Transcript Chapter 3 The Basics of Doing Business on the Internet

The Basics of Doing Business on the Internet

Questions Answered in this Chapter:
– What are the key similarities and differences between e-commerce
and brick-and-mortar selling in regard to location?
– What are popular methods for marketing an e-commerce store?
– How does e-commerce payment differ from brick-and-mortar
payment?
– What roles does security play in e-commerce?
– What challenges exist in e-commerce fulfillment?
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Introduction

Selling on the Web requires many of the same activities
and components needed to conduct business in the offline
world

Five key components of running an e-commerce store
–
–
–
–
–
Location and Hosting
Marketing and Presentation
Payment
Security
Fulfillment
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Location and Hosting

Factors to consider in selection of store location
– Traffic: Location determines the type and quantity of traffic flow
– Image: Location influences how store is perceived
– Competition: Preferable to locate store where there is little
competition
– Convenience: Some locations offer more services to merchants
than others
– Size: Store must be sufficiently large to accommodate its products
and customers. In e-commerce, size determines the requirements
for
• Bandwidth - The amount of data that can be sent through a
connection at once
• Processing Power - The amount of data that can be processed by a
website at a given time
• Data Storage Capacity
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Table 3-1
Bandwidth Types
Quick Circuit Reference
Circuit Type
Capacity
DS0
64Kbps
T1, DS-1
1.544Mbps
E1, DS-1
2.048Mbps
T2, DS-2
6.312Mbps
E2
8.448Mbps
E3
34.368Mbps
T3 or DS3
44.736Mbps
OC-1, STS1
51.840Mbps
Fast Ethernet
100.00Mbps
OC-3, STS3
155.520Mbps
OC-3c
155.520Mbps
OC-12, STS12
622.080Mbps
OC-48
OC-96
OC-192
OC-255
2.488Gbps
4.976Gbps
10Gbps
13.21Gbps
Source: http://bandwidth.about.com/industry/bandwidth/library/blbwquickreference.htm
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Table 3-2
Data Powers of Ten
Term
Byte
Kilobyte
Definition
8 Bits
1000 Bytes
Megabyte
1,000,000 Bytes
Gigabyte
1,000,000,000 Bytes
Terabyte
1,000,000,000,000 Bytes
Petabyte
1,000,000,000,000,000 Bytes
Exabyte
1,000,000,000,000,000,000 Bytes
Zettabyte
1,000,000,000,000,000,000,000 Bytes
Yottabyte
1,000,000,000,000,000,000,000,000 Bytes
Note: These numbers are approximate and are simplified for illustrative purposes. A kilobyte is actually 1024
bytes, a megabyte 1024 kilobytes, a gigabyte 1024 megabytes, and the remaining terms scaled accordingly.
Source: Williams, Roy. Center for Advanced Computing Research, California Institute of Technology. “Data Powers of
Ten”. http://www.cacr.caltech.edu/~roy/dataquan/.
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Demo: Location and Hosting
• Mal's e-commerce Limited is a provider of
shopping cart functionality for websites
engaging in e-commerce.
– Free account, unlimited number of products can
be listed, credit card processing over
$500/month may find it difficult.
– Premium account ($6/mo) – gain access to
merchant gateways.
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Location and Hosting (Cont’d)

Technology components for creating an e-commerce store
location
– Domain name registration (UNINETT – Norid)
• Fist Step in creating an e-commerce location
• Domain name serves as the e-commerce store's virtual location on the
web
• The process is similar to getting a license and registration for
conducting business at a brick-and-mortar location
• Others: Domain.com,
– Host Selection
• Web host serves as a website's secure, high-bandwidth, professionally
maintained connection to the Internet. Website content is stored on the
host's servers (Several in Norway)
• Tiscali – web hotel
• Internett og NextGenTels bredbåndsportal BroadPark
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Location and Hosting (Cont’d)
• Hosting Alternatives
– Free Hosting
» Limited in the amount of data, bandwidth and type of content
» Used for very simple websites
– Shared Server Hosting
» One server hosts many websites
» Cheapest alternative for small businesses
– Dedicated Server Hosting
» A website is allocated its own dedicated server
» Used for larger websites
– Co-Located Server Hosting
» The customer owns the server and is responsible for maintenance
» Offers the most control for outsourced hosting
– In-House Hosting
» Very resource-demanding
» Typically used in large firms
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Example of IT architecture of an e-business:
many elements
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Information flows
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Marketing and Presentation

