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E-Commerce: Digital

Markets, Digital Goods

WHAT IS THE INTERNET?

WWW
Video conferencing
ftp
telnet
Email
Instant messaging

A communication infrastructure
Usefulness is in exchanging information

EARLY DEFINITION AS PER ONE


FOUNDER MEMBER
On-line interactive communities... will be communities not of
common location, but of common interest.... the total number
of users...will be large enough to support extensive general
purpose [computers]. All of these will be interconnected by

telecommunications channels... [to] constitute a labile network


of networks--ever changing in both content and configuration.

J. C. R. Licklider

WHERE DID IT COME FROM?


Early 1960s - DARPA (ARPA in 1960s) project
headed by Licklider
Late 1960s - ARPANET & research on packet
switching by Roberts

First node installed by BBN (Bolt Beranek and Newman, a


company) at UCLA in September 1969
1969 - Four host computers (UCLA, SRI, UCSB, University
of Utah)

Get more info at (other than Wikipedia):


http://www.isoc.org/internet/history/
http://www.packet.cc/internet.html

HISTORY OF THE INTERNET


1969 RFCs (Request For Comment) begun by S.
Crocker (http://rfc.sunsite.dk/)
1972 - Email by Ray Tomlinson & Larry Roberts
1970s - TCP (Transfer Control Protocol) by Vint Cerf &
Bob Kahn

Evolved into TCP/IP, and UDP

1980s Hardware Explosion (LANs, PCs, and


workstations)

1983 Ethernet by Metcalfe

DNS (Domain Name System) Distributed and scalable


mechanism for resolving host names into IP addresses
UC Berkeley implements TCP/IP into Unix BSD (Berkeley
Software Distribution)
1985 Internet used by researchers and developers

HISTORY OF THE INTERNET


Berners-Lee at CERN (worlds largest
plastics physics lab) in 1989

Tim

Proposal for WWW in 1990


First web page on November 13, 1990

Hypertext

- Text that contains links to other

text.
W3C (WWW Consortium) W3C's stated
mission is "To lead the World Wide Web to its full
potential by developing protocols and guidelines
that ensure long-term growth for the Web
Get
more info at: model Appl.,
Layered
http://www.isoc.org/internet/history/

and Link layers.

Transport, Network

THE INTERNET POPULATION

Worldwide Internet Population 2005: 1.08 billion


(Computer Industry Almanac) world population
6.4 billion (www.internetworldstats.com)
Projection for 2010: 1.8 billion (Computer
Industry Almanac)

THE INTERNET POPULATION

THE INTERNET POPULATION

INTERNET PENETRATION

THE INTERNET POPULATION


WORLD INTERNET USAGE AND POPULATION STATISTICS
30-Jun-12
Population
World
Regions
Africa
Asia
Europe
Middle East
North
America

Latin
America /
Caribbean
Oceania /
Australia
WORLD
TOTAL

Internet Users

( 2012 Est.)

Penetrati
Internet Users
on
(%
Populati
Latest Data
on)
167,335,676 15.60%
1,076,681,059 27.50%
518,512,109 63.20%

Growth

Users %

1,073,380,925
3,922,066,987
820,918,446

Dec. 31, 2000


4,514,400
114,304,000
105,096,093

2000-2012
3606.70%
841.90%
393.40%

of Table
7.00%
44.80%
21.50%

223,608,203

3,284,800

90,000,455

40.20%

2639.90%

3.70%

348,280,154

108,096,800

273,785,413

78.60%

153.30%

11.40%

593,688,638

18,068,919

254,915,745

42.90%

1310.80%

10.60%

35,903,569

7,620,480

24,287,919

67.60%

218.70%

1.00%

7,017,846,922

360,985,492

2,405,518,376

34.30%

566.40%

100.00%

THE SIZE OF THE INTERNET

The simple point to keep in mind is that a given host (or domain)
name does not necessarily represent a single physical server
on the Internet.

PERFORMANCE: LATENCY AND BANDWIDTH

Latency

How long minimum communication takes in seconds (s)


Round trip vs. single trip
More difficult to overcome than bandwidth

Bandwidth

Number of bits per time unit usually seconds (bps)

bandwidth

link
latency

THE SIGNIFICANCE OF THE


INTERNET

September 2004 survey by Online


Publishers Association (OPA):

The Internet has edged out TV as the medium


of choice for 18 to 54-year-olds (recent one The
New York Times, I.B.M.: The Net Trumps Television, dated 22nd
August 2007) .

