E-Commerce Lecture Notes

E-COMMERCE TECHNOLOGY AND MANAGEMENT
UNIT I
NOTES
FUNDAMENTAL OF E-COMMERCE
1.1 INTRODUCTION TO E-COMMERCE 1.1.1 Introduction Two thousand years ago, Roman roads brought trade and commerce to Europe in an unprecedented manner. A thousand years ago, the spice routes linked the cultures of East and West. At the dawn of the second millennium, the Internet, the worlds largest computer network, the network of networks, is making fundamental changes to the li es of e eryone on the planet!changing fore er the way business is conducted. Internet has become an important medium for doing global business based on the state of the art technology. "lobal business was conducted in a new way# electronically, using networks and the Internet. The a ailability of Internet has led to the de elopment of E-Commerce (Electronic commerce), in which business transactions take place ia telecommunication networks. E!$ommerce has two ma%or aspects# economical and technological. The stress of this course will show you how to get started in the comple& and e&citing world of Electronic $ommerce. 'ew standards and new facilities are constantly emerging and their proper understanding is essential for the success of an operation and especially for those who are assigned a duty to select, establish, and maintain the necessary infrastructure. 1.1. !rie" #i$tor% O" E-Commerce The history of E!commerce is a history of how Information Technology has transformed business processes. (ome authors will track back the history of E! commerce to the in ention of the telephone at the end of last century. The Internet was concei ed in
ANNA UNIVERSITY CHENNAI
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)*+*, when the Ad anced Research ,ro%ects Agency -a .epartment of .efence organi/ation0 funded research of computer networking. The Internet could end up like E.I -Electronic .ata Interchange0 without the emergence of the World Wide Web in )**1s. E.I -Electronic .ata Interchange0 is widely iewed as the beginning of E! commerce if we consider E!$ommerce as the networking of business communities and digitali/ation of business information. E.I, which e&panded from financial transactions to other transaction processing and enlarged the participating companies from financial institutions to manufacturers, retailers, ser ices, and so on. 2any other applications followed, ranging from stock trading to tra el reser ation systems. (uch systems were described as telecommunication applications and their strategic alue was widely recogni/ed. With the commerciali/ation of the Internet in the early )**1s and its rapid growth to millions of potential customers, the term electronic commerce was coined, and E$ applications e&panded rapidly. 3ne reason for the rapid e&pansion of the technology was the de elopment of networks, protocols, software, and specifications. The other reason was the increase in competition and other business pressures. 4rom )**5 to )*** we ha e witnessed many inno ati e applications ranging from ad ertisement to auctions and irtual reality e&periences. Almost e ery medium! and large!si/ed organi/ation in the 6nited (tates already has a Web site many are ery e&tensi e7 for e&ample, in )*** "eneral 2otors $orporation offered )8,111 pages of information that included *8,111 links to its products, ser ices, and dealers. 1.1.& De"inition Commerce' O" E-
Electronic commerce is an emerging model of new selling and merchandising tools in which buyers are able to participate in all phases of a purchase decision, while stepping through those processes electronically rather than in a physical store or by phone -with a physical catalogue0. The processes in electronic commerce include enabling a customer to access product information, select items to purchase, purchase items securely, and ha e the purchase settled financially. It is an emerging concept that describes the process of buying and selling or e&changing of products, ser ices7 and information ia computer networks including the Internet. E!commerce is basically, doing business!as!usual, but across the Internet.
9ou ad ertise your products or
ser ices on your Web site, as you would in any other media like newspapers, T: or brochures. Ad ertising on your Web site can be done in two ways.
2 ANNA UNIVERSITY CHENNAI
The first is by use of a relati ely simple Web site consisting of a few pages whereby you tell potential customers who you are, what you do, where you are and how they can contact you - easiest done by gi ing them your email address0. The second way of enabling world!wide customers to buy from you is to pro ide them with an On-Line C(t(lo)ue of your products which they can browse at their leisure without ha ing to go to your place of business. On-Line Catalogue: 3n!;ine $atalogue is that catalogue where people access ia the Internet. 3n! ;ine $atalogue is an integral part of website, enabling customers to... <rowse through stock list, read about an item or ser ice7 ;ook at photographs of the products. (elect which items they want to purchase And drop them into a shopping cart as they go along. When they ha e completed their shopping, they go to the $heck!3ut. The ne&t step is to re=uest the order by filling in their details and method of payment on a form which is waiting for them at the $heck!3ut. The form is already partially completed with a breakdown of the items in their shopping cart, prices inclusi e of ta&, and shipping > handling charges, if any. If they choose to pay by credit card, the form includes a place for them to fill in their credit card number. And then, with one press of a button, they send the order to you. Electronic perspectives: Commerce under different
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;ets see how Electronic $ommerce -E$0 is defined under each perspecti e. 1. Communications Perspective E$ is the deli ery of information, products ?ser ices, or payments o er the telephone lines, computer networks or any other electronic means.
