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Manajemen Keuangan & Teknologi E-Bisnis

E-Finance Introduction IT and Bussiness Concept of Internet Type and Model Measurement Economic framework Market Cost ICT profile Pricing

Manajemen Keuangan dan Teknologi E-Bisnis

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Significance of ecommerce
U.S Census Bureau estimates that there was $6.373 billion retail in 3rd quarter 2000 15.3 percent increase from 2nd quarter 2000 Over 100 Ecommerce businesses closed shop in 2000 0.78 % of total retail sales During the same quarter total retail declined 0.4%

Benefits of ecommerce
Access to global markets Lower cost of business Convenience to the customer
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Continued Growth
Hosts: 36,739,000 (7/98); 16,729,000 (7/97)
.com: 10,301,570 .net: 7,054,863 .edu: 4,464,153

Web servers: 3.35M (10/98); 130%


Bill Goffe, Univ. of Southern Mississippi Bob Parks, Washington University George Greenwade, Sam Houston State University
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The Imperatives of Technology


Applications of technology require precise subdivision and coordination of activities. Large-scale subdivision generates complexity which must be comprehended and managed. Complexity extends production processes in time and space.
Spatial extension through the supply chain Temporal extension through component fabrication and assembly
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The Imperatives of Technology


Microeconomic Consequences: Large overhead costs. Significant economies of scale and scope. Multi-dimensional product characteristics. Consequences for Industrial Organization Strategic rather than competitive environment. Non-price competition (branding and product differentiation).

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Information and the Economic Landscape


What is the role of information in the economic landscape? The Hayek model: Competitive paradigm
Prices are sufficient statistics for information about the state of the market. Competitive markets aggregate economic information. Decentralized decision-making requires only prices as inputs to decision processes.

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Information and the Economic Landscape


Strategic distortions of the competitive model:
Information is internalized in the supply chain and through long-term contracting relationships between firms. Market segmentation and price discrimination mask information content of prices. Product differentiation fragments information. Strategic interactions (pricing and marketing) entangle information through versioning and bundling decisions.

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The Internet and the New Economy


Information technology is simultaneously intensifying the strategic features of the economic landscape, while making it more competitive.
Strategic Intensification
Greater scope for both B2B and B2C commercial interactions Tightening of existing supply chains through internet data transfer protocols Dis- and re-intermediation of consumer sales.

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The Internet and the New Economy


Intensification of competition
Digital goods and services are the most extreme examples of the technological imperative: All costs are fixed costs -marginal cost is zero. Wide-spread adoption of information technology puts zero cost production (copying) capabilities in everyones hands. Wide-spread adoption of technology gives economic agents vastly expanded access to information about products and prices.

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Traditional vs electronic transaction


Transaction-Related Value Sources: Transaction Characteristics TechnologyRelated Value Sources: Search, Evaluation and Selection Capabilities

Transaction Process
Traditional Transaction Electronic Transaction

Transaction Performance: Selected Price

Buyer-Related Value Sources: Buyer Behavior


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What is the Internet?


The Internet is a world-wide network of computer networks that use a common communications protocol, TCP/IP (Transmission Control Protocol/Internet Protocol). TCP/IP provides a common language for interoperation between networks that use a variety of local protocols (Ethernet, Netware, AppleTalk, DECnet and others).

Where did it come from?


In the late sixties, the Advanced Research Projects Administration (ARPA), a division of the U.S. Defense Department, developed the ARPAnet to link together universities and high-tech defense contractors. The TCP/IP technology was developed to provide a standard protocol for ARPAnet communications. In the mid-eighties the NSF created the NSFNET in order to provide connectivity to its supercomputer centers, and to provide other general services. The NSFNET adopted the TCP/IP protocol and provided a high-speed backbone for the developing Internet.
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What do people do on the Internet?


Probably the most frequent use is electronic

mail (e-mail). After that are file transfer (moving data from one computer to another) and remote login (logging into a computer
that is running somewhere else on the Internet). In terms of traffic volume, as of December 1994 about 32% of total traffic was file transfer, 16% was World Wide Web (WWW), 11% was netnews, 6% was email, 4% was gopher, and the rest was for other uses [Merit Statistics]. People can search databases (including the catalogs of the Library of Congress and scores of university research libraries), download data and software, and ask (or answer) questions in discussion groups on numerous topics (including economics research).

