pptch1 7

E-commerce: business.
technology. society.
E-commerce
business. technology. society.
seventh edition
Kenneth C. Laudon
Carol Guercio Traver
Copyright 2011 Pearson Education, Inc.
Chapter 1: The Revolution Is Just

Beginning
Chapter 1
The Revolution Is Just Beginning
Copyright 2007
2011 Pearson
PearsonEducation,
Education,Inc.
Inc.
Slide 1-2
Facebook:
The New Face of E-Commerce?
Class Discussion
Do you use Facebook, and if so, how often? What

has the experience been like?
Have you purchased anything based on an

advertisement on Facebook or by using a link
provided by a friend?
Are you concerned about the privacy of the

information you have posted on Facebook?
Slide 1-3
E-commerce Trends 2010-2011
Social networking continues to grow
Social e-commerce platform emerges
Online consumer sales return to growth
Mobile computing begins to rival PC
Explosive growth in online video viewing
Continued privacy and security concerns
Slide 1-4
The First 30 Seconds

First 16 years of e-commerce
Just the beginning
Rapid growth and change
Technologies continue to evolve at
exponential rates
Disruptive
business change
New opportunities
Slide 1-5
What is E-commerce?
Use of Internet and Web to transact
business
More formally:
Digitally enabled commercial transactions
between and among organizations and

individuals
Slide 1-6
E-commerce vs. E-business

E-business:
Digital enablement of transactions
and processes
within a firm, involving information systems under
firms control
Does not include
commercial transactions
involving an exchange of value across
organizational boundaries
Slide 1-7
Why Study E-commerce?
E-commerce technology is different, more

powerful than previous technologies
E-commerce bringing fundamental changes to

commerce
Traditional commerce:
Passive consumer
Sales-force driven
Fixed prices
Information asymmetry
Slide 1-8
Unique Features of E-commerce

Technology
1.
2.
3.
4.
5.
6.
7.
8.
Ubiquity
Global reach
Universal standards
Information richness
Interactivity
Information density
Personalization/customization
Social technology
Slide 1-9
Web 2.0
Technologies that allow users to:
Create and share content, preferences,
bookmarks, and online personas

Participate in virtual lives
Build online communities
E.g. Twitter, YouTube, Facebook, Second Life,
Wikipedia, Digg
Slide 1-10
Types of E-commerce
Classified by market relationship
Business-to-Consumer (B2C)
Business-to-Business (B2B)
Consumer-to-Consumer (C2C)
Classified by technology used

Peer-to-Peer (P2P)
Mobile commerce (M-commerce)
Slide 1-11
The Internet
Worldwide network of computer networks

built on common standards
Created in late 1960s
Services include the Web, e-mail, file

transfers, etc.
Can measure growth by looking at number of

Internet hosts with domain names
Slide 1-12
The Growth of
the Internet,
Measured by
Number of
Internet Hosts
with Domain
Names
Figure 1.3, Page 23
SOURCE: Internet Systems Consortium,

Inc. , 2010.
Slide 1-13
The Web
Most popular Internet service
Developed in early 1990s
Provides access to Web pages
HTML documents that may include text,
graphics, animations, music, videos

Web content has grown exponentially
Google indexes between 75 100 billion
pages
Slide 1-14
Insight on Technology:
Spider Webs, Bow Ties, Scale-Free

Networks, and the Deep Web
Class Discussion
What is the small world theory of the Web?
What is the significance of the bow-tie form

of the Web?
Why does Barabasi call the Web a scale-free

network with very connected super nodes?
Slide 1-15
Origins & Growth of E-commerce
Precursors:
Baxter Healthcare
Electronic Data Interchange (EDI)
French Minitel (1980s videotex system)
None had functionality of Internet
1995: Beginning of e-commerce

First sales of banner advertisements
E-commerce fastest growing form of

commerce in United States
Slide 1-16
The Growth of B2C E-commerce

Figure 1.4, Page 25
SOURCES: Based on data from eMarketer, Inc., 2010; authors estimates.

Slide 1-17
The Growth of B2B E-commerce

Figure 1.5, Page 28
SOURCES: Based on data from U.S. Census Bureau, 2010; authors estimates.
Slide 1-18
Technology and E-commerce in

Perspective
The Internet and Web: Just two of a long list

of technologies that have greatly changed
commerce
Automobiles
Radio
E-commerce growth will eventually cap as it

confronts its own fundamental limitations.
Slide 1-19
Potential Limitations on the

Growth of B2C E-commerce
Expensive technology
Sophisticated skill set
Persistent cultural attraction of physical

markets and traditional shopping experiences
Persistent global inequality limiting access to

telephones and computers
Saturation and ceiling effects
Slide 1-20
E-commerce: A Brief History

1995-2000: Innovation
Key concepts developed
Dot-coms; heavy venture capital investment
2001-2006: Consolidation
Emphasis on business-driven approach
2006-Present: Reinvention
Extension of technologies
New models based on user-generated content, social
networks, services
Slide 1-21
Early Visions of E-commerce
Computer scientists:
Inexpensive, universal communications and computing
environment accessible by all
Economists:
Nearly perfect competitive market and friction-free
commerce
Lowered search costs, disintermediation, price
transparency, elimination of unfair competitive advantage
Entrepreneurs:
Extraordinary opportunity to earn far above normal
returns on investment first mover advantage

Slide 1-22
Insight on Business
Noodlenomics Guides Internet

Investment in 2010
Class Discussion
What explains the rapid growth in private investment in

e-commerce firms in the period 19982000? Was this
investment irrational?
What was the effect of the big bust of March 2000 on ecommerce investment?
What is the value to investors of a company such as
YouTube which has yet to show profitability?
Why do you think investors today would be interested in
investing in or purchasing e-commerce companies?
Would you invest in an e-commerce company today?
Slide 1-23
Assessing E-commerce
Many early visions not fulfilled
Friction-free commerce
Consumers less price sensitive
Considerable price dispersion
Perfect competition
Information asymmetries persist
Disintermediation
First mover advantage
Fast-followers often overtake first movers
Slide 1-24
Predictions for the Future
Technology will propagate through all commercial activity.
Prices will rise to cover the real cost of doing business.
E-commerce margins and profits will rise to levels more

typical of all retailers.
Cast of players will change.
Traditional Fortune 500 companies will play dominant role.

New startup ventures will emerge with new products, services.
Number of successful pure online stores will remain smaller

than integrated offline/online stores.
Regulatory activity worldwide will grow.
Cost of energy will have an influence.
Slide 1-25
Understanding E-commerce:
Organizing Themes
Technology:
Development and mastery of digital computing and
communications technology
Business:
New technologies present businesses with new ways of
organizing production and transacting business
Society:
Intellectual property, individual privacy, public welfare
policy
Slide 1-26
The Internet
and the
Evolution
of Corporate
Computing
Figure 1.9, Page 44
Slide 1-27
Insight on Society
Who Really Cares About Online Privacy?

Class Discussion
What techniques of privacy invasion are described in

the case?
Which of these techniques is the most privacyinvading? Why?
Is e-commerce any different than traditional markets

with respect to privacy? Dont merchants always
want to know their customer?
How do you protect your privacy on the Web?
Slide 1-28
Academic Disciplines Concerned

with E-commerce
Technical approach
Behavioral approach
Computer science
Information systems
Management science
Economics
Information systems
Marketing
Management
Finance/accounting
Sociology
Slide 1-29
2. Revenue Model
How will the firm earn revenue, generate

profits, and produce a superior return on
invested capital?
Major types:
Advertising revenue model
Subscription revenue model
Transaction fee revenue model

Sales revenue model
Affiliate revenue model
Slide 2-30
3. Market Opportunity
What marketspace do you intend to
serve and what is its size?

