Center for Commerce and Information Systems by jolinmilioncherie


									Models of E-Business

       ECIS560: Information
     Systems and E-Commerce
Consider this…
 World-wide B2B ecommerce will reach
 $8.5 trillion by 2005
 Universities are offering MBA concentration
 in E-commerce
 Internet is growing faster than any other
 medium in history
   Radio took 38 years to have 50 million listeners
   TV took 13 years to reach 50 million viewers
   The Web reached 50 million users in 4 years.
Properties of the Internet
 Mediating technology
    Connects people/businesses
    Both enlarges and shrinks the world
 Network externalities
    Metcalfe’s law
 Distribution channel
    Replacement vs. extension effect
 Time Moderator
 Information Asymmetry Shrinker
 Infinite Virtual Capacity
 Low Cost Standard
    Paid for by the US government
 Creative destroyer
    New industries, transforming existing industries
 Transaction Cost Reducer
 Developing and delivering value to
 customers involves several activities that
 rely on information exchange
 The Internet has had tremendous impacts
 on all five Cs.
Business Models

 Four decisions/choices/issues
   Value proposition or value cluster
     Online customization allows targeting
     multiple segments
   Marketspace offering
     Product, service, information, or combination
   Unique, defendable resource system
   A financial model
1. The Value Cluster
 Multiple rather than singular proposition
   Technology allows focus on several segments
   and several benefits
 Must identify
   Target Segment
      Market size and growth, unmet needs, weak
   Focal Customer benefits
      One or more benefits? Is there product
      commoditization on the web?
   Differentiating factors
      What is it about an online company that makes its
      offerings significantly better than competition?
2. Marketspace Offerings
 Three tasks for senior management
   Identify scope of offering
      Category-specific (
      Cross-category (
      Metamarkets (“customers tend to think in terms of
      activities while firms tend to think in terms of
      products” – Sawhney, 2001)
        – Companies sometimes called metamediaries
   Identify customer decision process
   Map offering to decision process
3. Defendable System
 Choice of actions and assets used to deliver
 value cluster
   Identify core benefits in value cluster
   Identify capabilities needed to provide each benefit
   Link resources to each benefit
   Identify degree to which firm can deliver capability
   Identify partners who can complete capabilities
      Stress in online world is on strategic partnerships
      Can include
        – portal agreements (AOL)
        – anchor-tenant agreements (major provider of service for
        – or promotion agreements (example, frequent flier miles with
4. Financial Models

 Revenue Models
   Advertising, product sales, transaction fee,
 Shareholder Value
   Company plans to increase profits over time
      Company-derived value creation
       – Best information, widest assortment,lowest prices, most
         personalized, best experience, broadest user network…
      User- and company-derived value creation
       – Metamarket switchboards (brings buyers and sellers together
         based on common activity)
       – Traditional and Reverse Auctions
       – Category Switchboard
Other Taxonomies of e-Business
Models (Rappa and Timmers 2000)
   Bring buyers and sellers together
   Charge transaction fee
   Buy/sell fulfillment
   Market exchange
   Buyer aggregator
   Virtual mall
   Auction broker
   Reverse auction
More models
   Has a site with useful content
   Generates revenues through banners, buttons,
   Generalized portal
   Personalized portal
   Specialized portal
   Free model
   Bargain discounter
More models

   Collects valuable information on
   consumers and then sells it to firms
   (data mining)
   Can also collect information about firms
   and sell to consumers
   Recommender system
   Registration model
More models
    Sell goods and services over the Internet
    May be through list prices or auction
    Manufacturers try to bypass intermediaries and
    go directly to consumer
    Merchant has affiliates that have a click-through
    to merchant site
    Affiliate paid a fee for every “click-through” that
    results in a sale
More models
   Based on community loyalty
   Good market target
   Specialized content for a price
   Often mixed with free content
   Firms pay as they go
   Only pay for services consumed
Models of B2B transactions
   Sell-Side (one-to-many)
   Buy-Side (many-to-many)
 E-Marketplace (many-to-many)
   Vertical exchanges
   Horizontal exchanges
 E-Commerce Services
   E-infrastructure (consultants, standards developers)
   Web Hosting and Security
   E-process (payments, SC integration, etc.)
   E-markets (sales, advertisement, etc,)
   E-content (catalog management)
   E-service (CRM, directory services)
Company-Centric B2B : Sell Side Model
Company-Centric B2B : Buy Side Model
E-Marketplace (many-to-many)
Sell Side vs. Buy Side: Some
transaction models
 Sell Side
   Forward auction
      Sell from own site (Covisint)
      Sell from intermediary (
 Buy Side
   Reverse Auction (
   Aggregation of supplier catalogs
   Group purchasing plan (internal – GE, vs.
   external aggregations –
   Electronic Bartering
Impact of B2B on intermediaries
   Elimination of retailer or distributor
   Changing the role of the intermediary
   Few organizations able to sell directly to
   People want broad product variety to choose
   All types of intermediaries involved
      Content providers, affiliate sites, search engines,
      portals, etc.
Advantages of B2B?
 Reduced Purchasing Costs (through
 process integration)
 Increased market efficiency (increased
 market base with lower acquisition costs)
 Greater market intelligence (statistical
 analysis of market activity)
 Decreased inventory levels
 Collaborative platform for buyers and
Online Transaction Security
What is network security