How big is the Internet?


200 networks to well over 45,000 and from 1,000 hosts (end-user computers) to over four million. About 1,000,000 of these hosts are at educational sites, 1,300,000 are commercial
From 1985 to December 1994, the Internet grew from about sites, and about 385,000 are government/military sites, all in the U.S. Most of the other 1,300,000 hosts are elsewhere in the world [Network Wizards]. NSFNET traffic grew from 85 million packets in January 1988 to 86 billion packets in November 1994. (Packets are variable in length, with a bimodal distribution. The mean is about 200 bytes on average, and a byte corresponds to one ASCII character.) This is more than a six hundred-fold increase in only six years. The traffic on the network is currently increasing at a rate of 6% a month. (NSFNET statistics are available at Merits Network Information Center1.)
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Types of ecommerce
Business to business
Example ESIP 1 to ESIP 3 ecommerce

Business to consumer
Distributing customers. data products to non ESIP

Both types have different needs and resources. Both types of customers can be served
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Barriers to success in ecommerce Survey from commerce.net


Top Ten Barriers to ecommerce, 2000
1. Security and encryption 2. Trust and risk 3. Lack of qualified personnel 4. Lack of business models 5. Culture 6. User authentication and lack of public key infrastructure 7. Organization 8. Fraud and risk of loss 9. Internet/Web is too slow and not dependable 10.Legal issues
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Business Models
The method of doing business by which a company can generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain.

Ecommerce Models
There are many models being talked about, so it depends on who you are asking. Useful Categories
Transplanted real world business models Native internet business models

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Internet economics is different from real world economics


Real World
It is based on supply and demand Value comes from a scarcity of goods and services.

Internet
Scarcity doesnt exist on the web. There is almost no cost to replicate data. The economics of abundance makes attention valuable.
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Native Internet Models


Library
Freeware Information Barter Digital Products and digital delivery Access provision Web site hosting and other internet services

The internet is a source of free information Software is distributed free of charge GNU or Netscape Provide information in trade for the use of a product Images animation text that is purchased ISPs
Electronic mail or web sites
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High Level Models


Brokerage
Bring together buyers and sellers charging fees for transactions

Advertising
Infomediary Merchant Manufacturer Affiliate Community Subscription

Extension of media broadcast


Collect data regarding usage Classic wholesale and retail Direct to consumer Distribute purchase opportunity Based on loyalty High value content

high volume or specialized


Sell collected information Fixed prices or Auctions Compress the supply chain Sites get paid for referrals Subscription or sponsors May combine free and pay

Utility

Pay for what is used

May depend on byte payments


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Brokerage Examples
Market Exchange (Common B2B model) Broker charges the seller a transaction fee baed on the value of the sale. Pricing can be offer/buy offer/negotiated buy, or an auction offer/bid approach.
Virtual Mall -- A site that hosts many online merchants. The Mall typically charges setup, monthly listing, and/or per transaction fees. Metamediary -- a business that brings buyers and online merchants together and provides transaction services such as financial settlement and quality assurance. It is a virtual mall, but one that will process the transaction, track orders, and provide billing and collection services. Auction Broker -- A site that conducts auctions for sellers (individuals or merchants). Broker charges the seller a fee, which is typically scaled with the value of the transaction.
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Advertising Examples
Generalized Portal high-volume traffic driven by generic or diversified content or services The high volume makes advertising profitable and permits further diversification of site services. Personalized Portal The generic nature of a generalized portal undermines user loyalty. The profitability of this portal in based on volume and possibly the value of information derived from user choices. Specialized Portal Also called a "vortal" (i.e., vertical portal). Volume is less important than a well-defined user base This can be highly sought after as a venue for certain advertisers who are willing to pay to reach that particular audience Free Model Give users something for freeFreebies create a high volume site for advertising opportunities. Viability is hardest when based purely on advertising revenue. Opportunity to blend with infomediary model.
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Infomediary Examples
Recommender System
A site that allows users to exchange information with each other about the quality of products and services -or the sellers with whom they have had a purchase experience (good or bad). Recommender systems can take advantage of the affiliate model offered by merchants to augment revenue from the sale of consumer information.