Marketspace: Area of actual or potential commercial value
in which company intends to operate

Realistic market opportunity: Defined by revenue
potential in each market niche in which company hopes to

compete
Market opportunity typically divided into

smaller niches
Slide 2-31
4. Competitive Environment
Who else occupies your intended
marketspace?
Other companies selling similar products in the same
marketspace
Includes both direct and indirect competitors
Influenced by:
Number and size of active competitors
Each competitors market share

Competitors profitability
Competitors pricing
Slide 2-32
5. Competitive Advantage
Achieved when firm:
Produces superior product
or
Can bring product to market at lower price
than competitors
Important concepts:
Asymmetries
First-mover
advantage
Unfair competitive advantage

Leverage
Slide 2-33
6. Market Strategy
How do you plan to promote your
products or services to attract your

target audience?
Details how a company intends
to enter market
and attract customers

Best business
concepts will fail if not properly

marketed to potential customers
Slide 2-34
7. Organizational Development
What types of organizational structures
within the firm are necessary to carry out

the business plan?
Describes how firm will organize work
Typically divided into functional departments
As company grows, hiring moves from generalists to
specialists
Slide 2-35
8. Management Team
What kinds of experiences and
background are important for the

companys leaders to have?
Employees are responsible for making the business model
work
Strong management team gives instant credibility to
outside investors
Strong management team may not be able to salvage a
weak business model, but should be able to change the

model and redefine the business as it becomes necessary
Slide 2-36
Insight on Business
Online Grocers: Finding and

Executing the Right Model
Class Discussion
Why do you think Webvan failed?
Why are more traditional grocery chains succeeding online

today?
Why would an online customer pay the same price as in the

store plus a delivery charge? Whats the benefit to the
customer?
What are the important success factors for FreshDirect?
Do you think FreshDirect would work in your town?
Slide 2-37
Categorizing E-commerce
Business Models
No one correct way
We categorize business models according to:
E-commerce sector (B2C, B2B, C2C)

Type of e-commerce technology; i.e. m-commerce
Similar business models appear in more than

one sector
Some companies use multiple business
models; e.g. eBay
Slide 2-38
B2C Business Models: Portal
Search plus an integrated package of content

and services
Revenue models:
Advertising, referral fees, transaction fees, subscriptions
Variations:
Horizontal / General
Vertical / Specialized (Vortal)
Pure Search
Slide 2-39
Insight on Technology
Can Bing Bong Google?

Class Discussion
How many of you use Google versus Yahoo or Bing?

Does the class differ from the overall Web
population?
Why do you use a particular search engine?
Why is Google moving beyond search and

advertising into applications?
How does Bing try to distinguish itself from Google?

Do you think this strategy works?
Slide 2-40
B2C Models: E-tailer

Online version of traditional retailer
Revenue model: Sales
Variations:
Virtual merchant
Bricks-and-clicks
Catalog merchant
Manufacturer-direct
Low barriers to entry

Slide 2-41
B2C Models: Content Provider

Digital content on the Web
News, music, video
Revenue models:
Subscription; pay per download (micropayment);
advertising; affiliate referral fees
Variations:
Content owners
Syndication
Web aggregators
Slide 2-42
B2C Models: Transaction Broker
Process online transactions for consumers

Primary value propositionsaving time and money
Revenue model:
Transaction fees
Industries using this model:

Financial services
Travel services
Job placement services
Slide 2-43
B2C Models: Market Creator

Create digital environment where buyers
and sellers can meet and transact

Examples:
Priceline
eBay
Revenue model: Transaction fees

Slide 2-44
B2C Models: Service Provider

Online services
e.g. Google: Google Maps, Gmail, etc.
Value proposition
Valuable, convenient, time-saving, low-cost alternatives to
traditional service providers
Revenue models:
Sales of services, subscription fees, advertising, sales of
marketing data
Slide 2-45
B2C Models: Community Provider

Provide online environment (social
network) where people with similar

interests can transact, share content, and
communicate
E.g. Facebook, MySpace, LinkedIn, Twitter
Revenue models:
Typically hybrid, combining advertising,
subscriptions, sales, transaction fees, affiliate fees
Slide 2-46
B2B Business Models

Net marketplaces
E-distributor
E-procurement
Exchange
Industry consortium
Private industrial network

Single firm
Industry-wide
Slide 2-47
B2B Models: E-distributor

Version of retail and wholesale store,
MRO goods and indirect goods

Owned by one company seeking to serve
many customers
Revenue model: Sales of goods
Example: Grainger.com
Slide 2-48
B2B Models: E-procurement

Creates digital markets where
participants transact for indirect goods

B2B service providers, application service providers (ASPs)
Revenue model:
Service fees, supply-chain management, fulfillment
services
Example: Ariba
Slide 2-49
B2B Models: Exchanges
Independently owned vertical digital

marketplace for direct inputs
Revenue model: Transaction, commission fees
Create powerful competition between

suppliers
Tend to force suppliers into powerful price

competition; number of exchanges has
dropped dramatically
Slide 2-50
B2B Models: Industry Consortia
Industry-owned vertical digital marketplace

open to select suppliers
More successful than exchanges

Sponsored by powerful industry players
Strengthen traditional purchasing behavior
Revenue model: Transaction, commission fees
Example: Exostar
Slide 2-51
Private Industrial Networks
Designed to coordinate flow of communication

among firms engaged in business together
Electronic data interchange (EDI)
Single firm networks

Most common form
Example: Wal-Marts network for suppliers
Industry-wide networks
Often evolve out of industry associations
Example: Agentrics
Slide 2-52
Other E-commerce Business

Models
Consumer-to-consumer (C2C)
eBay, Craigslist
Peer-to-peer (P2P)
The Pirate Bay, Cloudmark
M-commerce:
Technology platform continues to evolve
iPhone, smartphones energizing interest in m-commerce
apps
Slide 2-53
Insight on Society
Where R U? Not Here!

Class Discussion
Why should you care if companies track your

location via cell phone?
What is the opt-in principle and how does it

protect privacy?
Should business firms be allowed to call cell

phones with advertising messages based on
location?
Slide 2-54
E-commerce Enablers: The Gold

Rush Model
E-commerce infrastructure companies
have profited the most:

Hardware, software, networking, security
E-commerce software systems, payment systems
Media solutions, performance enhancement
CRM software
Databases
Hosting services, etc.
Slide 2-55
How the Internet and the Web

Change Business
E-commerce changes industry structure
by changing:
Basis of competition among rivals
Barriers to entry
Threat of new substitute
products
Strength of suppliers
Bargaining power of buyers
Slide 2-56
Industry Value Chains
Set of activities performed by suppliers,

manufacturers, transporters, distributors, and
retailers that transform raw inputs into final
products and services
Internet reduces cost of information and

other transactional costs
Leads to greater operational efficiencies,

lowering cost, prices, adding value for
customers
Slide 2-57
E-commerce and Industry Value

Chains
Figure 2.5, Page 105
Slide 2-58
Firm Value Chains

Activities that a firm engages in to create
final products from raw inputs

Each step adds value
Effect of Internet:
Increases operational efficiency
Enables product differentiation

Enables precise coordination of steps in chain
Slide 2-59
E-commerce and Firm Value Chains

Slide 2-60
Firm Value Webs
Networked business ecosystem
Uses Internet technology to coordinate the

value chains of business partners
Coordinates a firms suppliers with its own

production needs using an Internet-based
supply chain management system
Slide 2-61
Internet-Enabled Value Web

Slide 2-62
Business Strategy
Plan for achieving superior long-term
returns on the capital invested in a

business firm
Four generic strategies
1. Differentiation
2. Cost
3. Scope
4. Focus
Slide 2-63
Wikitude.me
Class Discussion
Have you used Wikitude.me? If so, has it been useful; if

not, is it a service that seems interesting? Why or why
not?
Are there any privacy issues raised by geo-tagging?
What are the potential benefits to consumers and firms

of mobile services? Are there any disadvantages?
What revenue models could work for providers of mobile

services such as Layar?
Slide 3-64
The Internet: Technology

Background
Internet
Interconnected network of thousands of networks and millions of

computers
Links businesses, educational institutions, government agencies, and

individuals
World Wide Web (Web)
One of the Internets most popular services
Provides access to billions, possibly trillions, of Web pages
Slide 3-65
The Evolution of the Internet

1961The Present
Innovation Phase, 1964 1974
Creation of fundamental building blocks
Institutionalization Phase, 1975 1995

Large institutions provide funding and legitimization
Commercialization Phase, 1995 present

Private corporations take over, expand Internet backbone
and local service

Slide 3-66
The Internet:
Key Technology Concepts
Defined by Federal Networking Commission as

network that:
Uses IP addressing
Supports TCP/IP
Provides services to users, in manner similar to telephone system
Three important concepts:
Packet switching
TCP/IP communications protocol
Client/server computing
Slide 3-67
Packet Switching
Slices digital messages into packets
Sends packets along different communication paths

as they become available
Reassembles packets once they arrive at destination
Uses routers
Special purpose computers that interconnect the computer networks that

make up the Internet and route packets
Routing algorithms ensure packets take the best available path toward their
destination
Less expensive, wasteful than circuit-switching
Slide 3-68
Packet Switching
Slide 3-69
TCP/IP
Transmission Control Protocol (TCP):
Internet Protocol (IP):
Establishes connections among sending and receiving Web computers

Handles assembly of packets at point of transmission, and reassembly
at receiving end
Provides the Internets addressing scheme
Four TCP/IP layers
Network Interface Layer

Internet Layer
Transport Layer
Application Layer
Slide 3-70
The TCP/IP Architecture and

