E-Commerce An Overview Partha Sarathi Dasgupta MIS Group

E-Commerce: An Overview Partha Sarathi Dasgupta MIS Group Indian Institute of Management Calcutta Email - partha@iimcal. ac. in IEEE Com. Soc Seminar, 2006 1

What is E-Commerce? Commerce - negotiated exchange of Products and Services between several (usually two) parties, usually but not exclusively for money. - includes all activities done by the parties to carry out a transaction. - involves buyers and sellers. E-Commerce – Commerce transacted over Electronic Media, specifically over the Internet. IEEE Com. Soc Seminar, 2006 2

References and Copyright Some of the Slides used (and suitably modified): ACM Digital Library IEEE Com. Soc Seminar, 2006 3

E-Commerce Applications - I • Retail stores such as those selling books, music, toys, etc. • Auction sites using which an individual buyer/seller can buy/sell goods • Cooperating businesses connected using their own private telecomm network carrying out transactions in a semi-automated way • Banks connected to their customers providing services such as deposits, payments, and providing information on status of an account IEEE Com. Soc Seminar, 2006 4

E-Commerce Applications - II • Railways, airlines, etc. permitting booking of tickets online and paying for them on-line using credit cards or electronic cash • Filing tax returns with government agencies on-line and obtaining immediate acknowledgements • Electronic publishing to promote marketing, advertising, sales and customer support • Web-based educational materials which allow to learn anytime and anywhere IEEE Com. Soc Seminar, 2006 5

Why and why not E-Commerce? • All Business processes may not lend themselves to ECommerce such as perishable foods, high-cost items, etc. • Costs and benefits are hard to quantify => difficult to calculate the ROI • Difficult to integrate new technologies with existing databases, and software • Cultural and legal obstacles (customer fear, conflicting legal issues across the border, etc. ) • …… IEEE Com. Soc Seminar, 2006 6

E-Commerce systems : A layered architecture • Application layer § B 2 B, B 2 C, C 2 B, C 2 G • Middleman services layer § Value-added networks § Digital signature certifying authority § Electronic payment schemes § Electronic cash • Messaging layer § Digital Encryption standard (DES) § Advanced Encryption standard (AES) § Public key encryption § Digital signature § EDI IEEE Com. Soc Seminar, 2006 7

E-Commerce systems : A layered architecture • Network services layer § E-mail, WWW, browsers, HTTP, HTML, XML § Search engines, Software agents • Logical layer § Internet/Intranet/Extranet/Firewalls • Physical layer § LAN § PSTN § Private Communication networks § Optical fibre/coaxial cable networks § Routers § Wireless networks § ……. IEEE Com. Soc Seminar, 2006 8

E-Commerce Websites: Objectives • Revenue generation • Advertising • Reduce costs • Improve customer relations IEEE Com. Soc Seminar, 2006 9

Transaction Three basic business processes: • Supply information to customers such as § features and benefits of Products and Services § terms of payment and servicing § techniques to negotiate terms • Provide the means to purchase – invoices, delivery modes, shipment tracking, payment modes, payment histories, etc. • Provide customer service and support for products and services purchased IEEE Com. Soc Seminar, 2006 10

E-Commerce transactions in India Total E-Commerce Transactions (Rs. Crore) Year 1998 – 1999 – 2000 – 2002 2006 (expected) 131 450 1400 2300 Source: NASSCOM IEEE Com. Soc Seminar, 2006 11

Evolution of E-Commerce - I 70 s – 80 s : • Electronic data Interchange (EDI) using private ecommerce networks provided by value added network (VAN) providers or E-mails • First Generation business-to-business (B 2 B) e-commerce • Used only by large companies and the government • Very expensive and complicated IEEE Com. Soc Seminar, 2006 12

Electronic Data Interchange (EDI) • Developed in 1960 s to accelerate the movement of documents pertaining to shipments and transportation • Involves the exchange of electronic documents between business partners by using private networks or a public switched network • Standardized electronic forms are used which can be interpreted and used directly by application programs • Data may be exchanged over the internet, extranet, or a VAN provided by some vendors (e. g. , IBM Global Services, GE Infoserver) for reliable, secure communications between business partners IEEE Com. Soc Seminar, 2006 13

EDI Steps Company A Business Application Format of forms Translator EDI standard format Company B Business Application Format of application Translator Public or Private n/w Advantages • • Handling of paper documents is eliminated. No need to manually re-enter data in documents such as purchase order, etc. by participating businesses Reduced cost, increased accuracy and reliability Saving of time IEEE Com. Soc Seminar, 2006 14

EDI: An Example Buyer Purchase Request Initiated Seller Finance Department Billing Details Finance Department Purchase-order Purchase Department delivery Computer Shipping Department Computer Sales Department Mfg. Department Automated order confirmation Inventory Receiving Department Product delivery IEEE Com. Soc Seminar, 2006 15

Evolution of E-Commerce - II Late 80 s – early 90 s: • Web used mainly by researchers and university academicians • Online services like emails, chat, news • First generation business-to-consumer (B 2 C) ecommerce IEEE Com. Soc Seminar, 2006 16

Evolution of E-Commerce - III 1995 • Browser and associated HTTP protocol introduced • Concept of Home Page is a required component for a business • Real e-commerce infrastructure begins IEEE Com. Soc Seminar, 2006 17

