Transcript E-Business
Electronic Commerce
Yan Xiong
College of Business
CSU Sacramento
9/25/03
Agenda
What is Electronic
Commerce?
Understanding the Internet
IT components of
Electronic Commerce
Control issues related to
Electronic Commerce
E-Payment
“In a few years' time, there
will be no Internet companies
- there will just be companies
- and all companies that will
operate in the future, will be
Internet companies.”
-A. Grove, ~1999
E-Business
“Electronic business
(e-business) is the use of
information technology and
electronic communication networks
to exchange business information
and conduct transactions in
electronic, paperless form.”
Glover, Liddle and Prawitt
Types of E-Commerce
Business to Business (B2B)
Business to Customer (B2C)
Various others (e.g., Government to
Customers)
Were projected to grow at same rate
BUT . . . then came
“dot.com failures”
E-Business Forecast **
Type of
1999
E-Business Volume
B2B
B2C
$109
billion
$20
billion
% of
Total
2004
Volume
% of
Total
84
$7.3
trillion
$800
billion
90
16
10
** Forrester and Gartner Groups (2000)
Where we’ve been
Add
proliferation
line
Discovery
High
Expectations
Reality
Check
Pragmatic
Adoption
1999
2000
2001
2002
Machine to Machine
Progression
•Rosettanet standardizes
format and choreography
for transactions
•Web services exposes
business capabilities as
real-time executable
functions
•Look for the best of both
to merge
Forecast
Product
Information
Order
Order Ack.
Payment
Invoice
Inventory
Reporting
Advanced Ship
Notice
Receipt
Notification
Web services
Order
Contract
Distributors Ship Notice
Manufacturers
Inventory
ForecastQuality DataCustomers
Invoice
Payment
Build Signal
Ship Notice
Orders
Forecast
Suppliers
Payment
EDI
FTP
Rosettanet
Invoice
Logistics
EDI
Electronic Data Interchange
Mature technology (15 years) now
being moved to Internet
Mainframe computers
Batch processing
Using value added network (VAN)
Standards have been developed
Accounting standards recently
Typical EDI Transaction
Manufacturer
Purchase
Order
Value-Added
Network
Purchase
Order
Confirmation
Confirmation
E-mail using
ANSI X12 standard
Supplier
EDI Disadvantages
Changes limited by EDI structureserial process
EDI using VANs costly
Works best between pairs of companies
Difficult for small firms to participate
Cisco has small firms use web service
Financial Electronic
Data Interchange (FEDI)
Use of EDI to exchange
information is only part of
buyer-seller relationship in
B2B electronic commerce
Electronic funds transfer
(EFT): making cash payments
electronically
EFT done through Automated
Clearing House (ACH) network
Emerging B2B Problems
Antitrust issues
Control issues
Virus and security problems
Privacy of data issues
Problems greater than with
traditional business enterprises
due to multiplicity of players
B2C Effects
Globalization of markets
One-to-one marketing
Customization of products / services
Integration of systems with clients
Dell linked to clients intranets
Intel has to improve Taiwan
Phone Company
B2C Effects
E-service not even
envisaged before
e.g., UPS adding computer setup
service to Dell’s provisioning
Commoditization of products
Commodity is product with narrow
profit margins and no major brand
differentiation in price
e.g., printers
B2C Opportunities
Companies can create
electronic catalogs on
Web sites to totally automate
sales order entry
Electronic commerce applications
can also improve quality of
post-sales customer support
B2C Opportunities
For products that can be
digitized :
(books, software, music)
inbound / outbound logistics
steps of value chain can be
performed electronically
Improve efficiency / effectiveness
of value chain support activities
Bank Per-transaction Costs
$1.07
$0.39
E-Business
$0.01
Tellers
ATMs
Online
Home Heating Case
Downes and Mui
East Coast client
Part of larger oil and gas
retail operation
17% share of total market
Only 4% of direct sales to residents
Home Heating Oil
OPPORTUNITIES:
Sales to residents
accounted for 75% of profits
Sales to independent distributors
at a much lower margin than to
residential customers
Home Heating Oil
PROBLEMS:
Company’s brand name
not strong
70% of residential customers
over age of 50
Exit costs too high to walk away
from business
Heating Oil Case
SOLUTION:
Bypass distributors
Break industry rules
Destroy its own Value Chain
Prospects so poor, they had little to
lose
New “Virtual Fuel Company” (VFC)
Virtual Fuel Company
Early stages:
Customers can order via
telephone or Web
Longer term:
Connect sensors from home
heating tanks to production
facilities
Over wireless network or internet
Virtual Fuel Company
Will be able to tell customer
when it is time to reorder
Maybe JIT system?
