Introduction to MIS

Chapter 7
Electronic Business

Technology Toolbox: Paying for Transactions

Technology Toolbox: Choosing Web Server Technologies
Cases: Entrepreneurship

Copyright © 1998-2004 by Jerry Post

Introduction to MIS
 Outline
 What types of products are sold online?
 How do Web-based services work and why do they change
the world?
 How can customers pay for products and why do you need
new payment mechanisms?
 How do firms get revenue from Web ads and how do
customers find a site?
 How do you create an EC Web site?
 How do portable Internet connections (mobile phones)
provide new ways to sell things?
 When do consumers and businesses pay sales taxes on the
Internet?
 Does the Internet create a global marketplace?
 Why did thousands of dot-com firms fail?

Introduction to MIS
 Salesperson
Electronic Business

Service, orders,
and information

Orders, Auctions,
and EDI
Large business
Small business/ Sales and
supplier
CRM
The Internet
Web hosting and
Web-based
services
Consumers

Customer

Introduction to MIS
 Forms of Electronic Commerce
Business Consumer

Business B2B B2C

EDI Consumer-oriented
Commodity auctions Sales
Support

Consumer C2B C2C

Minimal examples, Auction sites (eBay)
possibly reverse auctions But many of these are
like PriceLine and job dominated by small
contract sites business sales.

Introduction to MIS

 Pre-Purchase
 Static data sites.
 Promotion.
 Product specifications.
 Pictures.
 Schematics.
 Pricing.
 FAQs.
 Interactive sites.
 Configuration.
 Compatibility.
 Complex pricing.
Introduction to MIS
Marketing Phases
 Purchase
 Transmission security.
 User identification.
 Product selection.
 Payment validation.
 Order confirmation.
 Post-Purchase
 Service.
 Problem tracking.
 Sales leads.
 Resolve problems.
 Answer questions.
 Product evaluation.
 Modifications.
 Tracking customers.
 E-Commerce B2C U.S. Sales
U.S. Retail E-Commerce Sales

40

35

30
Retail Sales ($b)

25

20

15

10

0
EC/Total = 3.4% in 2006-Q4
1999-Q4
2000-Q1

2000-Q3
2000-Q4
2001-Q1
2001-Q2
2001-Q3
2001-Q4
2002-Q1
2002-Q2
2002-Q3
2002-Q4

2003-Q2

2003-Q4
2004-Q1
2004-Q2
2004-Q3
2004-Q4
2005-Q1
2005-Q2
2005-Q3
2000-Q2

2003-Q1

2003-Q3
EC 4Q/Year = 31% Total 4Q/Year = 26%
EC Annual 26% average growth rate

http://www.census.gov/mrts/www/ecomm.html
Introduction to MIS
 parts
supplier
parts
supplier
parts
supplier Production
Chain
warehouse warehouse

supplier supplier supplier

tool
workers manufacturer
Manufacturer

wholesaler wholesaler

distributor distributor distributor

retail store retail store retail store retail store

Consumers

Introduction to MIS
 Production Chain
Disintermediation

Manufacturer E-commerce
website

Retailer

Consumer

Introduction to MIS
 Dynamic Pricing
P
Price consumer is S
willing to pay

Perfect competition
price

Q
The ultimate goal is to set individual prices for each
consumer to capture the maximum price each is willing
to pay. As opposed to the perfect competition price,
where everyone pays the same price, and some
customers gain because they were willing to pay more.