Some 45 percent of the 1,235 survey


participants indicate the Internet is their top
choice for media, followed by TV at 35 percent.
Trailing much further behind are books, radio,
newspapers, videos/DVDs, video/computer
games, and magazines.
(Source: ClickZ Stats, 21 September 2004)

WEB &MOBILE MARKET

Statistics of India and


china

Essentials of E-Commerce
Module VI: Digital Markets, Digital Goods
STUDENT OBJECTIVES

Describe the unique features of e-commerce,


digital markets, and digital goods.
Analyze how Internet technology has changed
value propositions and business models.
Describe the various types of e-commerce and
how e-commerce has changed consumer retailing
and business-to-business transactions

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
STUDENT OBJECTIVES

Evaluate the role of m-commerce, digital markets,


and digital goods.
Compare the principal payment systems for
electronic commerce.

MATTERS TO CONSIDER IN RELATION TO E-COMMERCE

Taxation and Payment


Issues

Domestic Taxation
Practical aspects of collecting Tax
Revenue
Electronic Payment Systems

Legal Issues

Jurisdiction
Intellectual Property Protection
Contract Law
Domain Names
Desirability of Internet Governance
Civil and Criminal Responsibility
Dispute Resolution Mechanisms

Users Issues

Privacy
Security and Reliability
Authenticity, Certification and
Electronic Signatures
Consumer Protection and
Confidence
Consumer Rights

Technological Issues

ANY-TO-ANY COMMUNICATION

n2 Network Effect (Metcalfes Law)

Total utility of system proportional to n2


Think about Orkut, MSN Messenger, MySpace,
Facebook, LinkedIn, Social Networking

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Gap Remodels Its Web Sites

Problem: Multiple competitors, unwieldy Web site.

Solutions: Set up Web sales channel and rebuild Web


site using custom software to provide seamless Web
shopping experience.

New Web site running on custom-built, proprietary


software increases sales and adds flexibility.

Demonstrates ITs role in gaining an advantage in a


competitive industry.

Illustrates digital technology as a major factor in


modern commerce.

FIRST TIME SHOPPING ONLINE?


How do you find what you want ?
How do you compare prices ?
How do you know whether you can trust a site ?
When is it safe to give your credit card details online ?
What are your rights ?
How long should it take for the goods to arrive ?
And what should you do if something goes horribly wrong ?

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Gap Remodels Its Web Sites

Interactive Session: Gap

What experiences have you had with shopping


online?
Describe a good experience. What did you like
about the online store you used?
Describe a bad experience. What problems did
you have with the online store?

What features make an online store more


appealing? Less appealing?

OVERVIEW OF E-BUSINESS

TEN BASIC RULES TO OBSERVE WHEN SHOPPING


ONLINE

Finding the products you want portals.


Getting maximum customer value.
Finding online shops you can trust
Ensuring your details are secure, privacy policy
Tracking your orders online.
Returning unwanted goods.
Settling online disputes.
Getting more from online auctions.
Paying for goods in new ways.
Receiving your goods safely.

CONCERNS WITH E-COMMERCE

Many organizations have studied and identified the concerns of


consumers in relation to online transactions

Typical concerns include

Lack of confidence in online financial transactions -possible misuse of debit and


credit cards;
Internet fraud
Non-delivery or late delivery of goods;
Hidden costs, such as VAT, duties, delivery charges, postage and packing;
No clear guide to the sellers rules and procedures;
Lack of independent certification of website policies and practices;
Concerns about the unrestricted or hidden collection of personal data; a general
failure to protect the consumers privacy;
No clear guidance on how to lodge a complaint or how disputes are to be resolved
if they occur;
Lack of available, plain language information.

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet

E-Commerce Today
E-commerce: the use of the Internet and Web to
transact business; digitally enabled transactions
Began in 1995 and grew exponentially; still
growing at an annual rate of 25 percent
Companies that survived the dot-com bubble burst
mostly thrive now

The e-commerce revolution is still in its early


stages
Web 2.0

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet

The Growth of E-Commerce

Retail e-commerce revenues have grown


exponentially since 1995 and have only recently
slowed to a very rapid 25 percent annual
increase, which is projected to remain the same
until 2008.