Protocol Suite
Figure 3.4,
Page 134
Slide 3-71
Internet (IP) Addresses

IPv4:
32-bit number
Expressed as series of four sets of separate numbers
marked off by periods
201.61.186.227
Class C address: Network identified by first three sets, computer

identified by last set
New version: IPv6 has 128-bit addresses, able to handle up
to 1 quadrillion addresses (IPv4 can only handle 4 billion)

Slide 3-72
Routing Internet Messages:

TCP/IP and Packet Switching
Slide 3-73
Domain Names, DNS, and URLs

Domain name
IP address expressed in natural language
Domain name system (DNS)

Allows numeric IP addresses to be expressed in natural
language
Uniform resource locator (URL)

Address used by Web browser to identify location of
content on the Web

E.g. http://www.azimuth-interactive.com/flash_test
Slide 3-74
Client/Server Computing
Powerful personal computers (clients)
connected in network with one or more

servers
Servers perform common functions for
the clients
Storing files, software applications, etc.
Slide 3-75
The New Client: The Emerging

Mobile Platform
Within a few years, primary Internet
access will be through:

Netbooks
Designed to connect to wireless Internet

Under 2 lb, solid state memory, 8 displays
$200-400
Smartphones
Disruptive technology: Processors, operating systems
Slide 3-76
Cloud Computing
Firms and individuals obtain computing
power and software over Internet

e.g., Google Apps
Fastest growing form of computing

Radically reduces costs of:
Building and operating Web sites
Infrastructure, IT support
Hardware, software
Slide 3-77
Other Internet Protocols and

Utility Programs
Internet protocols
HTTP
E-mail: SMTP, POP3, IMAP
FTP, Telnet, SSL
Utility programs
Ping
Tracert
Pathping
Slide 3-78
The Internet Today

Internet growth has boomed without
disruption because of:

Client/server computing model
Hourglass, layered architecture

Network Technology Substrate
Transport Services and Representation Standards
Middleware Services
Applications
Slide 3-79
The
Hourglass
Model of the
Internet
SOURCE: Adapted from Computer

Science and Telecommunications
Board (CSTB), 2000.
Slide 3-80
Internet Network Architecture

Backbone:
High-bandwidth fiber-optic cable networks

Private networks owned by a variety of NSPs
Bandwidth: 155 Mbps 2.5 Gbps
Built-in redundancy
IXPs: Hubs where backbones intersect with regional and

local networks, and backbone owners connect with one
another
CANs: LANs operating within a single organization that

leases Internet access directly from regional or national
carrier
Slide 3-81
Internet Network Architecture

Slide 3-82
Internet Service Providers (ISPs)
Provide lowest level of service to individuals,

small businesses, some institutions
Types of service
Narrowband
(dial-up)
Broadband
Digital Subscriber Line (DSL)
Cable modem
T1 and T3
Satellite
Slide 3-83
Intranets and Extranets

Intranet
TCP/IP network located within a single
organization for communications and

processing
Extranet
Formed when firms permit outsiders to
access their internal TCP/IP networks

Slide 3-84
Who Governs the Internet?

Organizations that influence the Internet
and monitor its operations include:

Internet Architecture Board (IAB)
Internet Corporation for Assigned Names and Numbers
(ICANN)
Internet Engineering Steering Group (IESG)
Internet Engineering Task Force (IETF)
Internet Society (ISOC)
World Wide Web Consortium (W3C)
International Telecommunications Union (ITU)
Slide 3-85
Insight on Society
Government Regulation and

Surveillance of the Internet
Class Discussion
How is it possible for any government to control or censor

the Web?
Does the Chinese government, or the U.S. government, have

the right to censor content on the Web?
How should U.S. companies deal with governments that want

to censor content?
What would happen to e-commerce if the existing Web split

into a different Web for each country?
Slide 3-86
Internet II: The Future

Infrastructure
Limitations of current Internet
Bandwidth limitations
Quality of service limitations
Latency
Best effort QOS
Network architecture limitations

Language development limitations
HTML
Wired Internet limitations

Slide 3-87
The Internet2 Project

Consortium of 200+ universities,
government agencies, and private

businesses collaborating to find ways to
make the Internet more efficient, faster
Primary goals:
Create leading edge very-high speed network for national
research community
Enable revolutionary Internet applications
Ensure rapid transfer of new network services and
applications to broader Internet community

Slide 3-88
The Larger Internet II

Technology Environment:
The First Mile and the Last Mile
GENI Initiative
Proposed by NSF to develop new core
functionality for Internet
Most significant private initiatives
Fiber optics
Mobile wireless Internet services
Slide 3-89
Fiber Optics and the Bandwidth

Explosion in the First Mile
First mile: Backbone Internet services that carry

bulk traffic over long distances
Older transmission lines being replaced with fiberoptic cable
Much of fiber-optic cable laid in United States is

dark, but represents a vast digital highway that can
be utilized in the future
Technology improvement has expanded capacity of
existing fiber lines

Slide 3-90
The Last Mile: Mobile Wireless

Internet Access
Last mile: From Internet backbone to
users computer, cell phone, PDA, etc.

Two different basic types of wireless
Internet access:
1.
Telephone-based (mobile phones, smartphones)
2.
Computer network-based
Slide 3-91
Telephone-based Wireless
Internet Access
Competing 3G standards
GSM: Used world-wide, AT&T, T-Mobile
CDMA: Used primarily in U.S.
Evolution:
2G cellular networks: relatively slow, circuit-switched
2.5G cellular networks: interim networks
3G cellular networks: next generation, packet-switched
3.5G (3G+)
4G (WiMax, LTE)
Slide 3-92
Wireless Local Area Networks

(WLANs)
Wi-Fi
WiMax
Low-speed, short range connection
Ultra-Wideband (UWB)
High-speed, medium range broadband wireless metropolitan area

network
Bluetooth
High-speed, fixed broadband wireless LAN. Different versions for

home and business market. Limited range.
Low power, short-range high bandwidth network
Zigbee
Short-range, low-power wireless network technology for remotely

controlling digital devices
Slide 3-93
Wi-Fi Networks
Slide 3-94
Benefits of Internet II Technologies
IP multicasting:
Enables efficient delivery of data to many locations on a network
Latency solutions:
diffserv (differentiated quality of service)
Guaranteed service levels and lower error

rates
Assigns different levels of priority to packets depending on type of data being

transmitted
Ability to purchase the right to move data through network at

guaranteed speed in return for higher fee
Declining costs
Slide 3-95
Development of the Web
19891991: Web invented

Tim Berners-Lee at CERN
HTML, HTTP, Web server, Web browser
1993: Mosaic Web browser w/ GUI

Andreesen and others at NCSA
Runs on Windows, Macintosh, or Unix
1994: Netscape Navigator, first commercial

Web browser
Andreessen, Jim Clark
1995: Microsoft Internet Explorer
Slide 3-96
Hypertext
Text formatted with embedded links
Links connect documents to one another,
and to other objects such as sound, video,

or animation files
Uses Hypertext Transfer Protocol (HTTP)
and URLs to locate resources on the Web

Example URL
http://megacorp.com/content/features/082602.html
Slide 3-97
Markup Languages
Generalized Markup Language (GML) 1960s
Standard Generalized Markup Language
(SGML) GML variation, 1986
Hypertext Markup Language (HTML)
Fixed set of pre-defined markup tags used to format text

Controls look and feel of Web pages
eXtensible Markup Language (XML)
New markup language specification developed by W3C

Designed to describe data and information
Tags used are defined by user
Slide 3-98
Web Servers and Web Clients
Web server software:
Web server
Enables a computer to deliver Web pages to clients on a network that

request this service by sending an HTTP request
Apache and Microsoft IIS
Basic capabilities: Security services, FTP, search engine, data capture
Can refer to Web server software or physical server

Specialized servers: Database servers, ad servers, etc.
Web client:
Any computing device attached to the Internet that is capable of

making HTTP requests and displaying HTML pages
Slide 3-99
Web Browsers
Primary purpose to display Web pages
Internet Explorer and Firefox dominate
the market
Other browsers include:
Netscape
Opera
Safari (for Apple)
Google Chrome
Slide 3-100
The Internet and Web: Features

Internet and Web features on which the
foundations of e-commerce are built

include:
E-mail
Instant messaging
Search engines
Intelligent agents (bots)
Online forums and chat
Streaming media
Cookies
Slide 3-101
E-mail
Most used application of the Internet
Uses series of protocols for transferring messages

with text and attachments (images, sound, video
clips, etc.,) from one Internet user to another
Instant Messaging
Displays words typed on a computer almost

instantly, and recipients can then respond
immediately in the same way
Slide 3-102
Search Engines
Identify Web pages that match queries based

on one or more techniques
Keyword indexes, page ranking
Also serve as:
Shopping tools
Advertising vehicles (search engine marketing)
Tool within e-commerce sites
Outside of e-mail, most commonly used