HTML links • Web organizes interlinked pages of information residing on sites around the world • Linear hyperlink structure – resembles conventional paper documents • Hierarchical hyperlink structure – start with a home page, which has links to other pages, which, in turn link to other pages. Structure of an inverted tree. IEEE Com. Soc Seminar, 2006 18

Evolution of E-Commerce - IV Late 1990 s • Dot-coms emerge, which use the Web as their primary channel for product and service sales and distribution • Brick-and-mortars become click-and-mortars • Web used for both B 2 B and B 2 C transactions • E-Marketplaces (virtual Web-based) introduced • Emergence of Web portals IEEE Com. Soc Seminar, 2006 19

E-Business vs E-Commerce • An e-commerce site must enable a buyer to make a Purchase, make payment and track fulfillment • An e-business site might just provide information about products and services and post-purchase support • Generally, e-business is regarded as a superset of ecommerce • An e-business site need not be very secure unless it also does e-commerce • E-commerce requires more reliability and technical sophistication and has more risk IEEE Com. Soc Seminar, 2006 20

Terminologies: Web Storefront It is the portion of an e-commerce Web site used to • act as an interface of business and the customer • displays products and services offered • stores information about the products and services • typically offers pricing information, customer service features, shipping/freight information, and a means to actually perform payment. IEEE Com. Soc Seminar, 2006 21

Terminologies: Fulfillment • It is the process of supplying a finished consumer product directly from a manufacturing facility to a distributor / end user • fulfillment cycle may include receiving customer orders, configuring the products to order, shipping and invoicing products to distribution outlets or end users IEEE Com. Soc Seminar, 2006 22

Terminologies: Stickiness of a Website • Ability of a Web site to keep visitors at the site, and attract repeat visitors • Users spend more time at a sticky website, and are thus exposed to more advertising IEEE Com. Soc Seminar, 2006 23

Terminologies: Web Portal • It is a site that people use as a launching point to enter the Web • Web Portal typically includes § Web directory and search engine § Additional features that help visitors to find what they are looking for, such as shopping directories, white pages and yellow pages, lookup databases, free e-mail, chat rooms, file storage services, games, personal and group calendar tools, etc. IEEE Com. Soc Seminar, 2006 24

Core elements of a Portal • Search services: search engines, directories, Yellow pages services for locating local businesses “people” finder for tracking phone numbers/email ids, MP 3 finders for locating downloadable music files, “shopping bots” • Content : topical information such as news headlines, stock quotes, sports scores, weather forecasts, local event listings…………. ; maps and dictionaries, entertainment options such as games, travel, health, etc. • Community-building features: chat rooms, message boards, instantmessaging services, online greetings cards, exchanging digital photos, personal classifieds, and free personal home pages • Commerce offerings: classified ads for jobs, cars, and homes, auctions, shopping malls • Personal productivity applications: web-based email, address books, calendar, file storage, and bill payment services. IEEE Com. Soc Seminar, 2006 25

E-Commerce initiatives in India - I TELCO –Managing Supply chain on the Internet § Connecting strong dealer network online with the company’s Internet-based system § Developing interfaces with its back-end ERP systems § Currently covers major manufacturing location and its headquarters § Negotiating with certain banks for creating payment gateways IEEE Com. Soc Seminar, 2006 26

E-Commerce initiatives in India - II ICICI –Comprehensive transactions § Using the Internet to acquire more customers by offering them a host of services § Offers the entire chain, from Demat account in which a customer’s shares are credited to the savings account from which the money is debited for settling the transaction for access § Electronic bill payment service § Targets both B 2 B and B 2 C markets IEEE Com. Soc Seminar, 2006 27

Influence of e-commerce on business dynamics • Expands market reach and makes it global Example. A tiny business industry, like a handmade sweater maker of Ludhiana can "become" a huge multinational company overnight by selling to buyers in Africa. Third-party service providers, like financial institutions, freight providers, and warehouses have access to an entirely new universe of partners over the Web. IEEE Com. Soc Seminar, 2006 28

Influence of e-commerce on business dynamics • offers the opportunity for businesses to dramatically alter the flow of products and services, and to change the playing field in many industries. Start-up Web specialty businesses ("dot-coms") took early mover advantage of the opportunities afforded by the Web's reach. Brick-and-mortar companies reacted to the changes set in by the dot-coms, and fought back with their own Webbased e-commerce. In many cases, the brick-and-mortars became "click-and-mortars" and creatively went beyond even the dot-coms in their application of e-commerce. IEEE Com. Soc Seminar, 2006 29

Influence of e-commerce on business dynamics • Great business opportunity increases the competition • Might result in changes in product mix, pricing, branding, and supply-chain relationships. • Marketing – often differentiates between companies. On the Web, buyers can easily compare the marketing differences of companies (Web sites, products, prices, and associated services of the competitors) • The Web generates new prospects and customers for companies, which must devise new strategies for these and the existing customers IEEE Com. Soc Seminar, 2006 30

Influence of e-commerce on business dynamics • One-to-one marketing - The technique of making a Web experience feel unique to each site visitor or customer, making a Web site look and act like a personal shopping experience for each prospect. • E-Marketing – a new branch of Marketing to deal directly with the marketing challenges for doing business on the Web in which “personalization” (simulate one-to-one marketing) plays an important role • The notion of “brand” remains important, notion is extended on the Web by offering customers self-service IEEE Com. Soc Seminar, 2006 31