Fuel truck pulls up to residence
just when heating oil tank
reaches empty
New Model Advantages
No expensive sales or
distribution function
Outsource order process
to customer
Compete aggressively with
local dealers on price
Reverse local dealer advantage of
location and personal relationships
Heating Oil Case
BOTTOM LINE:
“ . . .a disadvantaged player
already in the industry decided to
solve its problem by wrecking the
business model for everyone.”
Downes and Mui
But . . . .
. . .what does this have to
do with accounting?
electronic transactions more
difficult to track / control
fuzzy borders between firms
(e.g., vendors / customers)
revenue recognition
auditing becomes more difficult
So . . .
. . . let’s learn some more
about this beast that we
have to tame:
how the Internet works
IT components
control issues
e-payments
Agenda
Understanding the Internet
Internet Layers
Infrastructure Layer
Application Layer
Intermediary Layer
Commerce Layer
Infrastructure Layer
Companies providing
products and services to
create Internet provider (IP)
network infrastructure
Includes:
Internet Service Providers (ISPs)
security vendors
fiber optics vendors
telecommunications companies
Application Layer
Enables business activities
to be performed online
Provides software production and
services to facilitate Web transactions
Includes:
Web development software
search engine software
Web databases
Intermediary Layer
Increases efficiency of
electronic markets by facilitating
interaction between buyers and sellers
Acts as mechanism for transaction
processing through previous layers
Includes:
brokerages
online travel agents
online advertising
Commerce Layer
Sales of products and
services over the Internet to
consumers and businesses
Includes:
“e-tailers”
manufacturers selling online
subscription-based services
online entertainment
airlines selling tickets online
Definitions
IP: Internet protocol
IP Address: message destination
Message Packet: String of data,
each carrying IP and IP Address
Regional Node: Meshing of
transmission lines
CONNECTION OPTIONS
Dial-up
Modem
You
DSL
Modem
Cable
Modem
Phone Lines
POP
Local bank
of modems –
Point of
Phone
Presence
Phone
Lines Company
ISP
Internet
Service
Provider
Cable
Node
Neighborhood
Connection Options
Dialup Modem: can make
local call to access Internet
DSL Modem: regular phone service
and Internet service, on same line at
same time
Cable Modem: the more neighbors
accessing node at same time, the
slower the connection
E-mail Messages
IPO
Message sits on
the E-mail server
until receiver logs
on; then message
sent.
Domain Name
Server (DNS)
E-mail
Server
log-on Receivor
Servers
High capacity computer
contains network software
Handles:
communication
storage
resource sharing
Application software / data
common to all users
Internet Protocols
Protocol: guidelines
computers use to talk to
one another
Internet Protocol (IP):
for moving raw data
Transmission Control
Protocol (TCP): for making
sure that data arrives intact
Putting them together = TCP / IP
Agenda
IT components of
Electronic Commerce
Types of Networks
Global networks used by
many companies to conduct
e- commerce and to manage
internal operations consist of:
• Private portion owned or
leased by the company
• The Internet
Private Portion
Local area network (LAN):
system of computers and
other devices (printers)
located in close proximity
to each other
Wide area network (WAN):
covers a wide geographic area
LAN
Nodes in close
proximity to each other
e.g., same building
Owned by using organization
e.g., not leased from carrier
Why a LAN?