Internet activity
Slide 3-103
How Google Works

Slide 3-104
Intelligent Agents (Bots)

Software programs that gather and/or
filter information on a specific topic and

then provide a list of results
Search bot
Shopping bot
Web monitoring bot
News bot
Chatter bot
Slide 3-105
Online Forums and Chat

Online forum:
AKA message board, bulletin board, discussion board,
discussion group, board or forum

Web application that enables Internet users to
communicate with each other, although not in real time
Members visit online forum to check for new posts
Online chat:
Similar to IM, but for multiple users
Typically, users log into chat room
Slide 3-106
Streaming Media
Enables music, video and other large files
to be sent to users in chunks so that

when received and played, file comes
through uninterrupted
Allows users to begin playing media files
before file is fully downloaded
Slide 3-107
Cookies
Small text files deposited by
Web site on
users computer to store information
about user, accessed when user next
visits Web site
Can help personalize Web site
experience
Can pose privacy threat
Slide 3-108
Web 2.0 Features and Services

Online Social Networks
Services that support
communication among
networks of friends, peers
Blogs
Personal Web page of chronological entries
Really Simple Syndication (RSS)

Program that allows users to have digital content
automatically sent to their computers over the

Internet
Slide 3-109
Podcasting
Audio presentation stored as an audio file and available
for download from Web
Wikis
Allows user to easily add and edit content on Web page
Music and video services

Online video viewing
Digital video on demand
Slide 3-110

Internet telephony (VOIP)
Uses Voice Over Internet Protocol (VOIP) and
Internets packet-switched network to transmit

voice and other forms of audio communication
over the Internet
Internet television (IPTV)

Telepresence and video conferencing
Slide 3-111

Online software and Web services
Web apps, widgets and gadgets
Digital software libraries, ASPs, distributed
storage
M-commerce applications
Beginning to take off
Slide 3-112
Apps for Everything: The App Ecosystem

Class Discussion
What are apps and why are they so popular?
Do you use any apps regularly? Which ones,

and what are their functions?
What are the benefits of apps? The

weaknesses?
Are there any benefits/disadvantages to the

proprietary nature of the Apple platform?
Slide 3-113
Tommy Hilfiger Right-Sizes Its Web Store

Class Discussion
What are the factors you should take into

account when sizing a Web sites
infrastructure?
Why are peak times an important factor to

consider?
What reasons were behind Hilfigers choice

of ATG for its Web site solution?
How can operators of smaller sites deal

with the right-sizing issue?
Slide 4-114
Building an E-commerce Site:

A Systematic Approach
Most important management
challenges:
1.
Developing a clear understanding of

business objectives
2.
Knowing how to choose the right

technology to achieve those objectives
Slide 4-115
Pieces of the Site-Building Puzzle
Main areas where you will need to make

decisions:
Human
resources and organizational capabilities
Creating team with skill set needed to build and
manage a successful site

Hardware
Software
Telecommunications
Site design
Slide 4-116
The Systems Development Life Cycle
Methodology for understanding business

objectives of a system and designing an
appropriate solution
Five major steps:

1.
Systems analysis/planning
2.
Systems design
3.
Building the system
4.
Testing
5.
Implementation
Slide 4-117
Web Site Systems Development Life Cycle

Slide 4-118
System Analysis/Planning
Business objectives:
List of capabilities you want your site to have
System functionalities:
List of information system capabilities needed to
achieve business objectives
Information requirements:
Information elements that system must
produce
in order to achieve business objectives

Slide 4-119
Table 4.1, Page 210

Slide 4-120
Systems Design:
Hardware and Software Platforms
System design specification:

Description
of main components of a system and

their relationship to one another
Two components of system design:

Logical design
Data flow diagrams, processing functions, databases
Physical design
Specifies actual physical, software components, models, etc.
Slide 4-121
Logical Design for a Simple Web Site
Figure 4.3 (a), Page 212

Slide 4-122
Physical Design for a Simple Web Site
Figure 4.3 (b), Page 212

Slide 4-123
Build/Host Your Own versus

Outsourcing
Outsourcing: Hiring vendors to provide
services involved in building site
Build own vs. outsourcing:
Build your own requires team with diverse skill set; choice of software
tools; both risks and possible benefits
Host own vs. outsourcing
Hosting: Hosting company responsible for ensuring site is accessible

24/7, for monthly fee
Co-location: Firm purchases or leases Web server (with control over
its operation), but server is located at vendors facility
Slide 4-124
Choices in Building and Hosting
Figure 4.4 Page 213

Slide 4-125
Insight on Business
Curly Hair and MotorMouths:

Getting Started on the Cheap
Class Discussion
How does a small, niche Web site become

profitable?
What is the primary source of income for

these kinds of sites?
What benefits are there to starting a business

in a recession?
Slide 4-126
Testing, Implementation, and

Maintenance
Testing
Unit testing
System testing
Acceptance testing
Implementation and maintenance:

Maintenance
is ongoing
Maintenance costs: Parallel to development costs
Benchmarking
Slide 4-127
Factors in Web Site Optimization

Slide 4-128
Web Site Budgets

From $5,000 to millions of dollars/year
Components of budget:
System maintenance
System development
Content design & development
Hardware
Telecommunications
Software
Slide 4-129
Simple versus Multi-tiered Web Site

Architecture
System architecture
Arrangement of software, machinery, and tasks in an
information system needed to achieve a specific

functionality
Two-tier
Web server and database server
Multi-tier
Web application servers
Backend, legacy databases
Slide 4-130
Two-Tier E-commerce Architecture
Figure 4.9(a), Page 222

Slide 4-131
Multi-tier E-commerce Architecture
Figure 4.9(b), Page 222

Slide 4-132
Web Server Software
Apache
Leading Web server software (54% of market)
Works only with UNIX, Linux OSs
Microsofts Internet Information Server (IIS)

Second major Web server software (25% of
market)
Windows-based
Slide 4-133
Table 4.3, Page 224

Slide 4-134
Site Management Tools
Basic tools
Included
in all Web servers
Verify that links on pages are still valid
Identify orphan
files
Third-party software and services for

advanced site management
Monitor customer purchases,
marketing campaign
effectiveness, etc.
e.g. WebTrends
Analytics 9, Google Analytics

Slide 4-135
Dynamic Page Generation Tools
Dynamic page generation:

Contents of Web page stored as objects in database and
fetched when needed
Common tools: CGI, ASP, JSP

Advantages
Lowers menu costs
Permits easy online market segmentation

Enables cost-free price discrimination
Enables Web content management system (WCMS)
Slide 4-136
Application Servers
Web application servers:

Provide specific business
functionality required for
a Web site
Type of middleware
Isolate business applications from Web servers and
databases
Single-function
applications increasingly being

replaced by integrated software tools that
combine all functionality needed for e-commerce
site
Slide 4-137
Table 4.4, Page 228

Slide 4-138
E-commerce Merchant Server Software
Provides basic functionality for online sales

Online catalog
List of products available on Web site
Shopping
cart
Allows shoppers to set aside, review, edit selections
and then make purchase

Credit card processing
Typically works in conjunction with shopping cart
Verifies card and puts through credit to companys
account at checkout
Slide 4-139
Merchant Server Software Packages

Integrated environment with most of
functionality needed
Key factors in selecting a package
Functionality
Support for different business models
Business process modeling tools
Visual site management and reporting
Performance and scalability
Connectivity to existing business systems
Compliance with standards
Global and multicultural capability
Local sales tax and shipping rules
Slide 4-140
Building Your Own E-commerce Site

Options for small firms
Hosted e-commerce sites, e.g. Yahoos
Merchant Solutions
Site building
tools
E-commerce templates
Open-source merchant server software

Enables you to build
truly custom site
Requires programmer with expertise, time

Slide 4-141
Choosing the Hardware for an

E-commerce Site
Hardware platform:
Underlying computing equipment that system uses to
achieve e-commerce functionality
Objective:
Enough platform capacity to meet peak demand without
wasting money
Important to understand the different factors that

affect speed, capacity, and scalability of a site
Slide 4-142
Right-Sizing Your Hardware

Platform: The Demand Side
Demand is the most important factor affecting speed

of site
Factors in overall demand:

Number of simultaneous users in peak periods
Nature of customer requests (user profile)
Type of content (dynamic versus static Web pages)
Required security
Number of items in inventory
Number of page requests
Speed of legacy applications
Slide 4-143
Table 4.7, Page 233

Slide 4-144
Degradation in Performance as
Number of Users Increases-Resource Utilization
Figure 4.11 (a), Page 235

Slide 4-145
Degradation in Performance as
Number of Users Increases-Number of Connections
Figure 4.11 (b), Page 235

Slide 4-146
The Relationship of Bandwidth to Hits
SOURCE: IBM, 2003.