Influence of e-commerce on business dynamics • New opportunities for providing superior customer service § customer self-service § Extensive product/service information on the Web § Access to customer service specialists through e-mail and chat § Increased customer satisfaction § Reduced operational costs of customer service IEEE Com. Soc Seminar, 2006 32

Influence of e-commerce on business dynamics • Sales – maximum direct impact by Web E-Commerce • Drastically reduces the cost of sales • Many sites allow the Web customers to perform their own product/service comparisons, configure their own pricing, choose their own shipping, make payment, track the fulfillment – without the aid of an actual salesman. IEEE Com. Soc Seminar, 2006 33

Mindshare and Marketshare These are the e-commerce era concepts of “brand. ” Web sites compete with one another to gain notoriety in order to drive traffic to their sites; they compete for “mindshare. ” Mindshare - how marked is the presence of the company in the public consciousness – determines number of visits to website. Marketshare – actual measure of relative penetration in the market of a particular product by competitors. IEEE Com. Soc Seminar, 2006 34

E-commerce Business Models • B 2 B and B 2 C - The generally accepted terms for the two basic categories of e-commerce sites are B 2 C, which stands for business-to-consumer, and B 2 B, which stands for business-to-business. • B 2 C e-commerce sites market, sell, service, and fulfill products and services to consumers • B 2 B sites offer products and services to businesses. IEEE Com. Soc Seminar, 2006 35

E-commerce Business Models • e-marketplace – earlier on Web, private, shared B 2 B sites were developed ("extranets“). An extranet, however, that can dynamically expand to new buyers and suppliers, is an e-Marketplace, and in many cases the term "e. Marketplace" has replaced or become interchangeable with extranet. • Virtual bazaar: suppliers with a wide range of products and services put their goods up for sale, and buyers can browse the marketplace for goods /services they might be interested in purchasing. Prices are often negotiable. IEEE Com. Soc Seminar, 2006 36

E-commerce Business Models • E-Marketplace is no longer a Private network (Value-Added Network: VAN), and is currently a generalization of the Extranet • Internet auctions – generally used for B 2 C commerce, but can be used for B 2 B commerce also (such auction sites = e-marketplaces). IEEE Com. Soc Seminar, 2006 37

B 2 B Goals and Examples Goal – Transactions between businesses via the Internet Examples – • Purchase ordering of supplies • Stock or raw materials/components used in manufacturing • Transmission of Financial Payment data IEEE Com. Soc Seminar, 2006 38

Processes in B 2 B model • Review catalogues • Identify specifications • Define requirements • Post RFPs • Review vendor reputation • Select vendor • Fill out POs • Send PO to vendor • Prepare invoice • Make payment • Arrange shipment • Organize product inspection and reception IEEE Com. Soc Seminar, 2006 39

B 2 B sites and E- Marketplaces: Characteristics • Purchases carry much higher price tags than in B 2 C • Purchases represent Critical Exchanges of raw materials, parts, services and commercial finished goods (enabling receiver to carry out business) • B 2 B sites thus have stringent requirements for security and reliability • Business goods buyers tend to be sensitive to availability and delivery schedules and costs, B 2 B sites thus need to display inventory information and offer a variety of freight options. A detailed visual catalog must be provided containing all these IEEE Com. Soc Seminar, 2006 40

B 2 B sites and E- Marketplaces: Characteristics • Negotiation of contracts must be permitted, and the existing contracts may be displayed. Price negotiation, obtaining order confirmation and tracking orders in real time are important • Third parties are often involved such as warehouses, financial institutions (e. g. , for letters of credit ), and other servicing intermediaries • Third parties have links from a B 2 B site, or may actually provide their services directly on the B 2 B site of a supplier or buyer IEEE Com. Soc Seminar, 2006 41

Processes in B 2 C model IEEE Com. Soc Seminar, 2006 42

B 2 C Goals and Examples Goal – Transactions between a business and an individual via the Internet Examples – • Home shopping for Consumer Goods • Online Banking • Insurance Purchase • Vacation travel and hotel reservations • Stock market share purchasing IEEE Com. Soc Seminar, 2006 43

B 2 C sites : characteristics • Businesses typically create a web storefront • High volume and low prices (e. g. , a customer buying several books at much lesser price compared to brickand-mortar prices) • Purchase is discretionary, so storefront must be made attractive and the sale must be efficient (a late delivery can spoil a business by driving a customer to another retailer, who’s just a click away) • The consumer must be motivated to buy for reasons beyond price (enough information availability, easy to use, excellent customer service) IEEE Com. Soc Seminar, 2006 44

Summary of E-business transaction models Model Description Examples B 2 C Sells products or services directly to consumers amazon. com autobytel. com e. Diets. com B 2 B Sells products or services to other businesses or brings multiple buyers and sellers together in a central marketplace Metal. Site. com Vertical. Net. com B 2 G Business selling to local, state or national agencies i. Gov. com C 2 C Consumers sell directly to other consumers ebay. com C 2 B Consumers fix price on their own, which businesses accept or decline Priceline. com IEEE Com. Soc Seminar, 2006 45