Simplicity
Group production
Data sharing
Faster data transfer
Cheaper
Easier resource control
WANs
Companies typically own
all equipment for local
area network (LAN)
Usually don’t own long-distance
data communications connections
of wide area network (WAN)
Either contract to use value-added
network (VAN) or use the Internet
Intranets
Internal networks
connecting to main
Internet
Can be navigated with same
browser software, but are
closed off from general public
Extranets
Link the intranets of two
or more companies
Either Internet or VAN can
be used to connect companies
forming extranet
Value-added networks (VAN) more
reliable and secure than Internet
but more expensive
Network Types
Value-added Network (VAN)
large-scale telecommunications
networks
leased connections to clients
charge based on usage
Virtual Private Network (VPN)
less expensive (public network)
encrypt all packets
What is a VPN?
Info-Tech Research Group
DotComAdvisor
Network encrypted with
special security protocol
Requires a server for
authenticating remote users
Why VPNs?
Low implementation cost
few thousands of $ for
each 20 to 50 simultaneous
users
Low maintenance costs
eliminates large bank of modems
ISP handles this
Why VPNs?
Long distance savings
Local connections
Savings often pay for VPN
in a few months
What’s VPN Downside?
Some security problems
Integration with other network
technologies
access and use
Communications
Channels
Medium that connects
sender and receiver
– standard telephone lines
– coaxial cables
– fiber optics
– microwave systems
– communications satellites
– cellular radios and telephones
Client-Server
Many WANs, LANs set up
as client/server systems
Each desktop computer is client
Client send requests for data to server
Servers perform preprocessing on
data base and send only relevant
subset of data to client for local processing
Agenda
What is Electronic
Commerce?
Understanding the Internet
IT components of
Electronic Commerce
Control issues related to
Electronic Commerce
E-Payments
E-Commerce Threats
High value and complexity
of E-Commerce initiatives
Outside threats from automated
attack tools
Lack of attention to security
fundamentals
Myriad points of access with which
security managers must be concerned
Computer Technology Research Corporation, 2000
Types of Threats
Interception
Redirection (spoofing)
Impersonation
Identification
Exploitable Program Errors
Weak Client Security
Deloitte and Touche
Auditing Challenges
Increased complexity of
auditing through computer
Integrity and reliability of
clients’ networks
Extension of audit to trading
partners’ systems
Increased skills required by smaller
auditing firms
small firms going on-line
Control Issues
E-commerce creates
control issues:
• Validity of transactions
• Authorization of transactions
• Safeguarding of assets
• Safeguarding privacy
Control Issues
Fundamental control
objective: all transactions
are valid
In e-commerce, transaction validity
requires two things:
• Authenticate identity of parties
• Ensure that information is not
altered during transmission
between buyer and seller
Control Issues
Proper authorization of
transactions essential to
protect each party from
unilateral repudiation of
transaction by other party
Both organizations and individuals
want to safeguard their assets
Control Issues
E-commerce threats:
– loss of confidentiality
– unauthorized access
– loss of data
Although electronic commerce
introduces new threats not present in
traditional methods, it also provides
possibility of more effective controls
Agenda
What is Electronic
Commerce?
Understanding the Internet
IT components of
Electronic Commerce
Control issues related to
Electronic Commerce
E-Payments
E-Payment Methods
Magnetic Strip Card
(e.g., ATM cards)
Smart Cards:
contains microprocessor
and storage unit
store 100 times more data
popular in Europe
requires US equipment investment
SET Protocol
Secure Electronic
Transaction (SET)
Master Card / Visa
Provide secure payment environment
for transmission of credit card data
Number SET users increased by 300%
since implementation in 1998
SET Features
Confidentiality (encryption)
Data integrity
digital signatures / message digests
Cardholder / merchant authentication
digital signatures / certificates
Platform interoperability
defined protocols / message formats
Topics Covered
What is Electronic
Commerce?
Understanding the Internet
IT components of
Electronic Commerce
Control issues related to
Electronic Commerce
E-Payment