NOTES There are significant advantages for both the individual or corporation as well as the bank in using e-banking. American Express Financial Services.on-line. saving rentals or ownership of the related properties.etrade. An individual doing personal banking on the internet can. queuing. place a request to trade. The advantages to the banking institutions themselves include 1. etc. reduced fees. This has resulted in these on-line trading companies grabbing an increasing market share. etc. 2. in some cases view images of checks. discount brokers including Charles Schwab and full-service brokers have also moved to introduce internet trading of stocks. make queries on account balances. pay bills. The steps involved essentially are the following: 1. reduction in staffing because of the reduction in paper processing as well as face-toface bank teller contact. do account transfers. bonds.com). 2. on the internet. All these represent a large increase in convenience and time saving for the bank customer. say buy a stock the system responds with current “on the web site” prices 128 ANNA UNIVERSITY CHENNAI . 3. Furthermore. etc. leading to increase in interest received by the banks. and import transactions directly into home account management software. These advantages are so significant that some banks offer customers a number of incentives to -switch to internet banking. E-stock trading and e-investing Several companies such as E-Trade (www. bringing about increase in the time the bank hangs on to the money before making the required transfers. etc. allow you to trade stocks. etc.. reduction in the number of retail banking branches. one can make such transactions 24 hours a day from any place with internet access around the world. obtain statements. amongst other things. These companies offer you to trade at a very small cost compared to discount brokers or full-service brokers. In addition to these. Datek.

There are a number of web-based technology tools for this purpose.hkcyberu. and access to a wide variety of information on a number of sites. three models can be seen: 1. An example of this can be found on the Smart Money site (www.) which was set by the Hong Kong Polytechnic University and Pacific Century CyberWorks. the internet trader has to confirm this trade or cancel it Several companies allow one to create a simulated portfolio. e. 2. These traditional universities have a number of advantages. An example is Web CT. Again. the convenience of being able to trade anywhere in the world with internet access. They can now reach a client base that is outside their catchment. In addition to actually allowing you to trade. which one watches over time without actually buying or selling the stocks in reality.com. these sites provide a considerable amount of information. the reduced cost. NOTES The major advantages to the person doing the trading are 1. such as Jones International University (http://www. 2. Another advantage a traditional university has on the internet over a new pure cyber university is that it has an established brand 129 ANNA UNIVERSITY CHENNAI 3. 3.(www.com).g. They also expect to be able to deliver these courses at a reduced cost. . An example of this the Hong Kong CyberU . E-education A number of e-universities are being spawned around the world. however. A number of so called “open universities” that previously provided distance learning have moved into providing an internet-based version of their courses.E-COMMERCE TECHNOLOGY AND MANAGEMENT 3. Pure cyber universities. This has led to some traditional brokers also providing internet trading of stocks. the jury is still out on this.hk.edu) Traditional universities setting up new cyber vehicles for providing university education perhaps with other business partners. Traditional universities offering courses themselves on the internet. jonesinternationa. while travelling.smartmoney. The reduction in margins available to stockbrokers as a result of internet trading is beginning to have an effect on other more traditional forms of brokers.

The travel agent would try his best to meet these requirements by providing information regarding schedules. There are a variety of issues that need to be explored carefully when preparing to deliver educational material on the internet and these include the following: 1.com travelweb. Does one use a distance learning model where the student uses a PULL model to acquire the material? Does one use a traditional lecture model using video streaming? This is a PUSH model whereby a teacher “pushes” the materials to the students. etc. The e-commerce site then does a search over its own databases or over the internet using mobile agents. etc. promotions. or over other databases or web sites to look for one or more matches to these requirements. These include trip. 2. A large number of e-commerce sites have appeared. particularly those that have a dynamic character to them. and priceline. These web sites work in exactly 130 ANNA UNIVERSITY CHENNAI . The information is then returned to the e-service provider site to give the customer the required service. One among some of the innovations that are being explored is the joint teaching by two universities on different continents in order to enhance the learning experience.com. pricing. namely use of quizzes. car hire. Essentially. in most of these applications. Travel Services Before the internet. It is anticipated that the internet will not only lead to cyber universities of one kind or another but will also have a marked effect on teaching and learning in traditional universities. 2. as well as suggestions on changes to de itinerary. which address this precise market segment. the customer who could be an individual or business specifies his requirements in relation to the service. hotel. tests to provide the student with instant feedback on his/her mastery of the materials.com. The use of the ‘internet for education opens up many possibilities. use of graphics and animation to explain concepts. train tickets.1. These bookings could be for individuals or corporations involving corporate rates. tours.3.2 Matchmaking Services This has perhaps been the area in which there has been the greatest growth in eservices.DBA 1727 NOTES name. one might have gone along to a travel agent in order to book one’s travel requirements such as air tickets.

monster. and in some cases like lastminute. such as Hot jobs (www.E-COMMERCE TECHNOLOGY AND MANAGEMENT the same way. such as high cost. A recent increasing trend has also seen the primary provider of a service such as an airline introducing internet based booking at reduced prices.com b. the customer cannot refuse the offer found. suggestions. These travel sites often also have a lot of information on promotions. matchmaking facilities to search the internet for resumes that best fit a job description given by a prospective employer use of agents to do the search These approaches of using the internet for e-employment or ejobs avoid many of the costs and difficulties associated with traditional approaches to advertising. 3. NOTES Others In some areas. these sites do a search of their own databases or send agents our _ explore other web sites and respond to the consumer.realestate. matchmaking facilities that search the internet for jobs for jobseekers based on a specification. further emphasizing the disintermediation effect. limited duration. Disintermediation refers to the removal of intermediaries such as travel agents from the process involved in the purchase of the service. E-employment and e-jobs There are several different kinds of services provided here..com. Amongst the requirement that the customer could specify is an acceptable price.com. sites where you can get advice on developing your resumes and can post your resumes on the web recruiters who use the web site to post available jobs.hotjobs. a special customer need (i. (www. These ecommerce sites are having a strong “disintermediation” effect. 2. and minimal information. which are useful for customers. such as real estates e. such as priceline. the ability to meet requirements such as specified prices. such as www. namely 1.. require that provided the price specified is met. They are attractive to consumers because of the convenience.com) or Jobdirect employers who list available jobs on the web sites a.com) the visualization ‘(3D’ facilities provided on the web allow one to either 131 ANNA UNIVERSITY CHENNAI . etc.e” booking at the last minute).g. These ecommerce sites are beginning to grab an increasing part of the travel market. A number of sites. When a customer provides requirements.

and traditional agents or brokers will have to build new dimensions to their services in order to survive. This is also an area with the greatest likelihood of disinter mediation. investment. E-Entertainment This is expected to be a growing area of e-commerce in the future. the emergence of new banking institutions. domestic wholesale.2 Electronic Commerce and Banking “Banking is vital to a healthy economy. This philosophy is evident in the many mergers and acquisitions occurring in the banking industry. 132 ANNA UNIVERSITY CHENNAI . A number of companies are gaining access to or have purchased large inventories of movies or other entertainment material with the view of allowing people to download this on the web. and trust. and hence the use of micro payment techniques is likely to be of considerable importance here. rapid deregulation of many parts of finance. to others that provide games either for a fee or are free coupled together with advertising that pays for the site. Sites here vary from theme sites that use a small amount of interactive entertainment to promote their products. Many banks feel that in order to be profitable they need to reduce operating expenses and maintain strict cost control. Given these environmental changes. and basic economic restructuring. retail and investment banking are most affected by online technological innovations and are the ones that stand to profit most from electronic commerce. international wholesale.3. Of all these types. Banking as a business can be subdivided into five broad types: retail. 2. banks are reassessing their cost and profit structures. The challenge behind bank restructuring lies in adequately operational zing the notion of cost control. An important issue here is that the payments involved are relatively small for each transaction.DBA 1727 NOTES • • show visualizations of buildings at the drawing board stage. or allow people distant from the physical site of building to actually visualize it This area of matchmaking and brokering services is expected to grow greatly in the near future with e-commerce sites exploiting new market niches. The role of electronic commerce in banking is multifaceted impacted by changes in technology. such as Disney.

For example. bank. This is not surprising. technology is capable of replacing or expediting tedious financial exercises like check writing. The present nature of online payments is a clear indication that if the banking industry fails to meet the demand for new products.E-COMMERCE TECHNOLOGY AND MANAGEMENT Technology is the predominant solution for controlling costs. Advance in networking. there are many industries that are both willing and able to fill the void. This trend can be seen in the area of online payments. ability to use multiple financial software products with “memory” (thus eliminating the need to re-enter the same data). Banks are Increasingly help to reduce operating costs and still provide adequate customer service. it also enables new competition from fast-moving. These online capabilities increase the facility and speed of retail banking. and finally. Although large businesses have automated these tasks. The Securities and Exchange Commission’s decision to allow Spring Street Brewery to trade its stock online may also fundamentally change investment banking by disinter mediating the traditional role of underwriting. processing. filing taxes. and decision analytics have allowed institutions to lower service costs. Technology is enabling the development of new products and services. and transferring funds. electronic bill payment and presentment. Innovation and technology are becoming the key differentiators in the financial services business. technological innovations have enabled the following capabilities: online delivery of bank brochures and marketing information. many small businesses and most households still do them manually. whereas PCs have been entering households in significant numbers only in the last few years. micro payments (or nickel-and-dime transactions using electronic cash and electronic checks). Technology is changing the interaction between banks and consumers. large businesses have been undergoing computerization for more than thirty years. new technology is a double-edged sword. NOTES 133 ANNA UNIVERSITY CHENNAI . non banking firms. In particular. online payments—encrypted credit cards for transferring payment instructions between merchant. ability to request the transfer of funds between accounts. where recent innovations have provided an opportunity for non banks to break into the banking business. While it enables banks to be more competitive through huge investments. customer. sophisticated arbitrage instruments like derivatives are changing the nature of investment banking. threatening the banking stronghold on one of the last key services provided by banks. electronic access to bank statements. For example. Technology has also accelerated the pace of product innovation. However.

which have product life-cycle times of only six to nine months. In the past. along with these services. 134 ANNA UNIVERSITY CHENNAI . This is no longer the case. download account data for use with personal finance software products. In the past. In this new “virtual model. A thorough understanding of this competitive environment is needed before banks can determine their online strategy.” banks compete with the twelve-to-eighteen-month product development times of companies like Intuit or Netscape. technology allows the creation of a “virtual financial institution” made up of firms. Customers want to access account-related information. banks must be able to supply/guarantee the privacy and confidentiality that customers demand. Changing Consumer Needs Consumer requirements have changed substantially in the last decade. This financial requirement pre-vented new participants from entering the market and was a key determinant of success. Instead of a single institution doing everything. and pay bills electronically. there has been a major change in the way banks strive for increased profitability. the banking industry was chiefly concerned with asset quality and capitalization. then the bank would likely be profitable. and • New online financial products.DBA 1727 NOTES Technology also creates problems in the product development lifecycle. banks had the luxury of long roll-out periods because successful investment in retail banking required a large monetary commitment for product development. each contributing the best-of-breed software or products to the overall product. particularly consumer credit. Today. Banks need to find new ways to increase revenues in a “mature market” for most traditional banking services. • Changing demographic trends and potential new consumer markets • Cross-industry competition caused by deregulation. which is not a trivial matter to implement on the part of the banks. if the bank was performing well along these two dimensions. performing well on asset quality and capitalization is not enough. transfer funds between accounts. Five distinct factors contribute to the new competitive environment: • Changing consumer needs driven by online commerce • Optimization of branch networks in order to reduce costs. Of course. Changing Dynamics In Banking Industry In recent years.

served. postage and mail. off-the-shelf personal finance software cannot bridge the communications gap or reduce the duplication of effort described above.3. a consumer enters data once into his system and transfers this information to paper in the form of a check. thus giving new meaning to double-entry bookkeeping. Bankers want more stable and long term relationships with their customers.E-COMMERCE TECHNOLOGY AND MANAGEMENT Many consumer requirements are based on a simple premise: customers and financial institutions both seek closer and more multifaceted relation-ships with one another. No matter which software package is used to manage accounts. reducing the monthly paper chase of bills and checks NOTES 135 ANNA UNIVERSITY CHENNAI . developing and maintaining this relation-ship is difficult. seven days a week. advertising. these home banking services let the bank become an electronic gateway. Customers want to be able to bank at their convenience. Unfortunately. Electronic banking provides a method of communication that will enable the bank customer to be reached. including over the weekend or late at night.3. 2. For example. these systems do not communicate with one another. Although financial products are essentially information products and financial institutions are highly automated. If the consumer uses personal finance software. then both the consumer and the bank are responsible for maintaining systems. it only represents half of the information management equation. unfortunately. only to have the bank then transfer it from paper back into electronic form. information gets man-aged twice once by the consumer and once by the bank. and people on telephones. These methods can be costly and impersonal. This gulf is filled with established methods. But a few “home banking” systems that can help are beginning to take hold. there is a gulf between automated information and the bank’s ability to reach the consumer in a unified way. In combination with a PC and modem. such as branches. From the bank’s perspective. Banking Via Online Services Although personal finance software allows people to manage their money. and sold products and services in their homes and offices whenever it is convenient for them-twenty-four hours a day.

CitiBanking on Prodigy offers a full range of banking services. we look at CitiBank and Prodigy. in 1996 Citibank began offering Prodigy subscribers a free and direct link to its electronic home banking service. Citi Bank and Prodigy al-low customers to explore the wide array of services using an interactive. and has relationships with more banks than any commercial online service. Access to Citibank is available to Prodigy sub-scribers at no extra fee throughout the New York metropolitan area. transfer money between accounts. and buy and sell stock trough Citi Corp Investment Services. review their Citi Bank credit card account. The goal of this approach to banking is to provide superior 136 ANNA UNIVERSITY CHENNAI . To expand the attractiveness of its online banking services. The agreement represents the first time that CitiBank has expanded access to its proprietary PC Banking service through a commercial online service. hands-on demonstration. pay bills electronically. To en-courage Citi Bank customers to try online banking through Prodigy. Customers can check their account balances. Prodigy has been pro-viding home banking to consumers since 1988.DBA 1727 NOTES Citibank and Prodigy To understand the more contemporary online banking services. Banking via the Web: Security First Network Bank With the explosive growth in Internet use. free Prodigy software will be made available at local Citi Bank branches. banking via the World Wide Web will undoubtedly catch on quickly.

If banks choose to offer home banking via personal financial management software. By controlling the software interface. at the office. This limits the customer to banking only from that computer. these customers become direct customers of software firms. Internet banking allows banks to break out of the hegemony of software developers. banks can offer additional services and provide a personal feel to the interface. In the early 1980s. IBM licensed DOS from a small software company called Microsoft. or in a place outside the United States. IBM’s seal of 137 NOTES ANNA UNIVERSITY CHENNAI . and banking during limited hours of operation. store any data on their computer. This loss of control has tremendous long-term implications. making a call to access a separate network. and firms like Intuit that can easily transport their product to the Internet. working with a separate software company. The competitors in this segment are banks that are setting up Web sites. Consumers can conduct banking anywhere as long as they have a com-puter (not necessarily their own computer) and a modem-whether at home. without seeking the cooperation of a software company. since all transactions occur on a secure server over the Internet. IBM decided that operating systems were not central to IBM business strategy.E-COMMERCE TECHNOLOGY AND MANAGEMENT customer service and convenience in a secure electronic environment. By maintaining a direct relationship with end users via the Web. IBM called this operating system PC-DOS and allowed Microsoft to market this same operating system to competing computer manufacturers under the name of MSDOS. The software industry history offers com-pelling proof of the importance of organizations having a direct relationship with consumers. or wait months for new versions and upgrades. they lose control over the end user interface and the relationship they have with customers. If bank customers (end users) install personal financial management software on their PCs. As a result. Consumers can download account information into their own choice of programs rather than following the dictates of the service provider. back up any information. Internet banking means that: Consumers do not have to purchase any additional software (the Web browser is sufficient). Banking on the Internet is not the same as banking via online services. Banking via online services is restrictive in that the consumer has to install a soft-ware package onto her computer. software firms such as Intuit can control the kinds of transactions end users make and with whom these transactions occur.

The creation of online financial supply chains to manage the shift from banks as gatekeeper models to banks as gateways. management has to balance the five key values that increasingly drive customers’ banking decisions: simplicity. The fact that technology increases the ease of switching from one bank to an-other means that banks that do not offer superior customer service may see low levels of customer loyalty. high-touch personal and affordable service. losing control over the interface could have dire consequences. Banks must deliver high quality products at the customers’ convenience with high-tech. However. The development of effective back-office systems that can support sophisticated retail interfaces.DBA 1727 NOTES approval made DOS an industry standard. convenience. Online banking will realize its full potential when the following key elements fall into place: • • • • • The development of an interesting portfolio of products and services that is attractive to customers and sufficiently differentiated from competitors. In order to achieve this. • Marketing Issues: Attracting Customers The benefits of online banking are often not made clear to the potential user.3.3. For banks. and price. too. The establishment of good customer service on the part of banks. IBM was unable to move the industry to a new operating system called OS/2 in the late 1980s because Microsoft controlled the customer relationship and was able to convert most end -users to Windows. The identification of new market segments with untapped needs such as the willingness to pay for the convenience of remote banking. quality. customized ser-vice. Consumer question includes : 138 ANNA UNIVERSITY CHENNAI . The emergence of low-cost interactive access terminals for the home as well as affordable interactive home information services. 2.1 Management issues in Online Banking The challenge facing the banking industry is whether management has the creativity and vision to harness the technology and provide customers with new financial products necessary to satisfy their continually changing financial needs.

Banks must switch the costs of moving from one software platform to other to keep customers from moving. NOTES 2. heavy workload. marketers must also work on building a loyal customer base not only in order to maintain the existing base. Banks must also look beyond home consumers for online banking consumers. Many of these firms have PCs and modems. 250.000 to Rs.E-COMMERCE TECHNOLOGY AND MANAGEMENT How is balancing the checking account online superior to doing it on paper? Is paying bills online superior to the familiar 5 of writing checks? Where is the consumer gaining value? Perhaps the answers to these questions are not clear to the bankers themselves. Marketing Issues: Keeping Customers Keeping customers (or customer loyalty) requires the following: 1. and this familiarity increases interest in additional vices and increases switching costs. There are mil-lions of small businesses with annual sales ranging from Rs. 5 million. banks have opportunity to tap into this market segment. 3. 139 ANNA UNIVERSITY CHENNAI . it is clear that make a mistake trying to sell online banking services on the basis of convenience. While short term convenience is important.provides a solid opportunity for banks to build a profitable base of small business until a broader consumer market evolves. New services like interactive cash management services could generate significant revenues for banks. Regardless of how a bank chooses to answer these questions. Customers are increasingly familiar with using technology to access bank accounts and to handle financial affairs. Clearly. consumers want 19-term ability to control and organize their finances more than they want convenience.000 customers. Industry studies indicate that 20 percent of small businesses are immediate prospects for online banking and are willing to pay more than individual consumers for the service-up to $100 a “month. Banks can realize the positive cost implications for the longterm value of building customer loyalty. but also in order to be attractive to potential customers. These integrated services contribute to cementing the customer relationship. Thus. The oftcited time squeeze on consumerslong commutes. In the online world. Banks must provide integrated services. household management is pushing consumers toward integrated services that can speed up financial procedures. there is not a big cost dif-ference between serving one customer and serving 100. family obligations. The rapidly growing use of personal computers by small business.

Shorter access times also enable increasingly complex graphics to be placed on Web sites. for example.1 Reasons expected for the increase in Advertising spending Shorter Access Times As more bandwidth becomes available. With more time available to draw users’ attention. 100 per day for an advertisement. advertising rates should rise. With more advertisers.4 ADVERTISING AND ONLINE PUBLISHING 2.4.DBA 1727 NOTES 2. 2. In many cases. advertisers ask site visitors to provide their names and addresses in exchange for a product discount. advertisers should be willing to pay more per user to place their icons in online periodicals. Promotions are also common. magazines and newspapers have also set up sites on the Web. and magazines such as Hot Wired.1. Many online periodicals include traditional advertisements as well as icons. 140 ANNA UNIVERSITY CHENNAI . Among periodicals that have gone from print to online advertising with some degree of advertising success are: Knight-Ridder’s San Jose Mercury News newspaper. without requiring additional access time. Reduced Access Fees New Internet users will be attracted by reduced ac-cess fees.1 Advertising and Online Publishing With the intention of attracting advertising dollars. when clicked with a mouse. and People. which display an advertiser’s logo and. users will spend a larger proportion of their time on Web sites and a smaller proportion waiting to access them. send a user across the Web to the advertiser’s Web site. This should draw to the Web advertisers who may have been concerned that the current graphical quality was insufficient for displaying their products. Playboy.000-Rs.000 per quarter for an advertiser to place an icon in the periodical. The cost of the access fee itself can be shared by an advertiser if. 30. the advertiser pays for the access time used when accessing online yellow pages. which reportedly charge Rs. which reportedly charges Rs.4. 45. with part of the reduction covered by advertisers.

However. If online advertising encourages users to shift a portion of their purchases to the Web. With more information available. This should boost the appeal of the Web and increase the rates that advertisers could be charged for placing their icons in an online periodical. There are three reasons for this: • • • The market is too small to justify the cost of measuring its size. leading them to pay more for placement in online periodicals. Increasingly Valuable Information Product descriptions can be enhanced through online advertising. maintaining a Web site. 141 ANNA UNIVERSITY CHENNAI . a measurement system will not be useful until: 1. Spending can be the amount that advertisers pay other Web sites such as periodicals and games to display their icons or product offerings. few publishers have attempted to measure how many advertising dollars are being spent.E-COMMERCE TECHNOLOGY AND MANAGEMENT Increasingly Convenient Access to Information As the amount of information online increases. it should be increasingly important for advertisers to get users to their sites quickly.1. and placing a site -linked icon in an online page.2 Better Measurement of Advertising Effectiveness Product advertising is far more effective if it leads to a purchase. The market is changing too rapidly to develop an effective means of measurement. 2. the decision to purchase should be easier and more purchases should occur (assuming the product is desirable). and an advertiser can use it to justify the cost of promoting a Web site. NOTES Despite the popularity of advertising on Web sites.4. an online publisher can use it to determine advertising rates and the appeal of its articles. 2. then companies may pay far more to advertise. There is not a clear definition of what advertising expenses should be counted.

a TV or computer program. trademarks. Today.1. the emergence of the Internet is dramatically changing how consumers and businesses deal in information and entertainment products and services. reproduced. the ability to manipulate and change the work. The potential of online copyright infringement vastly surpasses the damage that can be inflicted with a photocopy machine. Anyone with a computer can make and distribute countless copies of anything digital. virtually any work can be “digitized. This increases the ease and speed with which a work can be reproduced. presented. a sharp departure from the industry standard which measures hits . with a few key strokes. the packaged goods giant told the online publishing community that it will compensate the ad banners it buys only on a “click-through” ba-sis. In other words. used. 2. The anticipated P&G strategy.4. In short. licensed. It was reported in MediaWeek [MW96] that Procter & Gamble was ready to spend some of its $3. However.has sent a shiver down the spine of many ad sales executives. 142 ANNA UNIVERSITY CHENNAI . accessed. as well as how works are created. displayed. sold. and licenses) are an important asset possessed by the publishers in their respective markets. the digital version can be sent to friends or even a bulletin board system (BBS) for downloading by anyone with a modern. causing a blurring of the traditional content lines. Even worse. to deliver perfect copies of digitized works to scores of other individuals. be it a book.DBA 1727 NOTES Effective measurement of online advertising is taking centre stage.3 Digital Copyrights and Electronic Publishing Intellectual property rights (copyrights.” archived. distributed. The scope and magnitude of the problem is clear. performed. and used in the digital format. The concern was that other advertisers will follow P&G’s lead.3 billion ad budget to advertise on various Web sites. standard impressions-delivered when an Internet surfer sees an ad banner but does not click on it to connect to a Web site -are considered to have no value by P&G. the quality of the copies. Works also can be combined with other works into a single medium. and the speed with which copies (authorized and unauthorized) can be “delivered” to the public. Advances in technology have raised the stakes considerably. and stored. organized. Protecting intellectual property rights and collecting dues from online users is proving to be quite challenging. The establishment of high-speed networking makes it possible for one individual. All of this has led to a clarion call for changes in the copyright law. such as a CD-ROM. owned. or a piece of music. managed.

2 Electronic Commerce and Online Ppublishing The Web may have blossomed because of peer-to-peer publishing. Restricting access to the source of the work. failing to define the business purposes driving their online presence.000 registered readers on the Web. This includes controlling Web server access or controlling individual document access. Restricting manipulation of the electronic file containing the work. Also. and that number is growing by some 3. In addition. the con-tent creation side of online publishing was dominated by techno-savvy individuals who were not experienced at selling and who did not under-stand the business of publishing. However. These firms are learning that the best way to capture consumers’ attention is to develop a business model that allows the company to 143 ANNA UNIVERSITY CHENNAI . Initially. Online Copyright Protection Methods Unauthorized access to published content can be restricted by two methods: 1. NOTES 2. Likewise. from 1993 to 1995 much of online publishing was inhibited by a lack of business purpose. and unless the integrity of those works is assured.E-COMMERCE TECHNOLOGY AND MANAGEMENT The stakes are high. the Wall Street Journal Interactive Edition attracted 500. As the initial euphoria wore off. but judging from recent product offerings. in less than three months. Owners of copyrights are not willing to put their interests at risk if appropriate protections are not in place to permit them to set and enforce the terms and conditions under which their works are made available online. At that time. it was reported that. They discovered that offering exciting technology without compelling content is insufficient to capture market share. there is an enormous groundswell of interest among both commercial and corporate publishers in the Web. the electronic edition has attracted more than thirty advertisers paying to reach this audience. the public will not use the services avail-able and create the market necessary for online publishing’s success un-less access to a wide variety of works is provided under equitable and reasonable terms and conditions.4. For instance. 2.000 readers per day. there were publishing companies who took a “Just Get Me on the Web!” approach. The promise of new interactive publishing captured the imagination of both content providers and the public. growth in the online publishing marketplace was driven by the potential of new interactive technologies and applications. publishers realized that simply having a presence on the Web did not guarantee profits.

The better the brand. must be packaged so that it provides more value than alternative sources of information. none of the Web publishers have turned a profit. Publishers need to pay more attention to their core competency of packaging and delivering content and making money online. Brand development is important because every time a user sits in front of a Web browser. are tinkering with new advertising models for their fledgling Web sites. and they have not yet turned a profit. the more likely it is to pop up in the consumer’s mind another key issue in online publishing relates to digital copyrights. mainstream advertisers have been skittish about pumping money into a medium with an audience whose size and habits are nearly impossible to figure out. Online publishers are developing new business models to charge customers directly and convince them that such charges are justified. marketing. information. As more and more firms begin to offer online content. and services. This approach may not be viable in the online medium when mass markets are re-placed by customers selecting their information and delivery methods. This content. The key is to identify what the customer wants and finds interesting and to avoid being distracted by new technologies. 144 ANNA UNIVERSITY CHENNAI . In general. some of the first to stake their claims on the Internet. programming. no matter how it is delivered. Newspaper and magazine publishers. Some of the sites employ hundreds of people. The early online publishing pioneers are trying to accomplish a difficult feat. The public has been trained to think that the news. they are being forced to adjust to new customer attitudes regarding pricing.DBA 1727 NOTES offer unique and valuable information. Some of these firms have invested tens of millions of dollars in people. with millions of dollars in payroll alone. These are tricky but necessary conditions to successful online publishing. and content. While ad revenues are not coming close to covering expenses now. and entertainment they receive should be subsidized or nearly free and that advertisers will pay the bill. equipment. and marketing. Many early pioneers invested a huge amount of money into brand building. Many online publishing pioneers have gone up the technology curve and are confronting tough management questions such as how to gain market share and how to be profitable sooner than later. they could grow substantially in coming years as the traffic increases and brand names become established. Publishers currently finance their businesses by offering advertisers mass markets for delivering their message in return for large advertising fees. but they have not been able to figure out which business model works best for making money. she needs to make a decision about where to go. As a result of relatively low ad revenues.

These publishers have the capacity to derive the highest benefits from new media as their learning curves are much shorter than others. there is too great a risk to their intellectual property. They are unlikely to view online publishing as a sufficiently attractive channel until costs fall and distribution widens. Today. Moreover. 2. the digital world has no international boundaries. and they already have many of the necessary resources at hand. Watchers These are large publishing companies that employ scale-sensitive economics.4. as well as fo-cused publishers in categories not easily suited for the online medium. publishers such as Addison—Wesley only offer catalogs or sample selections of works available online. there are generally three strategies for publishing companies to consider: Early Movers These are highly skilled independent publishers with existing access to such key capabilities as direct marketing and order fulfilment. who are uncertain who will win in the online marketplace. Testers also include 145 NOTES ANNA UNIVERSITY CHENNAI . This category includes publishers of unbranded or less distinctive content who cannot attract a sufficiently large initial consumer franchise.2. and policing is impossible since the levels of protections and sanctions against infringement vary widely in countries across the globe. and who neither need nor want to make a choice now. which makes the risk even greater.E-COMMERCE TECHNOLOGY AND MANAGEMENT Effective technological protection mechanisms are vital to ensuring the availability of quality content online. retransmit. Testers These are the majority of publishers that face either attractiveness and/ or skill challenges. and alter works without the permission or the copyright holder. Gathered here are many multi category and specialty publishers who are competing successfully in traditional markets. The Internet makes it extremely easy to copy. They do not and cannot offer more because in an environment where the culture and technology provide so little protection for the rights of content producers.1 Online Publishing Strategies As with any new development.

and price will not be enough to compete in this new environment. Those with strong brand images and existing consumer franchises may choose to post-pone entry until they find viable service providers and distributors. publishers are educating themselves about the potential opportunities without committing themselves to anyone position. 2. incentives. The new medium approach. The publishing intermediation approach. but is a logical extension of the trends in electronic delivery over the past several years. but also more exciting. the online medium appears to be an alternative. 146 ANNA UNIVERSITY CHENNAI . For this group. quality. In this approach. The Online Archive Approach The online archive approach (including bibliographic databases and full-text search/ retrieval services) is one that appeals to corporate publishers and. and diversity of choice also become critical success factors.2. content is assembled in real-time and transmitted in the format best suited to the user’s tastes and preferences. Winning in online publishing will entail developing new skills in areas such as tailored advertising. to some extent. This is more controversial and more difficult to implement. This is new to the Web.4. building required skills. • • • • The online archive approach. and exploring the attractiveness of potential channels. In general. This is an online extension of the thirdparty publisher role off-line.2 Online Publishing Approaches There are four contrasting content publishing approaches. Publishers will have to innovate constantly and challenge present concepts if this form of commerce is to become widely accepted and popular. These tests often include a skill-building program as well as an early warning system so that a company can quickly identify and re-act to changes within the industry or economy. Content. service.DBA 1727 NOTES branded general publishers with robust consumer franchises and attractive distribution channels already in place. Publishers such as the Wall Street Journal and New York Times are taking part in targeted tests and pilot projects aimed at learning what online publishing has to offer. and customer service as well as re-learning the fundamental principles concerning why people subscribe. order processing and fulfilment. The dynamic and just-in-time approach. Speed of delivery. bundling of products.

000 Internet hosts each month and is reportedly showing a profit. Most libraries have replaced traditional card catalogs with sophisticated electronic online bibliographic databases offering an incredible range of functions. That bulletin board evolved in 1988 to become PC Mag-Net on CompuServe. Wired magazine sees very little crossover in content between its magazine and its HotWired venture. In 1991. bibliographic databases represent a sizable chunk of the online data-base market. An example of a bibliographic database is MEDLINE. and a comprehensive database of past articles. Some writers may write for both media. or other media. In addition to its successful CompuServe subscription ser-vice.zdnet. personalized news delivery. the ZD Net Web Edition (http://www. Members of the ZD Net/CompuServe edition have access to several features.com) logs access by more than 700. and edutainment) aims to create new material for the Web-to treat the Web as its own medium. This approach will have the most appeal to commercial print publishers. the formatting limitations of the Web are frustrating at the moment. For example. The spread of PCs has enabled physicians to directly search databases used only by librarians in the past. which caters to an increasing number of physicians who rely on online medical databases to keep up to date with the latest developments and literature. but with technological 147 NOTES ANNA UNIVERSITY CHENNAI .E-COMMERCE TECHNOLOGY AND MANAGEMENT commercial publishers (such as academic or journal publishers) who have an existing digital archive that they want to deliver over the Web as well as on paper. CD. sophisticated on-line forums with top industry personalities. such as magazines.ROM. including the ZD Net University series of comprehensive online “continuing education courses. for print publications. one deserving its own material.1985 with a bulletin board system for readers of PC Magazine. The New Medium Approach The new medium approach (including real -time news delivery. which began its venture into electronic publishing in . developed by the National Library of Medicine (NLM). At revenues of over $1 billion a year. not a replacement. Ziff-Davis created the ZD Net subscription service on CompuServe to provide a service supporting online versions of all its publications. which quickly grew in popularity. This approach currently has some teething problems because of technological limitations. The online archive approach is also being used by niche publishers such as ZiffDavis. The most prevalent example of online archive approach is library catalogs and bibliographic databases. MEDLINE and other medical databases are available free of charge on the Internet. For instance. but separate content streams will be developed for each medium. that view the Web as an alternative.

the subsequent value-added improvisation from readers makes each online magazine a unique experience. which made it the second most active Web site next to Netscape’s home page. owned. Once on that sprawling network. The success of Yahoo’s initial public offering (IPO) underscores the importance of online directories. it is no longer.DBA 1727 NOTES advancements they will soon be forgotten. 148 ANNA UNIVERSITY CHENNAI . Yahoo (which stands for Yet Another Hierarchical Officious Oracle) was created in 1994 by David Filo and Jerry Yang. but its intellectual content. must be created. New organizations that specialize in the management of copyright clearance are emerging as key players. Even if the technology constraints were overcome. companies offering material owned by more than one publisher face the daunting task of obtaining permissions. Companies and consumers interested in conducting electronic commerce often struggle to navigate the Internet to create an electronic marketplace. the old paradigms do not work. the expectations of the Web are so different from print media that new content. its model is both broadcasting and conversation at the same time. but with no controlling gatekeeper. For example. At one time. all a publisher can do is “be the first with the most interesting stuff. Online directories are important for several reasons. It went on to become one of the most popular means of navigating around the Internet. in the growing market for educational material such as course packs and other customized books. and services. Yahoo was getting about 6 million visitors per day. they are having trouble finding other companies. written for a Web audience. Yahoo is the first place millions of Internet users go when they try to find their way around the rapidly growing Internet.” an approach that HotWired is taking in its attempt to create a place where readers can see what the world has to say on a minute-by minute basis. With online publishing there may be a well-known starting point. University electrical engineering PhD students who began DY simply compiling lists of their favorite Web sites. The publisher gives up not only its brand name. too-once the information is out there. Faced with that model. The frustrations are more than offset by the excitement of the interactivity the Web offers. products. The Publishing Intermediation Approach The publishing intermediation approach (including online directories) exploits new service opportunities for intermediaries. It quickly becomes apparent that under this model. two Stanford.