Relation between B 2 B and B 2 C models • B 2 C market over internet is an open system: number of participants is unknown • B 2 B is a closed market: number of participants involved in trading is limited and known a priori IEEE Com. Soc Seminar, 2006 46

Main functions of an Electronic market • Matching buyers and sellers • Facilitating commercial transactions • Providing legal infrastructure IEEE Com. Soc Seminar, 2006 47

Security issues • Most B 2 B sites and e-marketplaces run in a fully secure mode • Typically, it is easy to surf (peruse the virtual store) a B 2 C site • Only the payment operations / transactions are secure • A casual visitor would be denied entry into a B 2 B site, as such a site often involves sensitive timing and information, as well as complex, high-value payments • many B 2 B sites require some kind of preauthorization based on proof of legitimacy (such as a pre-existing contract, or credit line) in order to gain access. IEEE Com. Soc Seminar, 2006 48

E-Commerce Technology Requirements • Telecommunications and Networking • Computer hardware • Software – functions to § Create and display the Web-based storefront or catalog § Handle payments and interfacing with payment service providers § Capture site traffic information to support marketing activities § Implement security § Integrate e-commerce solutions with other enterprise software applications (e. g. , DBMS softwares, DSS) § Provide transaction processing capabilities to handle orders through fulfillment (e. g. , sufficient inventory) and shipping IEEE Com. Soc Seminar, 2006 49

Risks of E-Commerce • Credit card fraud - particularly in B 2 C implementations, as the network carrying computerized e-commerce transactions (complete with names and addresses of buyers and credit card numbers) is public. Early rate of adoption of Web-based e-commerce was definitely decelerated due to consumer concern with payment risk. Thus, standard techniques have evolved to solve the credit card risk problem (Any legal protection? ) IEEE Com. Soc Seminar, 2006 50

Risks of E-Commerce • Intellectual Property - Organizations must determine how much of their intellectual property they should expose on e-commerce sites. • Confidentiality - The confidentiality of the activities of users of e-commerce sites, and partner activities, must be protected. IEEE Com. Soc Seminar, 2006 51

Risks of E-Commerce • Taxation and Financial Reporting - The Web affords businesses with the opportunity of selling to buyers without any geographical barriers. However, this might lead to dealing with new sets of tax laws, different forms of currency, and more complex financial reporting • Customs - Cross-border traffic often puts businesses into new types of risk • Regulations - Before going global, companies need to understand import/export regulations of all countries/ regions IEEE Com. Soc Seminar, 2006 52

Risks of E-Commerce • Fraud and Trust - before e-commerce, buyers and sellers usually knew the identity of each other. On the Web, however, in many cases the transacting parties do so blindly. Several cases of fraudulent purchases, and even fraudulent suppliers, have already materialized on the Web. • Security - a basic computerization issues, like access control and data protection, are amplified on the Web IEEE Com. Soc Seminar, 2006 53

Risks of E-Commerce • Marketing – an established brand might run a risk due to poor site design/execution and poor customer support • On a day-to-day business level; it is hard for e-retailers to predict buyer volumes and so merchandise shortages can occur. Additional risks for legacy retail shops include having limited experience in shipping freight IEEE Com. Soc Seminar, 2006 54

Types of Web Advertising • Portals: E. g. , a search engine that may include varied content or services. A high volume of user traffic makes advertising profitable, and permits further diversification of the site services. A personalized portal allows customization of the interface and content to user (Yahoo!). • Classifieds: Lists items for sale or wanted for purchase. Listing fees but there may also be a membership fee (Monster. com) (moving sale) • User-based registration: Content-based sites that provide free access to users but require the user to submit demographic details by registration. (NYTimes Digital, Telegraph/Anandabazar on net) IEEE Com. Soc Seminar, 2006 55

Types of Web Advertising • Query-based paid placement: Sells favourable link positioning (sponsored links) or advertising keyed to particular search terms in a user query (Google) • Contextual advertising: Freeware developers who bundle ads with their product. For example, a browser extension that automates authentication and form fill, installs, delivers advertising links or pop-ups as the user surfs the Web (e. Zula, www. digitalenterprise. org) IEEE Com. Soc Seminar, 2006 56

Advertising formats • Banners: An ad appearing at the top of a Web page • Vertical columns: On a frame Web page positions alongside requested content (as a sponsorship) • Pop-up windows: Java script opens a browser window with an ad • Interstitials: Full screen ads that appear on a Web browser while a page is loading. IEEE Com. Soc Seminar, 2006 57

Advertising formats • Advertorials: Content-based advertising related to an article or other site content • Intromercials: Animated full-screen ads placed at entry of a site before a user reaches the intended contents • Ultramercials: Interactive online ads that require the user to respond intermittently in order to wade through the message before reaching the intended content. IEEE Com. Soc Seminar, 2006 58

Channel conflict • Companies having existing sales outlets and distribution networks • Concern is about taking away sales from these outlets through the use of net • Channel conflicts occur whenever sales activities on the Web interferes with existing sales outlets • Web sites’ sales eat up the company’s sales through the other channels: cannibalization IEEE Com. Soc Seminar, 2006 59

Web Pricing Schemes • CPM (Cost per Mille) : Cost per thousand impressions (cost per thousand of ad views) • Click-through: advertiser pays based on the number of times the banner is clicked by a user • Sponsorships: packaged deals of impressions and clickthroughs • Cost-per-lead: advertiser pays when a viewer registers or submits personal information • Cost-per-sale: agreed upon charge for the viewers who actually purchase a product or service based on the ad • Straight revenue sharing deal: publisher receives a commission which is paid upon sale from an ad IEEE Com. Soc Seminar, 2006 60