Figure 1

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet

Why E-commerce Is Different


Ubiquity (market space, transaction costs)
Global reach
Universal standards (market entry costs, search
costs)
Richness
Interactivity

Information density (price transparency, cost


transparency, price discrimination)
Personalization/Customization

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet

Key Concepts in E-commerce: Digital Markets and


Digital Goods
Information symmetry
Menu costs
Dynamic pricing
Disintermediation

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Electronic Commerce and the Internet

Key Concepts in E-commerce: Digital Markets and


Digital Goods
Digital goods: delivered over a digital network
Internet business models (pure-play, clicks-andmortar)
Communication and community (banner ads, popup ads, social networking sites)
Digital content, entertainment, and services
(podcasting, syndicators)

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Electronic Commerce

Categories of Electronic Commerce


Business-to-consumer (B2C)
Business-to-business (B2B)

Consumer-to-consumer (C2C)
Government-to-consumer (G2C)
Mobile commerce (m-commerce)

Social networking/User Generated Content

OVERVIEW OF E-BUSINESS
E-commerce is the buying and selling of goods
and services over the Internet. E-commerce refers
only to online transactions. E-business , derived
from the term e-commerce, is the conducting of
business on the Internet, not only buying and
selling, but also serving customers and
collaborating with business partners.
The primary difference between e-commerce and
e-business is that e-business also refers to online
exchanges of information. For example, a
manufacturer allowing its suppliers to monitor
production schedules or a financial institution
allowing its customers to review their banking,
credit card, and mortgage accounts.

E-BUSINESS MODELS

B2B
Business-to-business (B2B) applies to businesses buying
from and selling to each other over the Internet. Online access
to data, including expected shipping date, delivery date, and
shipping status, provided either by the seller or a third-party
provider
is widely supported by B2B models.
E-Marketplaces
Electronic marketplaces represent a new wave in B2B e-business models.
E lectronic Marketplaces, or e -marketplaces , are interactive business
communities providing a central market where multiple buyers and sellers
can engage in e-business activities.They present structures for conducting
commercial exchange, consolidating supply chains, and creating new sales
channels. Their primary goal is to increase market effi ciency by tightening
and automating the relationship between buyers and sellers. Existing
e-marketplaces allow access to various mechanisms in which to buy and sell
almost anything, from services to direct materials.

B2C
Business-to-consumer (B2C) applies to any business
that sells its products or services to consumers over the
Internet.
E-Shop An e -shop , sometimes referred to as an estore or e -tailer , is a version of a retail store where

customers can shop at any hour of the day without leaving their home
or offi ce. These online stores sell and support a variety of products and
services. The online businesses channeling their goods and services
via the Internet only, such as Amazon.com, are called pure plays. The
others are an extension of traditional retail outlets that sell online as
well as through a traditional physical store. They are generally known
as bricks and clicks or click and mortar organizations, such as the
Gap ( www.gap.com ) and Best Buy
( www.bestbuy.com ).

B2BE-MARKETPLACE

BUSINESS TYPES

E-MALL

E-Mall An e -mall consists of a number of e-shops; it


serves as a gateway through which a visitor can access
other e-shops. An e-mall may be generalized or specialized
depending on the products offered by the e-shops it hosts.
Revenues for e-mall operators include membership fees
from participating e-shops, advertising,and possibly a fee on
each transaction if the e-mall operator also processes
payments. E-shops in e-malls benefi t from brand
reinforcement and increased traffi c as visiting one shop on
the e-mall often leads to browsing neighboring shops. An
example of an e-mall is the Arizona e-mall
www.1az1.com/shopping .

C2B

Consumer-to-business (C2B) applies to any


consumer that sells a product or service to a
business over the Internet. One example of this ebusiness model is Priceline.com where bidders (or
customers) set their prices for items such as airline
tickets or hotel rooms, and a seller decides whether
to supply them. The demand for C2B e-business
will increase over the next few years due to
customers desire for greater convenience and
lower prices.

C2C

Consumer-to-consumer (C2C) applies to sites


primarily offering goods and services to assist
consumers interacting with each other over the
Internet. eBay, the Internets most successful C2C
online auction Web site, links like-minded buyers
and sellers for a small commission.

ORGANIZATIONAL STRATEGIES FOR


E-BUSINESS
Traditional means of customer acquisition such as
advertising, promotions, and public relations are
just as important with a Web site. To be successful
in e-business, an organization must master the art
of electronic relationships. Primary business areas
taking advantage of e-business include:
Marketing/sales
Financial services
Procurement
Customer service
Intermediaries

E-PROCUREMENT AND E-CATALOG

E-Procurement E-procurement is the B2B purchase and sale of supplies


and services over the Internet. The goal of many e- procurement applications
is to link organizations directly to preapproved suppliers catalogs and to
process the entire purchasing transaction online. Linking to electronic catalogs
signifi cantly reduces the need to check the timeliness and accuracy of
supplier information.