NOTES 149 ANNA UNIVERSITY CHENNAI . graphics. services. transaction costs must be very small (around 10 cents). For example. and modem speed. and products. Another way of looking at dynamic publishing is that it is just-in-time publishing. but it is still too early for most companies to de-ploy. there will be a demand for intermediation because there will al-ways be a need for a good directory to help people locate goods. More importantly. and others-could serve as the best model for every-one else [PCW96]. and then self-destruct after usage. What is more. speed. and content flow into the computer just as consumers need them. The future is bright for the publishing intermediaries who offer ease of operation. The Dynamic and Just-in-Time Publishing Approach Online content is no longer static information. the content engine recognizes repeat visitors to a site and configures the Web pages to match the individual’s known preferences. and sound-are stored separately in a database and used to create individualized pages on the fly as each user browses the site. A number of micro payment schemes are emerging. Sierra OnLine. the proposed schemes vary widely and many kinks in the micro payment puzzle have to be worked out. tastes.E-COMMERCE TECHNOLOGY AND MANAGEMENT Clearly. the user’s geographic location. the elements of each page-text. For micro payments to work. and detailed information. the stories. a publisher planning to deploy a large product catalog will no longer have to author and update each individual Web page. applets. Instead. and preferences. The world of online entertainment-specifically “pay-for-play” outlets being developed by Sony. The page content can be further customized to reflect which Web browser is being used. Clearly publishers and developers should be thinking about low-value payments. and they are nowhere near that yet. video. That is. Content can now be created in realtime and transmitted on the fly in the format best suited to the user’s location.

This might be the ultimate objective. Using the Web to sell more products was an initial consideration. 150 ANNA UNIVERSITY CHENNAI .1 B2B . B2B E-Commerce could be used as a significant enabler in their move towards greater trading partner collaboration. Streamline the supply chain. and automate corporate processes to deliver the right products and services to customers quickly and cost-effectively.DBA 1727 NOTES 2. E-Commerce technologies have allowed even the smallest businesses to improve the processes for interfacing with customers. retain. The two businesses pass information electronically to each other. and procurement processes.5 B2B E-COMMERCE 2. E-Commerce can be used in the following processes: • • • Procurement. In the past EDI was conducted on a direct link of some form between the two businesses where as today the most popular connection is the internet. B2B E-Commerce is synonymous with the vision of integrated supply chains. manufacturing. They are now able to develop services for individual clients rather than provide a standard service. and cultivate relationships with customers.5. Pentwyn Splicers based in Pontypool manufacture pneumatic splicers for the UK and world textile market. B2B e-commerce currently makes up about 94% of all e-commerce transactions. Typically in the B2B environment. in the short term. Managing trading-partner relationships. develop. For many Welsh SMEs. order fulfilment. They evaluated all aspects of their business process to determine where the greatest return could be obtained. but it was in the provision of customer service and support to their overseas distributors that the greatest benefits have been achieved.Business to Business E-Commerce E-commerce has been in use for quit a few years and is more commonly known as EDI (electronic data interchange). but. An alternative way of thinking of B2B eCommerce is to think of it as being used to: • • Attract.

business e-commerce is likely to maintain for enlarge is advantage for the foreseeable future: Electronic links between businesses are not new. b. information about customers and company operations. which now limit the extension of Internet EDI to unknown firms. Because the-economic factors affecting the adoption of e-commerce between businesses are such different from those affecting business-toconsumer ecommerce. The first factor. General Electric (GE). Business for business dominates the total value of e-commerce activity. such as questions of security and reliability. As a result. a defensive reaction A competitors engaging in commerce. electronic commerce clearly reduces these costs and thus drives its adoption. business-to. and Insistence by large businesses that all of their suppliers link into their e-commerce system as a condition of-doing business. which can extend from the supplier of raw materials to the final consumer. analyze. will have been overcome. in the form of electronic data interchange (EDI) supplied by value-added networks (VAN) operated over leased telephone lines. many barriers. in order to make better decisions. accounting for about 80 per cent at present. one of the largest EDI service suppliers. there will be a significant increase in business-to-business e-commerce as it draws in smaller second. estimates that 80 per cent of suppliers are not connected to an EDI system but rely on from. telephone or mail. makes use of the Transport Control Protocol/Internet Protocol (TCP/IP) to link automotive 151 ANNA UNIVERSITY CHENNAI . For example. and share.E-COMMERCE TECHNOLOGY AND MANAGEMENT • Capture. developed by the Automotive Industry Action Group (AIAG). NOTES In business-to-business electronic commerce businesses use the Internet to integrate the value. drives the second and third and will be explored in greater detail in the next chapter. Large manufacturing firms are the main users of EDI.and third-tier suppliers. three factors are likely to lead to e-commerce a reduction in transaction costs and improvement of product quality/customer service a. the US Automotive Network exchange (ANX). It is expected that by 2001-02. reduced transaction costs. However.added chain. Drivers and inhibitors of business-to-business electronic commerce in businessto-business e-commerce. They have existed for decades.

B2B can also describe marketing activities between businesses. For example. In addition. there is greater demand by final consumers for fast order fulfillment and the ability to track an order as it is being processed and delivered. Another example is the extension of EDI-type links via the Internet. they represent only the beginning of what is expected to be a wide number of new business-to-business opportunities. because many large business already have EDT’ systems in place. the new system will provide a single common system that can be extended to include all suppliers. In addition to migrating existing activity to e-commerce. Dispensing with the multiple networks and protocols that now link first-tier suppliers to OEMs. as the completed product is retailed to the end customer. though the term can be used to identify sales transactions between businesses (also referred to as 152 ANNA UNIVERSITY CHENNAI . new business—to-business products are being created which did not. 2. Ford and Chrysler).g. An example of a B2C transaction is a grocery store selling grain-fed chickens to a consumer.5.DBA 1727 NOTES suppliers to each other and to original equipment manufacturers (OEM) (e. are also experiencing growth as ecommerce increases. As businesses move to “build-to-order” processing and just-intime inventories. not just the final transactions that result from marketing. logistics and order fulfillment services. or could not. The volume of B2B transactions is much higher than the volume of B2C transactions. which is another company. in a typical supply chain there will be many B2B transactions but only one B2C transaction. a premium is placed on timely. Also. An example of a B2B transaction is a chicken feed company selling its product to a chicken farm. frequently by the same firm. The accessibility of the Internet makes electronic commerce realistic possibility for SMEs and is likely to lead to its widespread diffusion. Parcel delivery. exist before electronic commerce over the Internet made them economically viable. The largest impact of business –to – business e-commerce is likely to be on small and medium sized enterprises (SMEs). accurate inbound and outbound logistics.2 Automated Ecommerce Transactions It is a term also used in electronic commerce and to describe automated processes between trading partners. One reason for this is that businesses have adopted electronic commerce technologies in greater numbers than consumers. GM. spot markets that match buyers and sellers for a wide variety of goods ranging from electronic components to agricultural commodities to transportation futures have sprung up.

2. B2B applications will offer enterprises access to the following sorts of information: • • • • • • • • • • Product – specifications. promotions Supply chain process and performance – process descriptions. prices. costs Inventory – inventory levels. delivery time. sales terms and conditions Product process – capacities. carrying costs. “Business-to-business” can also refer to all transactions made in an industry value chain before the finished product is sold to the end consumer.330.E-COMMERCE TECHNOLOGY AND MANAGEMENT “institutional sales”). Business-to – business EC is expected to grow to $1. petrochemicals. and agriculture are the leading items in B2B EC. suppliers. Computing electronics.3 Characteristics of B2B EC Business – to – business electronic commerce implies that both the sellers and buyers are Business Corporation. partner roles and responsibilities. As Handfield and Nichols (1999) suggest. product plans Transportation – carriers. customer satisfaction NOTES 153 ANNA UNIVERSITY CHENNAI . schedules Competitor – benchmarking. For example. food. lead times.5.1 percent in 2000 and 9. shipping and warehousing. competitive product offerings. paper and office products. motor vehicles. a company selling photocopiers would more likely be a B2B sales organization than a B2C sales organization. performance measures.2 percent in 1997 to 2.9 billion by 2003 and continue to be the major share of the EC market (Free-man 1998. while business – to – consumer electronic commerce implies that the buyers are individual consumers. and other partners. commitments. utilities. Retter and Calyniuk 1998). The percentage of Internet – based B2B EC compared to total B2B commerce will expand from. resellers. locations Supply chain alliance – key contacts. market share Sales and marketing – point of seal (POS) . quality.4 percent in2003. Business-to-business EC covers a broad spectrum of applications that enable an enterprise or business to form electronic relationships with their distributors. sales history Customer – sales history and forecasts Supplier – product line and lead times.

The Business Marketing Association is the trade organization that serves B2B marketing professionals. It was founded in 1922 and offers certification programs. B2B marketing communications tactics generally include advertising. This is a statement of what you do and how you do it differently and better than your competitors. B2B Marketing Methodologies Positioning Statement An important first step in business to business marketing is the development of your positioning statement. facts and figures. There is usually a primary message that conveys more strongly to your customers what you do and the benefit it offers to them. often complicated by a longer sales cycle and multiple decision makers on the buyer’s side. and make sure you have all the infrastructure in place to support each stage of 154 ANNA UNIVERSITY CHENNAI . research services. each of which may have a number of supporting arguments.DBA 1727 NOTES 2. trade show support. conferences.5. public relations. build a comprehensive plan up front to target resources where you believe they will deliver the best return on investment. supported by a number of secondary messages. Building a campaign plan Whatever form your B2B marketing campaign will take. direct mail. The purpose of B2B marketing communications is to support the marketer’s sales effort and improve company profitability. industry awards and training programs.4 What is B2B Marketing Communications? B2B marketing communications is how businesses promote their products and services to other businesses using tactics other than direct sales. B2B marketing is generally considered to be more complex than B2C marketing. Developing your messages The next step is to develop your messages. sales collateral. and interactive services such as website design and search engine optimization. branding.

and if at all possible. campaign description. these are also referred to as “third-party” B2B marketplaces.make sure the entire organization is geared up to handle the inquiries appropriately. be it Cost Per Acquisition. Since the builders of such marketplaces primarily aim at facilitating buyer-seller interaction (in most cases without being a buyer or seller themselves). 2.5 E-Marketplace “E-” or “electronic” marketplace in a business-to-business context is primarily a large online platform (B2B portal) or website that facilitates interaction and/or transactions between buyers and suppliers at organizational or institutional rather than individual levels. graphical considerations. ANSI ASC X12 is a popular standard in North America. As well as focusing the agency on what’s important to you and your campaign. 155 NOTES ANNA UNIVERSITY CHENNAI . Typical elements to an agency brief are: Your objectives.5. product. Cost per Lead or tangible changes in customer perception. Measuring results The real value in results measurement is in tying the marketing campaign back to business results.and that doesn’t just include developing the lead . B2B standards UN/EDIFACT is one of the most well-known and established B2B standards. After all. corporate guidelines.E-COMMERCE TECHNOLOGY AND MANAGEMENT the marketing process . and any other supporting material and distribution. So always put metrics in place to measure your campaigns. measure your impact upon your desired objectives. Briefing an agency A standard briefing document is usually a good idea for briefing an agency. target audience. emerging B2B standard in the high tech industry. you’re not in the business of developing marketing campaigns for marketing sake. An approach like UN/CEFACT’s Modeling Methodology (UMM) might be used to capture the collaborative space of B2B business processes. it serves as a checklist of all the important things to consider as part of your brief. target market. your product positioning. RosettaNet is an XML-based.

Help the environment by using appropriate technology that is environmentally friendly Vertical e-Marketplace A vertical e-marketplace spans up and down every segment of one specific industry. Help buyers find new suppliers and vice versa 2. inventories and cycle times. Horizontal e-Marketplace A horizontal e-marketplace connects buyers and sellers across many industries. Help increase trade between distant geographies 4. Each level of the industry has access to every other level.DBA 1727 NOTES These marketplaces can do one or more of the following: 1. which greatly increases collaboration. the no-frills e-marketplace parallels the B2C offering of no-frills budget airlines. thereby reducing the need for outsourcing many products. regardless of industry and level within that industry. Buyers and sellers in the industry are connected to increase operating efficiency and decrease supply chain costs. Help increase the greenhouse gas emissions in the country 7. Mainly business and consumer articles. Therefore e-commerce is not well no where near the advanced technology that us in organizations use now a days. The subject of several Harvard and IMD articles/case-studies. No-frills e-Marketplace Developed in response to customers wanting to purchase products without service (or with very limited service). these items are in demand because they are crucial to the daily running of a business. This is possible because buying/selling items in a single industry standardizes needs. Help reduce the time and cost of interaction for B2B transactions 3. Help reduce the number of profits after tax 6. repair and operations) materials. Help manage payments and track orders for B2B transactions 5. The most common type of materials traded horizontally are MRO (maintenance. E-commerce has a variety of different opinions going out towards different people in different organization that are committed to such technology. no-frills B2B e-marketplaces enable the effective de-bundling of service from product via 156 ANNA UNIVERSITY CHENNAI . Many corporations have MRO materials bought directly on-line by the maintenance team in order to relieve the purchasing department.

Etymology The term “business-to-business” was originally coined to describe the electronic communication relations between businesses or enterprises in order to distinguish it from the communications between businesses and consumers (B2C).E-COMMERCE TECHNOLOGY AND MANAGEMENT clear “business rules. There have been a number of EDI standards developed in various industry sectors or within a specific country and there are complex committee structures and procedures to support them. It eventually came to be used in marketing as well. today it is widely used to describe all products and services used by enterprises. These elements together with the EDI Agreement are covered in detail in this lecture. EDI Standards At the heart of any EDI application is the EDI standard. This is one of the applications of E Commerce which makes Business to Business transactions possible over a network. Coding and structuring the documents for business transactions is no easy matter. However. EDI is the electronic exchange of business documents. The essence of EDI is the coding and structuring of the data into a common and generally accepted format -anything less is nothing more than a system of file-transfers. Let’s start with EDI Standards. NOTES 157 ANNA UNIVERSITY CHENNAI . the EDI networks and the EDI software that interfaces these two elements and the business applications. In this lecture we will discuss the EDI standards.6 EDI Standards EDI stands for Electronic Data Interchange. and other information in a public-standard format.5. data. initially describing only industrial or capital goods marketing. It cuts the cost of managing business-to-business transactions by eliminating the need for labor-intensive manual generation and processing of documents.” This provides the basis of differentiation from conventional B2B sales/purchasing channels. 2. Electronic data interchange (EDI) is a technology poised for explosive growth in use as the Internet provides an affordable way for businesses to connect and exchange documents with customers and suppliers of any size.

receiving computer system. agree a format that meets their mutual needs. To illustrate this. EDI provides an electronic linkage between two trading partners. see Interchanges between Customers and Suppliers.DBA 1727 NOTES Following on from the various sectorial and national EDI standards is the United Nations (UN) EDI Standard: EDIFACT. 158 ANNA UNIVERSITY CHENNAI . As the network of exchanges develops then the number of organizations needing to be party to the agreement grows. The network in is 12 separate interchanges. The computer systems that exchange data need a common format. assume a network of three customers (say supermarkets) ordering goods from four suppliers (food manufacturers). without a common format the data is meaningless. Business transactions are output from the sending computer system. with relative ease. transmitted or transported in electronic format and input into the second. Two organizations that exchange data can. This is the standard that should be adopted for any new EDI application. It is unlikely that each of these exchanges would have its own format but it is perfectly possible that each customer would have developed its own standards (giving each supplier three separate standards to cope with).

a standard for data interchange that is: • • • • Ready formulated and available for use. National and Sectorial Standards Evolution of EDI Standards The first EDI standards evolved from the formats used for file transfer of data between computer applications. 2. Most of the work on EDI standards has been concerned with the interchange of trade documentation and financial transactions but the principle applies to any interchange where the data can be systematized and codified. The concept of EDI as an application independent interchange standard evolved and several industry sector and / or national standards bodies developed EDI standards to meet the needs of a specific user community. The EDI standard provides. EDI standards overcome these difficulties. The first formats that might properly be called EDI were developed by organizations that had to process data from a large number of customer organizations.E-COMMERCE TECHNOLOGY AND MANAGEMENT It is also possible that new exchanges added to the system will have requirements not envisaged when the data formats were originally agreed. Independent of hardware and software. 159 ANNA UNIVERSITY CHENNAI . Comprehensive in its coverage of the data requirements for any given transaction. EDI standards are used for the interchange of information as diverse as weather station readings and school exam results. this would require a change to the existing standard or the introduction of an additional standard. The evolution of EDI standards can be seen as having three stages (although in practice it was and is somewhat more complex than that): 1. Independent of the special interest of any party in the trading network. or attempts to provide. The overall picture is one of unnecessary complexity and incompatibility. NOTES EDI Standards provide a common language for the interchange of standard transactions. Now let’s see how the various standards evolve. The data recipients set the standard and the customers conformed to it.

customs authorities. In addition to the problem of cross sector trade there is a desire to use EDI for international trade. as electronic trade developed to cover wider trading relationships there is a growing problem of trade between organisations using different EDI standards. 160 ANNA UNIVERSITY CHENNAI . obsolete. The International EDI Standard As already outlined.Business Actions Business – to-business auctions are growing very rapidly due to the following benefits they provide: Generating Revenue • • New sales channel that supports existing online sales.7 Business . International trade also requires a great deal of additional documentation for shipping. This (sensibly) requires a common format for the exchange of the standard business forms (order. etc. under the auspices of the United Nations (UN). as a universal standard for commercial EDI. EDIFACT is the United Nations standard of Electronic Data 2. For example. The use of sector and national standards for this type of trade was satisfactory. New venue for disposing of excess.DBA 1727 NOTES 3. To facilitate this cross sector and international development of EDI the EDIFACT standard has been. international credit arrangements. However. The requirements of international and cross sector trade meant that the sector and national standards were becoming an impediment to the further development of electronic trading. developed. EDIFACT was developed. doubled its customer base when it started auctions. invoice. Weirton steel Corp. EDI developed in closed user communities within trade sectors and / or national boundaries. etc. and returned products quickly and easily.TO . and is being.) between organisations in differing countries.5.all of this is potentially electronic and obviously a common format is very desirable. .

There are three major types of B2B auctions according to Forrester Research: 1. 3. www. www. (e. Some of these services are provided by intermediaries. for selling obsolete computer equipment to its regular business customers.metalsite. NOTES Acquiring and Retaining Members • All bidding transactions result in additional registered members. utilities.autionblock.com.net) is a global non-profit membership organization that aims to meet the needs of companies doing EC. Private auctions by invitation only.. others by specialists.com.net and www. Here are some examples.auctionagate.fairmarket. 2.com.8 Business – TO – Business Services Many companies provide services that are intended to facilitate B2B. access energy. For example.fastparts. Typical intermediaries are www. Ingram Micro has its own site. and telecommunications are sold at www. It targets promoting and supporting emerging communities of EC.commerce.band – x. The Dutch flower market is another example. Auction users spend more time on a site and generate more page views than other users.com). Commodity auctions.imx exchange. 161 ANNA UNIVERSITY CHENNAI . www. 2. In this case many buyers and sellers come together to a third – party Web site.5. Several companies by pass the intermediaries and auction their products by themselves.E-COMMERCE TECHNOLOGY AND MANAGEMENT Increasing Page Views • Auctions give “stickiness”. CommerceNet established a forum for companies doing EC to meet and exchange their experiences. CommerceNet CommerceNet (www.com. In this case companies use a third – party auctioneer to create the site and sell the goods.g. Independent auctions. and www.com. while introducing the latest technology to them to facilitate their business.

car. operated by Thomas Publishing Co. EC and Retailing: Retailing is expected to change with the rapid development of new online sales and distribution channels that literally can be used from anywhere. ConnectUS provides all the necessary information that supports card purchasing and facilities trades done EDI.thomasregister.com and www. or airplane. The service may cut up to 90 percent of the transaction cost for the average ($150) purchase. which are difficult to audit. anytime-from work. not dealing with any of the individual transactions. ConnectUS also aids companies in overcoming the shortfalls of purchasing card programs. It is basically for – fee database. and other interested parties on an annual fee basis.com systems. CommerceNet also certifies Internet-enabled EDI products. which can be buyer or supplier companies. is open to buying and selling organizations. 162 ANNA UNIVERSITY CHENNAI . catalogue retailing. However. school. financial institutions. technology providers. These developments should impact retailing as much as the advent of strip malls. In fact. Summary 1. Open Buying on the Internet The Open Buying on the Internet (OBI) Consortium (www. CommerceNet mainly acts as a services provider. Membership in the consortium. an independent collaborative managed by CommerceNet. sometimes resulting in vendor overpayment. a hotel. The service is now as part of www. ConnectUS ConnectUS is an online service designed for use by companies paying with corporate purchasing cards. allowing companies to search for suppliers anywhere in the world.openbuy.geis. and TVbased home shopping.DBA 1727 NOTES It does contain information about members.org) is a non-profit organization dedicated to developing open standards for B2B Internet commerce. and General Electric Information Systems. no specific product information is stored in its database.

and on-line delivery of media content such as videos.E-COMMERCE TECHNOLOGY AND MANAGEMENT 2. Low Cost Entry. etc We organize e-services into the following categories. There is a wide range of eservices currently offered through the internet and these include banking. stock trading. 5. Speed. products. Up-to-date Status and Alerts. on-line publishing. namely Web-enabling services. Global Reach. and basic economic restructuring. broker services. There are several models for e-retailing and these include Specialized e-store Generalized e-store E-mall Direct selling by the manufacturer Supplementary distribution channel E-broker E-services Internet Marketing: Internet marketing is the process of building and maintaining customer relation-ships through online activities to facilitate the exchange of ideas. education. there is an enormous groundswell of interest among both commercial and corporate publishers in the Web. 163 ANNA UNIVERSITY CHENNAI . rapid deregulation of many parts of finance. Matchmaking services. E-Services: The delivery of services via the internet to consumers or other businesses can be referred to by the generic term of e-services. insurance. EC and On-line publishing: The Web may have blossomed because of peer-topeer publishing. Convenience. E-commerce Sales strategy: There are several major advantages to developing an e-commerce sales strategy: Efficiency. the emergence of new banking institutions. computer games. real estate. and services that satisfy the goals of both parties. NOTES 3. 4. Entertainment services. but judging from recent product offerings. 7. travel. consultancy advice. loans. 6. Specialized services such as auctions EC in Banking: The role of electronic commerce in banking is multifaceted impacted by changes in technology. Accuracy. jobs and career sites.

B2B EC: In business-to-business electronic commerce businesses use the Internet to integrate the value. 8.added chain. 12. What is E-Marketplace in a B2B EC? Discuss B2B auctions and B2B services 164 ANNA UNIVERSITY CHENNAI . 3. How do you differentiate between traditional and E retailing? What are the benefits of E retailing for a customer? What are the benefits of E retailing for a business? Describe the several models of E-retailing? What is Internet Marketing? What are the E-Business issues? What is CRM? What are the critical success factors for internet marketing executives/? Discuss about the wide variety of E-Services? How do you find E-education to be better than the traditional one? What are the advantages of E-banking? What is On-line banking? Discuss the management issues in On-Line banking? Discuss about on-line publishing and its strategies What is B2B EC? List the characteristics of B2B EC. 10. 16. 7. 11. 4. Business for business dominates the total value of ecommerce activity. 13. 2. which can extend from the supplier of raw materials to the final consumer. accounting for about 80 per cent at present. 5. 15. 6.DBA 1727 NOTES 8. Questions for review 1. 14. 9.

movies. . It is a “network of networks” that consists of millions of smaller domestic.1 What is the Internet? The Internet is a worldwide. file sharing. online gaming and others described below. ). The Internet is a collection of interconnected computer networks. file transfer.1. along with various others including e-mail. It supports: • Multimedia Information (text. linked by hyperlinks and URLs. fiber-optic cables. which together carry various information and services. the Web is a collection of interconnected documents and other resources. academic. World Wide Web is an example of an information protocol/service that can be used to send and receive information over the Internet. In contrast. are examples of Internet service providers. programs . etc. . such as electronic mail.1 INTERNET 3. The World Wide Web is one of the services accessible via the Internet. pictures. sound. online chat. etc. They make it physically possible for you to send and access data from the Internet. and government networks. and the interlinked web pages and other resources of the World Wide Web (WWW).E-COMMERCE TECHNOLOGY AND MANAGEMENT UNIT III NOTES E-COMMERCE INFRASTRUCTURE 3. 165 ANNA UNIVERSITY CHENNAI . The Internet and the World Wide Web are not synonymous. Earthlink. linked by copper wires. publicly accessible series of interconnected computer networks that transmit data by packet switching using the standard Internet Protocol (IP). They allow you to send and receive data to and from their computers or routers which are connected to the Internet. Comcast. America Online. business. wireless connections.

One popular component of the Internet is electronic mail. Firefox. just like Lotus 123 and Excel are both spreadsheet software packages. The server software for the World Wide Web is called an HTTP server (or informally a Web server). the Internet also allows organizations and individuals to post information about themselves so that others can see it. Safari. and many homes use the Internet to communicate with one another. For example. or ISP.canada) specifies the individual user. Internet Explorer. Examples are Apache and IIS. 3. a device that allows you to connect your computer with the Internet. many companies post pictures and descriptions on World 166 ANNA UNIVERSITY CHENNAI . each of these people has an e-mail address. or e-mail. You have access to the Internet when you work in one of this university’s computer labs. In general. you need to subscribe to an Internet Service Provider. Many new computers also come with a browser.mark. such as America Online or Carolina Online. you can obtain access once you have three things.edu). businesses. The client software for World Wide Web is called a Web browser.1. Finally.DBA 1727 NOTES • • Hypertext Information (information that contains links to other information resources) Graphic User Interface (so users can point and click to request information instead of typing in text commands). Second. you need a computer and a modem. government offices. Schools. usually Internet Explorer. You also can download another popular browser. which people at separate locations can use to send messages to one another.edu. Examples are: Netscape. from the Internet for free. The first part of the address (.canada@uncp. and the rest of the address refers to the server (uncp. Many new computers have built-in modems. If not. These examples are particular “brands” of software that have a similar function. In addition to allowing people to send e-mail messages to one another. You also may have access at home or in your residence hall. Netscape Navigator. which usually looks something like this: mark. a piece of software that allows you to view information on the Internet. and Mozilla. First. you need a browser.2 Internet Structure The Internet is an international network of computers connected by wires such as telephone lines. which is a computer that can store a lot of information.

(ii) interpersonal communication.g. First. and the name of the specific article they want to read. When people want to read your Web page (article). The World Wide Web works the same way.e. and the filename of the particular Web page (name of article). (iv) research (i. who would then place it in your folder. or URL. entertainment). Technological neutrality. When people wanted to read one of these articles. the name of your folder. you give it a filename (name) and publish it on the server (send it to the library). The company (librarian) then assigns you a directory (folder) where it will store your Web pages (articles). Originally a military communication’s network it is now routinely used for five types of operations: (i) long-distance transactions (e.3 The Internet and its Characteristics The Internet by the late 1990s has evolved into a complex environment. (v) remote data access and downloading. The Internet is a dynamic and mercurial system endowed with a number of traits. (iii) data storage. form-filling.1. NOTES 167 ANNA UNIVERSITY CHENNAI . name of your directory (name of your folder).E-COMMERCE TECHNOLOGY AND MANAGEMENT Wide Web sites. remote work. you can set up your own World Wide Web site by reserving space on a server. In fact. First you need to identify an Internet company (librarian) and ask permission to save Web pages (articles) on its server (library). you would put a name on it and send it to the librarians. who would assign you a folder where they would store your articles. To understand how this process works. data finding). they would need to know the address of the library. imagine that you wanted to store some articles you have written at a library so that people could come and read them. they need your Web address. e-commerce. 3. The Internet joins together computers of various sizes and architectures. They may run on various operating systems and utilise a great variety of communication links. you would need to obtain permission from the librarians. sometimes called a Uniform Resource Locator. Whenever you finished a new article. the librarian would give them the article they want. As you create each Web page (article). These are: 1. When they supplied this information. The URL consists of the domain name of the server (address of the library).

Gopher. Internet culture owes Unix a major debt in the four areas. Internet operations piggyback on already existing solutions. WWW. growing. Java language UNIX The foundations of an operating system called Unix were laid at AT&T Bell Laboratories in 1969. WAIS. to handle unexpected interruptions and interferences.DBA 1727 NOTES 2. They rely on modularised. Listserv Mailing List Software. File Transfer Protocol. and easy-to-upgrade off-the-shelf software and hardware. It is an energetic. 168 ANNA UNIVERSITY CHENNAI . community fostering. Internet Relay Chat. Usenet newsgroups. 3. Built-in piecemeal change and evolution. and the sturdiness of related software are designed to eliminate errors. configurable. openness and extensibility. the multiplicity of routes followed by the packet-switched data. It is a network which is geared to expansion and growth. This means that Internet-enabled tools are deployed in ever growing numbers in an ever widening range of environments 3. telecommunication networks). modularisation and low cost of the system is coupled with the growing densities of dedicated computer lines. Whenever possible. easy-to-replace. network backbones.1. 4. Unix is not a product of Internet culture. Telnet. and self-refining system. 5. The robustness. These conceptual and procedural debts are: multitasking.4 The Internet Tools and their Characteristics The evolution of the Internet is punctuated by the introduction and mass acceptance of such key resources and tools as Unix. The Internet makes new uses of old technologies (standalone computers. polycentric. and public access to the source code. The Internet is not a one-off development. It is a system which scales up extremely well. complex. Robustness and reliability. and more recently by the Altavista search engine. Let’s briefly look at each of these debts. Email. Low cost. Ubiquity. It is its catalyst and cornerstone. All basic technical features of the Net such as the TCP/IP (transfer control protocol/internet protocol) (Kessler and Shepard 1997). as well as wired and wireless phone networks. operating systems. to advise users of encountered difficulties and to recover gracefully from any disasters and down-times.

with the use of multi-recipient mailing lists electronic mail could be used for simple multicasting of messages in the form of one-to-many transmissions. Unix was the first operating system which demonstrated in practical terms robustness and tolerance for the variety of it’s users simultaneous activities. TCP/IP) networks (Laursen 1997). Within this framework messages were now able to chase their individual recipients anywhere in the world. such as documents with complex formatting. Email Email is the first of the Internet’s tools dedicated to the provision of fast. simple and global communication between people. Later. NOTES 169 ANNA UNIVERSITY CHENNAI . the wide-area array of sites collating and swapping UUCP-based messages was pioneered in 1979.e. It was to be used by people who did not have ready access to the TCP/IP protocol and yet wanted to discuss their various Unix tools. Usenet Newsgroups Usenet (Unix Users Network). It was only in 1987 that the NNTP (Network News Transfer Protocol) was established in order to enable Usenet to be carried on the Internet (i. numbers and graphic files. This simple function was subsequently augmented by email’s ability to handle various attachments. In most general terms it means that several users could simultaneously operate within a single environment and that the system as a whole coped well with this complicated situation. The initial format of email communication was that of a one-to-one exchange of electronic messages. This revolutionary client/server software implied for the first time that individuals (both as persons and roles) could have their unique electronic addresses. Usenet was originally conceived as a surrogate for the Internet (then called ARPANET).E-COMMERCE TECHNOLOGY AND MANAGEMENT Unix was one of the first operating systems which embodied the principle of multitasking (time-sharing).

nevertheless integrated a motley collection of online resources into a single. ability to do the work as telecommuters. This approach. File Transfer Protocol The FTP client/server technology was first introduced in 1985 (Barnes 1997). the rapid proliferation in the number of public access FTP archives all over the world necessitated techniques for keeping an authoritative. cohesive.all at a distance. limited public access) techniques as a way of coping with the mounting general requests for access to the archived information. Firstly. In short. Secondly. as well as deposit (within the context of a dedicated area) new digital material. programs. and statistical packages run against numeric data . However. the FTP software would not let them wander across other parts of the host. 1995) and its many mirrors. 170 ANNA UNIVERSITY CHENNAI . that is. text files. results of all these and other operations could be remotely directed to a printer or via FTP to another networked computer. albeit encumbered by the need to give explicit instructions as to which of the FTP systems need to be monitored.g.e. Archie used an automated process which periodically scanned the entire contents of all known “anonymous FTP” sites and report findings back to its central database. Telnet gave us the ability to engage in long distance man-machine transactions. FTP archives promoted the use of anonymous login (i. nor did the visitors have the right to change any component part of the accessed electronic archive. up-to-date catalogue of their contents. Usenet flame wars indulged in. This was accomplished through the Archie database (Deutsch et al. image files). Moreover.DBA 1727 NOTES Telnet The networking tool called Telnet was invented in 1980 (Postel 1980). copy relevant files. Its usefulness to Internet culture is three-fold. Thirdly. Thereby files and directories could be established. That novel technique placed electronic visitors in a strictly circumscribed work environment. renamed and deleted. electronic mail read and dispatched. the FTP was a first widely-accepted tool for systematic permanent storage and world-wide transmission of substantial electronic information (e. There they could browse through data subdirectories. It allowed people (with adequate access rights) to login remotely into any networked computer in the world and to employ the usual gamut of computer commands. distributed information system.

nd. BernersLee. and infinitely extendable information space. Hypertext itself is not an new idea. Secondly. was the first hypertext technology applied to distributed online information. and again in the 1965 by Theodor Nelson who embarked on the never-completed Project Xanadu (Nielsen 1995. of a 19th century scholarly monograph. Gilster 1997:267). The hypertext notions of a home page and links spanning the entire body of data was first successfully employed on a small.5 Web based Client/Server Gopher Gopher client/server software was used for the first time in 1991 (La Tour nd. World Wide Web Server The first prototype of the WWW server was built in 1991 (Cailliau 1995. Firstly. Liu. such as footnotes. unified environment for handling an array of other electronic tools. image) document could act as a portal leading directly to any other nominated segment of any other document anywhere in the world. The WWW server is an invention which has redefined the way the Internet is visualized by its users. The WWW however. Berners-Lee 1998). including in the 1945 by Vannevar Bush of the Memex fame. Gopher was the first ever tool capable of the creation and mapping of a rich. 171 NOTES ANNA UNIVERSITY CHENNAI . compiled in 1674 by Louis Moreriego. appendices and references. 1994). such as Telnet. In short. large-scale.E-COMMERCE TECHNOLOGY AND MANAGEMENT 3. the WWW server introduced to the Internet the powerful point-and-click hypertext capabilities. C. Gopher acted as electronic glue which seamlessly linked together archipelagos of information tracked by and referenced by other gopher systems. It is also evident in the apparatus. FTP and WAIS. et al. This invention was previously theoretically anticipated by a number of writers. or John Harris’ Lexicon Technicum which was published in 1704 (PWN 1964). Firstly. It is already implicitly present (albeit in an imperfect because a paperbased form) in the first alphabetically ordered dictionaries such as Grand dictionnaire historique. standalone scale in 1986 in the Macintosh software called Hypercard (Goodman 1987). commentaries. The hypertext principle as employed by the WWW server meant that any part of any text (and subsequently. It was a ground-breaking development on two accounts. it acted as a predictable.1.

Thirdly. This situation has changed only with the introduction of PC-based Web browsers with user-friendly. text. Lynx (which is an ASCII. graphics-interfaces. but also the whole body of online information which could accessed by all those tools. Moreover. (c) as a tool for building the internal (i. The HTML language could be used in three different yet complementary ways: (a) as a tool for establishing the logical structure of a document. images. the WWW server introduced an explicit address for subsets of information. several editions of Netscape and Explorer Each of the Web browsers. was also a powerful electronic glue which smoothly integrated not only most of the existing Internet tools (Email. since 1994. The interlocking features of the hypertext. Telnet-based client software). blindingly fast and infinitely complex cyberspace. However. sound) data within the framework of a single online document. Usenet. (b) as a tool for shaping the size. who initially regarded the WWW as a mere (and possibly clumsy) variant of the then popular Gopher technology.DBA 1727 NOTES Secondly. World Wide Web Browsers The principle of a client/server division of labour was put to work yet again in the form of a series of WWW browsers such as Mosaic (built in 1993). animations.with the same ease . or . (b) the 172 ANNA UNIVERSITY CHENNAI . the revolutionary strengths of the Web have not been immediately obvious to the most of the Internet community. provided Internauts with series of novel capabilities. Common and simple addressing methodology (Universal Resource Locater [URL] scheme) enabled users to uniquely identify AND access any piece of networked information anywhere in the document. like gopher before it. video. simple. Telnet. surprisingly. as well as. within the same document) and external (to a different document residing on the same or totally different server) hypertext connections. These are: (a) an ability to handle multi-format. which constitutes a deliberately simplified and thus very fast software. except for Lynx. have laid foundations for today’s global. Listservs FTP. Viola. not WAIS). the World Wide Web. Erwise. appearance and layout of lines of text on the page. the WWW provided a common. and Gopher (but. URLs and the markup language. or anywhere on one’s computer. Cello.anywhere in the world. IRC.e. effective and extendable language for document markup. or multimedia (numbers.