Introduction to MIS
 Consumer Services: Social Networking
Google Ads

MySpace $ Advertiser
$

Ad
Content

Introduction to MIS 1
 Distributed Services
Original
document

Company 1
The Internet

Internet Service
Company 2
e.g., automated
document
Translated
translation
document

Introduction to MIS 1
 E-Commerce Risk Mitigation
It is critical that vendors
Consumer is protect their databases.
protected by credit
card company. Encrypt(Database)

Encryption protects Vendor

transmission of data
and verifies identity
of vendor. ata)
ar d d
t(c r edit c
Encr y p
r i de n tity.
r if y v endo
Ve
r s e rvices
o d u c ts o
pr Vendor is not protected by
credit card and has only
weak methods to verify
customer identity.
Customer

Introduction to MIS 1
 Payment Mechanisms
 Credit card drawbacks
 High transaction costs.
 Not feasible for small payments.
 Do not protect the merchant.
 Characteristics needed
 Low enough costs to support payments less than $1.
 Secure transmission.
 Authentication mechanism.
 Easy translation to traditional money.
 Alternatives
 Mobile phone bill. Smart Card
 Smart cards. 5400-1111-0000-
Name
 Digital cash.

Introduction to MIS 1
 Trusted Party Digital Cash
Service Conversion to
real money

(3) Cash amount is

verified and added to Bank
vendor account.
(1) Consumer
purchases a
cash value.

Vendor (2) Customer chooses

product, sends ID or
digital cash number.

Consumer

PayPal is similar, but takes a more interactive role in

Introduction to MIS every transaction. All item data is sent through PayPal. 1
 Web Advertising Revenue

Web Advertising

18
16
14
12
10 Advertising
8 Google
n
ilo
b
$

6
4
2
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Introduction to MIS 1
 Web Advertising Placement
Publisher Website
negotiate sites negotiate ads

Browse
page + info
ad link DoubleClick
ad Advertisers

request
page content Ad Rotate ads
Track hits
Collect money
Distribute payments
Track customers
User Web browser

Introduction to MIS 1
 Web Advertising: Advertiser Perspective
 Want viewers to see the ad.
 Want viewers to click through to the main site.
 Want to collect contact information from viewers.
 Need to match site demographics to target audience.
 Monitor response rates.
 Cost.

Introduction to MIS 1
 Web Advertising: Publisher Perspective
 Income
 Cost per thousand viewings ($1 - $50)
 Need volume (25,000 or 1,000,000 per month)
 Need demographics
 Tasks
 Ad rotation software
 Tracking and monitoring
 Ad sales staff
 Billing
 Third Party: DoubleClick

Introduction to MIS 1
 SurfStats pro Web site Log Analyzer

Introduction to MIS 1
 Google Ad Words
 Advertisers purchase keywords
 When users search for something Google displays ads
that match the keyword
 If a user clicks on an ad, the advertiser is charged.
 Advertiser Complications
 Choose keywords that users are likely to enter.
 Prices are not fixed—advertisers bid for keywords and the
highest bids at any point in time are placed at the top.
 Advertisers set budgets (daily, weekly, or monthly). When a
budget is reached the ads are no longer displayed.
 Any Web site owner can join Ad words and place ads
on a page. Google pays a portion of the revenue to the
owner when an ad is clicked.

Introduction to MIS 2
 Web Hosting Options
Business Situation Hosting Options

Small business with a few basic Static HTML with a Buy Now
items. button.

Unique items of uncertain value. eBay auction.

Many items but minimal Web commerce server hosted by

configuration issues. third party.

Many unique items and merchant Amazon MarketPlace.

identity is not critical.

Unique service. Custom programming, probably

run on a hosted server.

Custom application with tight Custom programming running on

linkages to in-house your own servers.
applications and databases.

Introduction to MIS 2
 Simple Static HTML Web Site
Main Web Page

Categories
…

Category 1 Category 2 Category 3

Product photo Product photo Product photo

… … … … … …

Product 1 Product 2 Product 3 Product n

Description Description Description Description
Price Price Price Price
Photo Photo Photo Photo

Introduction to MIS 2
 Simple Web Site with Buy Now Button
Merchant Web site
Card Processor Site

Product Buy Now

Description Shopping Cart Credit Card Data
Price Item Price Name
… … Address
Total Phone
Check Out Card Number
Submit
Notify merchant