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2. Business Process Perspective E$ is the application of technology toward the automation of business transactions and work flow. 3. Service Perspective E$ is a tool that addresses the desire of firms, consumers, and management to cut ser ice costs while impro ing the =uality of goods and increasing the speed of ser ice deli ery. . Online Perspective E$ pro ides the capability of buying and selling products and information on the internet and other online ser ices. 1.1.* Cl($$i"ic(tion$ o" E-Commerce A++lic(tion$ Electronic $ommerce -e!$ommerce0 is a general concept co ering any form of business transaction or information e&change e&ecuted using Information and $ommunication Technologies -I$Ts0. E!$ommerce takes place between companies, between companies and their customers, or between companies and public administrations. Electronic $ommerce includes electronic trading of goods, ser ices and electronic material. E!$ommerce systems include commercial transactions on the Internet but their scope is much wider than this7 they can be classified by application type# Electronic !ar"ets: The principle function of an electronic market is to facilitate the search for the re=uired product or ser ice. Airline booking systems are an e&ample of an electronic market. Electronic #ata $nterc%ange &E#$': Electronic .ata Interchange -E.I0 is the electronic e&change of business documents in a standard, computer processable, uni ersally accepted format between!trading partners. E.I is =uite different from sending electronic mail, messages or sharing files through a network. In E.I, the computer application of both the sender and the recei er, referred to as Trading ,artners -T,s0 ha e to agree upon the format of the business document which is sent as a data file o er electronic messaging ser ices.
The two keyaspects of E.I that distinguish it from other forms of electronic communication, such as electronic mail, are# ). The information transmitted is directly used by the recipient computer without the need for human inter ention is rarely mentioned but often assumed that E.I refers to interchange between businesses. It in ol es two or more organi/ation or parts of organi/ation communicating business information with each other in a common agreed format.
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@. The repeated keying of identical information in the traditional paper!based business. $ommunication creates a number of problems that can be significantly reduced through the usage of E.I. These problems include# ! Increased time ;ow accuracy Aigh labour charges Increased uncertainty.
To take full ad antage of E.Is benefits, a company must computeri/e its basic business applications. Trading partners are indi idual organi/ation that agrees to e&change E.I transactions. E.I cannot be undertaken unilaterally but re=uires the cooperation and acti e participation of trading partners. Trading partners normally consists of an organi/ations principal suppliers and wholesale customers. (ince large retail stores transact business with a large number of suppliers they were among the early supporters of E.I. In the manufacturing sector, E.I has enabled the concept of Bust!In!Time in entory to be implemented. BIT reduces in entory and operating capital re=uirements. E.I pro ides for the efficient transaction of recurrent trade e&changes between commercial organi/ations. E.I is widely used by, for e&ample, large retail groups and ehicle assemblers when trading with their suppliers. $nternet Commerce The Internet -and similar network facilities0 can be used for ad ertising goods and ser ices and transacting one!off deals. Internet commerce has application for both business! to!business and business to consumer transactions.
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T,e t,ree c(te)orie$ o" E Commerce 1.1.- T%+e$ o" e-commerce
There are a number of different types of E!$ommerce <@< ! <usiness to <usiness <@$ ! <usiness to $onsumer $@< ! $onsumer to <usiness <@E ! <usiness to Employee $@$ ! $onsumer to $onsumer
B2B - Business to Business
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E!commerce has been in use for =uite a few years and is more commonly known as E.I -electronic data interchange0. In the past E.I was conducted on a direct link of some form between the two businesses where as today the most popular connection is the internet. The two businesses pass information electronically to each other. <@< e!commerce currently makes up about *CD of all e!commerce transactions. Typically in the <@< en ironment, E!$ommerce can be used in the following processes# ! C Con$umer ,rocurement7 order fulfilment7 2anaging trading!partner relationships. !u$ine$$ to
<usiness to $onsumer e!commerce is relati ely new. This is where the consumer accesses the system of the supplier. It is still a two way function but is usually done solely through the Internet. <@$ can also relate to recei ing information such as share prices, insurance =uotes, on!line newspapers, or weather forecasts. The supplier may be an e&isting retail outlet such as a high street store7 it has been this type of business that has been successful in using E!$ommerce to deli er ser ices to customers. These businesses may ha e been slow in gearing!up for E!$ommerce compared to the inno ati e dot.com start ups, but they usually ha e a sound commercial structure as well as in!depth e&perience of running a business ! something which many dotcoms lacked, causing many to fail. E.(m+le# A home user wishes to purchase some good =uality wine. The user accesses the Internet site http#??www.craigs.com.au and follows the links to read a report on the recommended wines. After reading the tasting notes the user follows the links to place an order along with deli ery and payment details directly into the merchants in entory system. The wine is then dispatched from the suppliers warehouse and in theory is deli ered to the consumer without delay.