Pricing Schemes in E-Commerce-details Impression - A single instance of an online advertisement displayed. page view - Request to load a single HTML page. CPM • Cost per thousand impressions • refers to advertising bought on the basis of impression. • Different from the various types of pay-for-performance advertising, where payment is only triggered by a mutually agreed upon activity (i. e. clickthrough, registration, sale). • total price paid in a CPM deal is calculated by multiplying the CPM rate by the number of CPM units. Example: One million impressions at $10 CPM equals a $10, 000 total price. 1, 000 / 1, 000 = 1, 000 units X $10 CPM = $10, 000 total price Amount paid per impression is calculated by dividing the CPM by 1000. E. g. , a $10 CPM equals $. 01 per impression. $10 CPM / 1000 impressions = $. 01 per impression IEEE Com. Soc Seminar, 2006 61

Pricing Schemes in E-Commerce-details click-through • Process of clicking through advertisement to the advertiser's destination. • It is often the most immediate response to an advertisement, but not the only interaction. • Visitors may choose to type a company's URL directly into the browser bar, or type the company's name into a search engine box. This assumes, of course, that the company's name and/or URL appears in its advertisements. click-through rate (CTR) • The average number of click-throughs per hundred ad impressions, expressed as a percentage. • Measures what percentage of people clicked on the ad to arrive at the destination site, but does not include the people who failed to click, yet arrived at the site later as a result of seeing the ad. • Measure of the immediate response to an ad, but not the overall response to an ad. • Trend towards profitability, along with better tracking tools, has resulted in less interest in click-through rates and more interest in conversion rates. • A high click-through rate does not assure a good conversion rate, and the two rates may even share an inverse relationship. An advertisement geared towards curiosity clicks will result in fewer sales, percentage-wise, than an advertisement geared towards qualified clicks. IEEE Com. Soc Seminar, 2006 62

Pricing Schemes in E-Commerce-details cost-per-action (CPA) • Online advertising payment model in which payment is based solely on qualifying actions such as sales or registrations. • The actions defined in a CPA agreement relate directly to some type of conversion, with sales and registrations among the most common. • Does not include deals based solely on solely clicks, which are referred to specifically as cost-per-click or CPC. • CPA model is at the other end of the spectrum from the CPM, with the CPC model somewhere in the middle. • In a CPA model, the publisher is taking most of the advertising risk, as their commissions are dependant on good conversion rates from the advertiser's creative units and Web site. cost-per-click (CPC) - The cost or cost-equivalent paid per click-through. E. g. , consider a campaign where payment is based on impressions, not clicks. Impressions are sold for $10 CPM with a click-through rate (CTR) of 2%. 1000 impressions x 2% CTR = 20 click-throughs $10 CPM / 20 click-throughs = $. 50 per click IEEE Com. Soc Seminar, 2006 63

Advertising on Google: Adwords • • Ad. Words works by having businesses purchase certain keywords. When a user goes to Google to perform a Web search, they enter in their search terms or keywords. Google then displays not only the search results, but also short ads from companies using Ad. Words. They will normally be displayed on the right side of the screen as well as in shaded bars above the search results. Companies purchase these keywords and decide how many clicks they want to pay for. Each keyword is assigned a value, based on popularity. Some key words will cost as much as $5 or more per click, while other keywords will only cost as little as 5 or 10 cents. Advertising on Google • • • Study the keywords that are appropriate for your business. Try to find at least twenty keywords that describe the products you sell. Once you have your master list, you can then begin the sign-up process with Google Ad. Words. IEEE Com. Soc Seminar, 2006 64

E-Commerce: Revenue Generation Models • Web Catalog Revenue Model • Digital Content Revenue Model • Advertising Supported Revenue Model • Advertising-Subscription Mixed Revenue Model • Fee-for-transaction Revenue Models • Fee-for-service Revenue Model IEEE Com. Soc Seminar, 2006 65

Web Catalog Revenue Model • • Seller establishes a brand image that conveys quality and low cost; then uses the strength of that image to sell through printed catalogs mailed to prospective buyers Buyer’s place orders by mail or by calling the seller’s toll-free telephone number Web Catalog Revenue Model • • Extension of the catalog revenue model to the Web. The firm replaces or supplements print catalog distribution with information on its Website. IEEE Com. Soc Seminar, 2006 66

Web Catalog Revenue Model - Examples • Computer manufacturers – Apple, Dell, Gateway, Sun Microsystems • Retailer of consumer electronics – Radio Shack, The Good Guys! • Books, Music and Videos – Amazon. com, Barnes & Noble, Alibris. com • Luxury Goods – Tiffany & Co. • Cloth Retailers – Talbots, Wet Seal • General Discount Retailers – Costco, Kmart, Target, Wal-Mart IEEE Com. Soc Seminar, 2006 67

Digital Content Revenue Model • Organizations owning IPR use the Web as a new and highly efficient distribution mechanism. • Users may purchase the information through Web, or subscribe to access the information • Examples: § Pro. Quest sells digital copies of published documents § Lexis. com provides full-text search of court cases, laws, patent databases, and tax regulations, and sells the information § ACM Digital Library offers subscription to electronic versions of its journals to its members, etc. IEEE Com. Soc Seminar, 2006 68