The protocol layers used in the Internet architecture are as follows Application Layer The Application Layer is the top layer of the Internet protocol suite.1. although some application layer protocols do contain some internal sub-layering. save and display the full HTML source code for any and all of the published web documents. (d) ability to acquire. (c) the ability to use the browser as a WYSIWYG (“what you see is what you get”) tool for crafting and proofreading of the locally created HTML pages on a user’s PC. and support protocols that provide common system functions.Presentation and Application . a host must implement the layered set of protocols comprising the Internet protocol suite.6 Elements of Internet Architecture • • • • Protocol Layering Networks Routers Addressing Architecture NOTES Protocol Layering To communicate using the Internet system. The application layer of the Internet suite essentially combines the functions of the top two layers . The most common Internet user protocols are: 173 ANNA UNIVERSITY CHENNAI . We distinguish two categories of application layer protocols: user protocols that provide service directly to users. 3. The Internet suite does not further subdivide the Application Layer.E-COMMERCE TECHNOLOGY AND MANAGEMENT ability to configure and modify the appearance of received information in a manner which best suits the preferences of the reader. A host typically must implement at least one protocol from each layer.of the OSI Reference Model [ARCH:8]. The Application Layer in the Internet protocol suite also includes some of the function relegated to the Session Layer in the OSI Reference Model.

type-of-service specification. and the set of official Internet transport protocols may be expanded in the future. 174 ANNA UNIVERSITY CHENNAI . providing no end-to-end delivery guarantees. except that it also incorporates some of OSI’s Session Layer establishment and destruction functions. and management include SNMP. out of order. used for host name mapping. Transport Layer The Transport Layer provides end-to-end communication services.DBA 1727 NOTES • • • Telnet (remote login) FTP (file transfer) SMTP (electronic mail delivery) There are a number of other standardized user protocols and many private user protocols. IP datagrams may arrive at the destination host damaged. Support protocols. and security. resequencing. duplicated. booting. fragmentation and reassembly. and flow control. The IP protocol includes provision for addressing. This layer is roughly equivalent to the Transport Layer in the OSI Reference Model. the Domain Name System (DNS) protocol. Other transport protocols have been developed by the research community. and a variety of routing protocols. BOOTP. TFTP. IP is a connectionless or datagram internetwork service. UDP is a connectionless (datagram) transport service. There are two primary Transport Layer protocols at present: • • Transmission Control Protocol (TCP) User Datagram Protocol (UDP) TCP is a reliable connection-oriented transport service that provides end-to-end reliability. or not at all. Internet Layer All Internet transport protocols use the Internet Protocol (IP) to carry data from source host to destination host. The layers above IP are responsible for reliable delivery service when it is required.

E-COMMERCE TECHNOLOGY AND MANAGEMENT The datagram or connectionless nature of IP is a fundamental and characteristic feature of the Internet architecture. a host must implement the communication protocol used to interface to that network. Some older Internet documents refer to this layer as the Network Layer. The Internet Control Message Protocol (ICMP) is a control protocol that is considered to be an integral part of IP. Internet Link Layer standards usually address only address resolution and rules for transmitting IP packets over specific Link Layer protocols. Its responsibility is the correct delivery of messages. ICMP provides error reporting. although it is architecturally layered upon IP . among which it does not differentiate. This layer contains everything below the Internet Layer and above the Physical Layer (which is the media connectivity. We call this a Link Layer protocol. congestion reporting. Link Layer To communicate on a directly connected network. and first-hop router redirection. but it is not the same as the Network Layer in the OSI Reference Model.it uses IP to carry its data end-to-end. normally electrical or optical. which encodes and transports messages). Thus. The Internet Group Management Protocol (IGMP) is an Internet layer protocol used for establishing dynamic host groups for IP multicasting. Protocols in this Layer are generally outside the scope of Internet standardization. the Internet (intentionally) uses existing standards whenever possible. NOTES 175 ANNA UNIVERSITY CHENNAI .

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Networks The constituent networks of the Internet system are required to provide only packet (connectionless) transport. According to the IP service specification, datagrams can be delivered out of order, be lost or duplicated, and/or contain errors. For reasonable performance of the protocols that use IP (e.g., TCP), the loss rate of the network should be very low. In networks providing connection-oriented service, the extra reliability provided by virtual circuits enhances the end-end robustness of the system, but is not necessary for Internet operation. Constituent networks may generally be divided into two classes: • Local-Area Networks (LANs) LANs may have a variety of designs. LANs normally cover a small geographical area (e.g., a single building or plant site) and provide high bandwidth with low delays. LANs may be passive (similar to Ethernet) or they may be active (such as ATM). Wide-Area Networks (WANs) Geographically dispersed hosts and LANs are interconnected by wide-area networks, also called long-haul networks. These networks may have a complex internal structure of lines and packetswitches, or they may be as simple as point-to-point lines.

Routers In the Internet model, constituent networks are connected together by IP datagram forwarders which are called routers or IP routers. In this document, every use of the term router is equivalent to IP router. Many older Internet documents refer to routers as gateways. Historically, routers have been realized with packet-switching software executing on a general-purpose CPU. However, as custom hardware development becomes cheaper and as higher throughput is required, special purpose hardware is becoming increasingly common. This specification applies to routers regardless of how they are implemented. A router connects to two or more logical interfaces, represented by IP subnets or unnumbered point to point lines . Thus, it has at least one physical interface. Forwarding an IP datagram generally requires the router to choose the address and relevant interface of


the next-hop router or (for the final hop) the destination host. This choice, called relaying or forwarding depends upon a route database within the router. The route database is also called a routing table or forwarding table. The term “router” derives from the process of building this route database; routing protocols and configuration interact in a process called routing. The routing database should be maintained dynamically to reflect the current topology of the Internet system. A router normally accomplishes this by participating in distributed routing and reachability algorithms with other routers. Routers provide datagram transport only, and they seek to minimize the state information necessary to sustain this service in the interest of routing flexibility and robustness. Packet switching devices may also operate at the Link Layer; such devices are usually called bridges. Network segments that are connected by bridges share the same IP network prefix forming a single IP subnet. These other devices are outside the scope of this document. 3.1.7 Common uses of the Internet E-mail The concept of sending electronic text messages between parties in a way analogous to mailing letters or memos predates the creation of the Internet. Even today it can be important to distinguish between Internet and internal e-mail systems. Internet e-mail may travel and be stored unencrypted on many other networks and machines out of both the sender’s and the recipient’s control. During this time it is quite possible for the content to be read and even tampered with by third parties, if anyone considers it important enough. Purely internal or intranet mail systems, where the information never leaves the corporate or organization’s network, are much more secure, although in any organization there will be IT and other personnel whose job may involve monitoring, and occasionally accessing, the e-mail of other employees not addressed to them. The World Wide Web Many people use the terms Internet and World Wide Web (or just the Web) interchangeably, but, as discussed above, the two terms are not synonymous.



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The World Wide Web is a huge set of interlinked documents, images and other resources, linked by hyperlinks and URLs. These hyperlinks and URLs allow the web servers and other machines that store originals, and cached copies, of these resources to deliver them as required using HTTP (Hypertext Transfer Protocol). HTTP is only one of the communication protocols used on the Internet. Web services also use HTTP to allow software systems to communicate in order to share and exchange business logic and data. Software products that can access the resources of the Web are correctly termed user agents. In normal use, web browsers, such as Internet Explorer and Firefox, access web pages and allow users to navigate from one to another via hyperlinks. Web documents may contain almost any combination of computer data including photographs, graphics, sounds, text, video, multimedia and interactive content including games, office applications and scientific demonstrations.

Through keyword-driven Internet research using search engines like Yahoo! and Google, millions of people worldwide have easy, instant access to a vast and diverse amount of online information. Compared to encyclopedias and traditional libraries, the World Wide Web has enabled a sudden and extreme decentralization of information and data. It is also easier, using the Web, than ever before for individuals and organizations to publish ideas and information to an extremely large audience. Anyone can find ways to publish a web page or build a website for very little initial cost. Publishing and maintaining large, professional websites full of attractive, diverse and up-to-date information is still a difficult and expensive proposition, however. Many individuals and some companies and groups use “web logs” or blogs, which are largely used as easily updatable online diaries. Some commercial organizations encourage staff to fill them with advice on their areas of specialization in the hope that visitors will be impressed by the expert knowledge and free information, and be attracted to the corporation as a result. One example of this practice is Microsoft, whose product developers publish their personal blogs in order to pique the public’s interest in their work. Collections of personal web pages published by large service providers remain popular, and have become increasingly sophisticated. Whereas operations such as Angelfire


and GeoCities have existed since the early days of the Web, newer offerings from, for example, Facebook and MySpace currently have large followings. These operations often brand themselves as social network services rather than simply as web page hosts. Advertising on popular web pages can be lucrative, and e-commerce or the sale of products and services directly via the Web continues to grow. In the early days, web pages were usually created as sets of complete and isolated HTML text files stored on a web server. More recently, websites are more often created using content management system (CMS) or wiki software with, initially, very little content. Contributors to these systems, who may be paid staff, members of a club or other organization or members of the public, fill underlying databases with content using editing pages designed for that purpose, while casual visitors view and read this content in its final HTML form. There may or may not be editorial, approval and security systems built into the process of taking newly entered content and making it available to the target visitors. Remote access The Internet allows computer users to connect to other computers and information stores easily, wherever they may be across the world. They may do this with or without the use of security, authentication and encryption technologies, depending on the requirements. This is encouraging new ways of working from home, collaboration and information sharing in many industries. An accountant sitting at home can audit the books of a company based in another country, on a server situated in a third country that is remotely maintained by IT specialists in a fourth. These accounts could have been created by home-working bookkeepers, in other remote locations, based on information e-mailed to them from offices all over the world. Some of these things were possible before the widespread use of the Internet, but the cost of private leased lines would have made many of them infeasible in practice. An office worker away from his desk, perhaps on the other side of the world on a business trip or a holiday, can open a remote desktop session into his normal office PC using a secure Virtual Private Network (VPN) connection via the Internet. This gives the worker complete access to all of his or her normal files and data, including e-mail and other applications, while away from the office.



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This concept is also referred to by some network security people as the Virtual Private Nightmare, because it extends the secure perimeter of a corporate network into its employees’ homes; this has been the source of some notable security breaches, but also provides security for the workers. Collaboration The low cost and nearly instantaneous sharing of ideas, knowledge, and skills has made collaborative work dramatically easier. Not only can a group cheaply communicate and test, but the wide reach of the Internet allows such groups to easily form in the first place, even among niche interests. An example of this is the free software movement in software development, which produced GNU and Linux from scratch and has taken over development of Mozilla and OpenOffice.org (formerly known as Netscape Communicator and StarOffice). Films such as Zeitgeist, Loose Change and Endgame have had extensive coverage on the Internet, while being virtually ignored in the mainstream media. Internet “chat”, whether in the form of IRC “chat rooms” or channels, or via instant messaging systems, allow colleagues to stay in touch in a very convenient way when working at their computers during the day. Messages can be sent and viewed even more quickly and conveniently than via e-mail. Extension to these systems may allow files to be exchanged, “whiteboard” drawings to be shared as well as voice and video contact between team members. Version control systems allow collaborating teams to work on shared sets of documents without either accidentally overwriting each other’s work or having members wait until they get “sent” documents to be able to add their thoughts and changes. File sharing A computer file can be e-mailed to customers, colleagues and friends as an attachment. It can be uploaded to a website or FTP server for easy download by others. It can be put into a “shared location” or onto a file server for instant use by colleagues. The load of bulk downloads to many users can be eased by the use of “mirror” servers or peer-to-peer networks.




In any of these cases, access to the file may be controlled by user authentication; the transit of the file over the Internet may be obscured by encryption, and money may change hands before or after access to the file is given. The price can be paid by the remote charging of funds from, for example, a credit card whose details are also passed— hopefully fully encrypted—across the Internet. The origin and authenticity of the file received may be checked by digital signatures or by MD5 or other message digests. These simple features of the Internet, over a worldwide basis, are changing the basis for the production, sale, and distribution of anything that can be reduced to a computer file for transmission. This includes all manner of print publications, software products, news, music, film, video, photography, graphics and the other arts. This in turn has caused seismic shifts in each of the existing industries that previously controlled the production and distribution of these products. Internet collaboration technology enables business and project teams to share documents, calendars and other information. Such collaboration occurs in a wide variety of areas including scientific research, software development, conference planning, political activism and creative writing. Streaming media Many existing radio and television broadcasters provide Internet “feeds” of their live audio and video streams (for example, the BBC). They may also allow time-shift viewing or listening such as Preview, Classic Clips and Listen Again features. These providers have been joined by a range of pure Internet “broadcasters” who never had on-air licenses. This means that an Internet-connected device, such as a computer or something more specific, can be used to access on-line media in much the same way as was previously possible only with a television or radio receiver. The range of material is much wider, from pornography to highly specialized, technical web casts. Pod casting is a variation on this theme, where—usually audio—material is first downloaded in full and then may be played back on a computer or shifted to a digital audio player to be listened to on the move. These techniques using simple equipment allow anybody, with little censorship or licensing control, to broadcast audio-visual material on a worldwide basis. Webcams can be seen as an even lower-budget extension of this phenomenon. While some webcams can give full-frame-rate video, the picture is usually either small or




but it is not universally available. the traffic at a local roundabout or their own premises. Remaining problems for VoIP include emergency telephone number dialling and reliability. if users do sign up they are able to upload an unlimited amount of videos and they are given their own personal profile. It is currently estimated that there are 64. The benefit is that. Traditional phones are line-powered and operate during a power failure. with and without two-way sound. Internet users can watch animals around an African waterhole. and it is also currently estimated that 825. VoIP does not do so without a backup power source for the electronics. Voice telephony (VoIP) VoIP stands for Voice over IP. however. In recent years many VoIP systems have become as easy to use and as convenient as a normal telephone. Thus.000 new videos are uploaded every day. especially over long distances and especially for those with always-on Internet connections such as cable or ADSL. Interoperability between different providers has improved and the ability to call or receive a call from a traditional telephone is available. was founded on February 15. live and in real time. Many uses can be found for personal webcams in and around the home. Users are able to watch videos without signing up. Video chat rooms. You Tube. It uses a flash-based web player which streams video files in the format FLV. video conferencing.DBA 1727 NOTES updates slowly. a few VoIP providers provide an emergency service. VoIP can be free or cost much less than a normal telephone call. and remote controllable webcams are also popular. VoIP is maturing into a viable alternative to traditional telephones. Simple. as the Internet carries the actual voice traffic. 182 ANNA UNIVERSITY CHENNAI . It is now the leading website for free streaming video. Voice quality can still vary from call to call but is often equal to and can even exceed that of traditional calls. This phenomenon began as an optional two-way voice extension to some of the instant messaging systems that took off around the year 2000. sometimes described as an Internet phenomenon because of the vast amount of users and how rapidly the site’s popularity has grown. Currently. where IP refers to the Internet Protocol that underlies all Internet communication. ships in the Panama Canal.000 videos on YouTube. 2005. inexpensive VoIP modems are now available that eliminate the need for a PC.000.

Commercial Wi-Fi services covering large city areas are in place in London. Various terms are used. A hotspot need not be limited to a confined location. Public places to use the Internet include libraries and Internet cafes. Chicago and Pittsburgh. landline broadband (over coaxial cable. various high-speed data services over cellular phone networks. San Francisco. fiber optic or copper wires). Philadelphia. High-end mobile phones such as smartphones generally come with Internet access through the phone network. Hotspots providing such access include WiFi cafes. There are also Internet access points in many public places such as airport halls and coffee shops. free to customers only. but the direction in VoIP is clearly toward global coverage with unlimited minutes for a low monthly fee. in some cases just for brief use while standing. or fee-based. online payment etc. These services may be free to all. The PlayStation 3 and Xbox 360 also offer VoIP chat features. and fixed wireless services. Internet access Common methods of home access include dial-up. satellite and 3G technology cell phones. A whole campus or park. Wi-Fi. Popular gaming VoIP clients include Ventrilo and Teamspeak. and there are others available also. “public access terminal”. Toronto. Vienna. Grassroots efforts have led to wireless community networks. and therefore can do so to the Internet itself. as a form of communication between players. there have been experiments with proprietary mobile wireless networks like Ricochet.E-COMMERCE TECHNOLOGY AND MANAGEMENT Most VoIP providers offer unlimited national calling. These terminals are widely accessed for various usage like ticket booking. and “Web payphone”. where computers with Internet connections are available. Web browsers such as Opera are available on these advanced 183 NOTES ANNA UNIVERSITY CHENNAI . Wi-Fi provides wireless access to computer networks. Many hotels now also have public terminals. VoIP has also become increasingly popular within the gaming world. such as “public Internet kiosk”. or even an entire city can be enabled. The Internet can then be accessed from such places as a park bench. bank deposit. Apart from Wi-Fi. though these are usually fee-based. where would-be users need to bring their own wireless-enabled devices such as a laptop or PDA.

Orkut. some of the biggest companies today have grown by taking advantage of the efficient nature of low-cost advertising and commerce through the Internet. It is the fastest way to spread information to a vast number of people simultaneously.1. and advertise their own companies’ products to those users. More mobile phones have Internet access than PCs. Many of these users are young teens and adolescents ranging from 13 to 25 years old. Examples of personalized marketing include online communities such as MySpace. The Internet has also subsequently revolutionized shopping—for example.1.DBA 1727 NOTES handsets.8 Marketing The Internet has also become a large market for companies. also known as e-commerce. a person can order a CD online and receive it in the mail within a couple of days. Facebook and others which thousands of Internet users join to advertise themselves and make friends online. In turn. Friendster. or download it directly in some cases. which can also run a wide variety of other Internet software. An Internet access provider and protocol matrix differentiates the methods used to get online. 3. which online marketing companies can use as information as to what those users will purchase online.9 Online Internet Business Models The outward signs of a robust and thriving business are: • • • • • Revenue increases Ability to generate profits Success in creating meaningful alliances Success in expanding into new markets Differentiating itself from other business models 184 ANNA UNIVERSITY CHENNAI . though this is not as widely used. The Internet has also greatly facilitated personalized marketing which allows a company to market a product to a specific person or a specific group of people more so than any other advertising medium. when they advertise themselves they advertise interests and hobbies. 3.

E-COMMERCE TECHNOLOGY AND MANAGEMENT What are the key areas that a profitable web site needs to concentrate on? • • • • • • • • • Develop a unique e-business website Control the product line Introduce new products on a regular basis Ensure easy and reliable credit-card payment methods Provide customer-friendly policies On-time delivery Keep promises Develop a clever marketing strategy Be the best in your field NOTES Existing business models are of many kinds: • • • • • • Advertising . Let’s take a look at some of the top e-businesses in the field today: • • • • • • • E-Bay HomeStore. They defy easy categorization by diversifying revenue streams and becoming hybrids in a cost-efficient way.banner and direct marketing Subscription sites Customer services Directory services Content providers Product sales Most successful companies pursue several related but different models concurrently.com DoubleClick.com Oracle CISCO Amazon.com YAHOO! 185 ANNA UNIVERSITY CHENNAI .

DBA 1727 NOTES EBAY A company that has emerged unscathed from the recent dot-com bust with profits soaring to almost 400% and revenues doubling in the past one year. Apart from bidding.7 million registered users today. Selling just about anything. It has transformed auctions that were limited to garage sales and flea markets into highly evolved emarketplaces.com. A widespread global reach makes its easy for a buyer in Hong Kong to bid and buy a product from a seller in Paris while the regional sites in North America are able to offer hard-to-ship merchandise. the company projects a trustworthy and reliable image. their business model can be elucidated thus: • • • • • • • Automation of traditional methods of selling unique items Reliability in mode of payments Customer friendly company Professional services in addition to just plain selling of goods Global reach Regional diversification Successful advertising 186 ANNA UNIVERSITY CHENNAI . Other companies like Yahoo! and Excite have been quick to catch on and incorporate auctions into their sites. where buyers and sellers of all items are allowed to post their comments online. from antiques and jewelry to computers. Priceline. To summarize. where credit-card payment facilities are secure and easy. automobiles and even auto insurance. certain high quality goods can be sold at prices fixed by the seller. This site also offers professional services for all kinds of business needs. Person-to-person trading and a barter economy have established the company on a secure B2B and B2C platform. Adopting an amazing and unique culture. it has 29. a site that offers airline tickets on discount has begun experimenting quite successfully with this business model.

have made them a one stop shop for e-businesses today. Innovative products and services and integration of these services have brought them into the forefront of web innovation today.com’s internet business model allows prospective buyers to review properties before buying. they also offer financial advice.com is a company that has dominated the real estate field with 3. NOTES 187 ANNA UNIVERSITY CHENNAI . and metamorphosed into a digital pioneer in the span of two years. Internet business models like the Biz Online Initiative that deliver simple and complete online services and a host of other tools that customers require in setting up an e-business model. online loans. and safety and security aspects. and buyer’s guides to homes and household items. Their main revenue came in from subscriptions (52%) and the remaining from advertising. It registered a growth of 252% at one stage. As a subscription site they picked a specific topic which a segment of the population would be passionate about and marketed their services through strategic advertising. employees and suppliers improved productivity and accuracy and brought down costs by 100’s of millions of dollars. Homestore. Subscription sites that allow users access to a regularly updated online database of any kind for a fee are fast evolving into healthy and strong e-businesses.E-COMMERCE TECHNOLOGY AND MANAGEMENT HOMESTORE.28 million customers in January 2001 and is listed among the Fortune top e-50. home improvement tips. Useful advice when moving home and tips on resettling has ensured user satisfaction to the core. Homestore. Is that all? No.COM Statistics have revealed that realty sites account for about 9. Consulting services with major firms like Sun Professional Systems have established their reliability with customers. ORACLE This software and service provider entered the digitized world only in 1998. remodeling. Their built-in self-service system for customers.6% of all online visitors.

a personal touch from another era. e-Bay and Merril Lynch. an Internet data center that offers a range of web hosting services. Their business model could be termed an acquisition one! AMAZON. CISCO Cisco develops switches and routers for Local Area Networks (LAN) and Wireless Area Networks (WAN) and the related software. 90% of their sales are conducted over the Internet. They are expanding from 19 data centers to 34 data centers this year. They have become the worldwide leaders in networking for the Internet today. The company has grown in the past 7 years with 71 acquisitions to its credit. This kind of service surpasses the most brilliant technology in use today.a user friendly web site that connects customers easily Fast online e-business services Expert consultancy service Another company using a similar business model is Exodus Communications. security monitoring. They allow these firms to deliver content and applications online round the clock without fail. This e-tailer cultivates relationships that lead to customers liking and trusting them.COM The customer is King here! Amazon pampers their customers. the latest being its investments in an optical equipment company and speech recognition software makers. Amazon brought in the world of successful oneto-one marketing. bandwidth on demand. They offer expertise in planning and executing Internet enabled solutions.DBA 1727 NOTES Their business formula: • • • • • Innovative products and packages Integration of internal processes Exemplary customer service . 35% of their revenue comes from a very successful e-business consulting firm whom they have partnered with (Sapient). Their servers host leading web sites like Yahoo!. 188 ANNA UNIVERSITY CHENNAI . tracks their tastes and uses this information to create a unique customer experience.

www. another famous online bookseller. CompuServe. Some of their clients include www. Banner ads placed on sites like CNN. Stu Heinecke Services. using odd-shaped attention grabbing banners.com and www. Another division. DOUBLECLICK. Online advertising is international advertising that gets a 24X7 exposure for much lesser costs. Abacus is one of the largest databases of buyer behavior in about 90 million households in the United States itself. successful online advertising and special discounted offers made Amazon and books synonymous terms today.COM This Fortune e-50 company offers a collection of premium sites for custom adbuys and sponsorships in various fields .palm. One of their divisions. www.E-COMMERCE TECHNOLOGY AND MANAGEMENT Recently though.com and Barnes the Noble Ltd. maximize revenue and build one-to-one relationships with their customers.com. an advertising solutions company used personalized cartoon direct mail and achieved response rates as high as 100%. They help markets build brands. they have suffered heavy losses. entertainment. The web has proven to be an amazing vehicle for advertising and reaching millions without spending a dime on postage and printing.nasdaq.Business. travel and health. automobiles.networldsolutions. To summarize. a customer tends to associate trust and comfort in a known and established brand. Although barnesandnoble. Their direct marketing strategies use customer data to refine marketing messages and increase investment returns. a la Barnes and Noble. increase sales.net conducts online research to evaluate and understand online campaigns and strategies. They offer agencies plans to manage online campaigns. technology. Lycos. Pathfinder and The New York Times showed that: • • • • • appropriate placement of the ad on specific targeted sites. www.net. 189 NOTES ANNA UNIVERSITY CHENNAI . exemplary customer service. using a search component or a woman’s face in a banner ad.macromedia.diameter. and hosting online chat are a sure fire way to get a response. including trading links with other sites.com. Online ads possess tremendous communication powers. are run separately. proving that any successful ebusiness strategy will survive provided it is based on a solid brick and mortar foundation.

DBA 1727 NOTES YAHOO! The “operating system” of the net and a site for evolving search engines. a BPI (Buying Power Index) report reveals that more online buying and popularity of a site don’t go hand in hand. Also.com. thus proving that the basic B2C business model is valid. Smart thinking. Among the other successful dot-coms. this year they have been forced to cut budgets and ads. all of Yahoo’s content is owned by other sites and only licensed for their use. 190 ANNA UNIVERSITY CHENNAI . banner ads. Competition in cyberspace may become even fiercer in the future and therefore the right business plan is what will eventually ensure long-term success. Instead of spending on physical infrastructure they concentrated in increasing the volume of transactions.a completely professional looking web site in all. sports and news. showing that generalized media doesn’t work compared to specialized media. free news and information services. As a result. Reflect.com blended telephone and Internet technologies. Online advertising was the main revenue for Yahoo!. As a result. an average person anywhere in the world will surf the Internet more often than he or she watches television or uses the telephone. clubs and auction stores has become the most popular directory in the web. Immediate success stopped them from evolving and developing other important aspects of e-business. great and innovative promotional ideas are an integral part of any e-success. But. it makes sense for entrepreneurs of all kinds to come up with ideas of generating income by marketing their products or services to these surfers. but they didn’t really check on what kind of ads worked online. There is no doubt that in the near future. a beauty customization site outlasted other higher profile e-tailers in the business. Other search engines like Altavista. brilliant business plans. The value of this successful business model lies in its unique and easy categorization of all pages and subjects . Excite and Juno seem to have raked in more profits recently. 1-800Flowers. video and audio. trends revealed that online e-brokers offer the best economic models among consumer-centered Internet companies. online ads.

3. The protocol suite manages all the information that moves 191 ANNA UNIVERSITY CHENNAI . the Internet Protocol and other protocols.2 TCP/IP protocol suite The TCP/IP protocol suite includes the Transport Control Protocol.E-COMMERCE TECHNOLOGY AND MANAGEMENT 3.2. Simply put. many Intranets are built around Web servers delivering HTML pages. an Intranet is the application of Internet technologies within an organization private LAN or WAN network. An Intranet is a company-specific network that uses software programs based on the Internet TCP/IP protocol and common Internet user interfaces such as the web browser. Today. NOTES An Intranet is a company-wide network that is based on Internet technologies.1What is an Intranet? The Internet has captured world attention in recent years. In reality.2. growth of internal networks based on Internet technologies known as the Intranet is outpacing the growth of the global Internet itself.2 INTRANET 3. The Intranet environment is completely owned by the enterprise and is generally not accessible from the Internet at large.

It can manage almost all the network tasks on the Intranet and Internet and is also the only protocol required to ensure that the computer systems and communications and networking software are interoperable. The capability to exchange information across platforms is crucial. The Intranet enables companies to unify communication within a multi-platform environment.a summaries the common TCP/IP protocols. Commonly used TCP/IP protocols TCP/IP exists as an open standard.2. Table 3. companies can mix and match platforms as needed with no adverse effect on the overall environment.2. 3. anyone can use and develop new applications on top of TCP/IP.3 The benefits of Intranets Cross-platform Many corporate computing environments use different computing platforms.2. Within an Intranet. These protocols work together to transfer information across the network.DBA 1727 NOTES across the Intranet and Internet and each protocol transferring data across the network uses a different format. Hence. universal browsers such as Netscape Navigator and Microsoft Internet Explorer enable the users to perform the following tasks independent of the platforms used: 192 ANNA UNIVERSITY CHENNAI .

For example. users may even fill out forms. pamphlets. Immediate delivery Information delivered using an Intranet becomes available almost instantaneously throughout the entire organization. Intranets create global accessibility by bringing together individuals and resources from a distributed environment. booklets and flyers. an employee can make a request for taking leave on an Intranet. saving the resources needed to print. distribute and update them. geographical location and decentralized resources. such as printed pages. Reducing distribution cost By combining computing and communication in the same system. Intranets reduce distribution costs by eliminating the traditional paper-based internal corporate communication media. Instead. Information can move much more quickly and effectively by removing the need for human intervention.E-COMMERCE TECHNOLOGY AND MANAGEMENT 1 2 3 4 create. view and revise documents. Most companies have found that hundreds of paper-based applications can be eliminated using Intranets. they are published electronically on the company’s Intranet. post sign-up sheets and schedules on the Intranet. 193 ANNA UNIVERSITY CHENNAI . The request form can be filled out and submitted electronically and can reach the concerned parties in seconds. Putting manuals on-line is an example of how a company can reduce paper consumption and hence costs. With HTML form-support. customers and vendors are able to access information stored in multiple locations simultaneously. Employees. participate in discussions and news groups interact with multimedia presentation gain access to the Internet NOTES Breaking down the barriers Intranets dissolve the barriers of communication that are created by department walls.

cities or countries. for example. 194 ANNA UNIVERSITY CHENNAI . for example. Employees in Hong Kong can communicate easily through e-mail with their counterparts in the United States. Employees can learn first hand on how customers feel about the company’s products and services. create online forums on new policies and use videoconference to exchange ideas. Individuals and groups can distribute their ideas to those who need it without having to go through the department traditionally responsible for the distribution of information. especially when they are located in different buildings. send project documents electronically. Customers are no longer required to go through various layers of organizational hierarchies to reach those who build the products or provide the service. They can. training users to use the Intranet is easy as many people are already familiar with the Web interface and can translate that experience to Intranet use quickly. Getting the customers involved Involving the customers with a company’s Intranet will help that company’s focus move from being product driven to being more customer driven. At Sun Microsystems. Companies are able to build a long-lasting relationship with their customers. different departments are setting up their own servers to serve their customers directly. Many companies have designed their Intranet pages to look as similar to the Web pages as possible. Minimal learning curve With the increase in popularity of the Internet and the World Wide Web.DBA 1727 NOTES Increase internal communication Intranets greatly facilitate communication among employees.

4 Basic intranet structure • • • • • • Internet technologies used behind the corporate firewall or in private environment Internet standard mail. particularly in cost and time savings. threaded discussion groups Multimedia using mime type Virtual private network over public Internet Internet Firewall Intranet NOTES 3. Users can choose from a number of vendors for software products. which often charge on a per-client basis. web servers. Conversely.E-COMMERCE TECHNOLOGY AND MANAGEMENT Open standards Internet technologies follow a set of open standards. Despite many successes. 195 ANNA UNIVERSITY CHENNAI . providing access to information.5 Internet Architecture The corporate intranet has been hailed as the most important business tool since the typewriter. 3. Intranets use open systems to distribute information.2. scheduling.2. The growth of Internet technologies provides companies with a greater pool of resources to develop their own Intranets. many sponsors of corporate intranets are dissatisfied. Scalability Since Intranets are based on Internet technologies. traditional GroupWare products have a more limited range of compatible products and fewer specially trained consultants to install and administer them. etc. The only per-client cost associated with Intranets is the cost of the browsers. but the track record so far has been mixed. Unlike traditional GroupWare products. which facilitate software developers to develop cost effective and easy-to-implement Intranet solutions. size is not a limitation with Intranets. databases.

Recent shifts in corporate structure point to the emergence of “communities of process. but they share several common characteristics. While each department of a company may have its own virtual space. Why? While critics often point to technological glitches. even intranet training. platformindependent virtual space. intranets centralize the business process in an easily accessible. So. Unlike customers. Don’t Overlook Design Just as physical work spaces rely on architectural plans to optimize efficiency. design and structure of the intranet is often relegated to the IT department.DBA 1727 NOTES They have spent time and money on development. and aim to integrate those tasks into distinct processes. the real problems may lie in information design.” Management gurus are helping companies move away from vertical. which create value for a company and its customers. Because the public doesn’t see the intranet. The trouble is that this requires significant interaction between departments. functions. Second. Intranets should help employees collaborate on business processes such as product development or order fulfillment. the ideal vehicle for creating and empowering process-based corporate communities. not documents. 196 ANNA UNIVERSITY CHENNAI . Successful intranets allow employees from a variety of departments to contribute the different skills necessary to carry out a particular process. while the company Web site usually has the input of the marketing department. but still aren’t enjoying significant enough productivity or cost savings. intranets should be organized primarily around the business processes they help employees carry out. an intranet needs to be carefully designed to help employees access information and collaborate effectively. hierarchical organizational lines towards horizontal. Finally. Net-enabled desktops. the best intranets encourage collaboration by creating shared and familiar spaces that reflect the personality of the company and create a common ground for all employees. Successful process-oriented intranets look and work as differently as the processes they enable. rather than the organizational chart of the company. information design for intranets often receives scant attention. process-oriented groups that link cross-functional teams focused on the same set of business tasks. able to easily locate company information. Focusing on processes rather than departments is a widely-hailed business trend. even countries. Specifically. Enter the intranet. First they are built on smart information design. employees are assumed to be insiders. they focus on tasks.

looking up a customer’s billing history. or collaborating on a research document. and last year’s budget is an “internal document. such as tracking deliveries. People use documents to complete tasks. While important. While a spreadsheet is a “calculation” tool. Processes can be relatively discrete. Tasks include fulfilling orders. When you sit down to begin a task (e.E-COMMERCE TECHNOLOGY AND MANAGEMENT By default. It won’t allow employees from marketing and research and development to work together to create a new product. on the corporate intranet. people need to have related documents and tools close at hand.” both need to be next to each other in order to develop a new budget. the tasks of the users rather than the classification of documents or tools.. Intranets should group together all the tasks that make up a business process. The principal of organizing by task can be demonstrated by the example of working at a desk. documents are usually a means to an end. an organizational chart of the company is often used to organize information on the intranet. intranets can contribute to dramatic increases in efficiency (as much as a 40% improvement in time spent processing documents. Or. An organizational chart can’t help employees from the marketing and legal departments collaborate on bringing a document through the approval process. information on various retirement plans (including links to financial Web sites) should be placed near the forms actually used to register for those plans. Think About Tasks Rather Than Documents Thinking of the intranet as a tool means understanding the intranet as more than a collection of documents. they can be more complex. To complete these tasks. Organize Tasks Into Larger Processes Isolated tasks are usually part of a larger process. Organizing documents within the context of tasks also focuses employees on the function of the documents they are working with. Designed effectively around dynamic tasks rather than static documents. or getting approval for documents. Similarly. according to the GIGA Group). you have a variety of information and tools at hand. creating a budget). For example. should dictate the organization of the intranet. 197 NOTES ANNA UNIVERSITY CHENNAI .g. an organizational chart actually works against the collaboration the intranet is meant to foster. While seemingly the obvious candidate for the structure of the intranet. to save employee time while signing up for various retirement plans.