Registration Model Content-based sites that are free to view but


require users simply to register (other information may or may not be collected). Registration allows inter-session tracking of users' site usage patterns and thereby generates data of greater potential value in targeted advertising campaigns. This is the most basic form of infomediary model.
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Merchant Example
Bit Vendor a merchant that deals strictly in digital products and services and, in its
purest form, conducts both sales and distribution over the web.

Virtual Merchant a business that operates only over the web and offers either
traditional or web-specific goods or services (a.k.a., pure-play e-tailers). The method of selling may be list price or auction

Surf-and-Turf Traditional brick-and-mortar establishment with web storefront. The


model has the potential for channel conflict. Physical stores can prove to be an asset if cleverly integrated into web operations. Also known as "bricks-and-clicks".

Catalog Merchant The migration of mail-order to a web-based order business.

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Perspective on Market Transactions (Dholakia et all)

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Economic Effects of Internet and Impacts on Marketing (Dholakia et all)

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Economic Effects of Internet and Impacts on Marketing (Dholakia et all)

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Measuring The Internet Economy (ODonnel)


Four Layer (CREC Univeristy of Texas) Internet Infrastructure : including Telecommunication Company, Internet Backbone Providers, Internet Service Provider Internet application infrastructure: principally, software required for internet services, but also consulting and service company hired to build web sites Internet Intermediary Internet Commerce
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Four Common Topics in Economics


Cost Price Demand
Substitutes and Complements

Externalities

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Cost
Producing Duplicating Distributing Capacity Limits Phone Service Movies Music Stock Quotes Magazines

Internet

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The Cost of Information


The cost of producing the first unit of a digital good is generally not small, and can be substantial. As we have seen, the indestructibility and reproducibility of digital goods means that the marginal cost of producing an additional unit of the good is close to zero. Because the cost of storing and transmitting stored information is cheap (and continues to get cheaper), there are also no effective capacity constraints on the production of digital goods.

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HOW IS INTERNET ACCESS PRICED? What other types of pricing have been considered?
There are three main elements of network costs: The cost of connecting to the net, The cost of providing additional network capacity, and The social cost of congestion.

To reduce congestion Peer pressure and user ethic Quee and priority Overprovisioning
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Cost Issues
In typical networks, most of the cost of building and operating the network is fixed, with the marginal cost of providing network services (transportation, communication, transactions) generally small. This implies that as the network increases in size, the average cost of providing network services decreases. Hence, there are natural incentives with networked technologies for firms that operate the technology to grow in size.

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Pricing of Access to The Internet


Flat Pricing Auction Approach Static Priority Pricing Dynamic Priority Pricing PMP Approach

Pricing of Goods and Services on The Internet ?


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Price
Value not cost Segment Personalize Bundle Movie Theaters Airlines Books Printers Lexis-Nexis Amazon.com Super Markets Online

Internet

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Microsoft vs. Britannica


Pre-internet: 32 volume set of Encyclopedia Britannica cost $1600 in hardback. Microsofts strategy for marketing electronic encyclopedic services:
purchase Funk & Wagnalls Encyclopedia use the content of F&W to produce a CD with multimedia enhancements and a user friendly search facility market the result as MS Encarta for $49.95
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Microsoft vs. Britannica


Result:
Britannica loses significant market share to the search features and multimedia enhancements of Encarta and other electronic encyclopedias. Britannica fights back:
Online version for libraries (cost: $2000)
But households, smaller schools and libraries continue to defect to cheaper electronic encyclopedias and online encyclopedia services

Britannica offers an online subscription for individuals for $120/yr and CDROM for $200.
Households still not willing to pay 4 times the cost of Encarta
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The Basic Rule for Profit-Maximization


(Price - Marginal Cost)/Price = 1/-Ed Not an operational decision rule - a statement of the condition required for maximum profit Can be re-stated in an average cost plus margin format

Pricing and Market Structures


Under perfect competition, firms are price-takers Under monopoly, firms are price-makers (but still constrained by the requirement to make maximum profit) Under monopolistic competition, prices settle at the excess capacity level where P=AC

Price Discrimination

Price discrimination exists when the same product is sold for different prices, that are not attributable to differences in the cost of supply Two conditions are needed: the market must be divisible into sub-markets between which there cannot be any arbitrage demand conditions (elasticity) must be different in the sub-markets
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Third Degree Price Discrimination