Advertising Supported Revenue Model • Free services (e. g. , TV broadcasts, email service, etc. ) offered to audience along with advertisements • Web advertising is an extension of the above, initiated through a Web Portal • Examples- AOL, Alta. Vista, Excite, Lycos, Google, Yahoo IEEE Com. Soc Seminar, 2006 69

Targeted Advertising Sites - Examples • Internet Public Online Newspapers pages links to hundreds of newspaper sites all over the world (cannibalization? ) • Monster. com targeted at management-level job applicants, offers links to articles, reports, a message board, and chat sessions • Career. Site offer international distribution of employment advertisements • Check. My. Trip. com for booking of tickets, hotels, etc. For global travellers • Auto. Trader. com – accepts paid ads from individuals and companies willing to sell cars, motorcycles, boats, airplanes. IEEE Com. Soc Seminar, 2006 70

Advertising-Subscription Mixed Revenue • Subscribers pay a fee and accept some level of advertisement • Subscribers in this model usually have less advertising exposure than they are on advertising-supported sites • Examples – The New York Times is mostly advertising-supported, with a small subscription fee for visitors willing to have online access to specific sections such as crossword puzzles. Allows viewing articles older by more than a week through some fees • Wall Street Journal’s mixed model is weighted more heavily to subscription revenue. Allows non-subscribers to view the classified ads and certain stories from the newspaper, but most of the contents reserved for subscribers paying an annual fee IEEE Com. Soc Seminar, 2006 71

Fee-for-Transaction Revenue Model • Businesses offer services for which they charge a fee that is based on the number or size of transactions they process • Companies typically offer much of the service formerly offered by personnel, on the Web. Customers can utilize the Web to execute transactions at a cheap price (disintermediation and reintermediation) • Examples – § Travel Agents such as Travelocity, Expedia, Orbitz § Automobile sales through Car information providers such as Autobytel, MSN Carpoint § Stock brokerage firms like ICICI § Online banking and Financial services such as Citibank Online IEEE Com. Soc Seminar, 2006 72

Fee-for-Service Revenue Model • Companies offer a wide variety of services on the Web for which they charge a fee • These services are neither broker services nor services for which charges are based on the number or size of the transactions • Fee charged is based on the value of the service provided • Fee-for-service revenue models range from games and entertainment to financial advice and professional services of accountants, lawyers, and physicians • Examples – My. Doc. Online, Web. MD for health services, etc. IEEE Com. Soc Seminar, 2006 73

Problems of Web advertising • Presence of multiple metrics, such as the number of visitors, number of unique visitors, number of clickthroughs, other attributes of visitor behaviours. No consensus on how to measure and charge for site visitor views, and hence no standard. • Very few Web sites have sufficient numbers of visitors to interest large advertisers. Most successful advertising on the Web is targeted to very specific groups. IEEE Com. Soc Seminar, 2006 74

Need of Payment Processing • To process B 2 C payment, the electronic storekeeper verifies and transfers funds from the consumer's credit card, checking account, or ATM card to the merchant's bank. • Approval must be quick so the merchant can expedite shipment of the order and still be sure of getting paid. • B 2 B sites often need to offer a more sophisticated range of payment processing. These may include wire transfer, letters of credit, and other forms of commercial transactions and finance. IEEE Com. Soc Seminar, 2006 75

Traditional Models of Payment • Cash • Check • Credit IEEE Com. Soc Seminar, 2006 76

Models of Payment in E-Business • Payment cards • Electronic cash • Electronic wallets • Stored-value cards IEEE Com. Soc Seminar, 2006 77

Concerns in Electronic Payment • Privacy and security • Portability • Convenience IEEE Com. Soc Seminar, 2006 78

Common Payment Systems (in US$) IEEE Com. Soc Seminar, 2006 79

Payment Cards • Credit card – Has spending limit based on a user’s credit history – Deferred payment – Master. Card or Visa are examples • Debit card – Removes an amount from a cardholder’s bank account – Transfers it to the seller’s bank account • Charge card – Carries no spending limit – Amount charged is due at the end of the billing period – American Express or Diner’s Club are examples IEEE Com. Soc Seminar, 2006 80

Pros and Cons of Payment Cards • Pros – Worldwide acceptance – Built-in security for merchants • Cons – Per-transaction fees and monthly processing fees – Fraudulent Practices – Young adults do not have credit cards – Majority of the people cannot afford cards or are considered poor risks – Credit cards not ideal for micropayments IEEE Com. Soc Seminar, 2006 81

Payment Acceptance and Processing • Steps followed once a merchant receives a consumer’s payment card information – Merchant authenticates payment card – Merchant checks with payment card issuer • To ensure that credit or funds are available • Puts a hold on the credit line or the funds needed to cover the charge – Settlement occurs IEEE Com. Soc Seminar, 2006 82

How Online Credit Card Transaction Works IEEE Com. Soc Seminar, 2006 83

Types of Systems • Closed loop systems – Card issuer pays merchants that accept the card directly and does not use an intermediary – e. g. American Express and Discover Card • Open loop systems – Involve three or more parties – Systems using Visa or Master. Card are examples IEEE Com. Soc Seminar, 2006 84