For example. Organizing all steps of the sales process together also allows for easy tracking of each sales effort. 198 ANNA UNIVERSITY CHENNAI . Intranets (and private extranets) can also bring together employees and partners who are geographically dispersed to work on common problems. key documents. and cut costs by avoiding in-person conferences and employee reallocations. For example. For example. Caterpillar is developing an extranet application so that experts from around the world can collaborate with employees to design new products. and internal forms. By creating spaces for cross-departmental collaboration. Even though the employees necessary to resolve the complaint work in different departments. What would previously be a time-consuming. the company included an application to help geographically dispersed engineers to get authorization for new projects. Create Virtual Workgroups Organized Around Processes Intranets can break though departmental walls to help accomplish business processes more efficiently. is now centralized in an efficient electronic process. sample letters. For example. Even simple processes can become more efficient when incorporated into an intranet.DBA 1727 NOTES such as developing or selling products. expensive process. when Ford implemented an intranet. which rely on access to. Each phase of the sales process is represented on the intranet with relevant information and tools. the intranet can help employees collaborate to efficiently carry out the central processes of the company. and modification of. A major franchise retailer is using bulletin boards on its intranet to coordinate major marketing projects. they are all involved in the process of customer service. These are the central processes which every intranet should help employees accomplish. Other applications for intranet collaboration include complex transactions with lawyers and multiple parties. and employees can increase their productivity by sharing knowledge. Travel costs are eliminated. a pharmaceutical company is using its intranet to allow scientists all over the world to collaborate on research. More complex processes can also be effectively integrated into an intranet. involving the potential for lost documents and delays. Cadence Systems created an integrated section of the intranet for its entire sales process. the section covering an initial stage of the sales process includes links to customer presentations. sales and marketing department. So. The most important processes in a company are those that create value for a customer. a customer complaint might involve people and information from the accounting.

and encourage the use. What receives less attention-but is central to the value of an intranet-is the design of virtual spaces. for example. of the intranet. The Texas Instruments intranet was established after this shift. will help dispersed employees feel that they share the same space. tone and content. Turner Entertainment Group. When Texas Instruments initiated a process-centered organization. the Company Reflects the Intranet The corporate intranet can help a company organize around “communities of process” both on. is “in sync” with the company it works for. which encourage new forms of collaboration. tone and standards emerge as vital to the intranet’s success.and off-line. in turn. the intranet may have only limited application and benefit. The process-oriented intranet. Even after the intranet is designed to encourage collaboration. then. The Intranet Reflects the Company. increase the efficiency of key business processes such as product development. an intranet that encourages this type of collaborative work environment can provide a significant return-on-investment. Like it or not. intranets have personalities. NOTES 199 ANNA UNIVERSITY CHENNAI . it will challenge traditional ways of doing work and obtaining information. For the intranet to be successful. offering concrete incentives for employees to use. and will encourage collaboration and communication around the processes they support. it must provide ways of empowering all employees. Unless there is a clear commitment from senior management to have employees collaborate across departments to more efficiently accomplish key business processes. certainly an important issue to resolve. At the same time. using an intranet to shift the way work is done in an organization requires a cultural change within the organization. marketing the intranet to employees remains essential. marketing and customer service. casual feel for its intranet with a home page that uses a refrigerator with magnates to represent the various divisions. The unique imagery created a friendly.E-COMMERCE TECHNOLOGY AND MANAGEMENT The bulk of discussion about collaboration in and between companies centers around security. These. An intranet that reflects the culture of its company will make employees feel more at home. which are amalgams of visual style. Whether it precedes or follows the organizational shift. created a distinctive. And this is where graphic design. familiar space for all employees. As the intranet creates new forms of collaboration. and was designed to reflect and enhance the new organization. shared. oriented around collaborative work groups. software development time fell from twenty-two to eight months.

net. and the majority of our work has a web-based component.DBA 1727 NOTES 3. and with confidence that they have the right information. including systems such as sophisticated workflow systems that help organizations manage their day to day business. but are also available for PDAs and mobile phones. It also helps to improve the services provided to the users.2. secure global access to their data and applications. With the help of a web browser interface. the Internet and its related technologies have provided new opportunities and new ways of doing business. Webbased systems have enabled organizations to provide maintainable. The ease of deployment over the web has made such applications very attractive for enterprise systems. Workforce productivity: Intranets can help users to locate and view information faster and use applications relevant to their roles and responsibilities. These applications are no longer restricted to the traditional PC user running Windows. 200 ANNA UNIVERSITY CHENNAI . The introduction of Web Services has widened the scope of web-based applications by allowing other systems to interact with them. Tessella has acquired wide ranging experience of internet and intranet applications.6 Internet/Intranet Applications From blue-chip companies to one-person start-ups. Advantages of intranets 1. organizations can make more information available to employees on a “pull” basis (ie: employees can link to relevant information at a time which suits them) rather than being deluged indiscriminately by emails. We have worked on a variety of web-based systems which have fulfilled many different business roles. anytime and .subject to security provisions from anywhere within the company workstations. We also have experience of developing distributed applications deployed over the internet such as climateprediction. users can access data held in any database the organization wants to make available. Any device which has a web browser can potentially utilize an internet/intranet application. more accurately. Time: With intranets. the world’s largest climate prediction experiment. increasing employees’ ability to perform their jobs faster. 2. and web front ends to large corporate and scientific databases.

staff have the opportunity to keep up-todate with the strategic focus of the organization. and UNIX. 9. Business operations and management: Intranets are also being used as a platform for developing and deploying applications to support business operations and decisions across the internetworked enterprise. and even training. Promote common corporate culture: Every user is viewing the same information within the Intranet. By providing this information on the intranet. 7. Cost-effective: Users can view information and data via web-browser rather than maintaining physical documents such as procedure manuals. who is driving the initiative. intranets are useful to communicate strategic initiatives that have a global reach throughout the organization. Examples include: employee manuals. From a communications standpoint. Web publishing allows ‘cumbersome’ corporate knowledge to be maintained and easily accessed throughout the company using hypermedia and Web technologies.E-COMMERCE TECHNOLOGY AND MANAGEMENT 3. results achieved to date. Cross-platform Capability: Standards-compliant web browsers are available for Windows. 5. and who to speak to for more information. Flash files. 201 ANNA UNIVERSITY CHENNAI . company policies. Enhance Collaboration: With information easily accessible by all authorised users. CGI applications). NOTES 4. the most recent version is always available to employees using the intranet. newsfeeds. benefits documents. can be accessed using common Internet standards (Acrobat files. teamwork is enabled. Mac. The type of information that can easily be conveyed is the purpose of the initiative and what the initiative is aiming to achieve. internal phone list and requisition forms. vertically and horizontally. business standards. Communication: Intranets can serve as powerful tools for communication within an organization. Because each business unit can update the online copy of a document. 6. 8.

In general. when we use the term VPN we will not be distinguishing between intranets and extranets. An extranet can be viewed as part of a company’s Intranet that is extended to users outside the company (e. Briefly. the VPN is a corporate intranet. Any private network mapped onto a public one is a virtual private network (VPN). in isolation from all other Internet users. With respect to Internet Protocol networks. the term “extranet” is still applied and can be used to eliminate the use of the above description.: normally over the Internet).3 EXTRANET 3. an intranet is a VPN under the control of a single company’s administrator(s).g. military networks of different security levels may map onto a common military radio transmission system that never connects to the Internet. It has also been described as a “state of mind” in which the Internet is perceived as a way to do business with a pre approved set of other companies business-to-business (B2B). Even if this argument is valid. interconnecting to each other to create private networks for sharing information. An argument has been made that “extranet” is just a buzzword for describing what institutions have been doing for decades. and possibly the public telecommunication system to securely share part of an organization’s information or operations with suppliers. vendors. For example. A site can be in more than one VPN. In contrast. RFC 4364 states “If all the sites in a VPN are owned by the same enterprise. One of the differences that characterized an extranet. is that its interconnections are over a shared network rather than through dedicated physical lines.DBA 1727 NOTES 3. that is. network connectivity.1 What is an Extranet? An extranet is a private network that uses Internet protocols. the VPN is an extranet. an extranet can be understood as a private intranet mapped onto the Internet or some other transmission system not accessible to the general public.” 202 ANNA UNIVERSITY CHENNAI .g. partners. however.. communicating with previously unknown consumer users. but is managed by more than one company’s administrator(s). business-to-consumer (B2C) involves known server(s) of one or more companies. In contrast. in an intranet and several extranets. customers or other businesses. If the various sites in a VPN are owned by different enterprises. We regard both intranets and extranets as VPNs. e.3.

203 NOTES • ANNA UNIVERSITY CHENNAI . The great thing about browsers is that an application written for a browser can be read on almost any computer without regard to operating system or manufacturer. where “registered users” can navigate. In this sense.” Further. “extranet” is a useful term to describe selective access to intranet systems granted to suppliers. enabled by authentication mechanisms on a “login page”.” Thus.” but to have a VPN. customers. for smaller. An extranet requires security and privacy. or other companies. and the use of virtual private networks (VPNs) that tunnel through the public network. otherwise known as the Internet Protocol. Such access does not involve tunneling. but rather simply an authentication mechanism to a web server. encryption of messages. fewer clogged hard drives. These can include firewalls. The term “site” does not mean “website. or IP. Netscape Navigator or. The use of Web browsers. Browser software uses relatively small amounts of memory and resources on a computer. No messy and confounding installation disks. Mozilla’s Firefox. Users access Extranet information using a web browser like Microsoft Internet Explorer. the issuance and use of digital certificates or similar means of user authentication.3. more recently. These include the standardized techniques for transmitting and sharing information and the methods for encrypting and storing information. server management. A browser on a user’s machine is all the software he or she needs to take full advantage of the Extranet application. 3. That makes an application developed for a browser a snap to deploy. the term “site” refers to a distinct networked environment.2 Features of Extranet Extranets generally have the following features: • The use of Internet technologies and standards. “intranet” also refers to just the web-connected portions of a “site. they would need to provide tunneled access to that network for geographically distributed employees. Similarly. a small company in a single building can have an “intranet. Two “sites” connected to each other across the public Internet backbone comprise a VPN.E-COMMERCE TECHNOLOGY AND MANAGEMENT It is important to note that in the quote above from RFC 4364. geographically united organizations. an “extranet” designates the “private part” of a website.

While these are the broad attributes shared by most Extranets. several of the leading vendors formed the Network of Construction Collaboration Technology Providers. issue requests for information.3. make comments. Some 204 ANNA UNIVERSITY CHENNAI . etc. For example. to promote the technologies and to establish data exchange standards between the different systems. project teams could login to and access a ‘project extranet’ to share drawings and documents. Central Server/Repository.DBA 1727 NOTES • • Security. or NCCTP. among others. By their very nature.3 Industry use During the late 1990s and early 2000s. Extranets vary dramatically in their design and implementation. like: • • Sharing case information Sharing of case-related documents—many Extranets contain document repositories that can be searched and viewed by both lawyer and client online Calendaring—key dates and scheduling of hearings and trials can be shared on-line Providing firm contact information Acting as a “work flow engine” for various suppliers Providing access to firm resources remotely Sharing time and expense information • • • • • 3. in the construction industry. The same type of construction-focused technologies have also been developed in the United States. Members can access this information from any computer that has Internet access. They can be employed in a wide variety of environments and for very different purposes. Extranets are embroiled in concerns about security. In 2003 in the United Kingdom. Germany and Belgium. several industries started to use the term “extranet” to describe central repositories of shared data made accessible via the web only to authorized members of particular work groups. Scandinavia. To protect the privacy of the information that is being transmitted. Extranets usually have a central server where documents or data reside. most Extranets use either secure communication lines or proven security and encryption technologies that have been developed for the Internet. Australia.

205 ANNA UNIVERSITY CHENNAI . There are a variety of commercial extranet applications. which can be integrated into other online collaborative applications such as Content Management Systems. Doing so frees up resources to concentrate on customer service and expansion as opposed to administrative office tasks such as data entry. The limited access typically includes the ability to order products and services.4 Extranet applications An extranet application is a software data application that provides limited access to your company’s internal data by outside users such as customers and suppliers. Companies can use an extranet to: • • • • • Exchange large volumes of data using Electronic Data Interchange (EDI) Share product catalogs exclusively with wholesalers or those “in the trade” Collaborate with other companies on joint development efforts Jointly develop and use training programs with other companies Provide or access services provided by one company to a group of other companies.E-COMMERCE TECHNOLOGY AND MANAGEMENT applications are offered on a Software as a Service (SaaS) basis by vendors functioning as Application service providers (ASPs).3. such as an online banking application managed by one company on behalf of affiliated banks Share news of common interest exclusively with partner companies NOTES • 3. and others which include broader collaboration and project management tools. check order status. A properly developed extranet application provides the supply chain connection needed with customers and suppliers to dramatically lessen routine and time consuming communications. request customer service and much more. some of which are for pure file management. Also exist a variety of Open Source extranet applications and modules. Specially secured extranets are used to provide virtual data room services to companies in several sectors (including law and accountancy).

which hurts the business when it comes to loyalty of its business partners and customers 2. selling online advertising space. System access needs to be carefully controlled to avoid sensitive information falling into the wrong hands. 3. Common eCommerce models are direct online sales. this is similar to customers buying from a mail order catalog.6 E-Commerce Business Models Since eCommerce consists of doing business online or electronically. 3.3.g. e-books. Since delivery is often by mail. 206 ANNA UNIVERSITY CHENNAI . Software products.DBA 1727 NOTES Just as intranets provide increased internal collaboration. the business or revenue models are somewhat different than that of a “brick and mortar” business. Developing and implementing an extranet application can provide you the competitive edge to stay ahead of the competition in the eyes of your customers and a better ability to negotiate prices with your suppliers. software.3.: hardware. extranets provide increased efficiencies between your company and its customers and/or suppliers.5 Disadvantages 1. Direct online sales model You can establish your website as your place of business and directly sell to those entering your “store” to make a purchase. Extranets can be expensive to implement and maintain within an organization (e.com is a good example of a business using the direct sales model to gain revenue. Security of extranets can be a big concern when dealing with valuable information. and online commissions. 3. This could cause a lack of connections made between people and a company. music and video files can be delivered to the customer through the downloading process. Extranets can reduce personal contact (face-to-face meetings) with customers and business partners. Amazon. employee training costs) — if hosted internally instead of via an ASP.

Therefore.6. or university has a business model. school. First lets establish the fact that no site is free . 3.every web site costs money. telecommunication charges. five distinct eCommerce business models form the basic structure for the wide variety of websites today. [Editor’s Note: Mr. advertising. it holds true as much today as it ever has. Online commission model Individuals and companies can also be established as affiliates. Online companies such as eBay and PayPal charge a commission for their services. and time. Someone must pay for the computers. Free home pages fit into a business model.3. The web site is stored on a computer. uses web server software. Free email service has a business model. even the “free” sites have a business model. Samuelsen considers affiliate 207 NOTES ANNA UNIVERSITY CHENNAI .E-COMMERCE TECHNOLOGY AND MANAGEMENT Online advertising space model Just as television and radio stations gain revenue from advertisements. software. and storefront sites. A public site offered by a library. Google gains a commission for ads placed on others’ websites. A better method is to count the number of viewers that click on an ad. subscriptions. In actuality. billboard.1 Successful Ecommerce Business Models Five different ways websites can generate revenue by Robert Samuelsen “There’s no such thing as a free lunch!” While this simple economic aphorism seems to have been forgotten in the world of cyberspace. Every site in the entire world wide web has a business model. so too can popular websites charge for the number of viewers seeing an ad. related to the reach or number of viewers they have. taking them to the company’s website. and must be maintained. The cost and potential revenue constitutes a business model. The omnipresent cost either comes from your pocket or some benevolent benefactor. The five categories are called vanity. There are different business models underlying each website. accesses telecommunication resources. where they gain a commission for sales made through a company using the direct online sales model.

many sites combine several of the five identified business models. to share a hobby. While there are a few sites that are entirely supported by advertising dollars. or public information.] While not all drive revenue directly. radio. or find others with similar interests. communities. with the actual purchase transaction occurring off-line. it is important to understand their differences. 208 ANNA UNIVERSITY CHENNAI . Therefore. Revenue comes from creating awareness of its products or services via the web. Billboard: Billboard sites (also called brochure or information sites) are designed to derive economic benefit through indirect means from either referred sales. Vanity: Many web sites are started as vanity sites. For eCommerce. advertising can be in the form of banners. The costs are borne either by the individual or by some altruistic enterprise such as universities. libraries. Finally. This is a much-ballyhooed but still largely unproven model on the web. Advertising: Network television. some businesses feel this is the best way to avoid channel conflict’s potential pricing disparity between different supply chains. they all incur costs. Just like a billboard on a highway. Economic benefit is created through the indirect purchase of goods or services from existing physical outlets and cost savings through the elimination of infrastructure or inefficiency. or both. It could be as simple as a one page family site or a complex forum on a specific topic. These sites are often created by individuals as an outlet of self expression. and many periodicals follow the advertising model. Agencies conduct sophisticated surveys to measure the value and establish the pricing. Each of the five models have unique characteristics which make it different from the other types. and other promotion methods. experts will prepare purchase pattern analyses providing advertisers with empirical data to support their promotion campaigns. These sites are created with no intentions of deriving revenue and no illusions of grandeur. Most corporate sites today put up these electronic brochures to provide information about their products. reduced cost. In addition.DBA 1727 NOTES programs to be a variant on the storefront model. the costs are real of these “free” sites. ezine ads. promote a cause. the lack of websavvy viewership statistics hindering the mass adoption by advertisers? As the knowledge of consumer behavior is further understood. and even businesses. All programming and content is funded by advertising dollars. sponsorships. success is measured on viewer ship as net citizens “surf” by and are influenced to purchase product. with consumer viewership measuring value. associations. Nevertheless. employment information.

the cyber enterprise arranges for product fulfillment including shipping and handling. they can work for service products too. Storefront: To some people. This collapsing of the supply chain is called disintermediation. or annual basis. Consumers will increasingly look to the web for physical commerce alternatives because of the limitlessness of the media both in terms of geography and shopping hours. offer promotions. monthly. Subscriptions can be paid on a weekly. the subscription model caters to sites targeted to particular niches of individuals who have specific needs. financial projections can be easily created and business plans finalized.” and complete the purchase transaction.E-COMMERCE TECHNOLOGY AND MANAGEMENT Subscriptions: In other media. there is no such thing as a free lunch. a products-offered site is narrowly defined as a “true” eCommerce site. it is obvious that all five business models will remain viable for the near term. The subscriptions fund the development and maintenance of the site. Some manufacturers are now passing up the intermediary wholesalers and retailers by offering their products directly to consumers. The primary characteristic of these types of sites is the ability to make a one time purchase with no future obligations. each model should be examined carefully to understand which model provides the maximum benefit. A website that offers products for sale is the electronic version of a catalog. Each model will continue to mature both in its acceptance and sophistication. Once the product is purchased. Of those that are accepted. Although the vast majority of these sites offer tangible products. you will realize even in cyberspace. provide a “shopping cart. subscriptions are not yet widely accepted by consumers. With the understanding of the business models. NOTES 209 ANNA UNIVERSITY CHENNAI . While it is impossible to predict the future in this fast moving media. These sites are often specialized with expert content and timely information. For net entrepreneurs. With the business plan in hand. These virtual storefronts are built to describe the offering with pictures and words. Payment through a credit card account is a common payment scheme for subscription sites because of the ability to periodically process the purchase transaction electronically. On the web. the subscription models are well established’ accepted by subscribers and nurtured by publishers. The fulfillment is sometimes completed by the website enterprise or directly from the manufacturer in a drop shipping arrangement.

such as electronic mail. and finally. Email. business. Java language. The Internet Tools and their Characteristics: The evolution of the Internet is punctuated by the introduction and mass acceptance of such key resources and tools as Unix. file transfer. photo albums. and more recently by the Altavista search engine. the Elements of Internet Architecture • Protocol Layering • Networks • Routers • Addressing Architecture The outward signs of a robust and thriving business are: • • • • • Revenue increases Ability to generate profits Success in creating meaningful alliances Success in expanding into new markets Differentiating itself from other business models Intranet: An Intranet is a company-specific network that uses software programs based on the Internet TCP/IP protocol and common Internet user interfaces such as the 210 ANNA UNIVERSITY CHENNAI . Internet Relay Chat. WAIS. academic. discussion groups. which he describes as “The web’s first family communication center featuring calendars. publicly accessible series of interconnected computer networks that transmit data by packet switching using the standard Internet Protocol (IP). and more—all in a password protected family environment. and government networks. and the interlinked web pages and other resources of the World Wide Web (WWW).DBA 1727 NOTES Robert Samuelsen operates eVine Online. It is a “network of networks” that consists of millions of smaller domestic. online chat. WWW.” Summary Internet: The Internet is a worldwide. Telnet. Listserv Mailing List Software. which together carry various information and services. address books. Gopher. File Transfer Protocol. Usenet newsgroups.

better information faster Based on open standards Scaleable and flexible Connects across disparate platforms Puts users in control of their data NOTES Extranet: An extranet is a private network that uses Internet protocols. such as an online banking application managed by one company on behalf of affiliated banks Share news of common interest exclusively with partner companies • E-Commerce Business Models: Common eCommerce models are direct online sales. an Intranet is the application of Internet technologies within an organization private LAN or WAN network. Why are intranets popular • • • • • • • Inexpensive to implement Easy to use. and possibly the public telecommunication system to securely share part of an organization’s information or operations with suppliers.E-COMMERCE TECHNOLOGY AND MANAGEMENT web browser. vendors. selling online advertising space. customers or other businesses. just point and click Saves time and money. Simply put. and online commissions. 211 ANNA UNIVERSITY CHENNAI . network connectivity. Companies can use an extranet to: • • • • • Exchange large volumes of data using Electronic Data Interchange (EDI) Share product catalogs exclusively with wholesalers or those “in the trade” Collaborate with other companies on joint development efforts Jointly develop and use training programs with other companies Provide or access services provided by one company to a group of other companies. partners.

4. 17. 13. 14. 9. What is an Internet? Explain its characteristics? List the Internet tools and explain its characteristics What is FTP? Explain web based Client/Server? Describe the elements of Internet architecture? Explain the uses of Internet? What are the key areas that a profitable web site needs to concentrate on? Discuss some successful companies that pursue different business models? What is an intranet? List the benefits of Intranet List the basic intranet structure Describe Internet architecture Discuss Internet/Intranet applications Discuss the integration of web technologies with business models What is an Extranet and list its features Describe the extranet applications Discuss E-Commerce Business models 212 ANNA UNIVERSITY CHENNAI . 5. 8. 15. 16. 2. 10. 6. 11. 3.DBA 1727 NOTES Questions for review 1. 12. 7.

debits. from 117 billion in 1993 to 135 billion in the year 2000.1.1 Electronic Payment Systems Electronic payment is an integral part of electronic commerce. and banks are seeking less costly alternatives. and increasing online commerce. Cash and checks are very expensive to process. 213 ANNA UNIVERSITY CHENNAI . or digital cash) that is backed by a bank or an intermediary. Electronic transactions numbered 33 billion in 1993 and are expected to climb to 118 billion by the year 2000. Three factors are stimulating interest among financial institutions in electronic payments: • • • decreasing technology costs. paper transactions are forecast to show very modest growth. or by legal tender. The content of this exchange is usually some form of digital financial instrument (such as encrypted credit card numbers. and are expected to increase rapidly.1 ELECTRONIC PAYMENTS AND PROTOCOLS 4. electronic checks. reduced operational and processing costs. and other electronic transactions account for about 15 percent of all consumer transactions. It is estimated that approximately 56 percent of consumer transactions in the United States are cash and 29 percent are check. For the same period. electronic payment is a financial exchange that takes place online between buyers and sellers. Credits. The desire to reduce costs is one major reason for the increase in electronic payments.E-COMMERCE TECHNOLOGY AND MANAGEMENT NOTES UNIT IV E-COMMERCE PAYMENTS AND SECURITY 4. Broadly de-fined.

and a recurrent problem was the tendency of some institutions to issue more notes than they had gold as backing. users install client software packages. For instance. and money. In the early 1970s. Today. Banks are solving these problems all over again in an online environment. Innovations in payment methods involved the creation of new financial instruments that relied on backing from governments or central banks. and the first applications-credit cards appeared soon after.1 Types of Electronic Payment Systems Electronic payment systems are proliferating in banking. in one method marketed by CyberCash.1. merchants face the unappealing option of either picking one standard and alienating consumers not subscribing to a standard or needing to support multiple standards. retail. anywhere money needs to change hands. a rather restrictive scenario. and gradually came to be used as money. Research into electronic payment systems for consumers can be traced back to the 1940s. consumers can view an endless variety of products and services offered by vendors on the Internet. but a consistent and secure payment capability does not exist. Banks faced similar problems in off-line commerce in the early nineteenth century. 214 ANNA UNIVERSITY CHENNAI .” on their browsers. Further. on-line markets. This software then communicates with “electronic cash registers” that run on merchants’ Web servers. The crucial issue in electronic commerce revolves around how consumers will pay businesses online for various products and services.1. 4. Each vendor’s client works with only that vendor’s own server software.DBA 1727 NOTES Banks and retailers want to wean customers away from paper transactions because the processing overhead is both labor intensive and costly. Currently. Organizations are motivated by the need to deliver products and services more cost effectively and to provide a higher quality of service to customers. the proliferation of incompatible electronic payment schemes has stifled electronic commerce in much the same way the split between Beta and VHS standards stifled the video industry’s growth in the 1970s. The solutions proposed to the online payment problem have been ad hoc at best. which entails extra time. and even government-in fact. effort. Currently. sometimes known as “electronic wallets. getting one bank to honor another’s notes was a major problem. health care. The goal of online commerce is to develop a small set of payment methods that are widely used by consumers and widely accepted by merchants and banks. Many banks issued their own notes.

.E-COMMERCE TECHNOLOGY AND MANAGEMENT the emerging electronic payment technology was labelled electronic funds transfer (EFT).g. or airplane.. World Wide Web form based encryption) Third-party authorization numbers (e. NetCheque) Smart cards or debit cards (e..C..g.. train. Thus EFT stands in marked contrast to conventional money and payment modes that rely on physical delivery of cash or checks (or other paper orders to pay) by truck.g. bank-to-bank transfer) Small-scale or retail payments (e. telephonic instrument. automated teller machines and cash dispensers) Home banking (e. DigiCash) Electronic checks (e. or computer or magnetic tape so as to order. VISA or MasterCard) Private label credit/debit cards (e. Transfer is informationbased and intangible.g..g.. Penney Card) Charge cards (e. or authorize a financial institution to debit or credit an account. bill payment) NOTES Retailing payments Credit cards (e. J.g.g.g. Mondex Electronic Currency Card) o Credit card-based payment systems Encrypted credit cards (e.g... instruct..” EFT utilizes computer and telecommunication components both to supply and to transfer money or financial assets.g..g. EFT is defined as “any transfer of funds initiated through an electronic terminal. First Virtual) 215 ANNA UNIVERSITY CHENNAI . Work on EFT can be segmented into three broad categories: Banking and financial payments • • • Large-scale or wholesale payments (e. American Express) On-line electronic commerce payments o Token-based payment systems Electronic cash (e.

separate accounts have been stored on separate databases. the welding of different payment users into different networks and different systems is impossible. Security. it must be recognized that without subsidies. settle conflicts. Without standards. A user expects to trust in a secure system. from cash to bank payments. just as the telephone is a safe and private medium free of wiretaps and hackers. The challenge before banks is to tie these databases together and to allow customers access to any of them while keeping the data up-to-date and error free. a customer wants to play with all his accounts. and a little ingenuity. electronic communication must merit equal trust. 216 ANNA UNIVERSITY CHENNAI . For example. regardless of which bank is managing their money. should subsidies be used to encourage users to shift from one form of payment to another. None of these hurdles are insurmountable. The biggest question concerns how customers will take to a paperless and (if not cashless) less-cash world. · Standards. A “network banker”-someone to broker goods and services.2 Designing Electronic Payment Systems • Privacy. will be solved as technology is improved and experience is gained. With home banking. Database integration. Thus investment in systems not only might not be recovered but substantial ongoing operational subsidies will also be necessary. giving users the ability to buy and receive information. On the other hand. Most will be jumped within the next few years. To date. the price of a telephone call.1. Intuitive interfaces. The payment interface must be as easy to use as a telephone. These technical problems. Standards enable interoperability. No systems are yet fool-proof. • • • • One fundamental issue is how to price payment system service. users value convenience more than anything.DBA 1727 NOTES 4. for example. The problem with subsidies is the potential waste of resources. Tomorrow’s bank robbers will need no getaway cars just a computer terminal. from paper-’based to e-cash. Generally speaking. it is difficult to price all services affordably. although designers are concentrating closely on security. Brokers. Millions of dollars have been embezzled by computer fraud. experts hope. as money may be invested in systems that will not be used. and facilitate financial transactions electronically-must be in place. A secure system verifies the identity of two-party transactions through “user authentication” and reserves flexibility to restrict information/services through access control.

To connect the dig-ital wallet with various merchants. and non repudiation. The role of payment gateway is to connect the Internet and proprietary networks of banks. software called the electronic wallet. if the certificate is stored in an IC card. Therefore. interoperability is a very important characteristic to meet. Since the interoperability of the cardholder’s digital wallet with any merchant’s software is essential. the electronic wallet has to be downloaded into the buyer’s personal computer. However. JCB. Storage of Certificates If the private key and corresponding public key in a certificate are physically stored in the customer’s personal computer. This company performs the interoperability test and issues a SET Mark as a confirmation of interoperability. integrity. and procedure of message exchange as depicted in. Electronic Wallet To achieve perfect security. SET defines the message format. the wallet can work if the IC card is inserted into a card reader attached to a computer. is necessary. To keep the consumer’s certificate in his or her personal computer or IC card. In addition. and MetaLand provide such interoperable digital wallets. VeriSign. a consortium of companies (Visa.E-COMMERCE TECHNOLOGY AND MANAGEMENT 4. Netscape. certificate format. SET protocol meets the four security requirements for EC as SSL(Secure Socket Layer) does: authentication. Microsoft. encryption. Tandem. NOTES 217 ANNA UNIVERSITY CHENNAI . and American Express) has established a company called SETCo (Secure Electronic Transaction LLC 1999).1. Each participating entity needs its own certificate. IBM. storing the certificate in IC card seems to be the safest method. or digital wallet. MasterCard.3 Secure Electronic Transaction (SET) Protocol SET protocol was initially designed by Visa and MasterCard in 1997 and has evolved since then. the customer can use the certificate only at the computer.

This scheme is called dual signature. The SET protocol.DBA 1727 NOTES Overview of main messages in SET The International Center for Electronic Commerce (ICEC 1999) has developed a system named Smart-SET. a relatively simple version of SSL is currently widely adopted. 218 ANNA UNIVERSITY CHENNAI . Theoretically. Secure socket layer protocol for electronic payment even though SET is a perfect solution for secure electronic payments. on the other hand. This is because SET protocol is complex and certificates are not widely distributed in a stable manner. Merchants need to receive both ordering information and credit card information because the capturing process initiated by the merchant. hides the customer’s credit card information from merchants and also hides the order information from banks to protect privacy. the SSL protocol may use a certificate but it does not include the concept of a payment gateway. which integrates SET protocol with an IC card that can store multiple certificates. a simple version of SSL is a very viable alternative. Until SET becomes popular.

Therefore. SET designates a third party called a certificate authority to authenticate the sender and receiver. Payment information sent from consumers to merchants includes order information. Digital signatures and digital certificates ensure consumer account authentication by providing a mechanism that links a consumer to a specific account number. SET provides the means to ensure that the contents of all order and payment messages received match the contents of messages sent. it will be necessary for merchants and banks to assure consumers that their payment information is safe and accessible only by the intended recipient.1 What Features does SET Specify? The following objectives are addressed by SET specifications: Confidentiality of Information To facilitate and encourage financial transactions. preventing interception of account numbers and expiration dates by unauthorized individuals. the transaction will not be processed accurately.1. Merchant Authentication The SET specifications provide a way for consumers to confirm that a merchant has a relationship with a financial institution that allows that merchant to accept bank card payments. credit card account and payment information must be se-cured as it travels across the network. Merchant authentication is ensured by the use of digital signatures and merchant certificates. If any component is altered in transit. 219 NOTES ANNA UNIVERSITY CHENNAI . Information integrity is ensured by the use of digital signatures. SET provides confidentiality by the use of message encryption. and payment instructions. personal data.E-COMMERCE TECHNOLOGY AND MANAGEMENT 4.3. Integrity of Information SET ensures that message content is not altered during the transmission between originator and recipient. Consumer Account Authentication Merchants need a way to verify that a consumer is a legitimate user of a valid account number. In order to eliminate this potential source of fraud and/or error.

stealing software’s. 220 ANNA UNIVERSITY CHENNAI . In this case the person has no intentions to do any damage or to steal any resources but tries to observe the system functionality.2. There are two basic types of criminal activities: • The person who tries to understand and learn the various systems and capabilities of any private network. There are many terms used to signify the computer criminals. • A large system like Internet has many holes and crevices in which a determined person can easily find the way to get into any private network. As all the people are not honest. 4. illegal activity’ is inevitable.1 Security Issues The Internet is a huge place that hosts several millions of people. ands must not prefer one over another. information and causing damage to resources. For example teenagers who tries to enter into a network out of curiosity till they are caught or deducted.DBA 1727 NOTES Interoperability The SET specifications must be applicable on a variety of hardware and software platforms. This type of criminal activity raises the concern for network security. Statistics show that only 10% of computer client is reported and only 2% of the reported client results in with convictions.2 SECURITY SCHEMES AGAINST INTERNET FRAUD 4. The persons who uses the Internet and the Web to benefit themselves by doing illegal activities such as. Any consumer with compliant software must be able to communicate with any merchant software that also meets the defined standard Interoperability by the use of standard protocols and message formats. Type of Computer Criminals • Hacker-is a person who has good knowledge about computers and tries to open the data packets and steal the information transmitted through the Internet.

This is possible specially.2. But at the same time. One of the reasons of misrepresentation is that on the net it is easy to appear as anyone or anything without the actual presence. One of the available techniques commonly used for encryption is Public Key. which the dealer may not have them physically.2 Security Schemes 4. With the rapid growth in use of Internet. Phreaks-are persons who hack phone systems. 4. Nowadays various encryption techniques are available. creating a scam site is not as easy as it seems to be. most Web site providers examines sites and have access to the information that is been provided. The encryption and decryption algorithms are designed in a way so that only the private key can decrypt data that is encrypted by the public key.2. In Public Key encryption system. In a Public Key encryption system each user has two keys-public key and private key. For this reason.2. RSA Data Security of Redwood City offers the most popular and commercially available algorithm. because one must host pages somewhere. it is increasingly important for Web users to protect themselves. which makes the provider responsible for the content. For example. Phracker-is the combination of freak and cracker.E-COMMERCE TECHNOLOGY AND MANAGEMENT • • • Cracker-is someone who specifically breaks into computer systems by bypassing or by guessing login passwords. in case of offshore servers where laws are more favorable to the criminal and enforcement will be very difficult. For this reason. NOTES Another major issue in the Internet security is misrepresentation and fraud. A phracker breaks into phone systems and computer systems and specializes in total network destruction.1 Encryption Encryption is a technique for hiding data. The encrypted data can be read only by those users for whom it is intended. And the public key can 221 ANNA UNIVERSITY CHENNAI . shops site displaying goods. These persons enter into the network as authenticated users and can cause any harm to the system. These people specifically try to scam long distance phone-time for them to control phone switch capability or to hack company automated EBX systems to get free voice-mail accounts or to raid companies existing voice-mail messages. in future the number of fraud cases in which perpetrators create their own provider site will probably increase.