An electronic catalog presents customers with information about goods


and services offered for sale, bid, or auction on the Internet. Some electronic
catalogs manage large numbers of individual items, and search capabilities
help buyers navigate quickly to the items they want to purchase. Other
electronic catalogs emphasize merchandise presentation and special offers,
much as a retail store is laid out to encourage impulse or add-on buying. As
with other aspects of e-business, it is important to match electronic catalog
design and functionality to a companys business goals.

ELECTRONIC TRADING NETWORK

BENEFITS OF E-BUSINESS

E-BUSINESS CHALLENGES

EXTENDED E-BUSINESS MODELS

ESSENTIALS OF BUSINESS INFORMATION SYSTEMS


MODULE VI, E-COMMERCE: DIGITAL MARKETS, DIGITAL
GOODS
Revenue Models

Transaction-based

Subscription-based

B2B/B2C/p2p/brokerage/% or fixed
Premium content/premium-classified

Advertisement-based

AdWord, AdSense, PPC, Banners

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Electronic Commerce

Achieving Customer Intimacy: Interactive Marketing,


Personalization, and Self-Service
Interactive marketing and personalization
Clickstream tracking
Collaborative filtering
Blogs
Customer self-service

User Generated Content

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Electronic Commerce

Case of Google
Discuss the following questions:
What are Googles business model and business
strategy?
What challenges and opportunities does the company
face?
How does YouTube acquisition synergize with Google?
Whats the road-map for Google? Explain your answer.

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Electronic Commerce

Case of IRCTC/Shaadi
Discuss the following questions:
What are IRCTC business model and business strategy?
That of Shaadi.com?
What challenges and opportunities do these two
companies face?
How do structural and infrastructural issues affect them?
Whats the road-map for Shaadi? That of IRCTC?

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Electronic Commerce

Business-to-Business Electronic Commerce: New


Efficiencies and Relationships
Electronic data interchange (EDI)
Procurement/E-procurement
Private industrial networks
Private exchanges

Net marketplaces
Exchanges

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Electronic Commerce Payment Systems

Types of Electronic Payment Systems


Digital credit card payment systems
Digital wallet
Micro-payment

Accumulated balance digital payment systems


Stored value payment systems
Digital cash

Peer-to-peer payment systems


Digital checking payment systems
Electronic billing presentment and payment systems

ELECTRONIC FUNDS TRANSFER

Office of the State


Controller

TWO TYPES OF EFT


is a generic term
Describing two different
methods of transferring
funds electronically

EFT

EFT
Wire Transfer

ACH

Both performed through Federal


Reserve Bank System
Common mistake to call an ACH payment a wire transfer
Each are handled by different departments at a bank

WIRE TRANSFER
Wire Transfer
Fed Wire

Between two banks

Within same bank

Foreign Wire

Foreign bank

Movement of funds is real time effected immediately

Book Transfer

FRB open for fed wires up to 6:00 p.m.


Book Transfers are memo posted up until midnight
ZBA (Zero Balance Account) sweeps are book transfers

Fed Wire Affects banks Reserve Accounts maintained at the FRB


Sending banks account at the FRB gets debited
Receiving banks account at the FRB gets credited
Foreign exchange and Euro dollars through Clearing House for Interbank Payments System (CHIPS) 54 New York Banks

ACH
ACH Network A batch-process, store and forward for future settlement

Two types of ACH (Automated Clearing House)*


ACH
ACH Credits

Direct Deposits
Always initiated by sender
Senders account is debited
and receivers account is
credited
Inbound & Outbound

ACH Debits

Electronic Drafts
Initiated by sender or receiver
If by sender Sender authorizes a
third party to initiate transaction
If by receiver Receiver initiates
transaction
Also referred to as Direct Payments

*The Automated Clearing House (ACH) is an electronic banking network operating system in the US

A. CREDIT CARD-BASED SYSTEM

Different payment card schemes:


Credit cards: payments are set against a special purpose
account associated with some form of installment-based
repayment
Debit cards: linked to a Checking/Savings account. A payment
cannot be made unless there are funds available to meet it
Charge cards: works in a similar way to credit cards- principal
difference is that the entire bill for a charge card must be paid
at the end of the billing period
Entities involved in a conventional credit card transaction
Card Association
Card Issuer
Acquirer
Card holder
Merchant

CREDIT CARD TRANSACTIONS WITHOUT


USE OF ENCRYPTION TECHNOLOGY

Mail order/telephone order (MOTO) transactions


Payment through First Virtual Holdings
Payment through CARI (Collect all relevant information)
Mail order/telephone order (MOTO) transactions
Payment without the buyer and merchant being co-located
Orders accepted by post or over telephone
Additional information e.g. name, address are required- gives
limited protection against bogus order
Possibilities exist for fraud; however still a very popular form of
payment considering its simplicity