Merchant Accounts • To process payment cards for Internet transactions an online merchant must set up a merchant account • New merchant must supply – Business plan – Details about existing bank accounts – Business and personal credit history • Type of business and credit information are main factors IEEE Com. Soc Seminar, 2006 85

Electronic Cash • Describes any value storage and exchange system created by a private entity that – Does not use paper documents or coins – Can serve as a substitute for government-issued physical currency • Attractive in two arenas – Sale of goods and services of less than $10 – Services to those without credit cards • Advantages of electronic cash – Independent – Portable IEEE Com. Soc Seminar, 2006 86

Electronic Cash Systems - Examples • Check. Free – Largest online bill processor in the world – Provides online payment processing services • Clickshare – An electronic cash system aimed at magazine and newspaper publishers • Pay. Pal – Provides payment processing services to businesses and to individuals – Peer-to-peer (P 2 P) payment system • Free payment clearing service for individuals IEEE Com. Soc Seminar, 2006 87

Holding Electronic Cash • Online cash storage – Trusted third party is involved in all transfers of electronic cash – Holds consumers’ cash accounts • Offline cash storage – Virtual equivalent of money kept in a wallet – No third party is involved in the transaction IEEE Com. Soc Seminar, 2006 88

Pros and Cons of ECash • Pros of electronic cash – Transactions are more efficient – Transfer on the Internet costs less than processing credit card transactions • Cons of electronic cash – Use provides no audit trail – Problem of money laundering arises – Susceptible to forgery IEEE Com. Soc Seminar, 2006 89

How Electronic/Digital Cash Worked IEEE Com. Soc Seminar, 2006 90

Electronic Wallets • An encryption software that works like a physical wallet in electronic commerce transactions. A wallet can hold – a user's payment information – a digital certificate to identify the user – shipping preferences to speed transactions • Function – Hold credit card numbers, electronic cash, owner identification, and contact information – Give consumers the benefit of entering their information just once – Make shopping more efficient • Electronic Commerce Modeling Language – is a standard of digital wallets • Examples – Microsoft. NET passport, Yahoo! Wallet IEEE Com. Soc Seminar, 2006 91

Cash Model of Payment in B 2 C • Electronic value tokens, which are issued by some third party, usually an established bank. • • A digital wallet must be stored on the consumer's PC. Buyer buys the digital equivalent of money from an established bank, and deposits in a digital wallet stored in his PC. When purchase is made from a Website that accepts e-cash, the ordering software automatically deducts the correct amount from the consumer’s digital wallet. During a transaction, funds are transferred immediately and no back-end processing is required. Hardest to implement on the Web. • • IEEE Com. Soc Seminar, 2006 92

Types of Electronic Wallets Server-side electronic wallet – Stores a customer’s information on a remote server belonging to a particular merchant or wallet publisher – Cons -> Security Breach Client-side electronic wallet – Stores a consumer’s information on his or her own computer – Cons -> Not portable IEEE Com. Soc Seminar, 2006 93

Stored-Value Cards • Stored value payments systems are accounts created by depositing funds into an account and from which funds are paid out or withdrawn as needed • Can be an elaborate smart card with a microchip that records currency balance • Common stored-value cards – Prepaid phone, subway, and bus cards • Types of stored value cards – Magnetic Strip Cards – Smart Cards IEEE Com. Soc Seminar, 2006 94

Magnetic Strip Cards • Cannot send or receive information • Cannot increment or decrement value of cash stored on the card • Processing must be done on a device into which the card is inserted IEEE Com. Soc Seminar, 2006 95

Smart Cards • Stored-value cards • Can hold private user data, such as financial facts • Can store about 100 times more information than a magnetic strip plastic card • Safer than conventional credit cards • Smart Card Alliance – Promotes benefits of smart cards – Promotes widespread acceptance of multiple-application smart card technology – Members include companies in banking, financial services, computer technology, and healthcare – Promotes compatibility among smart cards, card reader devices, and applications IEEE Com. Soc Seminar, 2006 96

Cheque Model of Payment in B 2 C • A consumer presents a digital version of a cheque to a Web storefront. • Assumes a digital wallet is stored in the consumer's PC. • Digitized cheque is encrypted, Web storefront verifies the cheque through its financial institution, which in turn consults the financial institution of the consumer for processing • Easy to implement; clearing mechanisms are highly dependable • Funds are not transferred immediately; back-end processing is required • Susceptible to fraud. IEEE Com. Soc Seminar, 2006 97

Credit Model of Payment in B 2 C • A merchant in a traditional transaction scans the card through a reader and in turn authorizes the transaction through its financial institution. • This authorization may be performed over the existing phone network using modems. • The credit payment system leverages existing network infrastructure, and is familiar to consumers. • Susceptible to fraud; not appropriate for high value transactions. IEEE Com. Soc Seminar, 2006 98

Debit Model of Payment in B 2 C • A consumer enters a Credit Card information on a Web order form • This is delivered to an Authorization server • Assuming the authorization was granted, and the consumer has sufficient funds available in his account, the fund is transferred from the consumer’s account to the merchant’s account IEEE Com. Soc Seminar, 2006 99