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decrypt data, encrypted by the private key. Therefore, one can broadcast the public key to all users. Computer encryption is based on the science of cryptography, which has been used throughout history. Before the digital age, the biggest users of cryptography were governments, particularly for military purposes. Most computer encryption systems belong in one of two categories. Broadly speaking, there are two types of encryption methods: • • Secret-key encryption Public-key encryption

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Secret-key encryption, also known as symmetric encryption, involves the use of a shared key for both encryption by the transmitter and decryption by the receiver. Secretkey encryption works in the following way: Anne wishes to send a purchase order (PO) to Bob in such a way that only Bob can read it. Anne encrypts the PO (the plaintext) with an encryption key and sends the encrypted PO (the cipher text) to Bob. Encryption scrambles the message, rendering it unreadable to anyone but the intended recipient. Bob decrypts the cipher text with the decryption key and reads the PO. Note that in secret-key encryption, the encryption key and decryption key are the same (see Fig.). The transmitter uses a cryptographic secret “key” to encrypt the message, and the recipient must use the same key to decipher or decrypt it. A widely adopted implementation of secret-key encryption is data encryption standard (DES). Although secret-key encryption is useful in many cases, it has significant limitations. All parties must know and trust each other completely, and have in their possession a


protected copy of the key. If the transmitter and receiver are in separate sites, they must trust not being overheard during face-to-face meetings or over a public messaging system (a phone system, a postal service) when the secret key is being exchanged. Anyone who over-hears or intercepts the key in transit can later use that key to read all encrypted messages.
Scrambled message scrambled


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Encrypt with private key

Decrypt with private key


Since shared keys must be securely distributed to each communicating party, secretkey encryption suffers from the problem of key distribution-generation, transmission, and storage of keys. Secure key distribution is cumbersome in large networks and does not scale well to a business environment where a company deals with thousands of online customers. Further, secret-key encryption is impractical for exchanging messages with a large group of previously unknown parties over a public network. For in-stance, in order for a merchant to conduct transactions securely with Internet subscribers, each consumer would need a distinct secret key as-signed by the merchant and transmitted over a separate secure channel such as a telephone, adding to the overall cost. Hence, given the difficulty of providing secure key management, it is hard to see secret-key encryption becoming a dominant player in electronic commerce. If secret encryption cannot ensure safe electronic commerce, what can? The solution to widespread open network security is a newer, more sophisticated form of encryption, first developed in the 1970s, known as public-key encryption. Public-Key Encryption Public-key encryption, also known as asymmetric encryption, uses two keys: one key to encrypt the message and a different key to decrypt the message. The two keys are mathematically related so that data encrypted with one key only be decrypted using the other.



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Unlike secret-key encryption, which uses a single key shared by two (or more) parties, public-key encryption uses a pair of keys for each party. One of the two keys is “public” and the other is “private.” The public key can be made known to other parties; the private key must be kept confidential and must be known only to its owner. Both keys, however, need to be protected against modification. The best known public-key encryption algorithm is RSA (named after its inventors Rivest, Shamir, and Adleman). In the RSA method, each participant creates two unique keys, a “public key,” which is published in a sort of public directory, and a “private key,” which is kept secret. The two keys work together; whatever data one of the keys “locks,” only the other can unlock. For example, if an individual wants to send a snoop-proof email message to a friend, she simply looks up his public key and uses that key to en-crypt her text. When the friend receives the e-mail, he uses his private key to convert the encrypted message on his computer screen back to the sender’s original message in clear text. Since only the bona fide author of an encrypted message has knowledge of the private key, a successful decryption using the corresponding public key verifies the identity of the author and ensures message integrity. Even if a would-be criminal intercepts the message on its way to the intended recipient, that criminal has no way of deciphering the message without the private key. The computer handles the hard work of manipulating the large numbers used in the math of encrypting and decrypting messages. Table compares secret- and public key systems. Both types of systems offer advantages and disadvantages. Often, the two are combined to form a hybrid system to exploit the strengths of each method. To determine which type of encryption best meets its needs, an organization first has to identify its security requirements and operating environment. Public-key encryption is particularly useful when the parties wishing to communicate cannot rely on each other or do not share a common key. This is often the case in online commerce. Another prominent public key method being used in online commerce today is called Digital Signatures




Comparing Secret key and public key Encryption methods.


Digital Signature Digital signatures are used for sending authentication. This also means that the originator cannot falsely deny having signed the data. In addition, a digital signature enables the computer to notarize the message, ensuring the recipient that the message has not been forged transit. Let us consider the following scenario of a customer, interacting with a merchant, Online mart. When the customer orders something from Online mart, he uses Online mart’s public key to encrypt her confidential information. Online Mart then uses its private key to decrypt the message (only a private key can unlock a document deciphered with a public key); thus the customer knows that only Online Mart received that data. To ensure further security, the customer can enclose a digital signature, encrypted with her own private key, which Online Mart could decrypt with the customers public key and know that only the particular customer could have sent it. In the other direction Online mart would send confidential information to the customer using her public key, and only she can decrypt it using her private key. This shows how digital signature works in combination with public key encryption to ensure authentication and privacy. Technically, How Do Digital Signatures Work? Data is electronically signed by applying the originator’s private key to the data. To increase the speed of the process, the private key is applied to a shorter form of the



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data, called a “hash” or “message digest,” rather than to the entire set of data. The resulting digital signature can be stored or transmitted along with the data. The signature can be verified by any party using the public key of the signer. This feature is very useful, for example, when distributing signed copies of virus-free .software. Any recipient can verify that the program re-mains virus-free. If the signature verifies properly, then the verifier has confidence that the data was not modified after 1:Jeing signed and that the owner of the public key was the signer. Digital signatures ensure authentication in the following way. In order to digitally sign a document, a user combines her private key and the document and performs a computation on the composite (key+docurnent) in order to generate a unique number called the digital signature. For example, when an electronic document, such as an order form with a credit card number, is run through the digital signature process, the output is a unique “fingerprint” of the document. This “fingerprint” is attached to the original message and further encrypted with the signer’s private key. If a user is communicating with her bank, she sends the result of the second encryption to her bank. The bank then decrypts the document using her public key, and checks to see if the enclosed message has been tampered with by a third party. To verify the signature, the bank performs a computation involving the original document, the purported digital signature, and the customer’s public key. If the results of the computation generate a matching “fingerprint” of the document, the digital signature is verified as genuine; otherwise, the signature may be fraudulent or the message altered. Digital signatures, variations of which are being explored by several companies, are the basis for secure commerce. A digital signature provides a way to associate the message with the sender, and is the cyberspace equivalent of “signing” for purchases. In this way, consumers can use credit card accounts over the Internet. Digital Certificates Authentication is further strengthened by the use of digital certificates. Before two parties, Bob and Alice, use public-key encryption to conduct business, each wants to be sure that the other party is authenticated. Before Bob accepts a message with Alice’s digital signature, he wants to be sure that the public key belongs to Alice and not to someone masquerading as Alice on an open network. One way to be sure that the public key belongs to Alice is to receive it over a secure channel directly from Alice. However, in most circumstances this solution is not practical.


An alternative to the use of a secure channel is to use a trusted third party to authenticate that the public key belongs to Alice. Such a party is known as a certificate authority (CA). Once Alice has provided proof of her identity, the certificate authority creates a message containing Alice’s name and her public key. This message, known as a certificate, is digitally signed by the certificate authority. It contains owner identification information, as well as a copy of one of the owner’s public keys. To get the most benefit, the public key of the certificate authority should be known to as many people as possible. Thus by using one public key (that of a CA) as a trusted third- party means of establishing authentication, disparate parties can engage in electronic commerce with a high degree of trust. In many ways, digital certificates are the heart of secure electronic transactions. Through the use of a common third party, digital certificates provide an easy and convenient way to ensure that the participants in an electronic commerce transaction can trust each other. For example, in the credit card industry, Visa provides digital certificates to the card-issuing financial institution, and the institution then provides a digital certificate to the cardholder. A similar process takes place for the merchant. At the time of the transaction, each party’s software validates both merchant and cardholder before any information is exchanged. The validation takes place by checking the digital certificates that were both issued by an authorized and trusted third party. In short, digital certificates ensure that two computers talking to each other may successfully conduct electronic commerce. Firewall A firewall is simply a program or hardware device that filters the information coming through the Internet connection into your private network or computer system. If an incoming packet of information is flagged by the filters, it is not allowed through. Let’s say that you work at a company with 500 employees. The company will therefore have hundreds of computers that all have network cards connecting them together. In addition, the company will have one or more connections to the Internet through something like T1 or T3 lines. Without a firewall in place, all of those hundreds of computers are directly accessible to anyone on the Internet. A person who knows what he or she is doing can probe those computers, try to make FTP connections to them, try to make telnet connections to them and so on. If one employee makes a mistake and leaves a security hole, hackers can get to the machine and exploit the hole. With a firewall in place, the landscape is much different. A company will place a firewall at every connection to the Internet (for example, at every T1 line coming into the



• • Information travelling from inside the firewall to the outside is monitored for specific defining characteristics. • • User passwords Billing files 228 ANNA UNIVERSITY CHENNAI . Firewalls use one or more of three methods to control traffic flowing in and out of the network: • Packet filtering . For example. Stateful inspection . The firewall can implement security rules. In addition.Information from the Internet is retrieved by the firewall and then sent to the requesting system and vice versa. Telnet servers and so on. Otherwise it is discarded 4.Packets (small chunks of data) are analyzed against a set of filters. the company can control how employees connect to Web sites. only one of them is permitted to receive public FTP traffic. the information is allowed through.2. Web servers. Packets that make it through the filters are sent to the requesting system and all others are discarded.DBA 1727 NOTES company). Allow FTP connections only to that one computer and prevent them on all others. then incoming information is compared to these characteristics.A newer method that doesn’t examine the contents of each packet but instead compares certain key parts of the packet to a database of trusted information.3 Creating a Secure System It’s a known saying Prevention is the best medicine and this implies equally well to compute security. A company can set up rules like this for FTP servers. The” first step is to keep the security of your data files such that only the right people can see them. whether files are allowed to leave the company over the network and so on. Proxy service . one of the security rules inside the company might be: Out of the 500 computers inside this company. This is especially crucial for any of the following types of data and files. A firewall gives a company tremendous control over how people use the network. If the comparison yields a reasonable match.

If a business can afford only lesser security then the best you can do is keep permissions of files hidden from pirates. someone else could be probing your system while you are working. Simply deleting the information is not enough. be sure to protect administration tools as well as compiler. Keeping your password files shadowed or hidden keeps pirates from remotely acquiring your file and then running password cracking programs on the file in their own time. Another security measure is to delete the not required data or information. One of the best security measures that you can take for physically stored data is to have hardware password protection.2. Finally. As the user of the system.E-COMMERCE TECHNOLOGY AND MANAGEMENT • • • • • System and user logs Credit card information Trusted remote system information Compiler Administration tools NOTES User passwords and usage logs should be kept secure to keep pirate from looking at those files to figure out how to gain further access to your system. The best solution is to use 229 ANNA UNIVERSITY CHENNAI .” 4.4 Storing Secure Information The most insure part of the Internet is not the Net itself but the source and destination of users and computers on the net. As server and browser security increases almost pirates will be driven to breaking into the system at the source or at the destination. Again store owners should ensure that they encrypt archived transactions. Many commercial products provide this facility and often work well to keep the data secure. as well as transactions in the process of being fulfilled. General users to your system should not have access to these tools because. Storeowners must ensure that product information database is secure. Pirates can easily undelete previously deleted information. you should know the place and the method to store your data. Decrypted data residing on your hard disk may be available to outside for snooping. the tools can be used to create programs that aid the pirate in greasing security. This information of-course applies equally to the both the user and the storeowner. Because of the nature slip type connectivity and TCP/IP networks. if they fall into wrong hands. Such program ensures that the original structure of the disk is recognized leaving no recoverable data. They can even unformatted a formatted disk after securely deleting file defrayment your drive using any popular disk utility. When you are connected to the network your personal system is vulnerable.

Every one should take the basic measures of creating secure passwords. depends upon the requirements and cost. 230 ANNA UNIVERSITY CHENNAI . The internal clock speed of the computer would oscillate like the radio stations. One should encrypt sensitive data that sent over the Internet. more sophisticated security measures should be implemented. Before marking the file as deleted. So they could hear the programming sequence running on the computer. The basic measures should be enough to cover the average security standards for the company. A type of technology and research called TEMPEST is available that can reverse this electromagnetic radiation into a reasonable reproduction of the original information. the electromagnetic emissions that come from the monitors. regular intervals. This ensures that magnetic particles are mixed several times so that traces of data are not readable. Such programs are available in software archives throughout the Internet. The programmers soon learn how to interpret the different sound frequencies to determine what was happening in their program. and keeping hard” Yare secure. Another type of pirating is also done by using. such programs first write repeating sequences of bits to each bit within the file. programmers could debug programs by turning on a radio and placing it near the computer. The degree of security for computer connected Into Internet. But monitor the system in. In the early age of computing.DBA 1727 NOTES programs like the Defense Departments recommended secure delete program. not leaving printouts laying around. Particularly. If security breaches are encounter. the companies are vulnerable those are involved in national security or those that have such companies as clients.

3. improved cryptography and the Internet. It is used by employers for depositing their employees’ salary in a bank account. It’s automatic. when you are paying a mortgage. cheap networks. 4. The benefit is that you won’t have to go to the bank to do it. the bank will discharge the monthly payment from a pre-accorded bank account.2 Where do we find EFT? One of the most common EFT’s is Direct Deposit.3. Since all the transaction is done automatically and electronically. Since it is affected by financial fraud. funds transfers were an usual thing in commercial transactions. Since an automatic teller machine is much cheaper than a group of bank tellers. it has helped to bring costs down and beneficiate the costumer. For example. a 231 NOTES ANNA UNIVERSITY CHENNAI . the electronic funds transfer act was implemented.3 Advantages of EFT: The main advantage of an electronic funds transfer is time. The history electronic funds transfer originated from the common funds transfer of the past.3. the bank doesn’t need to pay a person to do it. Since the 19th century.3 ELECTRONIC FUNDS TRANSFER 4. Its use has become widespread with the arrival of personal computers. Other kind of EFT is the automatic charge to your check or savings account. This federal law protects the consumer in case a problem arises at the moment of the transaction. Those little blue or dark blue machines in which you pass your card are doing an electronic fund transfer from your account to the retail account.E-COMMERCE TECHNOLOGY AND MANAGEMENT 4. 4. Points of sale (also known as POS) are also part of this group. and with the help of telegraphs. it migrated itself to computers and became the electronic money transfers of today. Finally. ATM’s are also used for EFT’s.1 What is EFT? An electronic funds transfer (also known as EFT) is a system for transferring money from one bank to another without using paper money.

These transfers may use the Automated Clearinghouse (ACH) or other payments network. 232 ANNA UNIVERSITY CHENNAI • . You may make arrangements for certain direct deposits to be accepted into your checking or savings account(s). Electronic returned check charge. You may provide your check to a merchant or service provider who will scan the check for the encoded bank and account information. Thus. the cost of the transport. You may authorize a third party to initiate electronic funds transfers between your account and the third party’s account. the cost of the maintenance of the transport. Examples of these transfers include. The merchant or service provider will then use this information to convert the transaction into an electronic funds transfer. but are not limited to: • • • Preauthorized credits. Your authorization to the third party to make these transfers can occur in a number of ways. the Internet.DBA 1727 NOTES person to drive the loans to the other bank. or via some other method) to trusted third parties whom you have authorized to initiate these electronic funds transfers. These transfers to make or receive payment may be one-time occurrences or may recur as directed by you. Preauthorized payments. you should only provide your bank and account information (whether over the phone. In some cases. You won’t hear either about lost checks causes by the inefficiency of normal mail (nowadays known as snail mail for its velocity compared to emails) and up to date bookkeeping. This may occur at the point of purchase. your authorization can occur when the merchant posts a sign informing you of their policy. Electronic check conversion. 4. In all cases. Some merchants or service providers will initiate an electronic funds transfer to collect a charge in the event a check is returned for insufficient funds. which brings an up to date cash flow. You may make arrangements to pay certain recurring bills from your checking account(s). insurance and the gas of the transport. EFT’s have revolutionized modern banking. the transaction will require you to provide the third party with your account number and bank information. or when you provide your check by other means such as by mail or drop box.3.4 Electronic Funds Transfers Initiated By Third Parties. This information can be found on your check as well as on a deposit or withdrawal slip. Other benefit is immediate payment.

You agree not to use your card(s) for illegal gambling or other illegal purpose. MasterCard International Incorporated will convert the charge into a US dollar amount. Currency Conversion. NOTES Some of these services may not be available at all terminals. If you effect a transaction with your MasterMoney® Card in a currency other than US Dollars. 233 ANNA UNIVERSITY CHENNAI . The currency conversion rate used by MasterCard International on the processing date may differ from the rate that would have been used on the purchase date or cardholder statement posting date. the conversion rate used by MasterCard International to determine the transaction amount in US dollars for such transactions is generally either a government mandated rate or a wholesale rate determined by MasterCard International for the processing cycle in which the transaction is processed .E-COMMERCE TECHNOLOGY AND MANAGEMENT Limitations on frequency of transfers section regarding limitations that apply to savings accounts. which is disclosed to institutions that issue MasterCard cards. Currently. MasterCard International will use its currency conversion procedure. Display of a payment card logo by. for example an online merchant does not necessarily meant that transactions are lawful in all jurisdictions in which the cardholder may be located. ATM Transfers – types of transfers and dollar limitations – You may access your account(s) by ATM using your MasterMoney® card and personal identification number to: • • • • make deposits to checking account(s) with a check card get cash withdrawals from checking with a check card transfer funds from checking to money market account(s) with a check card get information about the account balance of your checking account(s) with a check card. increased by an adjustment factor established from time to time by MasterCard International. Advisory Against Illegal Use.

we will be liable for your losses or damages.DBA 1727 NOTES Computer Transfer – types of transfers – You may access your account(s) by computer through the internet by logging onto our website at firststarbank. or similar order to third parties. and a secure web browser. for instance: 234 ANNA UNIVERSITY CHENNAI . to: • • • • • • • • • transfer funds from checking to checking transfer funds from checking to money market transfer funds from money market to checking transfer funds from money market to money market transfer funds from line of credit to checking transfer funds from line of credit to money market make payments from checking to third parties make payments from checking or money market to loan account(s) with us get information about: the account balance of checking account(s) the account balance of money market account(s) Limitations on frequency of transfers. draft. We will not be liable. the following limitations apply: Transfers from a money market account to another account or to third parties by preauthorized. your password. automatic. telephone. there are some exceptions. FINANCIAL INSTITUTION’S LIABILITY Liability for failure to make transfers. In addition to those limitations on transfers elsewhere described.com and using your user identification number. For security reasons. However. or computer transfer are limited to six per month with no more than three by check. there are other limits on the number of transfers and dollar amount you can make by check card. If we do not complete a transfer to or from your account on time or in the correct amount according to our agreement with you. if any.

through no fault of ours. Some critical requirements of any marketing encyclopedia are the ability to easily create and maintain a repository of product information. promotions. you do not have enough money in your account to make the transfer. an intelligent electronic catalog that connects sales representatives and customers to a company’s most current product and service information. up to the minute information about a wide range of products over the Internet.3. There may be other exceptions stated in our agreement with you.E-COMMERCE TECHNOLOGY AND MANAGEMENT (1) (2) (3) (4) (5) (6) If. without having to endure the inconvenience of visiting a showroom. If circumstances beyond our control (such as fire or flood) prevent the transfer. NOTES CONFIDENTIALITY We will disclose information to third parties about your account or the transfers you make: (1) (2) (3) (4) where it is necessary for completing transfers. or in order to verify the existence and condition of your account for a third party. If the automated teller machine where you are making the transfer does not have enough cash. or as explained in the separate Privacy Disclosure. such as credit bureau or merchant. 4.5 Online Catalogs Online catalogs provide easy access to product information. Product managers can update information in the database and immediately broadcast the changes throughout the enterprise. For assisted selling. and complementary products. a valuable tool is a marketing encyclopedia. If you have an overdraft line and the transfer would go over the credit limit. the ability to create multiple search mechanisms to assist in locating information. It provides a single point of entry for harnessing and distributing all product information. despite reasonable precautions that we have taken. and the ability to alert sales representatives and customers to bundled products and services. Consumers are benefited because they are able to obtain detailed. or in order to comply with government agency or court orders. 235 ANNA UNIVERSITY CHENNAI . If the terminal or system was not working properly and you knew about the breakdown when you started the transfer.

remember things the user might have forgotten. Intelligent agents work by allowing people to delegate work that they could have done. to the agent software. with connecting systems that are designed and implemented by many different organizations with various goals and agendas. This causes a problem of locating the relevant information.DBA 1727 NOTES 4. The growth of the Internet and correspondingly the vast amount of Information it holds. learn from the user and even make recommendations to the user. One typical use of the intelligent agent may be found in the exploration of data on the Internet. 236 ANNA UNIVERSITY CHENNAI .6 Intelligent Agents The Intelligent agent is software that assists people and acts on their behalf. The agent technology may help the user by helping the user get around this problem. In times to come it is hoped that agent technology can enhance the feature of electronic commerce by efficiently matching buyers and sellers.3. Agents can. As a result much of the information is discarded and processed in a sub optimal manner. In addition to making recommendations to the user. just as assistants can. The Internet can be viewed as a large distributed Information resource. intelligently summarize complex data. the agents can also make decisions and perform actions based on those decisions. presents a problem to the users-information overload. automate repetitive tasks.

1000. 500–Rs. Thus if the cardholder puts down Rs. 4.4. A credit card is different from a debit card in that it does not remove money from the user’s account after every transaction. Intelligence: The extent to which an agent can understand its own internal state and its external environment. In the case of credit cards. he or she will be given credit in the range of Rs.. 1. Agency: The degree of autonomous action that can me taken. Typically.4.2 Secured credit cards A secured credit card is a type of credit card secured by a deposit account owned by the cardholder. 2. The level of intelligence is further classified according to its ability to respond. It is also different from a charge card (though this name is sometimes used by the public to describe credit cards). Respond: Agents should perceive and respond to their environments. the cardholder must deposit between 100% and 200% of the total amount of credit desired. the deposit required may be significantly less than the required credit limit. 4. Other agents can request actions.E-COMMERCE TECHNOLOGY AND MANAGEMENT Intelligent Agent Computing Agent Three primary dimensions of the agents have been defined: agency. In these cases. In some cases. which requires the balance to be paid in full each month. the issuer lends money to the consumer (or the user) to be paid to the merchant.e. 3. to adapt and to take initiative. credit card issuers will offer incentives even on their secured card portfolios. The agents should have control over the actions performed within its system. 1000. intelligence and mobility. not have actions performed by other agents.4 CREDIT CARD BASED-ELECTRONIC PAYMENT SYSTEM 4. that is actions performed without the need for direct human intervention or intervention by other agents. and can be as low as 10% of the 237 NOTES ANNA UNIVERSITY CHENNAI . but the agent itself decides whether to approve and allow the action. i.1 What is credit card? A credit card is a system of payment named after the small plastic card issued to users of the system.

but should he or she default on a payment. secured cards can often be less expensive in total cost than unsecured credit cards.4. for people in certain situations. or people with a long history of delinquency on various forms of debt). as he or she would with a regular credit card. Secured credit cards are available with both Visa and MasterCard logos on them. the deposit will not be debited simply for missing one or two payments.DBA 1727 NOTES desired credit limit. after charging off on other credit cards. the card issuer has the option of recovering the cost of the purchases paid to the merchants out of the deposit. security is 238 ANNA UNIVERSITY CHENNAI . This deposit is held in a special savings account. This means that whenever a person other than the card owner reads the number. Most of these conditions are usually described in a cardholder agreement which the cardholder signs when their account is opened. In these cases the total debt may far exceed the original deposit and the cardholder not only forfeits their deposit but is left with an additional debt. Credit card issuers offer this as they have noticed that delinquencies were notably reduced when the customer perceives he has something to lose if he doesn’t repay his balance. Fees and service charges for secured credit cards often exceed those charged for ordinary non-secured credit cards. (for example. They are often offered as a means of rebuilding one’s credit. 4. even including the security deposit. The advantage of the secured card for an individual with negative or no credit history is that most companies report regularly to the major credit bureaus.2. Usually the deposit is only used as an offset when the account is closed. however. Secured credit cards are an option to allow a person with a poor credit history or no credit history to have a credit card which might not otherwise be available. The cardholder of a secured credit card is still expected to make regular payments. Although the deposit is in the hands of the credit card issuer as security in the event of default by the consumer. either at the request of the customer or due to severe delinquency (150 to 180 days). This means that an account which is less than 150 days delinquent will continue to accrue interest and fees.1 Security Overview Credit card security is based on privacy of the actual credit card number. This allows for building of positive credit history. and could result in a balance which is much higher than the actual credit limit on the card.

E-COMMERCE TECHNOLOGY AND MANAGEMENT potentially compromised. but then the delivery address will be recorded. For internet purchases. However. The card number’s prefix.3 Credit cards in ATMs Many credit cards can also be used in an ATM to withdraw money against the credit limit extended to the card but many card issuers charge interest on cash advances before they do so on purchases. and require a signature. whereupon access to the number allows easy fraud. there is sometimes the same level of security as for mail order (number only) hence requiring only that the fraudster take care about collecting the goods. is the sequence of digits at the beginning of the number that determine the bank to which a credit card number belongs. Since this happens most of the time when a transaction is made. even if the ATM belongs to the same bank as the 239 NOTES ANNA UNIVERSITY CHENNAI . but many require the card itself to be present. Not all credit cards have the same sets of extra codes nor do they use the same number of digits. Thus. not his own) and collect them without being detected. Many card issuers levy a commission for cash withdrawals. no fraud can take place in this way. security is low. The next nine digits are the individual account number. The main one is to require a security PIN with the card. This is the first six digits for MasterCard and Visa cards. and if this is done quickly. 4. rather than the monthly billing date. as well as extra codes such as issue numbers and security codes. Merchants will often accept credit card numbers without extra verification for mail order. a stolen card can be cancelled. credit cards also carry issue and expiration dates (given to the nearest month). but often there are additional measures. Some merchants will accept a credit card number for in-store purchases. and share a common numbering scheme.2. called the Bank Identification Number.e.4. a user with access to just the number can only make certain types of transactions. and the final digit is a validity check code. In addition to the main credit card number. which requires that the thief have access to the card.4. 4. The interest on cash advances is commonly charged from the date the withdrawal is made.2 Credit card numbering The numbers found on credit cards have a certain amount of internal structure. so the thief must make sure he can have the goods delivered to an anonymous address (i.

Payments using encrypted credit card details. Payments using third-party verification. and will carry those balances for years. Without encryption there is no way to do this. It would make sense to encrypt your credit card details before sending them out. one credit card transaction for the total accumulated amount is completed.4. and apply those payments to everything before cash advances. After a certain period of time. The low level of security inherent in the design of the Internet makes this method problematic (any snooper can read a credit card number. 3. which have no grace period and incur interest at a rate that is (usually) higher than the purchase rate.DBA 1727 NOTES card issuer. even if they pay off their statement balance each month. Many credit card companies will also. One would be the cost of a credit card transaction itself.4 Credit Card payment-online networks We can break credit card payment on on-line networks into three basic categories: 1. but even then there are certain factors to consider. 240 ANNA UNIVERSITY CHENNAI . The easiest method of payment is the exchange of unencrypted credit cards over a public network such as telephone lines or the Internet. when applying payments to a card. 2. many consumers have large cash balances. Payments using plain credit card details. Such cost would prohibit low-value payments (micro payments) by adding costs to the transactions. Merchants do not offer cash back on credit card transactions because they would pay a percentage commission of the additional cash amount to their bank or merchant services provider. 4. For this reason. and the vendor is usually responsible to ensure that the person using the credit card is its owner. Authentication is also a significant problem. One solution to security and verification problems is the introduction of a third party: a company that collects and approves payments from one client to another. do so at the end of a billing cycle. and programs can be created to scan the Internet traffic for credit card numbers and send the numbers to its master). thereby making it uneconomical.

does not meet important requirements for an adequate financial system. or funds flow: 1. The secret key is re-encrypted with a password. In this scheme. each consumer and each vendor generates a public key and a secret key. A customer presents his or her credit card information (along with an authenticity signature or other information such as mother’s maiden name) securely to the merchant. To steal a credit card. ‘It is now time T.E-COMMERCE TECHNOLOGY AND MANAGEMENT 4. speed. The public key is sent to the credit card company and put on its public key server. NOTES 2.4. privacy. bank for authorization approval. The credit card company sends the consumer a credit card number and a credit limit. 3. the following sequence of steps must occur before actual goods. and security. services. 4. and the unencrypted version is erased. The merchant relays the credit card charge information and signature to its bank or on-line credit card processors. To make a credit card transaction truly secure and non-refutable. because he doesn’t have access to the consumer’s key.5(a) Nobody can cheat this system. the consumer sends vendor X the message.4. because the consumer included the precise time in the message. 5. He can’t submit the same charge twice. because he signed it (as in everyday life). The vendor will then sign the message with its own secret key and send it to the credit card company. To buy something from vendor X. This practice. I am paying Y dollars to X for item Z. such as non refutability. a thief would have to get access to both a consumer’s encrypted secret key and password. however. The vendor can’t invent fake charges. charge authentication. The consumer can’t claim that he didn’t agree to the transaction. which will bill the consumer for Y dollars and give the same amount (less a fee) to X. The bank or processing party relays the information tot the customer’s. To become useful. The merchant validates the customer’s identity as the owner of the cred-it card account. credit Card systems will have to develop distributed key 241 ANNA UNIVERSITY CHENNAI . The customer’s bank returns the credit card data.4.5 Encryption and Credit Cards Encryption is instantiated when credit card information is entered into a browser or other electronic commerce device and sent securely over the net-work from buyer to seller as an encrypted message.” then the consumer uses his or her password to sign the message with the public key. and authorization to the merchant. (See Fig. safety.

242 ANNA UNIVERSITY CHENNAI .DBA 1727 NOTES servers and card checkers. Support for Privacy Enhanced Mail (PEM) and Pretty Good Privacy (PGP) encryption has been built into several browsers.4. a con-centrated attack on these sites could bring the system to a halt. Consumers pay either by flat fee or individual transaction charges for this service.5(a) Processing payments using encrypted credit cards 4.4. Now any vendor can create a secure system that accepts credit card numbers in about an hour. Merchants get paid for the credit card drafts that they submit to the credit card company. Businesses get charged a transaction charge ranging from 1 percent to 3 percent for each draft submitted. Otherwise. Figure 4.6 Advantages and Disadvantage of credit cards: Consumers use credit cards by presenting them for payment and then paying an aggregate bill once a month. Both of these schemes can be substantially bolstered with the addition of encryption to defeat snooping attacks.

Hence. however. Speed will have design and cost implications. Record keeping with credit cards is one of the features consumers value most because of disputes and mistakes in billing. Sellers are ensured that they will be paid for all their sales—they needn’t worry about fraud. Buyers can sometimes dispute a charge retroactively and have the credit card company act on their behalf. For example. Such exchanges may require many sequence-specific operations such as staged encryption and decrying and exchanges of cryptographic keys. an information provider might charge for partial delivery of a file (the user may have abandoned the session after reading part of the file). Disputes may arise because different services may have different policies. a potential bottleneck. and credit card companies do in fact compile valuable data about spending habits. intentional customer action versus a problem in the network or provider’s equipment). computing power. implementing payment policies will be simpler when payment is made by credit rather than with cash.g. as it is a function of network capabilities. If the customer wants a report (or even a digital airline ticket). unless the authorization request is denied. however.E-COMMERCE TECHNOLOGY AND MANAGEMENT • Credit cards have advantages over checks in that the credit card company assumes a larger share of financial risk for both buyer and seller in a transaction. • • One disadvantage to credit cards is that their transactions are not anonymous. and fast. In fact. • Encryption and transaction speed must be balanced. The complexity of credit card processing takes place in the verification phase. and a movie distributor might charge depending on how much of the video had been downloaded. If there is a lapse in time between the charging and the delivery of goods or services (for example. and the specific form of the transaction. on-line credit card users must find the process to be accessible. The user must feel confident that the supporting payment 243 NOTES • ANNA UNIVERSITY CHENNAI . simple. many message relays and authorizations take place in real time while the customer waits. The cause of interrupted delivery needs to be considered in resolving disputes (e. available at every server.. as research has show that on-line users get very impatient and typically wait for 20 seconds before pursuing other actions. the customer verification process is simple because it does not have to be done in real time. which would be downloaded into a PC or other information appliance immediately at the time of purchase. all the relaying and authorizations can occur after the customer-merchant transaction is completed. The infrastructure supporting the exchange must be reliable. In general. when an airline ticket is purchased well in advance of the date of travel).

In the emerging world of ecommerce. Many companies are developing advanced electronic services for home-based financial transactions. the goal would be to offer everything from mutual funds to brokerage services over the network.7 Infrastructure for On-Line Credit Card Processing Competition among these players is based on service quality. the ability to obtain competitively priced access to an existing network. and software companies are increasingly allying with banks to sell home banking. price. mostly unsuccessfully. 4.. If they wait for a clear path to emerge. Microsoft. banking is receiving a jarring message: Get wired or lose customers. much as banks do today with ATMs. customer support.” They know all too well that ecommerce transaction architectures (similar to MS-DOS or Windows) on which other e-commerce applications are developed will be very profitable. The traditional roles are most definitely being reshuffled. and reliability. Many banks are concerned about this prospect and view it as an encroachment on their turf. ongoing expenses related to establishing and maintaining an electronic transaction processing network. After years of dabbling. The builders and providers of this infrastructure are aware of customer requirements and are in fierce competition to fulfill those needs. processing system speed. and electronic payment on the Internet can have a substantial effect on transaction processing in the “real” (non 244 ANNA UNIVERSITY CHENNAI .DBA 1727 NOTES infrastructure will be available on demand and that the system will operate reasonably well regardless of component failures or system load conditions. and other companies understand that they have to do something. the companies that own the transaction infrastructure will be able to charge a fee.4. Barriers to entry include (1) (2) (3) (4) large initial capital requirements. What exactly is at stake here? A lot. with remote banking. it will be “too little too late. and the reluctance of merchants to change processors. VISA. This could be extremely profitable. Most third-party processors market their services directly to large regional or national merchants rather than through financial institutions or independent sales organizations . Eventually.