Customer
Notification
http://www.goemerchant.com/index.htm (Accept/Reject)

http://www.paypal.com http://checkout.google.com
Introduction to MIS 2
 Visa Validation
Credit Card Processing
MasterCard Pay registrar
Settlements (Verisign) $35/year for
CC Online
-$ domain name.
Data Card
Processor Pay CA (Verisign)
+$
CC Confirm $250/year for
Issuing Data certificate
Bank Merchant
Pay card processor
Bank
Web Server (Verisign) and
Merchant bank fixed
Digital fee and value fee:
Certificate 2%-5%

r d D ata
ry p te d Ca
Enc
CA: Verisign

Introduction to MIS 2
 Web Auctions
 Uncertain price
 Can set reserve price
 Good for unique items
 Efficiency depends on
 Full information
 Adequate number of
participants

Introduction to MIS 2
 Amazon.com MarketPlace
Search
Cameras
Description

Catalog Price
Vendor Transfer Database
Checkout
Description
Price
Scanned image
Contact info Consumer
Product search
Transaction Processing Choose vendor
Amazon.com handles credit Pay for item
Sends order info to merchant
Merchant ships item to consumer

Introduction to MIS 2
 Web Commerce Servers

Your Web site

Products
Shopping cart
Sales
Merchants Customers

Commerce Server Shell

Load database
Images
Database
Descriptions
Prices
Web servers
Customize site
Web/Commerce Hosting Company

Introduction to MIS 2
 Application Service Provider

Business Application
e.g., Accounting
Store data
Analyze data
Facilitate company
interaction

Businesses that lease the use of the application

Introduction to MIS 2

Business Situation
Small business with a few basic
items.
Unique items of uncertain value.
Many items but minimal
configuration issues.
Many unique items and merchant Amazon MarketPlace.
identity is not critical.
Unique service.
Custom application with tight
linkages to in-house applications
and databases.
Introduction to MIS
Web Hosting Options
Hosting Options
Static HTML with a Buy Now
button.
eBay auction.
Web commerce server hosted by
third party.
Custom programming, probably
run on a hosted server.
Custom programming running on
your own servers.
2
 Mobile Commerce

As PDAs, cell phones, and tablet computers

converge; people will ultimately be able to connect to
any business every place they go.

Introduction to MIS 3
 Technology Toolbox: Paying for Transactions
Payment Method Fixed Cost Fixed Fee Discount Fee Fraud/Insurance

Cash Low except for $0.00 $0.00 Physical security

security
Check-physical $20/month $0.25 1.7% Included
Check-electronic $20/month $0.25 2.5% Included
Credit Card-physical $10/month $0.25-$0.50 1.6% Covered: 0.08%
Minimum $25 fraud average

Credit Card-electronic $30-$50/month $0.25-$0.50 2.6%-4% Not covered: 0.25%

Minimum $25 fraud average

Debit Card Setup/key pads $0.35-$0.55 0% - 2% None

PayPal None $0.30 2.2% - 2.9% Covered for physical

shipments

Introduction to MIS 3
 Quick Quiz: Paying for Transactions

1. Why have consumers rejected most electronic payment

mechanisms?
2. What additional fees are charged for international
transactions?
3. What happens if a customer refutes a charge?

Introduction to MIS 3
 Technology Toolbox: Choosing Web Server
Technologies
Main Platforms:
Java: J2EE
IBM Websphere
Oracle
PHP/PERL/PYTHON
Microsoft .NET

Introduction to MIS 3
 Quick Quiz: Web Server Technologies

1. Why would programmers become so attached to one

system?
2. What are the advantages of choosing the most popular
server technology?
3. What are the dominant costs of creating a website?

Introduction to MIS 3
 Cases: Retail Sales
Annual Revenue

350

300

250
Wal-Mart
Billion $

200 Sears
SuperValu
150
Amazon
100

50

0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Net Income / Revenue

0.2

0.1

0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
-0.1 Wal-Mart
Billion $

Sears
-0.2
SuperValu
-0.3 Amazon

-0.4

-0.5

-0.6

Introduction to MIS 3