A number of sub-markets, each containing a number of potential customers These markets may be separated by:
distance ( car prices differ between Europe and the UK - but is it really price discrimination?) time (for non-storable commodities) - peak versus off-peak journeys age and status - Student Railcards, Old Person Railcards

Second Degree Price Discrimination


Customers are charged one price for the first block of units they purchase, then a different price for the second block
electricity, water, gas tariffs the producer appropriates part of the consumer surplus

First Degree Price Discrimination


Every buyer is charged the maximum they are willing to pay (the demand curve becomes the marginal revenue curve) Can be difficult to evaluate willingness to pay but first degree discrimination may be possible in personal, household or commercial services Note that the socially optimal level of output will be produced but all the surplus accrues to the producer
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Market Stucture
Type of market Number of firms Freedom of entry Nature of product Examples Implications for demand curve faced by firm Horizontal: firm is a price taker Downward sloping, but relatively elastic Downward sloping. Relatively inelastic (shape depends on reactions of rivals) Downward sloping: more inelastic than oligopoly. Firm has considerable control over price

Perfect competition Monopolistic competition

Very many Many / several

Unrestricted

Homogeneous (undifferentiated)

Cabbages, carrots (approximately) Plumbers, restaurants Cement cars, electrical appliances Local water company, gas and electricity in many countries

Unrestricted

Differentiated

Undifferentiated Oligopoly Few Restricted or differentiated

Monopoly

One

Restricted or completely blocked

Unique

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Market Structure Issues


The decreasing cost structure and incentives for firms to grow will typically lead to market structures which are not competitive Rather, they are characterized by the emergence of monopolies or oligopolistic industry structures, with substantial degrees of both upstream (supply chain) and downstream (distribution network) integration. One focus of the course, then, will be to examine issues of industrial organization in networked economic environments.
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Market Structure Issues


Positive Feedback
The larger the network, the greater the incentive to join Example: Wintel network Within the network, dont need adapters for file sharing or communication Outside the network, these activities become expensive

When positive feedback effects are strong, it can lead to market tipping, with the largest component of the network growing at the expense of competiting networks.

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Market Strategy Issues


The nature of the demand for networked goods, and the underlying technology involved in the supply of networked goods determines the optimal strategy for providing such goods Strategic dimensions include:
Compatibility or incompatibility Cooperation or competition Degree and mix of quality provided

Dynamics and feedback effects in market organization


Technology dictates standards and decision on whether or not to provide compatibility across different products These decisions determine the way industry structure will evolve (monopoly, oligopoly, monopolistic competition, competition) Market structure then determines pricing and profit margins Hence, anticipations about the evolution of market structure are important inputs into the decision on standard setting
Example: Microsofts recent negotiations with AOL over standards for Windows XP

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What will be the market structure of the information highway?


One interesting question is the interaction between pricing schemes and market structure. If competing backbones continue to offer only connection pricing, would an entrepreneur be able to skim off high-value users by charging usage prices, but offering more efficient congestion control? Alternatively, would a flat-rate connection price provider be able to undercut usageprice providers, by capturing a large share of low-value "baseload customers who prefer to pay for congestion with delay rather than cash?
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Internet Market Segment


Content Portals Advertising Web Hosting ASPs Backbone
Growing rapidly $1.6B in revenue Raging phenomenon but nearly dead AOL: 34M subscribers, MSN: 8M subsribers, Yahoo: 1/3 of the portal market $2B in revenue Declined over the last two years for 2002 $5.5B in revenue Dilemma: Customers will require less and less space for increasingly powerful server and price of the connectivity is falling. In 2000, the hosting markets revenue approximately $4B One of the fastest growing segment of the internet economy Industry estimates vary from $1B to $3B range in revenue Highly concentrated segment (in 2002, top-tep backbone providers control 92% of the market) But (profit) margins are not generous. CDNs expedite the delivery of internet content. Approximately $300M in 2001. The most widely recognized CDN operator is Akamai, with a 60-70% market share. ISPs are the one sure expenditure for conumers. In 2002 ISP market to be approximately $31B, almost equally divided between consumer and bussines market. The value of of B2C commerce in 2002 will be approximately $40B. The B2B market is substantially larger than B2C segment. In 2001 volume of B2B transaction was approximately $1B.
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CDNs
ISPs E-commerce

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Indonesia ?
Program Pascasarjana, Universitas Gunadarma, Magister Management , Budi Hermana-50