E-COMMERCE TECHNOLOGY AND MANAGEMENT electronic) world. To be fair. not the providers of lucrative value-added services. banks processed 90 percent of all bank card transactions. If software companies and other interlopers become electronic toll-takers. for as much as 25 percent of non interest income for banks. The effect of electronic commerce on the banking industry has been one of total confusion. a payment system database. Even more worrisome. Today. The record feature is an after-the-fact transcription of what happened. invented long before the computer and networks gave us the ability to track everything. For example. NOTES The need for record keeping for purposes of risk management conflicts with the transaction anonymity of cash.8 Risks from Mistake and Disputes: Consumer Protection Virtually all electronic payment systems need some ability to keep automatic records. such as VISA and MasterCard. bank. A decade ago. created without any explicit effort by the transaction parties. banks could lose the all-important direct link to be the customer’s primary provider of financial services that lets them hawk profitable services. accessibility and traceability. Although a segment of the payment-making public will always desire 245 ANNA UNIVERSITY CHENNAI . Given the intangible nature of electronic transactions and dispute resolution relying solely on records. for obvious reasons. From a technical standpoint. a general law of payment dynamics and banking technology might be: No data need ever be discarded.4. old or blocked accounts are never purged and old transaction histories can be kept forever on magnetic tape. so banks clearly stand to lose business. it is easy and inexpensive to keep (it might even cost more to throw it away than to keep it). Credit and debit cards have them and even the paper-based check creates an automatic record. things are happening so fast in this area that it’s hard to keep up with it all. 70 percent of those transactions are processed by nonbanks such as First Data Resources. and data transfer to payment maker. According to some estimates. in many transaction processing systems. or monetary authorities. Once information has been captured electronically. Why banks are on the defensive is obvious if we look at banking in the last ten years. banks could become mere homes for deposits. Features of these automatic records include (1) (2) (3) (4) permanent storage. this is no problem for electronic systems. 4. trans-action processing services account. One can say that anonymity exists today only because cash is a very old concept.

thus allowing for additional protection against loss or theft. There is considerable debate on this point. All details of a consumer’s payments can be easily be aggregated: Where. customers might feel that all this record keeping is an invasion of privacy resulting in slower than expected adoption of electronic payment systems. the balance on any smart card could be reconstructed after the fact. Obviously. the Mondex electronic purse touts equivalence with cash. that information goes into. meaning it would appear on an account statement making mistakes and disputes easier to resolve. machines. The users must be assured that they cannot be easily duped. The anonymity issue raises the question: Can electronic payments hap-pen without an automatic record feature? Many recent payment systems seem to be ambivalent on this point. However.Privacy must be maintained against eavesdroppers on the network and against unauthorized insiders. For instance. In sum. This protection must apply throughout the 246 ANNA UNIVERSITY CHENNAI . This would certainly add some value versus cash. or falsely implicated in a fraudulent transaction. This dossier would reflect what items were bought and where and when. smuggling. limited only to the parties involved and their designated agents (if any). a database somewhere. Furthermore. Managing Information Privacy The electronic payment system must ensure and maintain privacy. An anonymous payment system without automatic record keeping will be difficult for bankers and governments to accept. swindled. or telephones could all maintain records of all transactions and they probably ultimately will. With these records. and/or money laundering possibilities exist. subscribes to a magazine or accesses a server. Every time one purchases goods using a credit card. the card-reading terminals. This violates one the unspoken laws of doing business: that the privacy of customers should be protected as much as possible.DBA 1727 NOTES transaction anonymity. Users must be assured that knowledge of transactions will be confidential. each transaction would have to be reported. This collection of data tells much about the person and as such can conflict with the individual’s right to privacy. and sometimes what the consumer buys is stored. many believe that anonymity runs counter to the public welfare because too many tax. all these records can be linked so that they constitute in effect a single dossier. but its electronic wallets are designed to hold automatic records of the card’s last twenty transactions with a statement built in. anonymity is an issue that will have to be addressed through regulation covering consumer protection in electronic transactions. The next risk involved is the privacy of the customer making a purchase. Were the regulation to apply. when.

The transaction is authorized and processed and the customer verifies the transaction either by entering a PIN or. If the central bank does not guarantee settlement. for example. or from the remaining balance on the card. Without such guarantees the development of clearing and settlement systems and money markets-may be impeded. or they may hand it to the merchant who will do so. Physically the card is an ISO 7810 card like a credit card. its functionality is more similar to writing a cheque as the funds are withdrawn directly from either the cardholder’s bank account (often referred to as a check card). Merchants can also offer “cashback”/ 247 NOTES ANNA UNIVERSITY CHENNAI . setting controls on bank exposures (bilateral or multilateral) and requiring collateral. acting as the ATM card for withdrawing cash and as a check guarantee card. the conditions and terms for extending liquidity to banks in connection with settlement. it must define. In some countries the debit card is multipurpose. for many types of transactions. the customer may swipe or insert their card into the terminal. Despite cost and efficiency gains. This implies that.5 Debit card based-Electronic Payment System 4. A middle road is also possible. Managing Credit Risk Credit or systemic risk is a major concern in net settlement systems because a bank’s failure to settle its net position could lead to a chain reaction of bank failures. by signing a sales receipt..1 What is a debit card? A debit card (also known as a gift card) is a plastic card which provides an alternative payment method to cash when making purchases. occasionally. A digital central bank guarantee on settlement removes the insolvency test from the system because banks will more readily assume credit risks from other banks. at least internally. The digital central bank must develop policies to deal with this possibility. 4. trusted third-party agents will be needed to vouch for the authenticity and good faith of the involved parties.E-COMMERCE TECHNOLOGY AND MANAGEMENT whole transaction protocol by which a good or service is purchased and delivered. many hurdles remain to the spread of electronic payment systems. Various alternatives exist. however. each with advantages and disadvantages. Depending on the store or merchant.5.

there are many other types of debit card. 5. The 3 by 5 mm security chip embedded in the card is shown enlarged in the inset. 4. 2. Laser in Ireland. The gold contact pads on the card enable electronic access to the chip. 3. for example Switch (now: Maestro) and Solo in the United Kingdom.DBA 1727 NOTES ”cashout” facilities to customers. Like credit cards. 2. 3. “EC electronic cash” (formerly Eurocheck) in Germany and EFTPOS cards in Australia and New Zealand. 7. The need for cross-border compatibility and the advent of the euro recently led to many of these card networks (such as Switzerland’s “EC direkt”. 6. Magnetic stripe Signature strip Card Security Code Although many debit cards are of the Visa or MasterCard brand. Issuing bank logo EMV chip Hologram Card number Card brand logo Expiry date Cardholder’s name An example of the reverse side of a typical debit card: 1.5. each accepted only within a particular country or region. An example of the front of a typical debit card: 1. Austria’s “Bankomatkasse” and Switch in the United Kingdom) being rebranded 248 ANNA UNIVERSITY CHENNAI . debit cards are used widely for telephone and Internet purchases.2 Types of debit card A Finnish smart card. and in some instances cash transactions by volume. The use of debit cards has become wide-spread in many countries and has overtaken the check. where a customer can withdraw cash along with their purchase. 4. Carte Bleue in France.

There are currently two ways that debit card transactions are processed: online debit (also known as PIN debit) and offline debit (also known as signature debit). Pinpas cards in the Netherlands. EC cards in Germany. Bancontact cards in Belgium. Some debit cards are dual branded with the logo of the (former) national card as well as Maestro (e. such as Canada and Brazil. etc. bowling centers and theme parks. which alleviates problems with processing lag on transactions that may have been forgotten or not authorized by the owner of the card. which is part of the MasterCard brand. Overall. Banks in some countries.5. In some countries including the United States and Australia. The use of a debit card system allows operators to package their product more effectively while monitoring customer spending. NOTES 249 ANNA UNIVERSITY CHENNAI . branded to McDonalds. Switch and Solo in the UK. only issue online debit cards.).3 Online and offline debit transactions Typical debit card transaction machine. the online debit card is generally viewed as superior to the offline debit card because of its more secure authentication system and live status. although this is becoming commonplace for all card transactions in many countries. The transaction may be additionally secured with the personal identification number (PIN) authentication system and some online cards require such authentication for every transaction.E-COMMERCE TECHNOLOGY AND MANAGEMENT with the internationally recognised Maestro logo.g. Debit card systems have become popular in video arcades. One difficulty in using online debit cards is the necessity of an electronic authorization device at the point of sale (POS) and sometimes also a separate PINpad to enter the PIN. Online debit (“PIN debit” or “debit”) Online debit cards require electronic authorization of every transaction and the debits are reflected in the user’s account immediately. essentially becoming enhanced automatic teller machine (ATM) cards. An example of one of these systems is ECS by Embed International. they are often referred to at point of sale as “debit” and “credit” respectively. Laser cards in Ireland. 4. even though in either case the user’s bank account is debited and no credit is involved.

which charges higher fees and interest rates when a cash advance is obtained. Visa or MasterCard) or major debit cards (e. Like credit cards.g. in which case they can be used with a forged signature. or being charged interest. For most transactions. as well as a maximum limit equal to the amount currently deposited in the current/checking account from which it draws funds.5. Offline debit cards in the United States and some other countries are not compatible with the PIN system. thereby finalizing the transaction at the time of purchase. Transactions conducted with offline debit cards usually require 2-3 days to be reflected on users’ account balances. late fees. Unlike a credit card. allowing him/her to make plastic transactions. This type of debit card may be subject to a daily limit. a check card can be used to avoid check writing altogether.DBA 1727 NOTES Offline debit (“signature debit” or “credit”) Offline debit cards have the logos of major credit cards (e. Check cards debit funds from the user’s account on the spot. 4. or fees exclusive to credit cards. Use of a debit card is limited to the existing funds in the account to which it is linked. a debit card may be used to obtain cash from an ATM or a PIN-based transaction at no extra charge. have revealed numerous advantages and disadvantages to the consumer and retailer alike. • • • • 250 ANNA UNIVERSITY CHENNAI . as they have become widespread.g. debit cards are accepted by merchants with less identification and scrutiny than personal checks. or to write an insecure check containing the account holder’s personal information. thereby preventing the consumer from racking up debt as a result of its use. thereby making transactions quicker and less intrusive. since users are rarely required to present identification. Advantages are as follows: • A consumer who is not credit worthy and may find it difficult or impossible to obtain a credit card can more easily obtain a debit card. other than a foreign ATM fee. Unlike personal checks. but not the United States) and are used at point of sale like a credit card.4 Advantages and Disadvantages Debit and check cards. merchants generally do not believe that a payment via a debit card may be later dishonored. Maestro in the United Kingdom and other countries. and bypassing the requirement to pay a credit card bill at a later date.

or car rental. the consumer has spent his/her own money. over-the-limit. such as gasoline. will verify the creditworthiness of the renter using a debit card. and dollar and cent amount. Until the hold is released. may be dishonored. any other transactions presented to the account. or may be paid at the expense of an overdraft fee if the account lacks any additional funds to pay those items. amounts not available causing further rejections or overdrafts. thus causing penalty fees for overdrafts. The bank may fight to void the charges of a consumer who is dissatisfied with a purchase. the bank has a vested interest in claiming its money where there is fraud or a dispute. These companies will deny a rental to anyone who does not fit the requirements. and such a credit check may actually hurt one’s credit score. But when a debit purchase is made. or at the very least. NOTES • • • • 251 ANNA UNIVERSITY CHENNAI . and rejected transactions by some banks.E-COMMERCE TECHNOLOGY AND MANAGEMENT The debit card has many disadvantages as opposed to cash or credit: • Some banks are now charging over-limit fees or non-sufficient funds fees based upon pre-authorizations. without agreement as to date. a major exception is at car rental facilities. and therefore. • When a transaction is made using a credit card. For certain types of purchases. the bank’s money is being spent. or who has otherwise been treated unfairly by the merchant. and even attempted but refused transactions by the merchant (some of which may not even be known by the client). lodging. and the bank has little if any motivation to collect the funds. payee name. Theft of the users PIN using skimming devices can be accomplished much easier with a PIN input than with a signature-based credit transaction. the bank may place a hold on funds much greater than the actual purchase for a fixed period of time. Car rental agencies require an actual credit card to be used. Many merchants mistakenly believe that amounts owed can be “taken” from a customer’s account after a debit card (or number) has been presented. While debit cards bearing the logo of a major credit card are accepted for virtually all transactions where an equivalent credit card is taken. including checks. Debit cards offer lower levels of security protection than credit cards.

1 E-Checks Electronic checks are designed to accommodate the many individuals and entities that might prefer to pay on credit or through some mechanism other than cash. electronic checks can be easily understood and readily adopted. Ideally. 252 ANNA UNIVERSITY CHENNAI . Electronic checks are modelled on paper checks. The security/authentication aspects of digital checks are supported via digital signatures using public-key cryptography. or by public networks such as the Internet. E-checks: • • • • • • contain the same information as paper checks contain are based on the same rich legal framework as paper checks can be linked with unlimited information and exchanged directly between parties can be used in any and all remote transactions where paper checks are used today enhance the functions and features provided by bank checking accounts expand on the usefulness of paper checks by providing value-added information 4.6 ELECTRONIC CHECKS 4. and bank account.6. thus simplifying customer education. Electronic checks are delivered either by direct transmission using telephone lines. such as automated clearing houses (ACH) networks. the payer’s bank. except that they are initiated electronically. and require the use of digital certificates to authenticate the payer. and facilitating payment integration with widely used EDI-based electronic ordering and billing processes. use digital signatures for signing and endorsing. By retaining the basic characteristics and flexibility of paper checks while enhancing the functionality. enhancing security at each step of the transaction through automatic validation of the electronic signature by each party (payee and banks). Electronic check payments (deposits) are gathered by banks and cleared through existing banking channels.2 Benefits of Electronic Checks Electronic checks have the following advantages: • Electronic checks work in the same way as traditional checks.DBA 1727 NOTES 4.6. electronic checks will facilitate new online services by: allowing new payment flows (the payee can verify funds availability at the payer’s bank).

Firms can use electronic checks to complete payments over the networks in a more cost-effective manner than present alternatives. When deposited. Further. The account server also acts as a billing service. a buyer can then contact sellers of goods and services. or it can act as a bank and provide deposit accounts and make money from the deposit account pool. The registration procedure can vary depending on the particular account server and may require a credit card or a bank account to back the checks.3 How do Electronic Check works? Electronic checks are another form of electronic tokens. They are designed to accommodate the many individuals and entities that might prefer to pay on credit or through some mechanism other than cash. the name of the financial institution. Buyers must register with a third-party account server before they are able to write electronic checks. and the availability of float is an important requirement for commerce. These checks may be sent using e-mail or other transport methods.6. such as ac-counts receivable. the payer’s account 253 ANNA UNIVERSITY CHENNAI .E-COMMERCE TECHNOLOGY AND MANAGEMENT • • Electronic checks are well suited for clearing micro payments. The e-check method was deliberately created to work in much the same way as a conventional paper check. the check authorizes the transfer of account balances from the account against which the check was drawn to the account to which the check was deposited. The third-party accounting server can earn revenue by charging the buyer or seller a transaction fee or a flat rate fee. Electronic checks create float. The payee and the payee’s and payer’s banks can authenticate checks through the use of publickey certificates. leveraging the access of public net-works with the existing financial payments infrastructure. Once registered. the buyer sends a check to the seller for a certain amount of money. since the contents of a check can be attached to the trading partner’s remittance information. To complete a transaction. NOTES 4. Electronic check technology links public networks to the financial payments and bank clearing networks. Electronic checks can serve corporate markets. Digital signatures can also be validated automatically. An account holder will issue an electronic document that contains the name of the payer. the electronic check will easily integrate with EDI applications. the conventional cryptography of electronic checks makes them easier to process than systems based on public-key cryptography (like digital cash).

Most of the information is in uncoded form. an e-check will bear the digital equivalent of a signature: a computed number that authenticates the check as coming from the owner of the account. And. Like a paper check. or not appropriate • is the most secure payment instrument available today • provides rapid and secure settlement of financial obligations • can be used with existing checking accounts can be initiated from a variety of hardware platforms and software applications 254 ANNA UNIVERSITY CHENNAI . but controlled. information carrying capability reduces fraud losses for all parties automatic verification of content and validity traditional checking features such as stop payments and easy reconciliation enhanced capabilities such as effective dating The E-Check: • can be used by all account holders. yet are safe enough to use on the Internet unlimited.4 Why do we use e-checks? E-Checks have important new features. Subsequent endorsers add successive layers of information onto the tickets. again like a paper check. with the institutions using these endorsed checks as tender to settle accounts. The specifics of the technology work in the following manner: On receiving the check. before the check can be paid. A user’s digital “signature” is used to create one ticket-a checkwhich the seller’s digital “endorsement” transforms into another-an order to a bank computer for fund transfer. using another electronic signature. Properly signed and endorsed checks can be electronically exchanged between financial institutions through electronic clearinghouses. even where other electronic payment solutions are too risky. large and small. an e-check will need to be endorsed by the payee.6. the seller presents it to the accounting server for verification and payment. 4. the name of the payee and amount of the check. They offer: • • • • • • the ability to conduct bank transactions. precisely as a large number of banks may wind up stamping the back of a check along its journey through the system. The accounting server verifies the digital signature on the check using any authentication scheme.DBA 1727 NOTES number.

based on five categories: usage. This white paper will briefly compare the differences between debit cards and e-checks. E-checks and Debit cards Debit cards are used by individuals and to a far lesser extent by businesses. this white paper provides a high level comparison of some of the main differences between the ACH debit system and echecks. business practices. transaction authorization. and allowance for errors. cost. to make payments at the retail point-of-sale.5 Comparison with other payment instruments E-Check and Paper Checks The electronic check (e-Check) is an all-electronic enhancement to the paper check and is based on current check law. These differences are reviewed in five main categories: terminology. NOTES 255 ANNA UNIVERSITY CHENNAI . E-check and Automated Clearing House (ACH) Since electronic checks are debit transactions.6. This white paper will briefly explore the differences between the two payment approaches. E-check and Secure Electronic Transaction (SET) The SET protocol specifications were defined by the credit card industry to facilitate credit card purchases over the Internet. E-check and Home Banking Home banking bill payments are convenient for consumers. there are significant differences between echecks and home banking bill payments. or to obtain cash from ATMs. and although they have some of the characteristics of electronic payments. and information richness. underlying technology.E-COMMERCE TECHNOLOGY AND MANAGEMENT 4. risk management. and risk management. This white paper briefly compares the differences between SET and e-checks. This white paper briefly compares paper and echecks.

The MTA is the largest transportation agency in the United States and. and nine tolled intrastate bridges and tunnels. vending customers. These facilities serve four million customers each workday. the Long Island Railroad and Metro-North commuter rail systems. university students. Smart cards offer clear benefits to both merchants and consumers. In spite of the many prototypes developed. the MTA anticipates more than 1.2 Smart Cards and Electronic Payment Systems The enormous potential of electronic tokens is currently stunted by the lack of a widely accepted and secure means of transferring money on-line. 4.600 MTA buses became operational in 1996. By 1999. All 3. The MetroCard is either swiped through a card reader at subway stations or dipped into a fare box on buses where the fare is decremented. we are a long way from a universal payment system because 256 ANNA UNIVERSITY CHENNAI .DBA 1727 NOTES 4.1 Smart Cards Smart cards. including electronic money. telephone customers. They reduce cash-handling expenses and losses caused by fraud. Other private sector institutions market stored value products to transit riders. The full complement of 467 subway stations is expected to be operational by mid-1997. The management challenges created by smart card payment systems are formidable. In 1994.7 STORED VALUE CARDS AND E-CASH 4. and retail customers. operates the New York City subway and public bus system.7. Institutions such as the MTA have made a considerable investment in the stored value card processing network. also called stored value cards. The cards can be used to purchase goods or services. the MTA began the operation of an automated fare-collection system based on a plastic card with a magnetic stripe. control access to accounts. many state and federal governments are considering stored value cards as an efficient option for dispersing government entitlements. and enhance consumer convenience and safety. expedite customer transactions at the checkout counter. and perform many other functions. through its subsidiaries and affiliates.7.2 billion electronic fare collection transactions a year on subway and bus lines. use magnetic stripe technology or integrated circuit chips to store customer-specific information. store information. In addition. One successful use of stored value cards is by New York’s Metropolitan Transportation Authority (MTA). and to get a good return on investment must identify new and innovative ways to achieve additional operating efficiencies and value.

2. since a highly reliable and fairly inexpensive telecommunications system has favored the use of credit and debit cards. and reliable. The idea has taken longer to catch on in the United States.1 Relationship-Based Smart Cards Financial institutions worldwide are developing new methods to maintain and expand their services to meet the needs of increasingly sophisticated and technically smart customers. Japan.E-COMMERCE TECHNOLOGY AND MANAGEMENT merchants and banks have to be signed up and a means has to be developed to transfer money. and Singapore to pay for public phone calls. Such a system moreover must be robust and capable of handling a large number of transactions and will require extensive testing and usage to iron out all the bugs. can store significantly greater amounts of data. Industry observers have predicted that. 257 ANNA UNIVERSITY CHENNAI . These new services may include access to multiple financial accounts. by the year 2000. thousands of would-be sellers of electronic commerce services have to pay one another and are actively looking for payment substitutes. at its current state of development. as well as to meet the emerging payment needs of electronic commerce. estimated to be 80 times more than a magnetic stripe. A relationshipbased smart card is an enhancement of existing card ser-vices and/or the addition of new services that a financial institution delivers to its customers via a chip-based card or other device. value-added marketing programs. Smart cards are basically of two types: • • Relationship-based smart credit cards Electronic purses. Smart cards are credit and debit cards and other card products enhanced with microprocessors capable of holding more information than the traditional magnetic stripe.7. Smart cards have been in existence since the early 1980s and hold promise for secure transactions using existing infrastructure. Traditional credit cards are fast evolving into smart cards as consumers demand payment and financial services products that are user-friendly. are also known as debit cards and electronic money. Germany. The smart card technology is widely used in countries such as France. which replace money. one-half of all payment cards issued in the world will have embedded microprocessors rather than the simple magnetic stripe. The chip. convenient. transportation/ and shopper loyalty programs. NOTES 4. One such substitute is the smart card. In the meantime. Electronic purses. or other information cardholders may want to store on their card.

2. They can package financial and non financial services with valueadded programs to enhance convenience.” wallet-sized smart cards embedded with programmable microchips that store sums of money for people to use instead of cash for everything from buying food. and even government institutions are racing to introduce “electronic purses. offering a menu of services similar to those that come up on ATM screens. a personal digital assistant (PDA). or funds transfer for selected accounts Multiple access options at multiple locations using multiple device types. bill payment. birth date. Electronic Purses and Debit Cards Despite their increasing flexibility. and attract new customers. credit card companies. 4. This information will enable merchants to accurately track consumer behavior and develop promotional programs designed to increase shopper loyalty. personal shopping preferences. balance inquiry. Enhanced credit cards store cardholder information including name. to paying subway fares. a personal computer.2. to making photocopies. As with credit cards/banks may link up with health care providers. Banks are also attempting to customize services on smart cards. retailers. such as an automated teller machine. telephone companies. To meet this need. a screen phone.DBA 1727 NOTES The chip-based card is but one tool that will help alter mass marketing techniques to address each individual’s specific financial and personal requirements. such as debit. or interactive TVs Companies are trying to incorporate these services into a personalized banking relationship for each customer. such as cash access. including the following: • • • Access to multiple accounts. banks.7. and actual purchase records. investments or stored value for e-cash. credit. There remains a need for a financial instrument to replace cash. relationship-based cards are credit based and settlement occurs at the end of the billing cycle. on one card or an electronic device A variety of functions. The electronic purse works in the following manner. build loyalty and retention. 258 ANNA UNIVERSITY CHENNAI . and airlines to offer frequent shopping and flyer programs and other services. Relationship-based products are expected to offer consumers far greater options.

cash is still the most prevalent consumer payment instrument. For example. The versatility of digital cash opens up a host of new markets and applications. The vending machine need only verify that a card is authentic and there is enough money available for a chocolate bar. Although it may be surprising to some. 4. Today the cards cost $1. meaning that it can be given or traded to someone else. the cards have been relatively expensive. and special telephones that consumers could install at home to recharge the cards are projected to cost as little as $50. say. While the technology has been available for a decade. Digital cash attempts to replace paper cash as the principal payment vehicle in online payments. This allows customers to pay for rides and calls with a prepaid card that “remembers” each transaction. from $5 to $10. and waiting for a credit card purchase to be approved.E-COMMERCE TECHNOLOGY AND MANAGEMENT After the purse is loaded with money. Cash 259 ANNA UNIVERSITY CHENNAI . at an ATM or through the use of an inexpensive special telephone. candy in a vending machine equipped with a card reader. NOTES These reasons behind the prevalent use of cash in business transactions indicate the need to re-engineer purchasing processes. and negative real interest rates on bank deposits. the purse can be recharged with more money. Electronic purses would virtually eliminate fumbling for change or small bills in a busy store or rush-hour toll booth. inefficient clearing and settlement of non-cash transactions.3 Electronic or Digital Cash Electronic or digital cash combines computerized convenience with security and privacy that improve on paper cash.7. electronic payment systems need to have some cash-like qualities that current credit and debit cards lack. the receipts can be collected periodically in person—or. The remaining balance on the card is displayed by the vending machine or can be checked at an ATM or with a balance-reading device. the value of the purchase is deducted from the balance on the card and added to an e-cash box in the vending machine. cash is negotiable. by telephone and transferred to a bank account. more likely. In order to displace cash. Cash remains the dominant form of payment for three reasons: o o o lack of consumer trust in the banking system. And when the balance on an electronic purse is depleted. it can be used to pay for. In one second. As for the vendor. A simple card reader would cost a merchant less than $200. even after thirty years of developments in electronic payment systems.

paper cash. meaning that possession is proof of ownership. Nor are credit and debit cards bearer instruments.DBA 1727 NOTES is legal tender. they are identification cards owned by the issuer and restricted to one user. lines of credit. checks require either personal knowledge of the payer. Digital cash must be interoperable or exchangeable as payment for other digital cash. deposits in banking accounts. When digital cash created by one bank is accepted by others. and the like.7.3. the medium is always good. o o o 260 ANNA UNIVERSITY CHENNAI . 4. Without proper bank certification. credit and debit cards cannot be given away because. debit and credit cards have a number of limitations. meaning that the payee is obligated to take it. A really novel electronic payment method needs to do more than recreate the convenience that is offered by credit and debit cards. Digital cash must be storable and retrievable. It should be possible to prevent or detect duplication and doublespending of digital cash. Credit and debit cards are not legal tender. or a check guarantee system. cash places no risk on the part of the acceptor. goods or services. Digital cash should not be easy to copy or tamper with while it is being exchanged. Cash can be held and used by anyone. technically. Similarly. their usage requires an account relationship and authorization system. or a bank-certified cashier’s check. it must be backed by cash (currency). even those without a bank account. bank notes or obligations.1 Properties of Electronic Cash o Digital cash must have a monetary value. it needs to create a form of digital cash that has some of the proper-ties of cash. Cash is a bearer instrument. Finally. Remote storage and retrieval (such as via a telephone or personal communications device) would allow users to exchange digital cash (withdraw from and deposit into banking accounts) from home or office or while travelling. digital cash carries the risk that when deposited. electronic benefits transfers. In comparison to cash. First. it might be returned for insufficient funds. reconciliation must occur without any problems. bank-authorized credit. given that merchants ‘have the right to refuse to accept them.

Typically. the problem of double spending means that banks have to carry added overhead because of the constant checking and auditing logs. the bilateral transaction is not feasible because of the potential for double spending. without having to open an account there first or-having to transmit credit card numbers. For most systems. when the consumer is issued a bank note. The account of the merchant is credited. The bank verifies the validity of these “notes” and that they have not been spent before. it is issued to that person’s unique license. every “note” can be used only once. banks must compare the note passed to it by the merchant against a database of spent notes . which is equivalent to bouncing a check.4 Using the Digital Currency Once the tokens are purchased. Each time the money changes hands. digital cash can also be protected. In this case. If satisfied with the payment. In many business situations.7. and bank) transactions. However. the software collects the necessary amount from the stored tokens. the old owner adds a tiny bit of information to the bank note based on the bank note’s serial number and his or her license. whereby the merchant checks the veracity of the note’s digital signature by using the bank’s public key. In addition. When he or she gives it to some-body else. As soon as the customer wants to make a payment.Just as paper currency is identified with a unique serial number. who immediately sends them directly to the digital bank. Transactions involving financial instruments other than cash are usually trilateral or three-party (buyer. this method of matching notes with a central registry has problems in the on-line world.7. the bank will 261 NOTES ANNA UNIVERSITY CHENNAI . Two types of transactions are possible: bilateral and trilateral. If somebody attempts to spend money twice.E-COMMERCE TECHNOLOGY AND MANAGEMENT 4. the merchant stores the digital currency on his machine and deposits it later in the bank to redeem the face value of the note. forcing banks and merchants to take extra precautions. The user tan spend the digital-money of any shop accepting e-cash. Double spending becomes possible because it is very easy to make copies of the e-cash. The ability to detect double spending has to involve some form of registration so that all “notes” issued globally can be uniquely identified. the e-cash software on the customer’s PC stores digital money undersigned by a bank. To uncover double spending. it is transferred specifically to that other person’s license. this method would simply be too expensive. seller. (fig 4. In such situations. which handle high volumes of micro payments. whereby the “notes” are sent to the merchant.4(a)) Double spending would not be a major problem if the need for anonymity were relaxed. transactions involving cash are bilateral or two-party (buyer and seller) transactions.

Many people would feel uncomfortable letting others know this personal information. Figure 4.4(a) Detection of double spending 262 ANNA UNIVERSITY CHENNAI .7. whoever cheated will get caught.DBA 1727 NOTES now be able to use the two bank notes to determine who the cheater is. Even if the bank notes pass through many different people’s hands. and none of the other people will ever have to know. The downside is that the bank can tell precisely what your buying habits are since it can check the numbers on the e-cash and the various merchant accounts that are being credited.

By moving monetary claims quickly and by effecting instant settlement of transactions. to look at it the other way round.7. This creates problems. then positive balances of e-cash will earn no interest.” 4. Digital money is a perfect medium of exchange. A number of variations have been developed for dealing with the “change” problem. e-cash may help simplify the complex interlocking credit and liabilities that characterize today’s commerce. confident that. the e-cash software on the client’s computer would create a note of the transaction value from the “open check. there would be cash in the real world for which digital proxies were created and made available. a creditor by law cannot refuse cash as settlement for a debt. then for every unit there would have to be a unit of cash reserved in the real economy: or. To sidestep such costs. small businesses that spend months waiting for big customers to pay their bills would benefit hugely from a digital system in which instant settlement is the norm. customers are issued a single number called an “open check” that contains multiple denomination values sufficient for transactions up to a prescribed limit. With the acceptability of cash guaranteed by law. most people are willing to bank their money and settle many of their bills by checks and debits. It is often necessary to get small denomination change in business transactions. they can obtain legal tender (cash) on demand. if each e-cash unit represents a unit of real cash. or “legal tender”. The controversial aspects of e-cash are those that relate to the other role.7. Instant settlement of micro payments is also a tantalizing proposition.E-COMMERCE TECHNOLOGY AND MANAGEMENT 4. Human needs tend to require that money take a tangible form and be widely accepted.5 Drawback of E-cash One drawback of e-cash is its inability to be easily divided into smaller amounts. For the bank to issue users with enough separate electronic “coins” of various denominations would be cumbersome in communication and storage. In most countries. for the interest they might earn would be offset by the interest foregone on the real cash that is backing them. For instance. The enormous currency fluctuations in international finance pose another NOTES 263 ANNA UNIVERSITY CHENNAI .6 Business Issues and Electronic Cash Electronic cash fulfils two main functions: as a medium of exchange and as a store of value. barring a catastrophe. At payment time. So would a method that required payees to return extra change. because in an efficient system. If e-cash had to be convertible into legal tender on demand. as a store of value.

is an activity toward which most governments feel highly defensive.DBA 1727 NOTES problem.7. They might charge for converting it. On the Internet. such as limits on (1) (2) (3) (4) the time over which a given electronic money is valid. Because of these obstacles. the buyer could be in Mexico and the seller in the United States. or take a transaction fee for issuing it. Who holds the liability. If you pay yen for e-cash in Osaka and buy something from a merchant based in New York who cashes them for francs. 264 ANNA UNIVERSITY CHENNAI . e-cash would be a mixed blessing. e-cash in its early forms may be denominated in single currencies and exchanged at conventional market rates. Next we will see the risks involved while doing the transactions involving the use of e-cash. however. 4. and the number of such transactions that can be made during a given period of time. Because they could not create new money via lending in the digital world. the buyer or the seller? These are not technological issues but business issues that must be addressed for large-scale bilateral transactions to occur.7 Operational Risk and Electronic Cash Operational risk associated with e-cash can be mitigated by imposing constraints. In the short term. then governments might be provoked into trying to clamp down on it. From a banker’s point of view. but on-line competition would surely make this a low-profit affair. and if e-cash started to bypass regulated foreign exchange markets by developing its own gray market for settlement. It seems unlikely that e-cash would be allowed to realize its potential for bypassing the transaction costs of the foreign exchange market. how much can be stored on and transferred by electronic money the number of exchanges that can take place before a money needs to be redeposit with a bank or financial institution. banks would probably make less from this new business than they would lose from the drift of customers away from traditional services. we have one central bank offering one type of electronic currency. banks would see electronic money as unproductive. what would happen if a sudden devaluation occurs such as the one in December 1994 where the peso was devalued 30 percent overnight. it is very difficult to see e-cash being very prominent except in narrow application domains. Unless. How do you check-that the party in Mexico is giving a valid electronic currency that has suitable backing? Even if it were valid today. a currency conversion has taken place. That.

g. For this feature to work. Finally. electronic benefits could be used only for food. a strategy of reporting transactions over a certain amount would be ineffective for law enforcement. time limits could be set beyond which the electronic money.E-COMMERCE TECHNOLOGY AND MANAGEMENT These constraints introduce a whole new set of implementation issues For example. would expire and become worthless. As long as the transactions fare small in monetary value.. the “rate ceiling” for the next twenty-four hours could be made dependent on the rate of use or on the number of exchanges that could be permitted before any electronic money would have to be redeposit in a bank or financial institution and reissued. through the various currency reporting laws. For example. cash occupied an unstable and uncomfortable place within the existing taxation and law enforcement systems. The customer would have to redeem or exchange the money prior to the expiration deadline. exchanges could also be restricted to a class of services or goods (e. they are tolerated by the government as an unfortunate but largely insignificant by product of the modern commercial .state. a well-designed system could enforce a policy involving both transaction size and value with time. This underground economy is generally confined to relatively small scale transactions because paper money in large quantities is cumbersome to use and manipulateorganized crime being the obvious exception. Alternatively. and time would have to be synchronized across the network to some degree of precision. or services are delivered within a specified time in the future. in reporting large disbursements of cash so that additional oversight can be ordered. 4. Anonymous and virtually untraceable. electronic money would have to be timestamped.7. Since the user’s computer could be programmed to execute small transactions continuously at a high rate over the network. clothing. or educational purposes). As transactions get larger the government becomes more suspicious and enlists the aid of the banks.8 Legal Issues and Electronic Cash Electronic cash will force bankers and regulators to make tough choices that will shape the form of lawful commercial activity related to electronic commerce. As a result of the very features that make it so attractive to many. A maximum upper limit could be imposed on the value that could be assigned to any single transaction or that could be transferred to the same vendor within a given period of time. The objective of imposing constraints is to limit the issuer’s liability. 265 NOTES ANNA UNIVERSITY CHENNAI . The exchange process should allow payment to be withheld from the seller upon the buyer’s instructions until the goods. an “anonymous coinpurse” feature might be capable of receiving or spending no more than $500 in any twentyfour hour period. shelter. cash transactions today occupy a place in a kind of underground economy. However.

But if e-cash really is made to function the way that paper money does. Just as powerful encryption schemes permit the design of untraceable e-cash systems. To prevent an underground economy. The threat to the government’s revenue flow is a very real one. just as a withdrawal or check is recorded now. yet incapable of being forged. Without a functioning system. we are mainly watching and trying to educate ourselves about the likely path of the transition to electronic cash. Moreover. payments we would never think of making in cash-to buy a new car. too. The question e-cash poses is not. Anything that makes cash substantially easier to use in a broader range of transactions holds the potential to expand this underground economy to pro-portions posing ever more serious threats to the existing legal order. as issues to be reconsidered. as the politics and business play out. and ease of use. e-cash cannot escape government scrutiny and regulation. Under the most ambitious visions of e-cash. or as the down payment on a house-could be made in this new form of currency because there would be no problem of bulk and no risk of robbery. what the government will do remains a mystery. The bank would have a record of that transaction. and officials in government are starting to take cognizance of this development and to prepare their responses. so. the technology is forcing legal. say.. do powerful electronic record-keeping tools permit the design of traceable systems-systems in which all financial transactions are duly recorded in some database. the government through law may prevent a truly anonymous and untraceable e-cash system from developing. but it is going to take some serious thinking to design a regulatory scheme that balances personal privacy. “How can it not?” By impacting revenue-raising capabilities. A consumer could draw such e-cash electronically from his or her bank. sales taxes) account for a significant portion of state and local government revenue. But after that. speed of execution.DBA 1727 NOTES E-cash on taxation Transaction based taxes (e. “Should the law take notice of this development?” but rather. it is not even clear yet that the market as a whole will adopt an anonymous e-cash standard. However. allowing those with access to know more about an individual than anyone could know today. For now. the encrypted e-cash file could be handed off without the knowledge of anyone but the par-ties to the transaction.g. we would see a new form of currency that could be freely passed off from one computer to another with no record. 266 ANNA UNIVERSITY CHENNAI .