Slide 4-147
Right-Sizing Your Hardware

Platform: The Supply Side
Scalability:
Ability of site to increase in size as demand
warrants
Ways to scale hardware:

Vertically
Increase processing power of individual components
Horizontally
Employ multiple computers to share workload
Improve processing architecture

Slide 4-148
Table 4.8, Page 237

Slide 4-149
Vertically Scaling a System

Slide 4-150
Horizontally Scaling a System

Slide 4-151
Table 4.9, Page 240

Slide 4-152
Other E-Commerce Site Tools
Web site design: Basic business considerations

Enabling customers
to find and buy what they
need
Tools for Web site optimization

Search engine placement
Metatags, titles, content
Identify market niches, localize site
Expertise
Links
Search engine ads
Slide 4-153
E-commerce
Web Site
Features
that Annoy
Customers
SOURCE: Based on data from
Hostway Corporations survey,
Consumers Pet Peeves about
Commercial Web Sites, Hostway
Corporation, 2007.

Slide 4-154
Table 4.10, Page 242

Slide 4-155
Tools for Interactivity and

Active Content
Web 2.0 design elements: Widgets, Mashups
CGI (Common Gateway Interface)
ASP (Active Server Pages)
Java, JSP, and JavaScript
ActiveX and VBScript
ColdFusion
Slide 4-156
Personalization Tools
Personalization
Ability to treat people based
on personal qualities
and prior history with site
Customization
Ability to change the product
to better fit the
needs of the customer
Tools to achieve personalization:

Cookies
Slide 4-157
The Information Policy Set

Privacy policy
Set of public statements declaring how site
will treat customers personal information

that is gathered by site
Accessibility rules
Set of design objectives that ensure
disabled users can affectively access site

Slide 4-158
Insight on Society
Designing for Accessibility with Web 2.0

Class Discussion
Why might some merchants be reluctant to

make their Web sites accessible to disabled
Americans?
How can Web sites be made more accessible?
Should all Web sites be required by law to

provide equivalent alternatives for visual
and sound content?
Slide 4-159
Cyberwar:
Mutually Assured Destruction 2.0
Class Discussion
What is the difference between hacking and

cyberwar?
Why has cyberwar become more potentially

devastating in the past decade?
What percentage of computers have been

compromised by stealth malware programs?
Will a political solution to MAD 2.0 be

effective enough?
Slide 5-160
The E-commerce Security Environment
Overall size and losses of cybercrime unclear

Reporting issues
2009 CSI survey: 49% of respondent firms

detected security breach in last year
Of those that shared numbers, average loss $288,000
Underground economy marketplace:

Stolen information stored on underground economy
servers
Slide 5-161
Types of Attacks
Against
Computer
Systems
(Cybercrime)
SOURCE: Based on data from

Computer Security Institute,
2009
Slide 5-162
What Is Good E-commerce Security?

To achieve highest degree of security
New technologies
Organizational policies and procedures
Industry standards
and government laws
Other factors
Time value of money
Cost of security vs. potential loss
Security often breaks at weakest link
Slide 5-163
The E-commerce Security Environment

Slide 5-164
Table 5.2, Page 270

Slide 5-165
The Tension Between Security and

Other Values
Ease of use:
The more security measures added,
the more
difficult a site is to use, and the slower it becomes
Public safety and criminal uses of the Internet

Use of technology by criminals to plan crimes or
threaten nation-state
Slide 5-166
Security Threats in the E-commerce

Environment
Three key points of vulnerability:
1.
Internet communications channels
2.
Server level
3.
Client level
Slide 5-167
A Typical
E-commerce
Transaction
SOURCE: Boncella, 2000.

Slide 5-168
Vulnerable Points in an
E-commerce Environment
SOURCE: Boncella, 2000.

Slide 5-169
Most Common Security Threats in the

E-commerce Environment
Malicious code
Viruses
Worms
Trojan horses
Bots, botnets
Unwanted programs
Browser parasites
Adware
Spyware
Slide 5-170
Most Common Security Threats (cont.)
Phishing
Deceptive online attempt to obtain confidential information
Social engineering, e-mail scams, spoofing legitimate Web sites
Use of information to commit fraudulent acts (access checking

accounts), steal identity
Hacking and cybervandalism
Hackers vs. crackers
Cybervandalism: Intentionally disrupting, defacing, destroying Web

site
Types of hackers: White hats, black hats, grey hats
Slide 5-171
Credit card fraud/theft
Hackers target merchant servers; use data to establish credit under

false identity
Spoofing
Pharming
Spam/junk Web sites
Denial of service (DoS) attack
Hackers flood site with useless traffic to overwhelm network

Distributed denial of service (DDoS) attack
Slide 5-172
Sniffing
Eavesdropping program that monitors information traveling over a

network
Insider jobs
Single largest financial threat
Poorly designed server and client software
Mobile platform threats

Same risks as any Internet device
Malware, botnets, vishing/smishing
Slide 5-173
Technology Solutions
Protecting Internet communications
(encryption)
Securing channels of communication
(SSL, S-HTTP, VPNs)

Protecting networks (firewalls)
Protecting servers and clients
Slide 5-174
Tools
Available to
Achieve Site
Security

Slide 5-175
Encryption
Encryption
Transforms data into cipher text readable only by
sender and receiver

Secures stored information and information
transmission
Provides 4 of 6 key dimensions of e-commerce
security:
1.
2.
3.
4.
Message integrity
Nonrepudiation
Authentication
Confidentiality
Slide 5-176
Symmetric Key Encryption
Sender and receiver use same digital key to

encrypt and decrypt message
Requires different set of keys for each transaction
Strength of encryption
Length of binary key used to encrypt data
Advanced Encryption Standard (AES)

Most widely used symmetric key encryption
Uses 128-, 192-, and 256-bit encryption keys
Other standards use keys with up to 2,048 bits
Slide 5-177
Public Key Encryption
Uses two mathematically related digital keys

Public key (widely disseminated)
Private key (kept secret by owner)
Both keys used to encrypt and decrypt message
Once key used to encrypt message, same key cannot

be used to decrypt message
Sender uses recipients public key to encrypt

message; recipient uses his/her private key to
decrypt it
Slide 5-178
Public Key Cryptography A Simple Case

Slide 5-179
Public Key Encryption using Digital

Signatures and Hash Digests
Hash function:
Mathematical algorithm that produces fixed-length number called

message or hash digest
Hash digest of message sent to recipient along with

message to verify integrity
Hash digest and message encrypted with recipients
public key
Entire cipher text then encrypted with recipients
private key creating digital signature for
authenticity, nonrepudiation
Slide 5-180
Public Key Cryptography with Digital Signatures

Slide 5-181
Digital Envelopes
Address weaknesses of:

Public key encryption
Computationally slow, decreased transmission speed, increased

processing time
Symmetric key encryption
Insecure transmission lines
Uses symmetric key encryption to encrypt document
Uses public key encryption to encrypt and send

symmetric key
Slide 5-182
Creating a Digital Envelope

Slide 5-183
Digital Certificates and

Public Key Infrastructure (PKI)
Digital certificate includes:

Name of subject/company
Subjects public key
Digital certificate serial number

Expiration date, issuance date
Digital signature of CA
Public Key Infrastructure (PKI):

CAs and digital certificate procedures
PGP
Slide 5-184
Digital Certificates and Certification Authorities

Slide 5-185
Limits to Encryption Solutions
Doesnt protect storage of private key

PKI not effective against insiders,
employees
Protection of private keys by individuals may be
haphazard
No guarantee that verifying computer of

merchant is secure
CAs are unregulated, self-selecting

organizations
Slide 5-186
Insight on Society
Web Dogs and Anonymity

Class Discussion
What are some of the benefits of continuing the

anonymity of the Internet?
What are the disadvantages of an identity system?
Are there advantages to an identity system beyond

security?
Who should control a central identity system?
Slide 5-187
Securing Channels of Communication
Secure Sockets Layer (SSL):

Establishes a secure, negotiated client-server session
in which URL of requested document, along with

contents, is encrypted
S-HTTP:
Provides a secure message-oriented communications
protocol designed for use in conjunction with HTTP
Virtual Private Network (VPN):

Allows remote users to securely access internal
network via the Internet, using Point-to-Point

Tunneling Protocol (PPTP)
Slide 5-188
Secure Negotiated Sessions Using SSL

Slide 5-189
Protecting Networks
Firewall
Hardware or software
Uses security policy to filter packets
Two main methods:
1.
Packet filters
2.
Application gateways
Proxy servers (proxies)

Software servers that handle
all communications
originating from or being sent to the Internet
Slide 5-190
Firewalls and Proxy Servers

Slide 5-191
Protecting Servers and Clients

Operating system security enhancements
Upgrades, patches
Anti-virus software:
Easiest and least expensive way to prevent
threats to system integrity

Requires daily updates
Slide 5-192
Management Policies, Business

Procedures, and Public Laws
U.S. firms and organizations spend 12% of IT

budget on security hardware, software,
services ($120 billion in 2009)
Managing risk includes

Technology
Effective management policies
Public
laws and active enforcement
Slide 5-193
A Security Plan: Management Policies
Risk assessment
Security policy
Implementation plan
Security organization
Access controls
Authentication procedures, inc. biometrics
Authorization policies, authorization management systems
Security audit
Slide 5-194
Developing an E-commerce Security Plan

Slide 5-195
The Role of Laws and Public Policy
Laws that give authorities tools for identifying,

tracing, prosecuting cybercriminals:
National Information Infrastructure Protection Act of 1996

USA Patriot Act
Homeland Security Act
Private and private-public cooperation
CERT Coordination Center

US-CERT
Government policies and controls on encryption

software
OECD guidelines
Slide 5-196
Think Your Smartphone Is Secure?