PAYMENT THROUGH FIRST VIRTUAL (FV)


For sale of low-value information items
Buyer initially registers with FV giving details of card except
for card no- in exchange receives a pass phrase. Pass phrase
with suffix from FV forms VirtualPIN.
Merchant must undergo through similar registration
Merchant can now request FV to process transactions from
registered FV customers

Buying through First Virtual


FV system is based on the principle try before you buy- three
possible responses from the buyer -accept, reject or fraud
If V-PIN becomes compromised, bogus purchases can be
made until V-PIN is blacklisted
This type of fraud is of lesser importance, since info-items are
involved
Major advantage of FV is its simplicity

COLLECT ALL RELEVANT INFORMATION


(CARI)
(allows hard goods ordered through Credit card)
Like First Virtual, `Credit card no is not present on the Internet
A VCC (virtual credit card) is set up similar to VirtualPIN, with additional
PIN-protection
VirtualPIN- details are transferred to CARI machine, which is a PCcompatible system not accessible from the Internet
Details are encrypted so that CARI-machine alone can decrypt them.
Web server, or any other Internet-host cannot access this information.
A virtual credit card purchase
A user places an order by sending VCC, PIN and order details to the
Web server
CARI collects the order from the Web server and verifies it
Order information, including real CC# then forwarded to merchant via
fax, encrypted e-mail, or a dial-up line.
An attacker can intercept VCC and PIN, since connection between
buyers web browser and the Web server is not encrypted
Damage, however is limited- an e-mail confirmation can be done [6]
before actual shipping

ELECTRONIC CHECK SYSTEMS


Limitations of paper-based check systems:
Paper-based check are expensive to process- the instrument
need be carried all the way to the bank (on which it is drawn)
before determining if payment can be made
The expense involved in returned items (bounced checks)
means average check cost is high.
A need exists, therefore, where funds are transferred at the
time of transaction.
Financial Services Technology Consortium (FSTC) check
project
In the area of Electronic payments, FSTC, USA had two
projects:
Defining an Electronic Check system
Defining what new infrastructure will be required to support all
forms of Electronic commerce

FSTC ELECTRONIC CHECK


ARCHITECTURE
A payer would issue an e-check by assembling info. similar to a
paper check
Check issuer will be possessing an electronic check-book based
on secure hardware
Check is transported to the payee in a secure envelope
The payee, on receiving the check endorses it using secure
hardware before forwarding it to her bank.
FSTC Electronic Check architecture
Subsequent processing is clearing of the check using either
Automated Clearing House (ACH) or Electronic Check
Presentment (ECP)
Electronic Check Functional flows
FSTC has envisaged the following four functional flows
scenarios, depending on the electronic abilities of the parties:
Deposit-and-clear scenario
Cash-and-transfer scenario
Lockbox scenario
Funds transfer scenario

FOUR FSTC SCENARIOS


Deposit-and-clear: All parties must have their networking and
processing capabilities to deal with electronic checks
Deposit-and-clear: Payee-can accept electronic check
Payees bank-cannot accept e-check
Lockbox: Payee cannot accept e-check
Payees bank can accept e-check
Funds transfer scenario: Neither Payer, nor Payee has ability
of e-check facility. Payer generates payment advice to her
own bank. The bank transfers the value to the payees bank
account
Originator bank: with EPH (Electronic payment handler); Other
bank: normal bank clearing networks
Support for: Cash-and-transfer and Funds transfer
Originator bank and Receiving bank: Both have EPH
All four Electronic check flows supported

C.ELECTRONIC CASH PAYMENT


SYSTEMS

Attractive attributes of cash:


Acceptability: Cash is
universally acceptable as
payment
Guaranteed payment:
Physical handing over
completes the transaction with
no residual uncertainty

ELECTRONIC CASH PAYMENT SYSTEMS

No transaction charges: Physical possession


constitutes authority- no separate authorization
required
Anonymity: Cash allows transactions to take place
anonymously
In implementing electronic cash, the aim of the
design should be to preserve these attributes as far
as possible

ECASH (DIGICASH)

Digicash is a company based in Holland and the


United States that specialized in Electronic
payment systems and digital cash.

Essentials of Business Information Systems


Module VI, E-Commerce: Digital Markets, Digital Goods
Electronic Commerce

Electronic Data Interchange (EDI): one-to-one

Companies use EDI to automate transactions


for B2B e-commerce and continuous inventory
replenishment. Suppliers can automatically
send data about shipments to purchasing firms.
The purchasing firms can use EDI to provide
production and inventory requirements and
payment data to suppliers.

Figure 9-5