Next task is to attract and retain customers through a
variety of awareness-building activities
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–
–
–
Advertising
Guerilla Marketing
Direct Marketing
Presentation
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Marketing and Presentation (Cont’d)

Advertising
In addition to traditional advertising methods, e-commerce can use
Web-based marketing efforts
– Search Engine and Directory Listings
• Meta Tags (HTML Tags read by most search engines when indexing
the Web) are used to get website listed
– Title Tag – used in rankings more since Keyword tags are abused.
– Keyword Tags – provide keywords for search engine to associate with
website
– Description Tags – Allow websites to substitute own description in place
of description generated by search engine
• Paid Placement is used to gain increased visibility with potential
customers
– Banner Adds
• Most common advertising product on the Web
• Can be highly Targeted
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Marketing and Presentation (Cont’d)

Guerilla Marketing
– Characteristics of Guerilla Marketing (Traditional & Web-based)
• It does not include overt media buys
• It relies heavily on word-of-mouth to spread its message
• It is generally used by companies with limited budget
– Additional Web-based guerilla marketing Techniques
• Affiliate Programs – Marketing programs designed to enable
merchants to mobilize other websites (affiliates) to help sell products,
produce traffic, or build brand
• Viral Marketing – Company-developed products, services or
information that are passed from user to user
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Demo: Affiliate Program
• Affiliates place buttons, banners and links on their website.
•
•
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Commissions paid
There are two basic types of program; those that pay a commission for a sale
and those that pay a commission for some other type of positive action. An
example of the latter might be a small payment for recruiting people to your
mailing list.
– Pay per action or lead
– Pay per sale
The Primary affiliate is the one who actually sent you the customer. A
secondary affiliate's commission is typically much smaller and is paid to
someone who helped recruit the Primary affiliate.
– Pay the Primary affiliate: either a fixed amount of or % of the sale (pay per sale
programs only).
– Pay the Secondary affiliate: either a fixed amount of or % of the sale (pay per sale
programs only).
•
•
Tracking
Tracking of customers is done by using a cookie which is handed to them at
the time they click through from the affiliate. You can specify how long that
cookie lasts and this is checked at the time of the sale. Set it to zero if you
want to use a session cookie; one that dies when the browser is shut down.
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Marketing and Presentation (Cont’d)

Direct Marketing
– Involves direct contact between the company selling a product or
service and the intended customer
– Often considered intrusive and annoying
– Examples of direct marketing:
• Brick-and Mortar: Phone solicitations, door-to-door sales, etc.
• e-commerce: Unsolicited email (“spam”), newsgroup postings, etc.
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Marketing and Presentation (Cont’d)

Presentation
Presentation serves to add or detract from product’s appeal to customer. It
helps to draw and retain customers to a store
– Aspects of Online Presentation
• User Interface
– Is the e-commerce equivalent of Store Layout for brick-and-mortar stores
– Should reflect the theme of the store represented, be easy to navigate, and be
pleasing and viewable to the store’s customers
• Information Access (database navigasjon)
– Website should be fast and easy to navigate
• Customer Service
– Defines the customer’s experience
– It is a leading driver of customer retention
– e-commerce does not allow for real person-to-person live interaction
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Evaluate these sites:
• User Interface, Info Access, Customer Service:
– Høgskolen i Molde
– Universitetet i Bergen
– Turban: Wireless Cafe
– Egon Restaurant
– LOfavør
– Lo205 Demo: Dragonfly
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Exhibit 3-2
eBay has a very simple user interface that is comprised of simple text.
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Exhibit 3-3
Gartner employs a relatively advanced user interface that includes eleme nts of interactivity and advanced graphics.
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Marketing and Presentation (Cont’d)
• Forms of e-commerce Online Customer Service
– The Web: Useful for distributing static information to customers. It
provides a low-cost alternative for merchants and fast access to
information for consumers
– E-Mail: Helps customers get information not provided on the website,
but the information is not provided in real-time
– Chat: Allows customer to directly interact with a Customer Service
Representative (CSR) in real time, at increased cost to the merchant
– Discussion Groups: An electronic bulletin board that allows customers to
interact and help themselves. However, the quality of the information
provided is difficult to control
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Exhibit 3-3
Gartner employs a relatively advanced user interface that includes eleme nts of interactivity and advanced graphics.
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Exhibit 3-5
Lands’ End uses chat rooms to provide quick and inexpensive customer support
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Payment