   Protection against accidental or
   intentional loss, destruction, or misuse of
 Threats to security
   any situation or event, whether
   intentional or accidental, that will
   adversely affect a system and
   consequently, the organization
Security Precautions

 Restrict user views
 Authorization rules
 User-defined procedures
 Encryption procedures
 Authentication schemes
Security Issues for Transactions
Over the Internet
   Parties assured details of transactions kept
   Transaction details cannot be altered without
   Parties to the transaction are who they say they
   No illegal backing out of a transaction
Security Measures for the
Internet Age
 Digital Signatures
 Digital Certificates
 Secure Electronic Transactions (SET)
 Method by which email, data files are scrambled to
 make them secure
 Four parts of cryptography
    Plaintext, ciphertext, encryption algorithm, key
 Involves use of digital keys to lock or unlock the
 Different keys produce different ciphertext with the
 same algorithm
 Uses both public and private keys
    Receivers make available a public key that anyone can
    Only the receiver has the key to unlock the message
Encryption Standards

  Data Encryption Standard (DES)
    Uses 56 bit key
    Both sender and receiver must know the key
    Only took three days to crack in 1998 (see www.
  Triple DES (3DES)
    Encrypt the DES message three times
  Advanced Encryption Standard (AES)
    Successor to the 3DES standard (128 bit)
    US Government has chosen Belgian Algorithm called
  Pretty Good Privacy (PGP)
    Product that uses the DES but is 128 bit
    Two keys – public and private
Key sizes and time
Key Size   No. Possible Keys          Time to check all   Time to check all
in bits                               keys (1.6           keys (10
                                      million/sec)        million/sec)

           1,099,511,627,776          8 days              109 seconds
           72,057,594,037,927,900     1427 years          83 days
           18,446,744,073,709,600,0   365,388 years       58.5 years
64         00

           3.42082^38                 6.73^24 years       1.0728^21 years

                                                          Source: Howard, 2000)
Public Key Infrastructure

 Involves hardware, software, data
 transport mechanism, smart cards,
 governing policies and protocols
 Requires services of
   Registration Authority
   Certificate Authority
   Data Repositories
Private vs. Public Key
Digital Signatures

 Consists of two pieces of information
   the data being transmitted
   The private key of the individual or
   organization sending the data
 The private key acts as a digital
 signature to verify that the data is
 from the stated source
Digital Signatures: An Example
I.     Create email message with contract in it
II.    Use special software to hash message
III.   Use private key to encrypt message
       (your digital signature)
IV.    Email message and encrypted hash to
       other party
V.     Company uses same software to hash
VI.    Company uses public key to decrypt
       message hash sent to them – if it
       matches their hash, it is verified to be
       from you
Digital Signatures, contd.
 As of October 1, 2000, digital signatures
 have same legal standing as ink signatures
   By the Electronic Signatures in Global and National
   Commerce Act
 Act does not specify that PKI should be
 Companies exploring other technologies (digital handshaking) (digital signatures and e-docs)
   Litronics (biometrics)
Digital Certificates (DC)

  An attachment to an encrypted message
  Purpose is to verify the sender of a message is who
  they say they are
  Sender wishing to transmit an encrypted message
  applies for a DC from a certificate authority (CA)
  Certificate contains (IETF X.509 v. 3.0)
    Sender’s name
    Validity period
    Sender’s public key
    Hashed contents of certificate signed with CA’s private key
Using a DC

i.            Individuals/companies apply for DC to CA by sending
              public key and identifying information
ii.           CA verifies information and issues DC containing
              applicant's public key and identifying information
iii.          If someone wants to send applicant a message
       i.       Sender requests recipient to send their DC
       ii.      Sender decrypts DC using CA’s public key
       iii.     Now confident of recipient’s identity, sender uses recipients
                enclosed public key to encrypt message
iv.           Sender only needs to know CA’s public key in
Non-Computer based controls

  establishing a security policy and contingency
  secure positioning of equipment
  secure data and software
  escrow agreements (source code held by 3rd
  building controls
  Emergency arrangements (cold, warm and
  hot sites)
An Electronic Commerce Framework

      Apps: PC banking, Advt., video-on-demand

       Common business services (eg. security)

      Messaging and Information Distribution

                   Multimedia content

       I-Way Infrastructure (telecom, cable, etc.)
Some Problems with EC

   Haves and have-nots
Other Issues and Risks
 Transborder data flows
 Electronic fraud
 Hacker attacks
 Copyright issues
 Legal questions
   validity of electronic signatures
   legality of electronic contracts
 Public Policy
   role of government
 Net potatoes
 Quality of content
 Getting lost in cyberspace (info
 Overload of networks

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