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C2B - Consumer to Business $onsumer to <usiness is a growing arena where the consumer re=uests a specific ser ice from the business. E.(m+le# Aarry is planning a holiday in .arwin. Ae re=uires a flight in the first week of .ecember and is only willing to pay Rs. @51. Aarry places a submission with in a web based $@< facility. .odgy <rothers Airways accesses the facility and sees Aarrys submission. .ue to it being a slow period, the airline offers Aarry a return fare for Rs. @51. B2E - Business to Emplo(ee <usiness to Employee e!commerce is growing in use. This form of E! commerce is more commonly known as an EIntranet. An intranet is a web site de eloped to pro ide employees of an organisation with information. The intranet is usually access through the organisations network, it can and is often e&tended to an Entrant which uses the Internet but restricts uses by sign on and password. C2C - Consumer to Consumer These sites are usually some form of an auction site. The consumer lists items for sale with a commercial auction site. 3ther consumers access the site and place bids on the items. The site then pro ides a connection between the seller and buyer to complete the transaction. The site pro ider usually charges a transaction cost. In reality this site should be call $@<@$. <@A is the least de eloped area of E!$ommerce and it relates to the way that public sector organisations, at both a central and local le el, are pro iding their ser ices on!line. Also known as e!"o ernment, it has the potential to increase the domestic and business use of e!$ommerce as traditional ser ices are increasingly being deli ered o er the Internet. The 6F go ernment is committed to ensuring this country is at the forefront of e!$ommerce and it is essential that e! "o ernment plays a significant part in achie ing this ob%ecti e. 1.1./ Sco+e o" E-Commerce (elling can be focussed to the global customer ,re!sales, subcontracts, supply
4inancing and insurance $ommercial transactions# ordering, deli ery, payment ,roduct ser ice and maintenance $o!operati e product de elopment .istributed co!operati e working 6se of public and pri ate ser ices <usiness!to!administrations -e.g. customs, etc0 Transport and logistics ,ublic procurement Automatic trading of digital goods Accounting .ispute resolution
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1.1.0 E- Commerce in Action
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)o* E-Commerce +or"s The consumer first mo es through the internet to the merchants web site. At the web site, the consumer is briefly gi en an introduction to the product or ser ices the merchant offers. It is at this point that the consumer makes the decision to isit the web store by clicking on a link or button located on the web page -e.g., <uy 'ow, (hop 3nline, or an image of a shopping cart button are common entry points into a web store0. After choosing to isit the web store, the consumer is typically connected to an online transaction ser er located somewhere else on the internet which runs software commonly referred to as a shopping cart application. The shopping cart application has been setup by the merchant to display all products and ser ices offered, as well as calculate pricing, ta&es, shipping charges, etc. 4rom there, the consumer decides that he wants to purchase something, so he enters all pertinent credit card information and a sales order is produced. .epending on the ecommerce implementation, the sales order can now take two totally different paths for confirming to the consumer that the order is officially placed. Scenario 1 The consumers credit card information goes directly through a pri ate gateway to a processing network, where the issuing and ac=uiring banks complete or deny the transaction. This generally takes place in no more than 5!G seconds and the consumer is then informed that the order was recei ed, the credit card was authori/ed, and that the product will ultimately be shipped. Scenario 2 The consumers entire order and credit card information is electronically submitted back to the merchants ser er -usually ia email, 4T,, or ((; connection0 where the order can be re iewed first and then appro ed for credit card authori/ation through a processing network. The consumer then recei es an email shortly afterwards, confirming the order being recei ed, the credit card being authori/ed, and status on when the product will e&actly be shipped.