Summary of Payments • Most popular forms of payment on the Internet – Credit card – Debit card – Charge cards • Electronic cash – – Form of online payment Slow to catch on in the United States Especially useful for making micropayments Portable, anonymous, usable for international transactions • Electronic wallets – Provide convenience to online shoppers – Eliminate the need to reenter payment card and shipping information at a site’s electronic checkout counter • Smart cards – Intended to replace the collection of plastic cards people now carry IEEE Com. Soc Seminar, 2006 100

Security for payment transactions • Web site security can vary from section to section on the site, depending on security needs. For example, HTTPS, a secure mode of Web processing where a portion of the Web site is encrypted, is used for all forms of B 2 C payment • B 2 B may involve more sophisticated forms of security, including digital signatures. IEEE Com. Soc Seminar, 2006 101

Digital Signatures • A digital code attached to an electronically transmitted message that uniquely identifies the sender. • Like a written signature, the purpose of a digital signature is to guarantee that the individual sending the message really is who he or she claims to be. • Digital signatures are especially important for electronic commerce and are a key component of most authentication schemes. IEEE Com. Soc Seminar, 2006 102

Security for payment transactions • As a business person, it is important to grasp the financial risk associated with accepting payments over the Web. It is equally important to recognize that many consumers, and even some businesses, remain afraid of actually paying on an e-commerce site. • Consumers may feel more secure about transmitting personal information over the Internet using certificates authenticating both parties in a transaction and encrypting the transaction. IEEE Com. Soc Seminar, 2006 103

Auctions: Definition • A structured method of selling or buying items or services with formal rules in which bidders and/or sellers place bids. • Item: A, Bids: Bi Allotted: Max Bi IEEE Com. Soc Seminar, 2006 104

Auctions: Definition • Rules: • • Eligibility of Bidders for Participation. Rules governing Bidding Process. Mechanism for Identification of Winning Bid(s). Mechanism for Revenue to the Seller. IEEE Com. Soc Seminar, 2006 105

Why Auctions ? • Value of an item to prospective buyer is not known or hard to determine. • Parties to an auction: – Seller. – Buyer. – Agent/Auctioneer. IEEE Com. Soc Seminar, 2006 106

Categories of Auction: • Traditional / Non Combinatorial – Single Unit. – Multi Unit. • Combinatorial Auctions. – Single Unit. – Multi Unit. • Reverse Auctions IEEE Com. Soc Seminar, 2006 107

Standard Types of Auctions: • Ascending bid auction (English auction) » (general, multiple rounds till no more bid) • Descending bid auction (Dutch auctions) » (perishable items, multiple rounds till first accept) • First price sealed bid » (tender processes) • Second price sealed bid (Vickery) » (tender processes) IEEE Com. Soc Seminar, 2006 108

Combinatorial Auction. • Sometimes bidders want bundles of items – Components to assemble a product, inputs for making steel, … IEEE Com. Soc Seminar, 2006 109

Examples: Rail Roads • Segments connecting locations form items. No two operators can have the same segment. • Combination of segments form a route (Bid). B 1 A 4 5 C 7 9 6 13 8 D 2 10 E F 12 14 11 IEEE Com. Soc Seminar, 2006 3 G 110

Example: Mining Lease Plots of Land with Exploratory data form the item on Auction. 3 2 10 4 6 1 9 5 8 IEEE Com. Soc Seminar, 2006 7 111

Airport Take-Off & Landing Slots • Time Slots at the runway form items on auction. A D B C IEEE Com. Soc Seminar, 2006 112

Valuations • Asymmetric information • Basic Private Value Model example - Artifacts • Pure Common Value Model example – Oil lease • General Model example - Paintings IEEE Com. Soc Seminar, 2006 113

Valuations: Private • • Bidder knows his worth of an item. Does not know Valuation of Other bidders. Bid not affected by Valuation of Other Valuation not fn. Of Auction time. Item for own consumption. Simplified model for Auction Analysis. Combinatorial: More Suited. IEEE Com. Soc Seminar, 2006 114

Valuation: Common • The value is same for all bidders. • Bidder uncertain of worth at time of bidding. • Valuation can change during the course of an auction as market opinion pours in. • Most appropriate when value of item derived from a Market Price initially unknown. IEEE Com. Soc Seminar, 2006 115

Types Of Bidders • Risk Neutral • Risk Averse • Risk seeking IEEE Com. Soc Seminar, 2006 116

Dynamic Pricing It is the Dynamic Adjustment of prices to consumers depending upon the value the consumers attribute to a product or a service. Price dispersion • Spatial – several sellers offer a given item at different prices. • Temporal – variation of price with time based on the time of sale and supply-demand situation IEEE Com. Soc Seminar, 2006 117

Why Dynamic Pricing in E-Commerce? • Transaction costs for implementing dynamic pricing have been reduced by eliminating the need for people to be physically present in time and space • Reducing the search costs • Reducing menu costs of informing the changed prices • Increased uncertainty and demand volatility due to – increased number of customers – increased number of competitors – increased amount of information IEEE Com. Soc Seminar, 2006 118

Dynamic Pricing Categories • Posted price mechanisms • Price discovery mechanisms IEEE Com. Soc Seminar, 2006 119

E-Commerce: Some Research issues • • • Winner determination problems in auctions Utility maximization in auctions Recommender systems Web mining Efficient Dynamic Pricing schemes ………. . IEEE Com. Soc Seminar, 2006 120

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