7. The key is-to identify the parties involved. effectively creating currencies of dubious liquidity and with interesting tax. NOTES 3. Here are four dimensions that are useful for analyzing the different initiatives. and cost. Most transaction settlement methods use Credit cards. Examples of post-paid mechanisms are credit/ debit cards and electronic checks. The server authenticates the customers and verifies with the bank that funds are adequate before purchase. Some systems target specific niche transactions. and wire transfers. But we must first understand the different viewpoints that these payment instruments bring to electronic commerce.9 Electronic Tokens An electronic token is a digital analogue of various forms of payment backed by a bank or financial institution. An example of on-line currency exchange is electronic cash (e-cash). Sometokens are-specifically designed to handle micro payments. that is. Credit or post-paid. electronic bill payments (prearranged and spontaneous). Tokens must be backed by cash. The means of settlement used. Examples of prepaid payment mechanisms are stored in smart cards and electronic purses that store electronic money. payments for small snippets of information. risk. risk. The nature of the transaction for which the instrument is designed.E-COMMERCE TECHNOLOGY AND MANAGEMENT 4. credit. others seek more general transactions. The following sections examine these methods of on-line payment. Each option incurs trade-offs among transaction speed. while others use other proxies for value. Cash or real-time. and float implications. and the purchase interaction. cashier’s checks. 267 ANNA UNIVERSITY CHENNAI . to name a few. Debit or prepaid. Users pay in advance for the privilege of getting information. 2. Others are designed for more traditional products. 2. 1. Transactions are settled with the exchange of electronic currency. Electronic tokens are of three types: 1. letters and lines of credit. the average amounts.

or credit card).10 Other Emerging Financial Instruments Several other electronic payment systems are currently being prototyped and tested. For example. convenience store. The question of risk. Both the consumer and the merchant maintain bank accounts. These transactions occur within the banking system. or some other store that accepts such cards instead of using cash. The third-party processors who provide services for merchants are also examined by the federal regulators for system integrity. The funds. Risk also arises if the transaction has long lag times between product delivery and payments to merchants. gas station. Who assumes what kind of risk at what time? The tokens might suddenly become worthless and the customers might have the currency that nobody will accept. The merchant swipes the card through a transaction terminal. and smart cards. and safety of payment is assured. Such a transaction occurs when a customer uses a debit card to make a purchase from a merchant (supermarket. a customer gives an ATM card to the merchant for the purchase. Also electronic tokens might be subject to discounting or arbitrage. Electronic tokens vary in the protection of privacy and confidentiality of the transactions. just as it is at 268 ANNA UNIVERSITY CHENNAI . which reads the information. 4. and the terminal routes the transaction through the ATM network back to the customer’s bank for authorization against the customer’s demand deposit account. Approach to security. once approved. Some may be more open to potentially prying eyes-or even to the participants themselves. and authentication.7. non reputability.DBA 1727 NOTES 3. Authentication is provided by the use of the digital signature or PIN numbers. are transferred from the customer’s bank to the merchant’s bank. These include debit cards. Encryption can help with authentication. and the funds are transmitted inter-bank within the payment system. The transaction works much like a credit card transaction. anonymity. Debit Cards at the Point of Sale (POS) The fastest growing number of electronic transactions today is debit card pointof-sale transactions. electronic benefit transfer cards. 4. the customer enters his personal identification number (PIN). and asset management. If the system stores value in a smart card. check. This exposes merchants to the risk that buyers don’t pay-or vice versa that the vendor doesn’t deliver. consumers may be exposed to risk as they hold static assets.

The benefit recipient can then access his or her benefits to make a purchase or obtain cash. Recipients can access cash through any number of establishments. In EBT. benefit distribution systems. Debit Cards and Electronic Benefits Transfer Debit cards are being used extensively for electronic benefits transfer (EBT). food stamp purchases are charged against the participant’s allotment. EBT is less costly. drugstores. refugee assistance. Certain cash payments can also be facilitated by installing pas devices in housing authority and utility company offices to accept rent and bill payments. EBT is safer than cash or coupons. existing networks and technologies can provide benefit recipients with online access to their funds at pas devices and ATMs. Dedicated lines are also often used for transmission. including grocers. particularly by larger merchants. Electronic benefits transfer has several advantages over paper based. EBT is more convenient than paper methods. . benefits are stored 269 NOTES ANNA UNIVERSITY CHENNAI .Second. EBT programs also provide recipients with toll-free customer service lines and multilingual support to handle questions or problems. state-funded and state-administered benefits (such as general assistance. stand in long lines to cash checks. In an EBT system. recipients access their benefits in the same way that consumers use debit cards to access their bank accounts electronically: the card is inserted into or swiped through a card reader and the cardholder must enter a PIN associated with that card. For example. In an EBT process. Aid to Families with Dependent Children programs). EBT systems are designed to provide nocost or low-cost access methods. Electronic benefits transfer uses debit cards for the electronic delivery of benefits to individuals who otherwise may not have bank accounts. PINs are sent through the system in an encrypted form. and financial institutions. and supplemental or emergency payments). as well as ATMs. but state administered benefits (such as food stamps. Currently. except for the receipt printed for the purchaser by the pas device or the ATM. First. Benefits that can be delivered via EBT generally fall into three cate-gories: federally funded. heating assistance. and other purchases or cash distributions are charged against the participant’s cash assistance program allotment. and benefits that are both federally funded and federally administered (such as Social Security and Veterans benefits). or accept the entire benefit amount at one time. which can be lost or stolen. Further. EBT eliminates the need to carry food stamp coupons. no paper changes hands. many recipients of federal and state benefits must pay significant fees (three or more dollars) to cash their checks. and the PIN pads and terminals are tamper-proof.E-COMMERCE TECHNOLOGY AND MANAGEMENT ATMs. Through EBT.

forgery. electronic payment is a financial exchange that takes place online between buyers and sellers.DBA 1727 NOTES electronically. a digital signature enables the computer to notarize the message. encryption. Firewall: A firewall is simply a program or hardware device that filters the information coming through the Internet connection into your private network or computer system 270 ANNA UNIVERSITY CHENNAI . ensuring the recipient that the message has not been forged I transit. It eliminates the time-consuming task of handling food stamp coupons. Public-key encryption Digital Signature: Digital signatures are used for sending authentication. Most computer encryption systems belong in one of two categories. Broadly de-fined. Recipients control all ac-cess to their benefits through their cards and PINs. there are two types of encryption methods: Secret-key encryption. Finally. Retailing payments. Summary Electronic payment system: Electronic payment is an integral part of electronic commerce. In addition. EBT reduces losses associated with theft. They can also deactivate lost or stolen cards immediately and request a replacement card by a toll free phone call. and non repudiation. Third. and can be used only when needed and in the amounts required. This also means that the originator cannot falsely deny having signed the data. making grocery checkout procedures faster and easier. By eliminating checks and coupons. EBT improves benefit program management by creating an audit trail and record of benefit usage. Its inherent audit and tracking advantages enhance investigations into suspicious conduct by retailers. Security issues: Encryption is a technique for hiding data. ensuring that programs are working properly and effectively. integrity. On-line electronic commerce payments Secure Electronic Transaction (SET) protocol: SET protocol meets the four security requirements for EC as SSL (Secure Socket Layer) does: authentication. and fraud. EBT is convenient for retailers. EBT is convenient for the government. Types of Electronic Payment System: Banking and financial payments.

and bank account. Debit or prepaid. Digital cash attempts to replace paper cash as the principal payment vehicle in online payments. Electronic checks are modelled on paper checks.E-COMMERCE TECHNOLOGY AND MANAGEMENT EFT: An electronic funds transfer (also known as EFT) is a system for transferring money from one bank to another without using paper money. use digital signatures for signing and endorsing. Electronic purses. E-cash: Electronic or digital cash combines computerized convenience with security and privacy that improve on paper cash. improved cryptography and the Internet. The cards can be used to purchase goods or services. cheap networks. Electronic tokens are of three types: 1. Smart cards: Smart cards. NOTES 271 ANNA UNIVERSITY CHENNAI . the payer’s bank. also called stored value cards. E-token: An electronic token is a digital analogue of various forms of payment backed by a bank or financial institution. E-checks: Electronic checks are designed to accommodate the many individuals and entities that might prefer to pay on credit or through some mechanism other than cash. except that they are initiated electronically. however. its functionality is more similar to writing a cheque as the funds are withdrawn directly from either the cardholder’s bank account (often referred to as a check card). 2. Its use has become widespread with the arrival of personal computers. and perform many other functions. Cash or real-time. and require the use of digital certificates to authenticate the payer. store information. Physically the card is an ISO 7810 card like a credit card. A credit card is different from a debit card in that it does not remove money from the user’s account after every transaction. including electronic money. Credit card: A credit card is a system of payment named after the small plastic card issued to users of the system. or from the remaining balance on the card. use magnetic stripe technology or integrated circuit chips to store customer-specific information. Credit or post-paid. control access to accounts. Smart cards are basically of two types: Relationship-based smart credit cards. Debit card: A debit card (also known as a gift card) is a plastic card which provides an alternative payment method to cash when making purchases. 3.

What is Electronic Payment System? Discuss the various Electronic Payment Systems.DBA 1727 NOTES Questions for review 1. 11. 5. 3. What is SET protocol? What features does SET specify? Describe security schemes against internet fraud How do you differentiate Secret-key cryptography and Public-key cryptography? How can you ensure and maintain privacy. 23. What is EFT? Describe the advantages of EFT What is a credit card? What are the pros and cons of using Credit Cards for electronic payment? Describe the major steps involved in an online credit card transaction. security in electronic payment. 14. Discuss about the benefits of electronic payment system. 6. 4. 10. 15. 17. 7. 19. 22. 9. 24. How electronic purses work? What are bilateral and trilateral transactions? What all are the risk factors associated with E-cash? How e-cash effect the government revenues? Discuss the other emerging financial instruments 272 ANNA UNIVERSITY CHENNAI . 8. 20. 13. 18. List the advantages and disadvantages of using credit card How do you make your credits cards information secure? What is a debit card? How debit card is different from credit card? Discuss on-line and off-line debit transactions List the advantages and disadvantages of debit card What are electronic cheques? How they are different from traditional cheques? List the benefits of E-check Compare E-check with other payment instruments How electronic checks are differing from credit card? What are smart cards? Compare and contrast smart card and traditional credit cards. 21. 16. 25. 12. 2.

which were hitherto unknown. paper document can be tampered with. For example. It is well known that frauds do take place in the traditional paper based commercial transaction. Two millennia of commerce has been based on the written document with its value ‘authorized’ by the signature of a duly authorized officer. therefore. exposes us to issues. since they have been there for as long as we have been trading. The EC world. But then these are known. and even the most secure marks. The EC system must. They need to convince themselves that such documents are authentic when received over networks. on the other hand. offer at least the same level of reliability as that which obtains in the paper world notwithstanding the significant difference between the concepts embodied in electronic messages and paper documents. and trade as well as the legal community knows how to deal with these problems. Trading partners exchange documents electronically. have changes the scene. credit-cards companies do know that a very small percentage of transactions is fraudulent in nature. trade still wants to be assured that the electronic world is safe.E-COMMERCE TECHNOLOGY AND MANAGEMENT NOTES UNIT V LEGAL AND PRIVACY ISSUES IN E-COMMERCE 5. transmitting them over world wide computer communication networks. Companies set aside funds to take care of losses due to such frauds. The current legal practice has paper documents and signatures affixed thereon as its foundation.COMMERCE 5. and that their authentication can be established 273 ANNA UNIVERSITY CHENNAI . emblems and seals can be forging.1 Legal issues The world is used to conducting business and commerce on signed paper documents.1 LEGAL ASPECTS OF E. Signatures can be forged.1. The world is comfortable with these problems. Electronic documents and messages. impression. without the familiar signatures and marks. However. since they are directly the outcome of creating documents electronically.

Transactions may be electronic. From the legal angle. optical fiber or a satellite communication channel. a Wide Area Network. a private Value Added Network or the Internet. These may be formal or in formal. national organization. which are central to the law. The legal issues of EC have generated tremendous interest among technologists. EDI interchange Agreement It is a known fact that a certain discipline is required in the conduct of commerce in the paper world. and that it could not be read and interpreted by any third party intercepting or deliberately receiving it. too the Indian Customs EDI system (ICES) Project got off the ground in 1995 without any EC/EDI law in existence. Many of the early EDI experiments. legal requirement. receipts etc. in fact they are still in the making. or an optical disk.DBA 1727 NOTES in case of dispute. No laws for EC existed. The physical medium could be coaxial cable. There must be a way to prove that a message existed. was not changed between the sending and receiving. despatch. thus gets directly linked to the technical methods for security of computers and networks. Simple activities such as preparation of invoices. which applies to the interchange of data and not to the underlying commercial contracts between the parties. In addition. In the EDI world of electronic documents. this kind of discipline has been created through a set of rules that have developed in the form of interchange agreements within a number of user groups. the UN has adopted the Model Interchange Agreement for the International Commercial Use of Electronic Data Interchange. there is a further complication because the electronic message is independent of the actual medium used for storage transmission. between VANs and their customers. signing. or even a proper interchange agreement. At the international level. remain the same. and regions. a magnetic disk. drawing up commercial contracts. Likewise. that it was sent. traders and legal experts. The message can be stored on a floppy. radio link. was received. It addresses the need for uniformity of agreement so that there are no barriers to international trade on account of different 274 ANNA UNIVERSITY CHENNAI . acceptable rules of conduct are also necessary to achieve the kind of discipline required for smooth and effective trade and commerce. but the key concept of admissibility of evidence and evidential value of electronic documents. and even production systems went into operation without any legal interchange agreement between trading partners. The security of an electronic message. have to follow certain protocols agreed to by trading partners. it may be transmitted over a Local Area Network. In India.

11. NOTES 275 ANNA UNIVERSITY CHENNAI . The issues. The points at which EDI messages have legal effect. software and services are operated and maintained effectively. that an interchange agreement provides trading partners with readily available solutions the EDI/ EC relationship between them. 8. Many national laws. Methods for resolving any possible disputes. receiving. and that they desire to operate within a legal framework. It provides a strong legal framework for ensuring that electronic documents will have a legal binding effect. Liabilities in the event of any delay or failure to meet agreed EDI communications requirement. It details the individual roles and legal responsibilities of trading partners for transmitting. It” is precisely in this kind of a scenario where clear legal rules and principles are absent. 6. messages or signatures. The UN has recommended that the member countries should take into account the terms and provisions of the Model Interchange Agreement when framing their own laws on EC. 9. 4. standards and the methods of communication. 2. 7. . It establishes the rules they will adopt for using EDI/EC transactions. which prepared this model Interchange Agreement. Security procedures and services. subject to national laws and regulations. The roles and contracts of any third-party service providers. It establishes the rules they will adopt for using EDII ED transaction. Selection of EDI messages. 3. as noted above. Procedures for making any systems changes which may impair the ability of the trading partners to communicate. are as follows: 1. 10. Responsibilities for ensuring that the equipment.E-COMMERCE TECHNOLOGY AND MANAGEMENT solutions for various problems being adopted by countries. also introduce uncertainty regarding the legal validity of electronic document. Procedures for dealing with technical errors. The signing of an interchange agreement signifies that the parties intend to be bound by it. Many of the conventions and agreements relating to international trade do not anticipate the use of EDIIEC. 5. An interchange agreement may be made between trading partners. which were addressed by the working party. The laws governing the interchange of EDI messages and the arrangements of the parties. The need (if any) for confidentiality. and storing electronic messages. There are still very few national and international judgments ruling” on the validity of electronic documents. This can help reduce legal uncertainty in the electronic environment.

is that unlike a paper copy. this copy can be readily duplicated and distributed further by the recipient. remote employee access. and provides a strong legal and practical framework for considering and recording the necessary business decisions. dramatic. electronic filing.1. But the copyright law applies to the downloaded matter. Legal Issues for Internet Commerce Internet commerce raises legal issues through the provision of the following services: Online marketing • • • • • • Online retailing ordering of products and services Financial services such as banking and trading in securities. the typographical arrangement of published editions of literary. musical and artistic works. The problems. 5. In due course it protects the originality of artists and innovators too. however. the Copyright Designs and Patent Act. In recent times. however. Exchange of electronic messages and documents EDI. electronic transactions. the subject matter of copyright has further expanded. allows protection of the following subject matter: Original literary. 1988 in the UK. Copyright law protects only the expression of an idea and idea itself. much the same way it applies to physical copies. dramatic or musical works. sound recordings.2 Copyright and the Internet Copyright developed in the printed world to protect the economic interests of creative writers. broadcasts. For example. If the material is in the public domain there are no difficulties.DBA 1727 NOTES The interchange agreement is flexible enough to meet the requirement of all business sectors involved in international trade. 276 ANNA UNIVERSITY CHENNAI . Trading partners can feel confident that it addresses the recognised legal issues arising from commercial use of EDI in international trade. cable programs These have been broadly classified into two groups as ‘author works’ and ‘media works’ by Hector L. Macqueen. The multimedia capability of websites enables all types of work to be ‘published’ on the Internet in the sense that copies can be distributed to users/customers. Trade and commerce over the Internet give rise to several legal issues .

offer is communicated by the acceptor and acceptance is received by the offer or from the acceptor. however. Liability for materials distributed in the Internet may be different for the Website operators. Usenet news. on his website. much the same way a fax message is. A Website may accept orders from visitors to the site as part of an Internet store or a shopping mall. In this case the E-mail of acceptance has to reach the offer or who may say that the contract will be legal only after its receipt (in his notice placed on the Website).1. EC on the Internet will grow if the parties doing business know what rules will govern what rules govern their activities. AN ISP could be held liable for the bulletin boards. Similarly. The key activities associated with the formation of an enforceable contract do take place on the Internet. However. third-party liability for defamation. liability for hosting of unlawful materials. A court law may rule that the location of the Website determines the jurisdiction for that business. who choose to proceed further. etc: “Thus the concerns include libel and defamation. viz.com is a bookstore retailing books. copyright or trademarks infringing material. without ISP having chance to review it. Unlawful material includes banned publications. Jurisdiction determines which laws would be acceptable. pornography and obscene material. 5. 277 NOTES ANNA UNIVERSITY CHENNAI . the timing of the acceptance offer determines when the contract is formed. An offer can be communicated orally or in writing. and in the EC environment through Email.-web sites. and the ISPs. and for aiding and abetting the commission of an offence such as the distribution of photography. liability for infringement of third-party rights. defamatory. be interpreted to decide the jurisdiction of disputes especially in EC.E-COMMERCE TECHNOLOGY AND MANAGEMENT 5. 5. amazon. These facilities can because by their users to upload unlawful. even after reading the notice may be constructed as accepting the conditions imposed by it. Eform is valid. E-mail distribution list etc. Its location could. hate propaganda. This is based on accepted legal practice. The offer or can display terms and conditions as a legal notice.4 Service Provider liability Many ISPs provide users access to shared websites. For example.3 Issues Related to Jurisdicary The Internet allows anyone to set up a Website anywhere in the world. Visitor to the site.5 Formation of an Enforceable Online Contract The growth of EC on the Internet depends to a large extent on the confidence of traders in forming legally enforceable contracts online.1.1.

AND POLITICAL ISSUES IN ECOMMERCE 5. telephones.2 ETHICAL. despoil the environment.” Many business firms and individuals are benefiting from the commercial development of the Internet. In case of dispute. the same technologies can be used to commit crimes. Like other technologies such as steam. and make recommendations for managers who are given the responsibility of operating e-commerce companies within commonly accepted standards of appropriateness. legal and EC technology communities to make EC happen through appropriate developments in their respective areas. there was very little interstate crime and very little federal jurisdiction over crime. there was very little “cyber crime. SOCIAL. While the problems of acceptance of and confidence in electronic transactions are there. And Political Issues in E-Commerce Internet and its use in e-commerce have raised pervasive ethical.1 Ethics. provide a framework for organizing the issues. and threaten cherished social values. influence. However. Whether it is EDI over VANs. There is sufficient awareness in. Social and Political issues Defining the rights of people to express their ideas and the property rights of copyright owners are just two of many ethical. 5. social and political issues on a scale unprecedented for computer technology. they are not insurmountable. the Internet and ecommerce can be used to achieve social progress. electricity. We live in an “information society. electronic document must be acceptable as legal evidence in courts of law. Likewise with the Internet: Before the Internet. and enforceability of appropriate laws for EC. wealth. social. and synergy of action among trade. Controversies over information are often in fact disagreements over power. or EC over the Internet the primary concern of users is the existence. 278 ANNA UNIVERSITY CHENNAI . social. organizations. These costs and benefits must be carefully considered by those seeking to make ethical and socially responsible decisions in this new environment. and television. but this development also exacts a price from individuals. and for the most part. Understanding Ethical. and political issues raised in e-commerce. The ethical. and political issues raised by the rapid evolution of e-commerce.2. Social.” where power and wealth increasingly depend on information and knowledge as central assets. this has occurred. and societies. Before automobiles.DBA 1727 NOTES Legal issues are manifold. and other things thought to be valuable.

and/or international? Public safety and welfare: What efforts should be undertaken to ensure equitable access to the Internet and ecommerce channels? Should governments be responsible for ensuring that schools and colleges have access to the Internet? Is certain online content and activities . under the old technology of CDs. despite the fact that these music tracks still 279 ANNA UNIVERSITY CHENNAI . Some of the ethical. Individuals know what is expected of them. governance. Now. and political issues that have developed around ecommerce over the past seven to eight years can be loosely categorized into four major dimensions: information rights. business firms.E-COMMERCE TECHNOLOGY AND MANAGEMENT The major ethical. imagine that at any given moment society and individuals are more or less in an ethical equilibrium brought about by a delicate balancing of individuals.1(a). and public safety and welfare as shown in Fig 5. social organizations such as business firms know their limits. when Internet technology make information collection so pervasive and efficient? What rights do individuals have to access information about business firms and other organizations? Property rights: How can traditional intellectual property rights be enforced in an internet world where perfect copies of protected works can be made and easily distributed worldwide in seconds? Governance: Should the Internet and e-commerce be subject to public laws? And if so.state.2.a threat to public safety and welfare? Should mobile commerce be allowed from moving vehicles? NOTES • • • To illustrate. social. banking and commercial law that provides sanctions against violators. imagine we drop into the middle of this calm setting a powerful new technology such as the Internet and e-commerce. would have been impossible. Suddenly individuals. something which. or in their private homes. and political institutions.such as pornography and gambling . social organizations. For instance. and political institutions are confronted by new possibilities of behavior. what law-making bodies have jurisdiction . federal. and political issues raised in each of these areas include the following: • Information rights: What rights to their own personal information do individuals have in a public marketplace. property rights. individuals discover that they can download perfect digital copies of music tracks. This can be done. capabilities. and roles and political institutions provide a supportive framework of market regulation. social.

courts. Fig 5. Courts and legislative bodies will have to make new laws and reach new judgments about who owns digital copies of copyrighted works and under what conditions such works can be “shared. and provide general reasoning principles about social political issues of the Internet that you will face in the future. and political institutions. The introduction of the Internet and e-commerce impacts individuals.musicians and record label companies. In the meantime. laws. but no c1ear-cutural guidelines. societies. and public safety and welfare Then business firms discover that they can make a business out of aggregating these musical tracks . These impacts can be classified into four moral dimensions: property rights. we will briefly review some basic concepts of ethical reasoning that you can use as a guide to ethical decision making. The record companies. information rights. where there is conflict between ethical principles.” It may take years to develop new understandings. and Congress were not prepared at first to cope with the onslaught of online digital copying.2.areas.or creating a mechanism for sharing musical tracks. as an individual and a manager. How can you make good decisions in this type of situation? Before reviewing the four moral dimensions of e-commerce in greater depth. you will have to decide what you and your firm should do in legal “grey”. and acceptable behavior in just this one area of social impact.1(a) 280 ANNA UNIVERSITY CHENNAI .DBA 1727 NOTES “belong” as a legal matter to the owners of the copyright .even though they do not “own” them in the traditional sense. governance.

but it is not impossible. when. individuals. Responsibility means that as free moral agents. • Identify and describe clearly the facts.E-COMMERCE TECHNOLOGY AND MANAGEMENT 5. In western culture. and often you will find that simply getting 281 NOTES ANNA UNIVERSITY CHENNAI . each of which supports a desirable outcome.liability. In many instances. Ethics is the study of principles that individuals and organizations can use to determine right and wrong courses of action. Find out who did what to whom. Analyzing Ethical Dilemmas Ethical. systems. there are ability and liability principles that all ethical schools of thought share: responsibility. and how. your ability to reason about larger social and political debates will be improved. Due process is a feature of law-governed societies and refers to a process in which laws are known and understood and there is an ability to appeal to higher authorities to ensure that the laws have been applied correctly. and where. and Liability Ethics is at the heart of social and political debates about the Internet. If you understand some basic ethical principles. The third principle -liability . you will be surprised at the errors in the initially reported facts. When confronted with a situation that seems to present ethical dilemmas. Liability is a feature of political systems in which a body of law is in place that permits individuals to recover the damages done to them by other actors. account. As long as there is a decision-making body or individual (such as a Board of Directors or CEO in a business firm or a governmental body in a society). and political controversies usually present themselves as dilemmas. Extending ethics from individuals to business firms and even entire societies can be difficult. Accountability means that individuals.extends the concepts of responsibility and accountability to the area of law. organizations and societies are responsible for the actions they take. their decisions can be judged against a variety of ethical principles. organizations. social. A dilemma is a situation in which there are at least two diametrically opposed actions. and societies should be held accountable to others for the consequences of their actions. or organizations.2 Basic Ethical Concepts: Responsibility Accountability. how can you analyze and reason about the situation? The following is a five step process that should help.2. It is assumed in ethics that individuals are free moral agents who are in a position to make choices.

Double Click and its supporters argue that their tracking of consumer movements on the Web increases market efficiency and the wealth of the entire society. but that some options do a better job than others. Opponents argue this claimed efficiency comes at the expense of individual privacy.3 Privacy and Information Rights The Internet and the Web provide an ideal environment for invading the personal privacy of millions of users on a scale unprecedented in history. Identify the stakeholders. and usually who have vocal opinions. Find out the identity of these groups and what they want. The parties to a dispute all claim to be pursuing higher values (e.. Other options may work in this one instance. For example. and the -enterprise system). arriving at a “good” or ethical solution may not. and political issues always reference higher values. Some options may be ethically correct. and Double Click should cease its or offer Web users the option of not participating in such tracking. Ethical.g. Perhaps no other recent issue has raised as much widespread social and political concern as protecting the privacy of over 160 million Web users in the United States alone. Sometimes.2. but not in other similar instances. always be a balancing of consequences to stakeholders. “what if I choose this option consistently over time?” Once your analysis is complete. social. privacy. protection of property. Always ask yourself. You may find that none of the options satisfies all the interests involved.DBA 1727 NOTES • • • • the facts straight helps define the solution. there would be no debate. Identify the potential consequences of your options. Otherwise. This will be useful later when designing a solution. but disastrous from other points of view. The major ethical issues related to ecommerce and privacy includes the following: Under what conditions should we invade the privacy of others? 282 ANNA UNIVERSITY CHENNAI . Define the conflict or dilemma and identify the higher order value involved. Identity the options that you can reasonably take. It also helps to get the opposing parties involved in an ethical dilemma to agree on the facts. Every ethical. you can refer to the following well established ethical principle to help decide the matter. freedom. 5. social. and political issue has stakeholders: players in the game who have an interest in the outcome. who have its vested in the situation.

the claim to privacy against government intrusion is protected primarily by the First Amendment guarantees of freedom of speech and association and the Fourth: 283 NOTES ANNA UNIVERSITY CHENNAI . Information privacy is a subset of privacy. The Concept of Privacy Privacy is the moral right of individuals to be left alone. social and political freedom is weakened. public disclosure of private facts. and appropriation of a person’s name or likeness (mostly concerning celebrities) for a commercial purpose. free from surveillance or interference from other individuals or organizations. or other means? The major social issues related to e-commerce and privacy concern the development of “exception of privacy” or privacy norms. Canada. Due process also plays an important role in defining privacy. including the state. and the claim of individuals to control over personal of whatever information that is collected about them. a body of court decisions involving torts or personal injuries. In the United States. as well as in specific statutes. in the United States. Legal Protections In the United States. rights to privacy are explicitly granted in or can be derived from. publicity placing a person in a false light. plan. Privacy is a girder supporting freedom: Without the privacy required to think. market research. founding documents such as constitutions. In England and the United States. The best statement of due process in record keeping is given by the Fair Information Practices doctrine developed in the early 1970s and extended to the online privacy debate in the late 1990s (described below). and associate independently and without fear. Individual control over personal information is at the core of the privacy concept. and perhaps destroyed. four privacy-related torts have been defined in court decisions involving claims of injury to individuals caused by other private parties intrusion on solitude. there is also protection of privacy in the common law. as well as public attitudes.E-COMMERCE TECHNOLOGY AND MANAGEMENT What legitimates intruding into others lives through unobtrusive surveillance. For instance. The right to information privacy includes both the claim that certain information should not be collected at all by governments or business firms. In what areas of should we as a society encourage people to think they are in “private territory” as opposed to public view? The major political issues related to ecommerce and privacy concern the development of statutes that govern the relations between record keepers and individuals. and Germany. write.

and media institutions (cable television and video rentals) Table 5. as amended Regulates the federal government’s collection. education.2. also allows other individuals and organizations the right to request disclosure of government records based on the publics right to know Privacy Act of 1947. use. and disclosure of data collected by federal agencies. Electronic Communications Privacy Act Makes conduct that would infringe on the security of electronic communications illegal of 1986 Computer Matching and Privacy Regulates computerized matching of files held by different government agencies Makes conduct that would infringe on the security of computer based files illegal Limits access to personal information maintained by state Motor vehicle departments to these with legit mate business purposes Also gives drivers the option to prevent disclosure of driver’s license information to marketers and the general public DESCRIPTION Protection Act of 1983 Computer Security Act of 1987 Driver’s Privacy Protection Act of 1994 Privacy Laws affecting Private Institutions Regulates the credit investigating and reporting industry. Cable Communications Policy Act of Regulates the cable industry’s collection and disclosure of information concerning subscribers 1984 Fair Credit Reporting Act of 1970 Video Privacy Protection Act of 1988 Prevents disclosure of a person’s video rental records without court order or consent 284 ANNA UNIVERSITY CHENNAI . there are both federal laws and state laws that protect individuals against government intrusion and in some cases define privacy rights vis-a-vis private organizations such as financial.2. and the Fourteenth Amendment’s guarantee of due process. Gives individuals right to inspect and correct records. Gives people the right to inspect credit records if they have been denied credit and provides procedures for correcting information Family Educational Rights and Privacy Requires schools and colleges to give students and their parents access to student records and to allow Act of 1974 them to challenge and correct information limits disclosure of such records to third parties Regulates the financial industry’s use of personal Right to Financial Privacy Act of 1978 financial records establishes procedures that federal agencies mist follow to gain access to such records Privacy Protection Act of 1980 Prohibits government agents from conducting unannounced searches of press offices and files if no one in the office is suspected of committing a crime. In addition to common law and the Constitution.(a) Federal Privacy Laws NAME General Federal Privacy Laws Freedom of Information Act of 1966 Gives people the right to inspect information about themselves held in government files.DBA 1727 NOTES Amendment protections against unreasonable search and seizure of one’s personal documents or home.

the Internet has demonstrated the potential for destroying traditional conceptions and implementations of intellectual property law developed over the last two centuries. and alteration. the most controversial ethical. From a social point of view. Before widespread use of the Internet. creating some hurdles to distribution. poems. if you personally create an ecommerce site. compactness . or video tape. The Internet technically permits millions of people to make perfect digital copies of various works . difficulty in classifying a software work as a program. or films had to be stored on physical media. Once intellectual works become digital.and then to distribute them nearly cost-free to hundreds of millions of Web users. The proliferation of innovation has occurred so rapidly that few entrepreneurs have stopped to consider who owns the patent on a business technique or method their site is using. and other media in terms of ease of replication. it belongs entirely to you. But the Internet potentially changes things. computer disks. 5. it becomes difficult to control access.3 PROTECTING INTELLECTUAL PROPERTY Intellectual property is considered to be intangible property created by individuals or corporations. In short. These are precisely the areas that intellectual property seeks to control. copies of software. because computerized information can be so easily copied or distributed on networks.from music to plays. and copying. and journal articles . Information technology has made it difficult to protect intellectual property. distribution. transmission.3. books.1 Intellectual Property Rights Next to privacy. social. use. such as paper. or even music. and difficulty in establishing uniqueness. and you have exclusive rights to use this “property” in any lawful way you see fit. magazine articles. For instance.E-COMMERCE TECHNOLOGY AND MANAGEMENT 5. Digital media differ from books.making theft easy. periodicals. book. and political issue related to e-commerce is the fate of intellectual property rights. The spirit of the Web has been so free-wheeling that many entrepreneurs ignored trademark law and registered domain names that could easily be confused with another company’s registered trademarks. the main questions are: Is there continued 285 NOTES ANNA UNIVERSITY CHENNAI . The major ethical issue related to e-commerce and intellectual property concerns how we (both as individuals and as business professionals) should treat property that belongs to others.

3. The public interest is served by the creation and distribution of inventions. 5. photographs. music. motion pictures. cassette tape. Copyright does not protect ideas -just their expression in a tangible medium such as paper.from radio and television to CD-ROMs and the Internet . 286 ANNA UNIVERSITY CHENNAI . and even to extend protection for longer periods of time and to entirely new areas of expression. for having the concept of property apply to intangible ideas? From a political perspective we need to ask how the Internet and ecommerce can be regulated or governed to protect the institution of intellectual property while at the same time encouraging the growth of e-commerce and the Internet. and lecture notes).2 Types of Intellectual Property Protection There are three main types of intellectual property protection: • Copyright. In the case of the Internet and ecommerce technologies.1 Copyright: The Problem of Perfect Copies and Encryption In the United States.DBA 1727 NOTES value in protecting intellectual property in the Internet age? In what ways is society better off. and computer programs from being copied by others for a minimum of 50 years. The private interest is served by rewarding people for creating these works through the creation of a time-limited monopoly granting exclusive use to the creator. • Patent and • Trademark law. or handwritten notes. copyright law protects original forms of expression such as writings (books.have at first tended to weaken the protections afforded by intellectual property law. or worse off. In general.the public and the private.2. literature. works of art. Owners of intellectual property have usually been successful in pressuring Congress and the courts to strengthen the intellectual property laws to compensate for any technological threat. Maintaining this balance of interests is always challenged by the invention of new technologies. periodicals. and other forms of intellectual expression. the information technologies of the last century .3. The goal of intellectual property law is to balance two competing interests . art. intellectual property rights are severely challenged. . music. performances. 5. drawings. once again.