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In both scenarios, the process is transparent to the consumer and appears irtually the same. Aowe er, the first scenario is a more simplistic method of setting up a shopping cart application and does not take into consideration any back office issues that may delay shipment -i.e., items out of stock, back orders, orders submitted after office hours or during holidays, etc.0. 2anage2ores e$ommerce 2anager relies on the second scenario to handle all of its ecommerce orders. This second scenario keeps the consumer accurately informed throughout the entire ordering process. ;et us assume an ecommerce implementation that uses the second scenario mentioned abo e. There are se eral basic steps you will need to accomplish before becoming $ommerce enabled. ). @. H. C. 5. "etting a 2erchant <ank Account Web Aosting Web .esign $onsiderations Registering a .omain 'ame 3btaining a .igital $ertificate
charges.
,etting a !erc%ant Ban" -ccount In order to be able to accept credit cards, you must apply for an account with a credit card merchant account pro ider. This can be relati ely easy or somewhat difficult, depending on which country you li e in, and the type of business you are running. When choosing a merchant account pro ider, the following should also be noted# ). In order for credit card authori/ation to be automatic from within 2anage2ore, you must ensure that your merchant account pro ider has credit card processors that connect with I$ :erifyI, ,$ $hargeI, or Authori/e'etI -i.e.Intellicharge Interface0 software. These products are sold separately from 2anage2ore and eliminate the need for merchant terminal de ices or separate time consuming steps to appro e credit cards. 9our merchant account pro ider must allow you to handle non!swiped credit card transactions. This refers to transactions where the customer is not present and only the credit card number and e&piration date are being used for appro ing the
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H.
C. 5.
When choosing a merchant account pro ider, you should do a little research on the companys reputation, years in business, and company si/e. $onstantly changing to a new merchant account pro ider when your old one goes out!of business can be costly and time consuming. A oid merchant account pro iders that ask for a non!refundable fee before you get appro ed. A oid merchant account pro iders that re=uire ) or @ year contract terms. (ince there are so many merchant account pro iders a ailable, it doesnt make sense to lock your company into a commitment for any period of time. E&pect merchant account pro iders to ha e some form of a sign up fee after being appro ed only. These fees can come in the form of an application fee, processing fee, software fee, etc. Typically e&pect to pay around J)11 to J511 for getting an account setup to accept credit cards and sometimes electronic checks. 9ou should be able to find a merchant account pro ider that can offer you discount credit cards rates ranging from ).G5D to @.G5D and no more than . @5 cent per transaction. If not, contact Intellisoft regarding our merchant account pro ider affiliates and the free Intellicharge Interface %ust for signing up with them. 9ou will need a dedicated phone line or data line for processing credit cards and electronic checks. 'ote# If your computer or local area network is already connected to the internet, a separate data line will not be necessary if you use the Intellicharge Interface for electronic payment.
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G.
8.
+e. )osting Web hosting is a ery important step in this process, as this is how you gain a presence on the internet in the first place. There are actually two scenarios that can be used for web hosting. (cenario) in ol es setting up and maintaining your own web ser er, while (cenario @ in ol es farming out all web hosting administration to an I(,. An Internet (er ice ,ro ider -I(,0 is a company that pro ides you with internet access and limited hard dri e space on their web ser ers for hosting your web site. The following should be noted when searching for an Internet (er ice ,ro ider# ). Always try to find an I(, that can pro ide a local telephone number for you
to connect
to the internet.
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$hoose an I(, that is known for ha ing few interruptions of ser ice. $hoose an I(, that is known for good technical support and has knowledgeable people familiar with ecommerce sites. $hoose an I(, that consistently has fast connection speeds. As with any company you do business with, make sure the I(, is reputable.
can pro ide web design and consultation.
The online transaction pro iders that offer the actual web store itself can sometimes be hosted by your same I(, or may re=uire a completely different pro ider, referred to as a $ommerce (er ice ,ro ider -$(,0. 2any small businesses tend to choose $(,s for creating a web store because it gi es them the fle&ibility of choosing a pro ider that offers competiti e pricing and the best shopping cart application for their needs. 3nline transaction pro iders will usually pro ide one shopping cart solution they feel is better than the many others that e&ist and differ by price, appearance, layout, functionality, and ease of use. The following should be noted when dealing with shopping cart applications# ). 3nline transaction pro iders will either sell or rent you the use of an online shopping cart application for your business. <e forewarned that purchasing an online shopping cart application is ery e&pensi e. 2ost businesses will rent these online web store programs rather than committing to such a steep in estment. Rental pricing for the use of shopping cart programs ary depending on number of transactions generated a month, number of products listed on the shopping cart application, and the sophistication of the shopping cart application itself. There are a lot of online transaction pro iders out there, and they all ha e arying packages. .eciding on a pro iders package that fits your needs is perhaps the most important aspect.