Brick-and-Mortar stores
– Accept Cash, Credit Card, Personal Checks, etc.
– In the event of credit card fraud, the credit card company assumes liability

e-commerce stores
– Credit cards are the dominant form of payment on the web
– In the event of credit card fraud, the merchant assumes liability
– Because of the ‘Card-Not-Present’ transaction, e-commerce experiences higher
fraud rates and thus higher transaction fees
– Credit Card Processing:
• Paypal -
can accept credit card payments from customers even if you
don't have an account with Paypal yet. The business justs enter an
email address in the Paypal ID box, Paypal will contact them when
their first sale is registered.
• Other Merchant Gateways: Most payment gateways offer a mechanism for conecting to
secure pages hosted by them using hidden form fields. (VeriSign).
– Other Methods: E-gold - e-gold is an electronic currency, issued by e-gold Ltd., a
Nevis corporation, 100% backed at all times by gold bullion in allocated storage.
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Security

To protect their assets, Brick-and-Mortar stores employ
relatively simple security technologies (such as cameras,
alarms, security tags and security guards)

e-commerce stores require more sophisticated and
technologically complex security measures
– Attacks can potentially come from a worldwide base of hackers
– Potential for damage in the event of attack is much greater
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Security example: Authorize.net
•
•
For Your E-Commerce Website
Automate credit card transactions directly from your Website by integrating to the Authorize.Net
Payment Gateway via one of our connection methods:
Advanced Integration Method (AIM) Learn more...
•
When the customer clicks to submit his or her purchase information,
payment information is encrypted using 128-bit SSL technology and sent to
an Authorize.Net transaction server. The server sends the data through the
authorization network to the appropriate card issuer's bank, using a
secure, proprietary connection. When the authorization process is
complete—this takes around five seconds—the customer receives an
approval or decline response, and the Authorize.Net server stores the
transaction. Approved transactions are automatically settled each day and
are typically funded within two to three business days.
•
Merchants can check the status of current transactions submitted directly
from their website or run reports on past transaction activity by going to
the Authorize.Net Corporate site and logging into their own passwordprotected Merchant Interface. Online businesses also can use the
Authorize.Net Virtual Terminal feature of their Merchant Interface account
to enter payment information manually if customers prefer to call in their
credit card information
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•
•
Security example: Authorize.net
Additional Services
eCheck.Net®
Accept and process electronic check payments directly from your Web site or through the
Virtual Terminal. Learn more...
Fraud Detection Suite (FDS)
Identify, manage and prevent suspicious or potentially costly fraudulent transactions with
this customizable, rules-based solution for Web merchants. Learn more...
Automated Recurring Billing (ARB)
Save time and increase productivity by automatically handling recurring billings, or
"subscriptions," according to a specific billing interval and duration. Learn more...
Cardholder Authentication Programs
Reduce the liabilities and expenses that Web merchants incur from the unauthorized use of
credit cards by implementing the Verified by Visa and MasterCard® SecureCodeTM
programs. Learn more...
FraudScreen.Net®
FraudScreen.Net, powered by HNC's eFalcon service, is designed to help protect
merchants from the risk of fraudulent transactions. Learn more...
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Security (Cont’d)