Class Discussion
What types of threats do smartphones face?
Are there any particular vulnerabilities to this

type of device?
What did Nicolas Seriots Spyphone prove?
Are apps more or less likely to be subject to

threats than traditional PC software
programs?
Slide 5-197
Types of Payment Systems
Cash
Most common form of payment in terms of number of
transactions
Instantly convertible into other forms of value without
intermediation
Checking Transfer
Second most common payment form in U.S. in terms of
number of transactions
Credit Card
Credit card associations
Issuing banks
Processing centers
Slide 5-198
Types of Payment Systems (cont.)
Stored Value
Funds deposited into account, from which funds are paid
out or withdrawn as needed, e.g. debit cards, gift

certificates
Peer-to-peer payment systems
Accumulating Balance
Accounts that accumulate expenditures and to which
consumers make period payments

e.g. Utility, phone, American Express accounts
Slide 5-199
Table 5.6, Page 312

Slide 5-200
E-commerce Payment Systems

Credit cards
55 % of online payments in 2009 (U.S.)
Debit cards
28 % online payments in 2009 (U.S.)
Limitations of online credit card payment
Security
Cost
Social equity
Slide 5-201
How an Online Credit Transaction Works

Slide 5-202
E-commerce Payment Systems (cont.)
Digital wallets
Emulates functionality of wallet by authenticating consumer, storing

and transferring value, and securing payment process from consumer
to merchant
Early efforts to popularize failed
Newest effort: Google Checkout
Digital cash
Value storage and exchange using tokens
Most early examples have disappeared; protocols and practices too

complex
Slide 5-203
E-commerce Payment Systems (cont.)
Online stored value systems

Based on value stored in a consumers bank, checking, or
credit card account

PayPal, smart cards
Digital accumulated balance payment

Users accumulate a debit balance for which they are billed
at the end of the month
Digital checking:
Extends functionality of existing checking accounts for use
online
Slide 5-204
Mobile Payment Systems
Use of mobile handsets as payment devices wellestablished in Europe, Japan, South Korea
Japanese mobile payment systems

E-money (stored value)
Mobile debit cards
Mobile credit cards
Not as well established yet in U.S

Majority of purchases are digital content for use on cell
phone
Slide 5-205
Insight on Business
Mobile Payments Future:

Wavepayme, Textpayme
Group Discussion
What technologies make mobile payment

more feasible now than in the past?
Describe some new experiments that are
helping to develop mobile payment systems.
How has PayPal responded?
Why havent mobile payment systems grown
faster? What factors will spur their growth?
Slide 5-206
Electronic Billing Presentment and

Payment (EBPP)
Online payment systems for monthly bills
65% + of households in 2010 used some EBPP;

expected to continue to grow
Two competing EBPP business models:

Biller-direct (dominant
model)
Consolidator
Both models are supported by EBPP

infrastructure providers
Slide 5-207
Netflix
Strengthens and Defends Its Brand
Class Discussion
What was Netflixs first business model? Why did

this model not work and what new model did it
develop?
Why is Netflix attractive to customers?
How does Netflix distribute its videos?
What is Netflixs recommender system?
How does Netflix use data mining?
Is video on demand a threat to Netflix?
Slide 6-208
Consumers Online: The Internet

Audience and Consumer Behavior
Around 70% (82 million) U.S. households have

Internet access in 2010
Growth rate has slowed
Intensity and scope of use both increasing
Some demographic groups have much higher

percentages of online usage than others
Gender, age, ethnicity, community type, income, education
Slide 6-209
The Internet Audience and

Consumer Behavior (contd)
Broadband audience vs. dial-up audience
Purchasing behavior affected by
neighborhood
Lifestyle and sociological impacts
Use of Internet by children, teens

Use of Internet as substitute for other social activities
Media choices
Traditional media competes with Internet for attention
Slide 6-210
Consumer Behavior Models
Study of consumer behavior

Social science
Attempts
to explain what consumers purchase

and where, when, how much and why they buy
Consumer behavior models

Predict
wide range of consumer decisions
Based on background
demographic factors and

other intervening, more immediate variables
Slide 6-211
A General Model of Consumer Behavior

SOURCE: Adapted from Kotler and Armstrong, 2009.

Slide 6-212
Background Demographic Factors
Culture: Broadest impact

Subculture
(ethnicity, age, lifestyle, geography)
Social
Reference groups
Direct reference groups

Indirect reference groups
Opinion leaders (viral influencers)
Lifestyle groups
Psychological
Psychological profiles
Slide 6-213
The Online Purchasing Decision
Psychographic research
Combines demographic and psychological data
Divides market into groups based on social class, lifestyle,
and/or personality characteristics
Five stages in the consumer decision process:

1.
Awareness of need
2.
Search for more information
3.
Evaluation of alternatives
4.
Actual purchase decision
5.
Post-purchase contact with firm
Slide 6-214
The Consumer Decision Process and

Supporting Communications

Slide 6-215
A Model of Online Consumer Behavior

Decision process similar for online and offline
behavior
General online behavior model
Consumer skills
Product characteristics
Attitudes toward online purchasing
Perceptions about control over Web environment
Web site features
Clickstream behavior: Transaction log for

consumer from search engine to purchase
Slide 6-216

Slide 6-217
Clickstream factors include:
Number of days since last visit
Speed of clickstream behavior
Number of products viewed during last visit
Number of pages viewed
Supplying personal information
Number of days since last purchase
Number of past purchases
Clickstream marketing
Slide 6-218
Shoppers: Browsers and Buyers
Shoppers: 87% of Internet users

72% buyers
16% browsers (purchase offline)
One-third offline retail purchases influenced by

online activities
Online traffic also influenced by offline brands and

shopping
E-commerce and traditional commerce are coupled:

part of a continuum of consuming behavior
Slide 6-219
Online Shoppers and Buyers

SOURCE: Based on data from eMarketer, Inc., 2010b

Slide 6-220
What Consumers Shop for and

Buy Online
Big ticket items ($500 plus)

Travel, computer hardware, consumer electronics
Expanding
Consumers more confident in purchasing costlier items
Small ticket items ($100 or less)

Apparel, books, office supplies, software, etc.
Sold by first movers on Web
Physically small items

High margin items
Broad selection of products available
Slide 6-221
What Consumers Buy Online
SOURCES: Based on data from eMarketer, Inc., 2010b; Internet Retailer, 2010.
Slide 6-222
Intentional Acts: How Shoppers Find

Vendors Online
Search engines (59%)
Coupon Web sites (29%)
Comparison shopping sites (27%)
E-mail newsletters (25%)
Online shoppers are highly intentional,

looking for specific products, companies,
services
Slide 6-223
Table 6.6, Page 362

SOURCES: Based on data from eMarketer, Inc., 2010c

Slide 6-224
Trust, Utility, and Opportunism in

Online Markets
Two most important factors shaping decision

to purchase online:
Utility:
Better prices, convenience, speed
Trust:
Asymmetry of information can lead to opportunistic
behavior by sellers
Sellers can develop trust by building strong reputations
for honesty, fairness, delivery
Slide 6-225
Basic Marketing Concepts
Marketing
Strategies and actions to establish relationship
with consumer and encourage purchases of

products and services
Addresses competitive situation of industries and
firms
Seeks to create unique, highly differentiated
products or services that are produced or supplied
by one trusted firm
Unmatchable feature set
Avoidance of becoming commodity
Slide 6-226
Feature Sets
Three levels of product or service

1.
Core product
2.
Actual product
3.
e.g. cell phone
Characteristics that deliver core benefits

e.g. wide screen that connects to Internet
Augmented product
Additional benefits
Basis for building the products brand
e.g. product warranty
Slide 6-227
Feature Set

Slide 6-228
Products, Brands and

the Branding Process
Brand:
Expectations consumers have when consuming, or
thinking about consuming, a specific product

Most important expectations: Quality, reliability,
consistency, trust, affection, loyalty, reputation
Branding: Process of brand creation

Closed loop marketing
Brand strategy
Brand equity
Slide 6-229
Marketing Activities:
From Products to Brands

Slide 6-230
Segmenting, Targeting, and Positioning
Major ways used to segment, target customers

1.
2.
3.
4.
5.
6.
Behavioral
Demographic
Psychographic
Technical
Contextual
Search
Within segment, product is positioned and branded as

a unique, high-value product, especially suited to
needs of segment customers
Slide 6-231
Are Brands Rational?
For consumers, a qualified yes:
Brands introduce market efficiency by reducing search and

decision-making costs
For business firms, a definite yes:
A major source of revenue
Lower customer acquisition cost
Increased customer retention
Successful brand constitutes a long-lasting (though not

necessarily permanent) unfair competitive advantage
Slide 6-232
Can Brands Survive the Internet?