@.
H.
+e. #esign Considerations With little knowledge of AT2; and a lot of patience, you can probably create your own corporate web site with the help of products like 2icrosoft 4ront,ageI or .reamWea erI. Aowe er, when adding a web store to your web site, you may want to seek the help of professional web designers to make the look and feel of your web store consistent with the rest of your corporate web site. 2ost shopping cart applications, like (oft$art by 2ercantec, allow its templates to be modified %ust for this purpose. In many cases, the same I(, or $(, you choose
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/egistering a #omain 0ame .omain names are the names for computers on the Internet that correspond to I, -Internet protocol0 numbers to route information to addresses on the Internet network. .omain names ser e as a con enient way of locating information and people on the Internet. In layman terms, will it be important to you, for customers to find your web site by typing K)@H.)@H.C5+.C5+L or by typing something simple to remember like Kwww.mybi/.comML Registering a domain name is one of the most important decisions you can make for your online identity. 9our domain name says who you are to your clients, your peers ! the whole world. The basics for registering a domain name are# $ontact a domain name registrar on the internet to register for a domain name. There are many to choose from, %ust do a web search on Kdomain name registrarL to get you started. @. (elect a uni=ue domain name you would like others to use for finding your web site. O.taining a #igital Certificate A digital certificate, also known as a ((; (er er $ertificate, enables ((; -(ecure (ocket ;ayer encryption0 on the web ser er. ((; protects communications so you can take credit card orders securely and ensure that hackers cannot ea esdrop on you. Any ecommerce company that pro ides you with an online web store will re=uire you to ha e ((; before you can use their ser ices. Thankfully, for most people obtaining a digital certificate is not a problem. 4or a minimal fee, one can usually use the certificate owned by the web hosting company where your page resides. If you are a larger company, howe er, you may want to get your own digital certificate. 1.1.1 Arc,itectur(l Fr(me2or3 o" E Commerce A framework is intended to define and create tools that integrate the information found in todays closed systems and allows the de elopment of e! commerce applications. It is important to understand that the aim of the architectural frame!work itself is not to build new database management systems, data repository, computer languages, software agent based transaction monitors, or communication protocols. Rather, the architecture should focus on synthesi/ing
the
di erse
resources already in place in corporations to

facilitate the integration of data and software for better applications. The electronic commerce application architecture consists of si& layers of functionality, or ser ices# )0 @0 H0 C0 50 +0 a0. applications7 brokerage ser ices, data or transaction management7 interface, and7 support layersL secure messaging, security and electronic document interchange7 middle ware and structured document interchange7 and network infrastructure and basic communications ser ices -see Table. ).).8
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These layers co!operate to pro ide a seamless transition between todays computing resources and those of tomorrow by transparently integrating information access and e&change within the conte&t of the chosen application. As seen in 4ig., electronic commerce applications are based on se eral elegant technologies. <ut only when they are integrated do they pro ide uni=uely powerful solutions. In the ensuing discussion of each of these layers, we will not elaborate on the arious aspects of the network infrastructure that transports information. These were discussed e&tensi ely earlier and will not be addressed here. We begin our discussion with the application le el ser ices. T(4le 1.1.1( Electronic Commerce' A conce+tu(l "r(me2or3
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1.1.1.1 Electronic Commerce -pplication Services The application ser ices layer of e!commerce will be comprised of e&isting and future applications built on the innate architecture. Three distinct classes of electronic commerce application can be distinguished# customer to business, business!to!business, and intra organi/ation Consumer-to-Business 2ransactions We call this category marketplace transaction. In a marketplace transaction, customers learn about products differently through electronic publishing, buy them differently using electronic cash and secure payment systems, and ha e them deli ered differently. Also, how customers allocate their loyalty may also be different. In light of this, the organi/ation itself has to adapt to a world where the traditional concepts of brand .ifferentiation no longer hold!where K=ualityL has a new meaning, where KcontentL may not be e=uated to Kproduct,L Where KdistributionL may not automatically mean Kphysical Transport.L In this new en ironment, brand e=uity can rapidly e aporate forcing firms to de elop new ways of doing business Business-to Business 2ransactions We call this category market!link transaction. Aere, businesses, go ernments, and other organi/ations depend on computer ! to!computer communication as a fast, an economical, and a dependable way to conduct business transactions. (mall companies are also beginning to see the benefits of adopting the same methods. <usiness!to!business transactions include the use of E.I and electronic mail for purchasing goods and ser ices, buying information and consulting ser ices, submitting re=uests for proposals, and recei ing proposals. E&amine this scenario. The current accounts payable process occurs through the e&change of paper documents. Each year the trading partners e&change millions of in oices, checks, purchase orders, financial reports, and other transactions. 2ost of the documents are in electronic form at their point of origin but are printed and key!
entered at the point of receipt.