Technologies to reduce the risk involved in e-commerce
transactions
– Passwords
• Intended to identify who is trying to access the site.
– Encryption
• Encryption refers to the encoding and decoding of information to be
transmitted so that only the intended recipient can interpret it
• Secure Sockets Layer (SSL) is the most popular security protocol
• Public Key Infrastructure (PKI): a set of two software keys are used
to ensure that only the creator and intended recipient of encrypted
information are able to access it
– Public Key – used for encrypting data that will be sent to a computer
with the corresponding private key
– Private Key – used for decrypting data received from a computer with a
corresponding public key
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Exhibit 3-6
buy.com customer login screen
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Exhibit 3-7
Digital Certificate Transmission in e-Commerce
Trusted Third Party Certificate Provider
1. Digital certificate / public
key and private key sent to
Web server with server (when server is initially
set-up)
private key
2. Copy of public key is sent to customer’s PC.
Customer accepts this certificate to create SSL
“pipe” between user’s PC and server
Customer’s PC
Encrypted
Credit Card
Information
4. Certificate used to
encrypt data
7.
pro Serv
ce er s
sse to
s c res
da redit and
ta
ca
rd
Credit
Card
Information
VISA
******
******
******
3. Encrypted “tunnel”
created
VISA
******
******
******
******
******
******
6. Private key
used to
decrypt data
Credit
Card
Information
5. Encrypted data sent to
server via internet
Encrypted
Credit Card
Information
Internet
Internet
Note: Step 3 indicates the
creation of an SSL encrypted
“tunnel” for data to pass through.
Steps 4 through 7 show what
happens behind the scenes in
SSL.
= non-SSL transmission
******
******
******
= SSL transmission
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Exhibit 3-8
Digital Signature Authentication
Trusted Third Party Certificate Provider
Web server with
private key
1. Digital certificate /
public key sent to
customer
Customer’s PC
5. User is presented with
digital signature
information. If user accepts
certificate, then SSL tunnel
is created.
Digital
Signature
ABC
Corp.
******
******
2. Private key encrypts
digital signature
document
3. Encrypted signature
sent
Encrypted
Digital
Signature
******
******
******
Internet
Internet
Encrypted
Digital
Signature
Digital
Signature
******
******
******
ABC
Corp.
******
******
4. Public key / certificate
used to decrypt digital
signature
1
0
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Security (Cont’d)

Technologies to protect companies from external attacks
– Screening Routers
• Routers that check to see if they should forward an information packet
based on a set of rules set by the network administrator
– Proxy Servers (or Gateway)
• Servers used to forward packets on behalf of PC’s on a company’s
internal network to the Internet. The identity of the PC requesting the
information is not transmitted across the Internet
– Firewals
• Equipment that sits between the Internet and the company’s internal
network. It looks at packets coming over a network in real time with
potentially malicious content
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Fulfillment

Fulfillment encompasses all activities that enable
merchants to complete customer orders

It is a significant factor in determining profitability of an ecommerce venture

For e-commerce, fulfillment is similar to that of catalog
sales

Burden of delivery is placed solely on merchant
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Fulfillment (Cont’d)
• Challenges of e-commerce fulfillment
– Customer demand for Transparency
• Providing increased information demand from Web customers
requires seamless integration of different systems and information
sources
– Multiple Activities and Parties
• Must be capable of handling many activities and parties
simultaneously
– Multiple Systems
• Must be able to coordinate between different platforms and computer
systems
– Capacity Utilization
• Must be able to accommodate fulfillment during peak times and yet
have efficient capacity utilization during valleys. This can be
accomplished by outsourcing fulfillment to third party e-commerce
service providers (ESP)
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Exhibit 3-9
Fulfillment — Integrating multiple partners, technologies, and systems is a major
challenge
Order
OrderProcessing
Processing
Systems
Systems


Procurement
Procurement
Systems
Systems


Inventory
Management
Purchasing
Systems

Potential
PotentialPartners
Partners


Potential
PotentialPartners
Partners
Payment
Processing
Security
Database
Systems
Order Entry



Banks
Payment
Processors
Customers
Picking
Picking/ /Pricing
Pricing
Systems
Systems
Multiple
Suppliers



Warehouse
Logistics
Inventory
Management
Security
Potential
PotentialPartners
Partners


Multiple
Outsourced
Suppliers
ESPs
Internal
Internal
Accounting
AccountingSystems
Systems
Returns
Returns
Systems
Systems


Multiple
Tracking
Systems
Return
Processing
Systems
Shipping
Shipping
Potential
PotentialPartners
Partners


Systems
Systems
Multiple
Shipping
Partners
ESPs

Potential
PotentialPartners
Partners
Multiple
Tracking
Systems


Multiple
Shipping
Partners
ESPs
Product
Information Exchange
1
1
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