Brands and Price Dispersion
Early postulation: Law of One Price; end of brands
Instead:
Consumers still pay premium prices for differentiated
products
E-commerce firms rely heavily on brands to attract
customers and charge premium prices

Substantial price dispersion
Large differences in price sensitivity for same product
Library effect
Slide 6-233
The Revolution in Internet

Marketing Technologies
Three broad impacts:

Scope of marketing communications broadened
Richness of marketing communications increased
Information intensity of marketplace expanded
Internet marketing technologies:
Web transaction logs

Cookies and Web bugs
Databases, data warehouses, data mining
Advertising networks
Customer relationship management systems
Slide 6-234
Web Transaction Logs

Built into Web server software
Record user activity at Web site
Webtrends: Leading log analysis tool
Provides much marketing data, especially
combined with:
Registration forms
Shopping cart database
Answers questions such as:

What are major patterns of interest and purchase?
After home page, where do users go first? Second?
Slide 6-235
Cookies and Web Bugs
Cookies:
Small text file Web sites place on visitors PC every time
they visit, as specific pages are accessed

Provide Web marketers with very quick means of
identifying customer and understanding prior behavior
Flash cookies
Web bugs:
Tiny (1 pixel) graphics embedded in e-mail and Web sites
Used to automatically transmit information about user and
page being viewed to monitoring server

Slide 6-236
Insight on Society
Every Move You Make, Every Click You

Make, Well Be Tracking You
Class Discussion
Are Web bugs innocuous? Or are they an invasion of

personal privacy?
Do you think your Web browsing should be known to

marketers?
What are the Privacy Foundation guidelines for Web

bugs?
Should online shopping be allowed to be a private

activity?
Slide 6-237
Databases
Database: Stores records and attributes
Database management system (DBMS):
SQL (Structured Query Language):
Software used to create, maintain, and access databases
Industry-standard database query and manipulation language used in

a relational database
Relational database:
Represents data as two-dimensional tables with records organized in

rows and attributes in columns; data within different tables can be
flexibly related as long as the tables share a common data element
Slide 6-238
A Relational Database View of

E-commerce Customers

Slide 6-239
Data Warehouses and Data Mining
Data warehouse:
Collects firms transactional and customer data in single
location for offline analysis by marketers and site

managers
Data mining:
Analytical techniques to find patterns in data, model
behavior of customers, develop customer profiles
Query-driven data mining
Model-driven data mining
Rule-based data mining
Collaborative filtering
Slide 6-240
Data Mining
and
Personalization

SOURCE: Adomavicius and Tuzhilin, 2001b 2001 IEEE.

Slide 6-241
The Long Tail: Big Hits and Big Misses

Class Discussion
What are recommender systems? Give an

example you have used.
What is the Long Tail and how do

recommender systems support sales of items
in the Long Tail?
How can human editors, including consumers,

make recommender systems more helpful?
Slide 6-242
Customer Relationship Management

(CRM) Systems
Record all contact that customer has with firm
Generates customer profile available to everyone in
firm with need to know the customer
Customer profiles can contain:
Map of the customers relationship with the firm

Product and usage summary data
Demographic and psychographic data
Profitability measures
Contact history
Marketing and sales information
Slide 6-243
A Customer Relationship Management System

SOURCE: Compaq, 1998

Slide 6-244
Market Entry Strategies

Slide 6-245
Establishing the Customer Relationship

Advertising Networks
Banner advertisements
Ad server selects appropriate banner ad based
on
cookies, Web bugs, backend user profile

databases
Permission marketing
Affiliate marketing
Slide 6-246
How an Advertising Network such as

DoubleClick Works

Slide 6-247
Establishing the Customer

Relationship (contd)
Viral marketing
Getting customers to pass along companys marketing
message to friends, family, and colleagues
Blog marketing
Using blogs to market goods through commentary and
advertising
Social network marketing, social shopping
Mobile marketing
Slide 6-248
Insight on Business
Social Network Marketing: Lets Buy Together

Class Discussion
Why do social networks represent such a promising

opportunity for marketers?
What are some of the new types of marketing that

social networks have spawned?
What are some of the risks of social network

marketing? What makes it dangerous?
Have you ever responded to marketing messages on

Facebook or another network?
Slide 6-249
Establishing the Customer

Relationship (contd)
Wisdom of crowds (Surowiecki, 2004)
Large aggregates produce better estimates and judgments
Examples:
Prediction markets
Folksonomies
Social tagging
Brand leveraging
Slide 6-250
Customer Retention: Strengthening

the Customer Relationship
Mass marketing
Direct marketing
Micromarketing
Personalized, one-to-one marketing
Segmenting market on precise and timely understanding of

individuals needs
Targeting specific marketing messages to these individuals
Positioning product vis--vis competitors to be truly unique
Personalization
Can increase consumers sense of control, freedom
Can also result in unwanted offers or reduced anonymity
Slide 6-251
The Mass Market-Personalization Continuum

Slide 6-252
Other Customer Retention Marketing

Techniques
Customization
Customer co-production
Transactive content:
Combine traditional content with dynamic information
tailored to each users profile
Customer service
FAQs
Real-time customer service chat systems
Automated response systems
Slide 6-253
Net Pricing Strategies
Pricing
Integral part of marketing strategy
Traditionally based
on:
Fixed cost
Variable costs
Demand curve
Price discrimination
Selling products
to different people and groups

based on willingness to pay
Slide 6-254
Net Pricing Strategies (contd)
Free and freemium

Can be used to build market awareness
Versioning
Creating multiple versions of product and selling
essentially same product to different market segments

at different prices
Bundling
Offers consumers two or more goods for one price
Dynamic pricing:
Auctions
Yield management
Slide 6-255
Channel Management Strategies
Channels:
Different methods by which goods can be distributed and
sold
Channel conflict:
When new venue for selling products or services threatens
or destroys existing sales venues

E.g. online airline/travel services and
traditional offline
travel agencies
Some manufacturers are using partnership

model to avoid channel conflict
Slide 6-256
Video Ads: Shoot, Click, Buy

Class Discussion
What advantages do video ads have over traditional

banner ads?
Where do sites such as YouTube fit in to a marketing
strategy featuring video ads?
What are some of the challenges and risks of placing
video ads on the Web?
Do you think Internet users will ever develop
blindness towards video ads as well?
Slide 7-257
Marketing Communications
Two main purposes:
Sales promotional sales communications
Branding branding communications
Online marketing communications

Takes many forms
Online ads, e-mail, public relations, Web
sites
Slide 7-258
Online Advertising
$25 billion, 15% of all advertising
Advantages:
Internet is where audience is moving
Ad targeting
Greater opportunities for interactivity
Disadvantages:
Cost versus benefit
How to adequately measure results
Supply of good venues to display ads
Slide 7-259
Online Advertising from 2002-2014

SOURCES: Based on data from eMarketer, Inc., 2010a

Slide 7-260
Forms of Online Advertisements
Display ads
Rich media
Video ads
Search engine advertising
Social network, blog, and game advertising
Sponsorships
Referrals (affiliate relationship marketing)
E-mail marketing
Online catalogs
Slide 7-261
Display Ads
Banner ads
Rectangular box linking to advertisers Web site
IAB guidelines
e.g. Full banner is 468 x 60 pixels, 13K
Pop-up ads
Appear without user calling for them
Provoke negative consumer sentiment