A competitor can view the source code on your Web site to see how various effects were created and then reuse those techniques to create a different Web site without infringing on your copyright. for infringing Apple’s copyright on the Macintosh interface. and there are several international conventions and bilateral agreements through which nations coordinate and enforce their laws. potentially inhibiting other rights such as 287 NOTES ANNA UNIVERSITY CHENNAI . say. Apple Computer sued Microsoft Corporation and Hewlett-Packard Inc. The defendants counter claimed that the idea of overlapping windows could only be expressed in a single way and. which clearly provides protection for source and object code and for copies of the original sold in commerce. Damages and relief are readily obtained for infringement. Look and Feel “Look and feel” copyright infringement lawsuits are precisely about the distinction between an idea and its expression. Congress passed the Computer Software Copyright Act. Fair Use Doctrine Copyrights.. in 1988. was not protect able under the “merger” doctrine of copyright law. although the method of producing the expression might be patentable. For instance.cannot be lawfully copied and used for a commercial purpose. to create a new Web site that looks identical. only their expression in a work.even though easily available to every browser . Among other claims. For instance. Apple claimed that the defendants copied the expression of overlapping windows. the Copyright Office began registering software programs. if there is only one way to express an idea). Most industrial nations have their own copyright laws. are not absolute. When ideas and their expression merge (Le. and in 1980. and sets forth the rights of the purchaser to use the software while the creator retains legal title. therefore. the expression can-not be copyrighted. The drawback to copyright protection is that the underlying ideas behind a work are not protected. Copyright protection is clear-cut: It protects against copying of entire programs or their parts. the congressional intent behind copyright laws has been to encourage creativity and authorship by ensuring that creative people receive the financial and other benefits of their work. Apple failed to patent the idea of over-lapping windows when it invented this method of presenting information on a computer screen in the late 1960s.E-COMMERCE TECHNOLOGY AND MANAGEMENT Since the first federal Copyright Act of 1790. like all rights. In the mid-1960s. the HTML code for a Web page . There are situations where strict copyright observance could be harmful to society.

created in 1812.2 Patents: Business Methods and Processes A patent grants the owner an exclusive monopoly to the ideas behind an invention for 20 years. The congressional intent behind patent law was to ensure that inventors of new machines. or industrial methods would receive the full financial and other rewards of their labor and yet still makes widespread use of the invention possible by providing detailed diagrams for those wishing to use the idea under license from the patent’s owner. copy it. and the granting of a patent is’ determined by ‘Patent Office examiners who follow a set of rigorous rules. and not evident in prior arts and practice.DBA 1727 NOTES the right to freedom of expression and thought. Obtaining a patent is much more difficult and time-consuming than obtaining copyright protection (which is automatic with the creation of the work). and academics must be able to refer to. federal courts decide when patents are valid and when infringement occurs. 5. The Supreme Court has determined that patents extend to “anything under the sun that is made by man” as long as the other requirements of the Patent Act are met. man-made products. Patents are obtained from the United States Patent and trademark Office (USPTO). Patents are very different from copyrights because patents protect the ideas themselves and not merely the expression of ideas. compositions of matter. the applicant must show that the invention is new. The fair use doctrine draws upon the First Amendment’s protection of freedom of speech (and writing). Ultimately. to use copyrighted materials without permission under certain circumstances. non obvious.3. The doctrine of fair use permits teachers and writers. and cite from. and processing methods. and hand it out to students as an example of a topic under discussion. For instance. a mathematical algorithm cannot be patented unless it is realized in a tangible machine or process that has a “useful” result (the mathematical algorithm exception). Journalists. and abstract ideas. There are four types of inventions for which patents are granted under patent law: machines. Professors are allowed to clip a contemporary article just before class. natural phenomena. There are three things that cannot be patented: laws of nature. 288 ANNA UNIVERSITY CHENNAI . original. writers. novel.2. copyrighted works in order to criticize or even discuss copyrighted works. As with copyrights. devices. Patents must be formally applied for. As a result the doctrine of fair use has been created. In order to be granted a patent.

surgical and medical procedures (1950). Patents encourage inventors to come up with unique ways of achieving the same functionality as existing patents. Essentially.E-COMMERCE TECHNOLOGY AND MANAGEMENT the granting of patents has moved far beyond the original intent of Congress’s first patent statute that sought to protect industrial designs and machines. Patents force new entrants to pay licensing fees to incumbents. Since that time. Amazon’s patent on one-click purchasing caused Barnesandnoble. The danger of patents is that they stifle competition by raising barriers to entry into an industry. Morse. and made the telegraph useful. as technology and industrial arts progress. thousands of software patents have been granted. Unlike Samuel F. This early Internet spirit changed in the mid-1990s with the commercial development of the World Wide Web. E-commerce Patents Much of the Internet’s infrastructure and software was developed under the auspices of publicly funded scientific and military programs in the United States and Europe. and thus slow down the development of technical applications of new ideas by creating lengthy licensing applications and delays. Virtually any software program can be patented as long as it is novel and not obvious. who patented the idea of Morse Code. Patent protection has been extended to articles of manufacture (1842).com to invent a simplified two-click method of purchasing. and software (1981). Business firms began applying for “business methods” and software patents. The early Internet was characterized by a spirit of worldwide community development and sharing of ideas without consideration of personal wealth. patents have been extended to both encourage entrepreneurs to invent useful devices and promote widespread dissemination of the new techniques through licensing and artful imitation of the published patents (the creation of devices that provide the same functionality as the invention but use different methods) (Winston. B. most of the inventions that make the Internet and e-commerce possible were not patented by their inventors. 1998). NOTES 289 ANNA UNIVERSITY CHENNAI . plants (1930). The Patent Office did not accept applications for software patents until a 1981 Supreme Court decision that held that computer programs could be a part of a patentable process. For instance.

first. diversification. In hub and spoke financial systems. and colors”. flags of states and nations. trademark law protects the owner . 290 ANNA UNIVERSITY CHENNAI . the trademark law protects the public in the market-place by ensuring that it gets what it pays for and wants to receive. in a landmark decision that paved the way for Internet business methods patents. Some things may not be trademarked: common words that are merely descriptive (“clock”).who has spent time. First. or marks belonging to others. The court ruled there was no reason to disallow business methods from patent protection.S.Financial Group. and higher returns. and energy bringing the product to the marketplace .against piracy and misappropriation.2. packaging. by registration with the U. The court concluded that business methods should be treated like any process and that Signature Financial had invented a business method that could be patented. Patent and ‘Trademark Office (USPTO).3.” 5. a Federal Circuit Court of Appeals in the State Street Bank & ‘Dust v. and can be renewed indefinitely. Signature Financial Group. and second. the Federal Appeals Court threw out the socalled business methods exception under which it was thought business methods could not be patented. ‘Trademarks are granted for a period of ten years. Federal trademarks are obtained.DBA 1727 NOTES “Business Methods” Patents In 1998. The purpose of trademark law is two fold. mutual funds (the spokes) pool their funds into a single portfolio to achieve greater financial leverage. but when negotiations broke down. case upheld the claims of Signature Financial to a valid patent for a business method that allows managers to monitor and record financial information flows generated by a partner fund ( a “hub and spoke” system). However. money.a mark used to identify and distinguish goods and indicates their source. Trademark protections exist at both the federal and state levels in the United States. shapes. Second. Signature Financial had invented and obtained a patent (“Data Processing System for Hub and spoke Financial Services Configuration”) on such a system in 1993.3 Trademarks: Online Infringement and Dilution Trademark law is a form of intellectual property protection for trademarks . by use in interstate commerce. Inc. that involves an algorithm in the broad sense of the term. ‘Trademarks have been extended from single words to pictures. State Street sought to have the patent declared invalid and unenforceable because business methods could not be patented. or any “step by step process. be it electronic or chemical or mechanical. Inc. immoral or deceptive marks. State Street Bank & trust attempted to license the system from Signature Financial.

and jurisdiction. causes consumers to make market mistakes. including intellectual property. This new legislation dispenses with the test of market confusion (although that is still required to claim infringement). CONTRACTS AND WARRANTIES 5. The test for infringement is twofold: market confusion and bad faith. which is defined as any behavior that would weaken the connection between the trademark and the product. The Internet does not tend to make geographical and jurisdictional boundaries clear. particularly “cyberspace”. which created a federal cause of action for dilution of famous marks.4 CYBER LAW. as it is an intersection of many legal fields. and 3) the 291 NOTES ANNA UNIVERSITY CHENNAI . and extends protection to owners of famous trademarks against dilution. Congress passed the Federal ‘Trademark Dilution Act.4. or misrepresents the origins of goods is an infringement. Dilution occurs through blurring (weakening the connection between the trademark and the goods) and tarnishment (using the trademark in a way that makes the underlying products appear unsavoury or unwholesome). 5. In essence. privacy. 2) the laws of the state/nation that apply where the server hosting the transaction is located. the Internet. cyber law is an attempt to apply laws designed for the physical world to human activity on the Internet.1 Cyber law Cyber law is a term used to describe the legal issues related to use of communications technology. i. but Internet users remain in physical jurisdictions and are subject to laws independent of their presence on the Internet. Use of a trademark that creates confusion with existing trademarks. In addition. Jurisdiction and sovereignty Issues of jurisdiction and sovereignty have quickly come to the fore in the era of the Internet.E-COMMERCE TECHNOLOGY AND MANAGEMENT Disputes over federal trademarks involve establishing infringement. In 1995. a single transaction may involve the laws of at least three jurisdictions: 1) the laws of the state/nation in which the user resides. It is less a distinct field of law in the way that property or contract are.e. the intentional misuse of words and symbols in the marketplace to extort revenue from legitimate trademark owners (“bad faith”) is proscribed. freedom of expression. As such.

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laws of the state/nation which apply to the person or business with whom the transaction takes place. So a user in one of the United States conducting a transaction with another user in Britain through a server in Canada could theoretically be subject to the laws of all three countries as they relate to the transaction at hand. Another major problem of cyber law lies in whether to treat the Internet as if it were physical space (and thus subject to a given jurisdiction’s laws) or to act as if the Internet is a world unto itself (and therefore free of such restraints). Those who favor the latter view often feel that government should leave the Internet community to self-regulate. John Perry Barlow, for example, has addressed the governments of the world and stated, “Where there are real conflicts, where there are wrongs, we will identify them and address them by our means. We are forming our own Social Contract. This governance will arise according to the conditions of our world, not yours. Our world is different” (Barlow, A Declaration of the Independence of Cyberspace). A more balanced alternative is the Declaration of Cyber secession: “Human beings possess a mind, which they are absolutely free to inhabit with no legal constraints. Human civilization is developing its own (collective) mind. All we want is to be free to inhabit it with no legal constraints. Since you make sure we cannot harm you, you have no ethical right to intrude our lives. So stop intruding!”. Other scholars argue for more of a compromise between the two notions, such as Lawrence Lessig’s argument that “The problem for law is to work out how the norms of the two communities are to apply given that the subject to whom they apply may be in both places at once” (Lessig, Code 190). 5.4.2 Contracting and Contract Enforcement in EC Any contract includes three essential elements: an offer, an acceptance and consideration. The Contract is formed when one party accepts the offer of another party. An offer is a commitment with certain terms made to another party such as declaration of willingness to buy or sell a product or service. An acceptance is the expression of willingness to take an offer, including all of its stated terms. Consideration is the agreed upon exchange of something valuable, such as money, property or future services. Contracts are a key element of traditional business practice, and they are equally important on the Internet. Offers and acceptances can occur when parties exchange email messages, engage in electronic data interchange (EDI) or fill out forms on web pages.


These Internet communications can be combined with traditional methods of forming contracts, such as exchange of paper documents, faxes and verbal agreements made over the telephone or in person. When enforcing contracts, courts tend to view offers and acceptances as actions that occur within a particular context. If the actions are reasonable under the circumstances, courts tend to interpret those actions as offers and acceptances. For example, courts have held the various actions—including mailing a check, shipping goods, shaking hands, nodding one’s head, taking an item off a shelf, or opening a wrapped package—are all, in some circumstances, legally binding acceptances of offers. Writing Contracts on the web An early decision in the 1800’s held that a telegraph transmission was writing. Later courts have held that tape recordings of spoken words, computer files on disks and faxes are writings. Thus the parties to an electronic commerce contract should find it relatively easy to satisfy the writing requirement. Courts have been similarly generous in determining what constitutes a signature. A signature is any symbol executed or adopted for the purpose of authenticating writing. It is reasonable to assume that a symbol or code included in an electronic file would constitute a signature. Firms concluding international electronic commerce do not need to worry about the signed writing requirement in most cases. The main treaty that governs international sales of goods, Article 11 of the United Nations Convention on Contracts for the International Sales of Goods (CISG), requires neither a writing nor a signature to create a legally binding acceptance. 5.4.3 Warranties on the web Any contract for the sale of goods includes implied warranties. A seller implicitly warrants that the goods it offers for sale are fit for the purposes for which they are normally used. If the seller knows specific information about the buyer’s requirements, acceptance of an offer from the buyer may result in an additional implied warranty of fitness, which suggests that the goods are suitable for the specific uses of the buyer. Sellers could create explicit warranties, often unintentionally, by making general statements in brochures or other advertising materials about product performance or suitability for particular tasks.




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5.5. TAXATION AND ENCRYPTION POLICIES: 5.5.1 Introduction on Taxation Electronic Commerce (“Ecommerce”) presents unique challenges to federal and state tax authorities. Ecommerce involves commerce using the Internet: typically purchases and sales through computers. Because Ecommerce involves computers communicating with each other at the speed of light, transactions are both instantaneous and largely anonymous. In contrast, mail order and telephone solicitation, two traditional forms used by remote sellers, involve the delivery of goods from a specific physical location to a specific location by means of a common carrier. Although states and local jurisdictions have wrestled with the issue of collecting taxes from out-of-state mail order sellers and telephone solicitors for decades, the internet allows almost any small business to sell to customers in different states and countries. The concept of taxation involves jurisdiction. From the Boston Tea Party Rebellion in which tea was taxed as it physically landed on American shores, to sophisticated concepts in international taxation, a government’s authority to tax has always been based on territory and jurisdiction. For instance, the U.S. government taxes its residents on their world-wide income because they are connected with the U.S. through citizenship and residency. Also, the U.S. taxes foreign individuals and businesses who are receiving income from U.S. sources. But the U.S. cannot tax a foreign citizen who is not a U.S. resident on earnings from a foreign source. With the internet, a business can move to so-called tax haven jurisdictions and conduct business outside the taxing jurisdiction of any country. Also, because of the speed in which transactions occur and the absence of a traditional paper trail, especially with intangible property transmitted by computer such as software, digital music or books and services, it will be very difficult, if not impossible to apply traditional notions of jurisdiction to tax these transactions. While governments who rely on an income tax to fund themselves will have great difficulty taxing Ecommerce, states and local jurisdictions that rely on sales and property taxes to fund their operations are in steep trouble. As discussed below, the U.S. constitution requires a sufficient physical connection with the state or local jurisdiction by a company to


burden the business with a tax obligation, and merely selling property, services or goods to a customer who resides in a state is not sufficient nexus. In short, it will take a Constitutional amendment to change the commerce clause, and it extremely doubtful that U.S. citizens will vote to tax themselves on internet transactions. In fact, outside of pressure from state and local tax authorities, there is little ground swell for internet taxation by politicians. According to a Gallup Poll, 73% of active internet users oppose an internet sales tax, compared to 14% in favor (Source: San Francisco Chronicle, September 15, 1999, page D2). According to 36% of the respondents who use the internet, they would be less likely to vote for a politician who voted to tax internet transactions. But brick and mortar retailers who sell their products in physical locations, contend that internet taxes are needed to equalize the tax burden for competitive reasons. Some of the unique features of Ecommerce include: Computer-to-Computer transactions without a paper trail; Anonymous transactions, especially if a new form of electronic cash takes hold; Lack of information on the location of the seller and purchaser; Electronic delivery of goods (books, CDs and movies in electronic form) and services (brokerage or accounting services); and Bundling of taxable and non-taxable items, such as taxable goods with taxexempt services. 5.5.2 Current Law - A Moratorium on Internet Taxes Currently, under the Internet Taxation Freedom Act (“ITFA”), passed in 1988 there is a 3-year moratorium on federal and state taxation imposed on internet transactions. The moratorium began on October 21, 1998 and remains in effect until October 21, 2001. ITFA’s purpose is to halt the rush by states to tax transactions occurring on the internet until Congress has had the opportunity to study the issue and make recommendations. Congress realized that the internet needed time to grow as a viable medium for commerce, without being subjected to taxing regimes imposed by the states. Congress noted that the internet was inherently susceptible to multiply and discriminatory taxation in ways that traditional commerce was not. Congress was concerned that because internet



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transactions involved a number of computers and routers, routing transactions throughout the country and even throughout the world, potentially dozens of jurisdictions could attempt to tax a single transaction. Thus, ITFA would protect internet business from being taxed in complicated and unexpected ways by remote jurisdictions. Discriminatory Taxes A discriminatory tax traditionally involved a tax that favored local commerce over interstate commerce, but the definition under ITFA has been broadened to include the coverage of the tax, its application or a differential tax rate. In other words, if an ecommerce transaction is subject to a tax that is any different from a tax imposed on similar property, goods or services through other means, then the tax is discriminatory. Example: If the purchase of a book over the internet is subject to a tax that is different from purchasing a book in a bookstore, the tax is discriminatory. The same would be true if the taxing authority charged a higher rate of tax for ecommerce purchases of books. However, it is permissible to charge a lower rate on an ecommerce transaction. It other works, a taxing jurisdiction may discriminate in favor of ecommerce. Ecommerce conducted by out-of-state vendors do not have an obligation to collect sales taxes if traditional remote sellers, such as mail-order and telephone solicitation vendors do not collect sales taxes. Sales tax cannot be levied on because the purchaser uses ecommerce to access the seller’s computer to acquire property, goods or service. Also, states cannot use an “agency nexus” theory to claim that a purchaser’s ISP is an in-state agent for the seller. Example: If a purchaser in California uses his computer to connect with a bookseller’s computer located in Nevada, no state or political subdivision may levy a sales tax, even if the purchaser used a California ISP to connect to the internet. Example: If a Nevada-based seller hosts his website on a California computer and a California resident purchases a book, California cannot claim there is an agency nexus to tax the transaction. In addition, if a remote seller in one state, uses a computer in another state for internet access or online services, there is no agency relationship between the remote seller and the company providing the access or online services.


Example: A New Hampshire company, with no physical presence in California, hosts its website with a California ISP, California cannot impose a sales tax on transactions because a California ISP was involved. If books, magazines, newspapers or forms of tangible information are not subject to sales tax, then downloads of that same information cannot be taxed. A tax obligation cannot be imposed on a different entity such as a credit card company, if the vendor selling the product, service or property would be the entity responsible to collect sales tax under conventional commerce. Multiple Taxes Multiple taxes on the same transaction or service either in the same taxing jurisdiction or tow or more taxing jurisdictions are prohibited. There is an exception if the tax is imposed by a state and a local subdivision, such as California’s sales tax and San Francisco County’s add-on sales tax for it Bay Area Rapid Transit. This could occur if a state taxed internet access services as telecommunications services and then taxed located telephone services as well. Unless a credit is given to eliminate any double-taxation, such a tax would violate the prohibition against multiple taxation. Exceptions to ITFA transactions. Vendors who knowingly conduct ecommerce involving obscene or materials that are otherwise harmful to minors cannot rely on ITFA as a defense against taxation. However, the vendor can use ITFA as a defense if he uses credit card verification or procedures to insure he is dealing with persons over age 17. The exception does not apply to internet information and search services such as Yahoo, Lycos or Alta Vista or ISPs that host such websites or telecommunication companies that transmit information over the internet. Bundled software that includes protected ecommerce or internet applications are protected under ITFA, but only in proportion to the ecommerce or internet applications.




employees or sales agents in North Dakota could not be compelled to collect sales tax on its sales to North Dakota customers. Quill established an economic presence in North Dakota which created nexus for sales tax purposes. Retail sales by venders to in-state consumers are subject to sales tax on the purchase. the duty to collect a sales or use tax depends on where the sale is located and whether the buyer is a consumer or a business. In general. Although it was not physically present in North Dakota and did not have a sales agents in the state.3 Taxation of Ecommerce . but sells to California residents. Example: A company that operates in Nevada and does not sell products in California or to California residents cannot be taxed by California. The problem comes when a business is not physically located in California. 298 ANNA UNIVERSITY CHENNAI . The key issue is whether the company that is being taxed as sufficient connection (nexus) with the taxing authority.S. Quill corporation sold office furniture products through a catalogue.S. Under the commerce clause. even though the guests might reside in another state. a mailorder company without a physical location.5. Under what circumstances may California levy a tax on sales to California residents? In Quill v North Dakota. but the vendor has the obligation of collect and remit the tax to the tax agency. The U. Three general rules apply: 1.DBA 1727 NOTES 5.S. Constitution prevents the states and their political subdivisions from imposing taxes that unduly burden interstate commerce. the North Dakota Supreme Court held that by selling its product to North Dakota customers. Supreme Court held that a remote seller could be required to collect sales taxes only if the seller had the requisite nexus with the buyer’s state. Converse. the company had to have substantial connections (a physical presence) with the state. the U. such as a hotel.The Significant Issues Nexus . both California and San Francisco have the right to tax a company physically located in San Francisco.The Foundation of State and Local Taxation The Interstate Commerce Clause of the U. 298. 504 U. 1992.S. Supreme Court held otherwise and ruled that a state could impose a requirement that a company collect and remit sales taxes. It is the commerce clause’s concept of nexus that prohibits most ecommerce transactions from being taxed.

S. Will Ecommerce Really Erode the Tax Base for States and Localities? Although state and local tax officials express grave concern that the Ecommerce will decimate the ability for states and localities to levy taxes on these transactions. unless a state or locality can pinpoint the physical location of the seller and buyer. it must determine that the purchase is a California resident and that the seller has sufficient nexus with California to be required to collect and remit the sales tax. CD or a shirt. The absence of nexus in the mail order cases is profoundly greater in the Ecommerce context. it is impossible to determine jurisdiction for sales tax purposes. In order to California to levy the tax. Without ascertaining the location of the seller or buyer. NOTES 3. then the traditional notions applicable to mail order taxation could be applied since it could be ascertained where the goods were shipped and where they were delivered. this response might be overblown. If the out-of-state vendor cannot be required to collect the tax. hence the emphasis on requiring out-of-state vendors to collect and remit the tax. unless the vendor has sufficient nexus under the commerce clause with the purchaser’s state to require collection. Note: If the goods or property purchased are tangible. This means that mail order and 299 ANNA UNIVERSITY CHENNAI . As a practical matter. instead of a sales tax. Not only do internet companies not have physical presence in the taxing jurisdiction. in reality. such as an actual book.E-COMMERCE TECHNOLOGY AND MANAGEMENT 2. Currently. states and localities cannot tax remote sellers anyway. California cannot determine whether the purchaser was a California resident and whether the seller had sufficient physical presence in California. often then can be located outside the jurisdiction of the U. Ecommerce transactions occur instantaneously and without identity of the seller’s or buyer’s location. This is usually referred to as a “use” tax. then the consumer is legally obligated to pay a self-assessed tax directly to the taxing agencies on the purchase. Example: California wants to apply a sales tax to the sale of software to its residents. Because the sales tax is destination based. since the consumer is paying a tax for the use of the property. Even if a transaction can be theoretically taxed. unless they have sufficient nexus with the state. this is virtually impossible to enforce. Out-of-state vendors making consumer sales are not required to collect and remit sales taxes. altogether.

and approximately 80% of current Ecommerce is business-to-business. a state’s citizen is supposed to self-assess a use tax which is equal to the sales tax.DBA 1727 NOTES telephone solicitation commerce by remote sellers is not subject to tax. There is no prohibition against the use tax. as of 1988. accounting. or there is a constitutional amendment allowing taxation of remote sellers. such as legal. sales and use taxes continue to grow. services. are not subject to sales taxes. the ultimate tax liability is not affected since in-state consumers have the legal tax liability to self-assess and pay the tax anyway. 300 ANNA UNIVERSITY CHENNAI . Ecommerce involving intangible goods or services will not cause an erosion of the tax base. the problem lies in enforcement. despite Ecommerce. Most services and intangible products are not currently subject to sales taxes anyway. There is evidence that even if all Ecommerce was subject to sales taxes. In California. is to require a state or locality’s resident to self-assess the tax that should have been collected by the remote seller. Even if a remote seller is not subject to sales tax rules. Therefore. it represents much less than 1% of total consumer spending. Remember that business-to-business sales are subject to use tax payments by in-state businesses. the revenue generated to the states and localities would represent about one-tenth of one percent of all sales and use taxes collected. To the extent Ecommerce is merely a substitute for other remote seller transactions. Also. The answer to Ecommerce taxation in particular and remote selling in general. Ecommerce does not affect the tax base since remote sales involving mail order or telephone solicitation are exempt from sales tax under the commerce clause. Ecommerce merely continues the trend to avoid taxes by engaging in remote selling without a physical presence. but the states have been lax in enforcing this requirement. Unless the Supreme Court drastically alters its reading of the Constitutions’s commerce clause. Therefore. Although Ecommerce in rapidly growing. and medical costs. Neither are food or medicine. although Ecommerce prevents states from forcing remote sellers from collecting and remitting sales tax.

or technological advances that would allow businesses to calculate the sales tax simply and without a large investment in time and resources.300 separate sales tax jurisdictions.S. This could mean a uniform tax rate agreed to by all the states. which has been used throughout history. which number close to 7. provided the tax is simple to calculate for businesses. These numbers could be significantly increased if states and local jurisdictions were allowed to tax Ecommerce. The encrypted data can be read only by those users for whom it is intended. encrypted by the private key. One of the available techniques commonly used for encryption is Public Key. In Public Key encryption system. Small businesses would be buried in costly paperwork attempting to comply with all these rules. 5..500 throughout the U. RSA Data Security of Redwood City offers the most popular and commercially available algorithm. In a Public Key encryption system each user has two keys-public key and private key.5 Encryption policy: Encryption is a technique for hiding data. The encryption and decryption algorithms are designed in a way so that only the private key can decrypt data that is encrypted by the public key. Therefore. Nowadays various encryption techniques are available. Before the digital age. has not been able to make any headway in the taxation debate. Unfortunately.5. And the public key can decrypt data. created by the ITFA legislation.E-COMMERCE TECHNOLOGY AND MANAGEMENT 5. the biggest users of cryptography were governments. are notoriously parochial minded when it comes to defending their jurisdiction. the current state and local tax systems. Computer encryption is based on the science of cryptography. one can broadcast the public key to all users.4 The Future for Ecommerce Taxation The Commission on Electronic Commerce. there are more than 1. but several members have voice support for Internet taxes. 301 NOTES ANNA UNIVERSITY CHENNAI . That is precisely why the commerce clause in the Constitution prohibits taxes and is an undue burden on interstate commerce. particularly for military purposes.5. In Texas alone.

The actual software to perform DES is readily available at no cost to anyone who has access to the Internet. discussed in the next subsection. Instead of defining just one encryption algorithm. should prevent decryption by a third party capable of single-key exhaustive search. DES has been extensively researched and studied over the last twenty years and is definitely the most well-known and widely used cryptosystem in the world. DES defines a whole family of them. and the National Bureau of Standards (NBS) (which is now called NIST). both sender and receiver must know the same secret key.DBA 1727 NOTES Most computer encryption systems belong in one of two categories. a different algorithm is generated for each secret key. to 112 bits. there are two types of encryption methods: Secret-key cryptography Public-key cryptography Data Encryption Standard (DES) A widely-adopted implementation of secret-key cryptography is Data Encryption Standard (DES). A new technique for improving the security of DES is triple encryption (Triple DES). The number 256 is also large enough to make it difficult to break the code using a brute force attack (trying to break the cipher by using all possible keys). public-key cryptography. With a few exceptions. DES can also be used for single user encryption. You just need to tell others your secret key a number less than 256. thought to be equivalent to doubling the key size of DES. the National Security Agency (NSA). encrypting each message block using three different keys in succession. that is. If you use DES three times on the same message with different secret 302 ANNA UNIVERSITY CHENNAI . DES operates on 64-bit blocks with a 56-bit secret key. Designed for hardware implementation. Triple DES. DES is secret-key. it operation is relatively fast and works well for large bulk documents or encryption. This means that everybody can be told about the algorithm and your message will still be secure. symmetric cryptosystem: When used for communication. Broadly speaking. was developed to solve this problem. to store files on a hard disk in encrypted form. which is used both to encrypt and decrypt the message. Despite the fact that its algorithm is well known. however. Of course. In a multi-user environment. DES has withstood the test of time. secure-key distribution becomes difficult. DES was introduced in 1975 by IBM. it is impossible to break the cipher without using tremendous amounts of computing power. using triple-encryption takes three times as long as singleencryption DES. for example.

3. but DES remains the most frequently used.E-COMMERCE TECHNOLOGY AND MANAGEMENT keys. 2.5.6 Customer’s Trust Online 1. On the home page a site’s purpose must be clear to the first-time visitor. On-screen design and copy styles should reflect existing printed literature.web pages should look. Presentation The look of a site conveys a sense of personality and influences the degree to which visitors are prepared to trust the site owner. The internet is tactile . Websites can keep customers’ trust by taking them through a transparent transaction process. sound and move in ways that reinforce the company’s existing image. it is virtually impossible to break it using existing algorithms. 5. Online and offline customer support services The company’s security policy for 303 NOTES ANNA UNIVERSITY CHENNAI . The challenge is to create enticement – to explore the store . Use simple words to describe the site’s content and make it easy for visitors to find what they are looking for by giving clear instructions. If an organisation already has a corporate identity then the site should be consistent with this. At this point most shopping carts are abandoned. faster symmetric algorithms have been developed. There are conventions for laying out a shop and customers unconsciously understand and follow them. At all times customers should know where they are in the checkout process and they should be able to find out what happens later. Over the past few years several new.. A company’s colours may need re-working online.without customers getting lost. Fulfilment Goods have now been selected and your customer has made it to the checkout. Developing a brand to work online is a new task. Navigation If customers walk into a new high street shop they can usually find their way around. to a new palette that is fast to download to the computer screen. Online conventions are still being developed. Therefore. It must be easy to see: How orders are to be processed The company’s returns policy. some judgement will be needed to make first-time visits successful.

Aim for graphics and functions in proportion to your customer’s needs. don’t hide it.DBA 1727 NOTES personal information. Are you handling visitors new to the web trade or devotees? • • Newcomers need signposts and easy navigation. Make sure that technology supports your sales process and does not obscure it: Automatically recognise returning customers Help to complete forms correctly Design forms to work with software programs that automatically add user details to the form 5. They may expect service delivered in real time. above all. use it to build customer expectation of the site’s content. Should your company have a familiar name. Use technology as a transparent aid to navigation and activity. Old hands need quick routes to every part of the site. If you have shops on the high street. then the most successful plan will be the one that responds fastest. 4. with transparency and. major software companies and web security organizations. This means that every component of the plan should be built 304 ANNA UNIVERSITY CHENNAI . Technology Too much technology can be daunting. with consistency.5. These needs will change with your customer’s experience. give customers the option to return goods there. Familiar Names & Logos Names that we know and trust are familiar and friendly. If we see them on a website we trust the website more.7 Steps to Plan Successful E-Commerce Respond Fast If the plan is to respond to customer wishes. Younger visitors and technically aware customers may be more tolerant of higher technical demands. If your company is trusted by these organizations. Web customers will have higher service expectations than offline customers. 5. Customers trust sites where they can see the familiar logos of credit card brands. the quality of products and the level of service support. And remember to train your staff to handle returned online orders.

Successful testing follows a simple rule: Test one Thing at a Time Only test changes that can be measured directly. more convenient or just new and online? What new information do they get? Decide what you can reliably offer each group now and plan a phased introduction of more complex services. then a more robust version can be built.E-COMMERCE TECHNOLOGY AND MANAGEMENT with the intention of proving a principle. then you can redirect your time and resources and use the knowledge gained to good effect elsewhere. Are you offering them a new way to use an existing service or a completely new service? Is it faster. If a test includes more than one change. what could your staff do to add more value for customers? Focus on Customer. suppliers and distributors? Have you asked what they’d like? The web’s very good at research. If they don’t. How many steps can be eliminated by outsourcing tasks to your customers and suppliers? Who is best placed to make the original information entry? Can that information be shared to avoid reentering the same information? What information could customers. look for processes in which information is transferred. NOTES 305 ANNA UNIVERSITY CHENNAI . suppliers and distributors find for themselves. computer to computer? With the time saved. Complexity often arises from integrating tried and tested stand-alone services. it’s almost always impossible to measure the effect of each one. Supplier & Distributor Benefits What’s in it for customers. Challenge Internal Assumptions Remove internal processing costs to make dramatic improvements to profit margins. Analyse each sales process to clarify what it is that staff spend time doing. Ask yourself if your customers want this? If they do. In particular. Test to learn from the customer and to improve one step at a time. cheaper. Test out Your Plan In the online marketplace everything is a test until it’s proven by the customer.

306 ANNA UNIVERSITY CHENNAI . others will not enjoy the increased interaction with customers. Unless a company’s online services are entirely online. There are three sets of costs that should be calculated: 1. there will be a progressive transfer from processing tasks towards customer service. Help Staff Adapt to Online Working An online service will affect your staff and the work that they do. in a service’s early stages it may not make good sense to risk overwhelming a new online channel by quickly moving large numbers of customers over to the new service. Current company costs that will be altered by the online changes • both internal and external costs Cost to implement the changes • interim support may be needed • training for staff whose tasks change New cost assumptions. find ways to: Inform them that it is there (they may not know this) Tell them how to change over Incentivise the swap to make it worthwhile Introduce the new service as a special privilege beta test programme Calculate the Three Sets of Costs Very few organisations have all the resources in-house to start offering online services. post change • long-term cost-savings • long-term outsourcing arrangements • ongoing online development plans 2. Some may find this work more fulfilling. 3.DBA 1727 NOTES Give Good Reasons to Use Online Services Not all customers will automatically move to an online service simply because it’s there. If your organisation is typical. They will almost certainly require some training in how to make the most of the new technology for the benefit of their customers. Equally. staff who is to fulfil new service roles will require assistance to develop new skills. If you prefer customers to use an online channel.

The ethical. The key activities associated with the formation of an enforceable contract do take place on the Internet. free from surveillance or interference from other individuals or organizations. Information technology has made it difficult to protect intellectual property. and perhaps destroyed. because computerized information can be so easily copied or distributed on networks. and make recommendations for managers who are given the responsibility of operating e-commerce companies within commonly accepted standards of appropriateness. viz. social. Trade and commerce over the Internet give rise to several legal issues • The growth of EC on the Internet depends to a large extent on the confidence of traders in forming legally enforceable contracts online. electronic transactions. remote employee access. • • • 307 ANNA UNIVERSITY CHENNAI . write. including the state. Privacy is a girder supporting freedom: Without the privacy required to think. and associate independently and without fear. electronic filing. social and political freedom is weakened. and political issues raised in e-commerce. provide a framework for organizing the issues. Exchange of electronic messages and documents EDI.E-COMMERCE TECHNOLOGY AND MANAGEMENT Summary • Internet commerce raises legal issues through the provision of the following services: NOTES Online marketing Online retailing ordering of products and services Financial services such as banking and trading in securities. Intellectual property is considered to be intangible property created by individuals or corporations. plan. offer is communicated by the acceptor and acceptance is received by the offer or from the acceptor. The Concept of Privacy: Privacy is the moral right of individuals to be left alone.

13. cyber law is an attempt to apply laws designed for the physical world to human activity on the Internet. and jurisdiction. The outdated and overly complex mechanisms used by thousands of jurisdictions to tax traditional transactions is clear that a fundamental restructuring of our current sales tax laws is needed to simply tax collection. including intellectual property. 4. Patent and Trademark law. 8.DBA 1727 NOTES • There are three main types of intellectual property protection: Copyright. List the major legal issues of EC Discuss the EDI Interchange agreement Define ethics Discuss the ethical. • • • Questions for review 1. i. 3. 14.e. Contracting and Contract Enforcement in EC: Any contract includes three essential elements: an offer. It is less a distinct field of law in the way that property or contract are. The Contract is formed when one party accepts the offer of another party. 2. freedom of expression. 12. 5. 9. to decrease the burden of compliance on business and to deal with the increasingly integrated economy of Ecommerce. 6. an acceptance and consideration. 10. social and political issues in EC What are the basic ethical concepts Define privacy Define Intellectual property Describe the three main types of intellectual property protection What is contracting? How is it enforced in EC Discuss taxation in EC Describe the significant issues of taxation in EC Define encryption policy Define DES Discuss the steps to plan successful EC 308 ANNA UNIVERSITY CHENNAI . In essence. 7. particularly “cyberspace”. the Internet. 11. privacy. as it is an intersection of many legal fields. Cyber law is a term used to describe the legal issues related to use of communications technology.

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