Manajemen Keuangan & Teknologi E-Bisnis


E-Finance Introduction IT and Bussiness Concept of Internet Type and Model Measurement Economic framework Market Cost ICT profile Pricing

Making payment in the physical word Making payment in cyberspace using traditional payment instrument Making payment in cyberspace using new means of payment

How monetary value is exchanged? How payments are made? Cash Checks Debit Cards Credit Cards Stored value Credit Card Cardless charge account Debit Cards Checks Stored Value

Alternative Currencies Digital cash Reward currencies Brokerage MonetaryValue


Program Pascasarjana, Universitas Gunadarma, Magister Management , Budi Hermana-51

Manajemen Keuangan & Teknologi E-Bisnis


E-Finance Introduction IT and Bussiness Concept of Internet Type and Model Measurement Economic framework Market Cost ICT profile Pricing

E-Finance
The provision of financial services and markets using electronic communication and computation (Allen, McAndrews, and Strahan, 2002)

3 Area

The use of electronic payment system The operation of financial services firms The operation of financial markets

Program Pascasarjana, Universitas Gunadarma, Magister Management , Budi Hermana-52

Manajemen Keuangan & Teknologi E-Bisnis


E-Finance Introduction IT and Bussiness Concept of Internet Type and Model Measurement Economic framework Market Cost ICT profile Pricing

E-Finance and the financial services industry


Adoption of e-finance by financial services firms
Financial intermediary Insurance Securities firms

The effects of E-finance on the financial services sector


Disintermediation Consolidation Acces to Credit

Sistem Kliring Electronic Real Time Gross Settlement (RTGS) Fedwire (US-RTGS) CHIPS SWIFT CHAPS TARGET

E-Finance technologies in payment services The impact on financial markets


Stock markets ---------Jakarta Automated Trading System (JATS) Foreign exchange markets Bond Market
Program Pascasarjana, Universitas Gunadarma, Magister Management , Budi Hermana-53

Manajemen Keuangan & Teknologi E-Bisnis


E-Finance Introduction IT and Bussiness Concept of Internet Type and Model Measurement Economic framework Market Cost ICT profile Pricing

E-Finance:Reshaping Financial Landscape


(Claessens, Glaessner, Klingebiel, 2002) Recent Trends in financial services
Globalization
Increased financial integration Increased mergers and acquisitions within and cross borders Lower barriers between markets Technological advances Change in industry structure The new model for financial services provision Change in trading systems Lower costs for providing financial services Benefits for consumers and corporations

The new world of financial services


Electronic Enablers Financial Product Financial Institutions Agregrators Portal Distributions Access Devices

What effect ?

Program Pascasarjana, Universitas Gunadarma, Magister Management , Budi Hermana-54

Manajemen Keuangan & Teknologi E-Bisnis


E-Finance Introduction IT and Bussiness Concept of Internet Type and Model Measurement Economic framework Market Cost ICT profile Pricing

E-Finance:Reshaping Financial Landscape


Characteristics of Financial services provision in an internet world None Low Medium High

Program Pascasarjana, Universitas Gunadarma, Magister Management , Budi Hermana-55

Manajemen Keuangan & Teknologi E-Bisnis


E-Finance Introduction IT and Bussiness Concept of Internet Type and Model Measurement Economic framework Market Cost ICT profile Pricing

E-Finance:Reshaping Financial Landscape


Implication for public policy
Safety and soundness
Definition of product, markets, and barriers to competition Scale and scope economies barriers to entry Organizational structure and competition Entry by nonbanks, links with banks, vertical integration, and competition Security risks Privacy Transparency Investor protection Development and enforcement of standard

Competition Policy

Consumer protection

Global public policy

Program Pascasarjana, Universitas Gunadarma, Magister Management , Budi Hermana-56

Manajemen Keuangan & Teknologi E-Bisnis


E-Finance Introduction IT and Bussiness Concept of Internet Type and Model Measurement Economic framework Market Cost ICT profile Pricing

Model Prilaku Pengguna E-Business (Proses Adopsi) ICT dan Makroekonomi (New Economics) Regulasi tentang ICT di Indonesia Dampak E-bussiness terhadap kinerja perusahaan Pengukuran mutu layanan berbasis Electronic (Webqual)

Program Pascasarjana, Universitas Gunadarma, Magister Management , Budi Hermana-57