Twice as effective as normal banner ads
Pop-under ads: Open beneath browser window
Slide 7-262
Rich Media Ads
Use Flash, DHTML, Java, JavaScript
About 7% of all online advertising expenditures
Tend to be more about branding
Boost brand awareness by 10%
IAB standards limit length
Interstitials
Superstitials
Slide 7-263
Video Ads
Fastest growing form of online advertisement
IAB standards
Linear video ad
Non-linear video ad
In-banner video ad
In-text video ad
Ad placement
Advertising networks
Advertising exchanges
Banner swapping
Slide 7-264
Search Engine Advertising
Almost 50% of online ad spending in 2010
Types:
Paid inclusion
or rank
Inclusion in search results

Sponsored link areas
Keyword advertising
e.g. Google AdWords
Network keyword advertising
(context
advertising)
e.g. Google AdSense
Slide 7-265
Search Engine Advertising (contd)

Nearly ideal targeted marketing
Issues:
Disclosure of paid inclusion and placement
practices
Click fraud
Ad nonsense
Slide 7-266
Mobile Advertising
Half of U.S. Internet users access Internet
with mobile devices

Currently small market, but fastest
growing platform (35%)

Google and Apple in race to develop
mobile advertising platform

AdMob, iAd
Slide 7-267
Sponsorships and Referrals
Sponsorships
Paid effort to tie advertisers
name to
particular information, event, venue in a way
that reinforces brand in positive yet not overtly
commercial manner
Referrals
Affiliate relationship
marketing
Permits firm to put
logo or banner ad on
another firms Web site from which users of
that site can click through to affiliates site
Slide 7-268
E-mail Marketing and the

Spam Explosion
Direct e-mail marketing

Low cost, primary cost is purchasing
addresses
Spam: Unsolicited commercial e-mail

Approx.
90% of all e-mail

Efforts to control spam:
Technology (filtering software)
Government regulation (CAN-SPAM and state laws)
Voluntary self-regulation by industries (DMA )
Volunteer efforts
Slide 7-269
Percentage of E-mail That Is

Spam

SOURCE: Symantec MessageLabs, 2010

Slide 7-270
Online Catalogs
Equivalent of paper-based catalogs
Graphics-intense; use increasing with increase

in broadband use
Two types:
1.
Full-page spreads, e.g. Landsend.com
2.
Grid displays, e.g. Amazon
In general, online and offline catalogs

complement each other
Slide 7-271
Social Marketing
Many-to-many model
Uses digitally enabled networks to spread ads
Blog advertising
Online ads related to content of blogs
Social network advertising:

Ads on MySpace, Facebook, YouTube,
etc.
Game advertising:
Downloadable advergames
Placing brand-name products within games
Slide 7-272
Insight on Society
Marketing to Children of the Web in the

Age of Social Networks
Class Discussion
Why is online marketing to children a controversial

practice?
What is the Childrens Online Privacy Protection Act
(COPPA) and how does it protect the privacy of
children?
How do companies verify the age of online users?
Should companies be allowed to target marketing
efforts to children under the age of 13?
Slide 7-273
Behavioral Targeting
Interest-based advertising
Data aggregators develop profiles
Search engine queries

Online browsing history
Offline data (income, education, etc.)
Information sold to 3rd party advertisers, who deliver

ads based on profile
Ad exchanges
Privacy concerns
Consumer resistance
Slide 7-274
Mixing Offline and Online

Marketing Communications
Most successful marketing campaigns
incorporate both online and offline tactics
Offline marketing
Drive traffic to Web sites

Increase awareness and
build brand equity
Consumer behavior increasingly multi-channel

60% consumers
research online before buying
offline
Slide 7-275
Insight on Business
Are the Very Rich Different

From You and Me?
Class Discussion
Why have online luxury retailers had a

difficult time translating their brands and the
look and feel of luxury shops into Web sites?
Why did Neiman Marcus first effort fail?
Why did Tiffanys first effort fail?
Visit the Armani Web site. What do you find

there?
Slide 7-276
Online Marketing Metrics: Lexicon
Measuring audience size or market share

Impressions
Click-through rate (CTR)
View-through rate (VTR)
Hits
Page views
Stickiness (duration)
Unique visitors
Loyalty
Reach
Recency
Slide 7-277
Online Marketing Metrics (contd)
Conversion of visitor
to customer
Acquisition rate
Conversion rate
Browse-to-buy-ratio
View-to-cart ratio
Cart conversion rate
Checkout conversion rate
Abandonment rate
Retention rate
Attrition rate
E-mail metrics
Open rate
Delivery rate
Click-through rate
(e-mail)
Bounce-back rate
Slide 7-278
An Online Consumer Purchasing Model

Slide 7-279
How Well Does Online

Advertising Work?
Ultimately measured by ROI on ad campaign
Highest click-through rates: Search engine ads,

Permission e-mail campaigns
Rich media, video interaction rates high
Online channels compare favorably with traditional
Most powerful marketing campaigns use multiple

channels, including online, catalog, TV, radio,
newspapers, stores
Slide 7-280
Comparative Returns on Investment
SOURCES: Based on data from eMarketer, Inc. 2010b, Direct Marketing Association (DMA), 2009.
Slide 7-281
The Costs of Online Advertising
Pricing models
Online revenues only
Sales can be directly correlated
Both online/offline revenues
Barter
Cost per thousand (CPM)
Cost per click (CPC)
Cost per action (CPA)
Offline purchases cannot always be directly related to online

campaign
In general, online marketing more expensive on CPM

basis, but more effective
Slide 7-282
Web Site Activity Analysis

Slide 7-283
Its 10 P.M. Do You Know Who Is

On Your Web Site?
Class Discussion
What are some of the services offered by Adobes

SiteCatalyst?
Why would you as a webmaster be interested in

these services?
Why is site analysis and customer tracking so

important to online marketing?
How did National Geographic use SiteCatalyst to its

benefit?
Slide 7-284
The Web Site as a Marketing

Communications Tool
Web site as extended online advertisement
Domain name: An important role
Search engine optimization:

Search engines registration
Keywords in Web site description
Metatag and page title keywords
Links to other sites
Slide 7-285
Web Site Functionality
Main factors in effectiveness of interface

Utility
Ease of use
Top factors in credibility of Web sites:

Design look
Information design/structure
Information focus
Organization is important for first-time users, but

declines in importance
Information content becomes major factor attracting
further visits
Slide 7-286
Factors in
the
Credibility
of Web Sites

SOURCE: Based on data from Fogg, et al, 2003.
Slide 7-287
Table 7.9, Page 481

Slide 7-288
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E-commerce: business.

Carol Guercio Traver

Copyright 2011 Pearson Education, Inc.

Chapter 1: The Revolution Is Just

The Revolution Is Just Beginning

Do you use Facebook, and if so, how often? What

Have you purchased anything based on an

Are you concerned about the privacy of the

Copyright 2011 Pearson Education, Inc.

E-commerce Trends 2010-2011

Social networking continues to grow

Social e-commerce platform emerges

Online consumer sales return to growth

Mobile computing begins to rival PC

Explosive growth in online video viewing

Continued privacy and security concerns

Copyright 2011 Pearson Education, Inc.

The First 30 Seconds

Technologies continue to evolve at

between and among organizations and

Copyright 2011 Pearson Education, Inc.

E-commerce vs. E-business

Does not include

Copyright 2011 Pearson Education, Inc.

Why Study E-commerce?

E-commerce technology is different, more

E-commerce bringing fundamental changes to

Copyright 2011 Pearson Education, Inc.

Unique Features of E-commerce

Copyright 2011 Pearson Education, Inc.

bookmarks, and online personas

Classified by technology used

Copyright 2011 Pearson Education, Inc.

Worldwide network of computer networks

Created in late 1960s

Services include the Web, e-mail, file

Can measure growth by looking at number of

Copyright 2011 Pearson Education, Inc.

SOURCE: Internet Systems Consortium,

Copyright 2011 Pearson Education, Inc.

graphics, animations, music, videos

Spider Webs, Bow Ties, Scale-Free

What is the small world theory of the Web?

What is the significance of the bow-tie form

Why does Barabasi call the Web a scale-free

Copyright 2011 Pearson Education, Inc.

Origins & Growth of E-commerce

1995: Beginning of e-commerce

E-commerce fastest growing form of

Copyright 2011 Pearson Education, Inc.

The Growth of B2C E-commerce

SOURCES: Based on data from eMarketer, Inc., 2010; authors estimates.

The Growth of B2B E-commerce

Technology and E-commerce in

The Internet and Web: Just two of a long list

E-commerce growth will eventually cap as it

Copyright 2011 Pearson Education, Inc.

Potential Limitations on the

Sophisticated skill set

Persistent cultural attraction of physical

Persistent global inequality limiting access to

Saturation and ceiling effects

Copyright 2011 Pearson Education, Inc.