The current manual process of printing, mailing is costly, time consuming, and error!prone.
"i en this situation and faced with the need to reduce costs, small businesses are looking toward electronic commerce as a possible sa ior. Intra-organizational Transactions We call this category market!dri en transactions. A company becomes market dri en by dispersing throughout the firm information about its customers and competitors7 by spreading strategic and tactical decision making so that all units can participate7 and by continuously monitoring their customer commitment by making impro ed customer satisfaction an ongoing ob%ecti e. To maintain the relationships that are critical to deli ering superior customer alue, management must pay close attention to ser ice, both before and after sales. In essence, a market!dri en business de elops a comprehensi e understanding of its customers business and how customers in the immediate and downstream markets percei e alue. Three ma%or components of market!dri en transactions are customer orientation through product and ser ice customi/ation7 cross!functional coordination through enterprise integration7 and ad ertising, marketing, and customer ser ice.
humans to do the searching. It
1.1.1.2 $nformation Bro"erage and !anagement The information brokerage and management layer pro ides ser ice integration through the notion of information brokerages, the de elopment of which is necessitated by the increasing information resource fragmentation. We use the notion of information brokerage to represent an intermediary who pro ides ser ice integration between customers and information pro iders, gi en some constraint such as a low price, fast ser ice, or profit ma&imi/ation for a client. Information brokers, for e&ample, are rapidly becoming necessary in dealing with the oluminous amounts of information on the networks. As on!line databases migrate to consumer information utilities, consumers and information professionals will ha e to keep up with the knowledge, and owner!ship of all these systems. 2ost professionals ha e enough trouble keeping track of files of ) interest on one or two database ser ices. With all the comple&ity associated with large numbers of on!line databases and ser ice bureaus, if it is impossible to e&pect
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will ha e to be software programs!information brokers or software agents, to use the more popular term!that act on the searchers behalf. Information brokerage does more than %ust searching. It addresses the issue of adding alue to the information that is retrie ed. 4or instance, in foreign e&change trading, information is retrie ed about the latest currency e&change rates in order to hedge currency holdings to minimi/e risk and ma&imi/e profit. In other words, the act of retrie ing the information is the input to other transactions. With multiple transactions being the norm in the real world, ser ice integration becomes critical. Taking the same foreign e&change e&ample further, ser ice integration allows one to link the hedging program -offered on a time!sharing basis by a third party0 with the search program -could be another endor0 that finds the currency rates from the cheapest on!line ser ice to automatically send trades to the bank or financial ser ices company. In effect, a personali/ed automated trading system can be created without ha ing to go to any financial institution. This is %ust one e&ample of how information brokerages can add alue. Another aspect of the brokerage function is the support for data management and traditional transaction ser ices. <rokerages may pro ide tools to accomplish more sophisticated, time!delayed updates or future compensating transactions. These tools include software agents, distributed =uery generator, the distributed transaction generator, and the declarati e resource constraint base which describes a businesss rules and!en ironment information. At the heart of this layer lies the work!flow scripting en ironment built on a software agent model that coordinates work and data flow among support ser ices. As pointed out earlier, software agents are used to implement information brokerages. (oftware agents are mobile programs that ha e been called Khealthy iruses,L Kdigital butlers?L and Kintelligent agents.L Agents are encapsulations of users instruction that perform all kinds of tasks in electronic market places spread across networks. Information brokerages dispatch agents capable of information resource gathering, negotiating deals, and performing transactions. The agents are intelligent because they ha e contingency plans of action. They e&amine themsel es and their en ironment and if necessary change from their original course of action to an alternati e plan. 4or e&ample, suppose you send an agent to an on!line store with a re=uest to order a bou=uet of roses for Rs. @5 or less. If the shop offers roses starting at Rs. H1, your agent can either choose a different bou=uet or find a different store by consulting an online K9ellow ,agesL directory, depending on prior instructions.
Although notion
the of
software agents sounds ery seducti e, it will take a while to sol e the problems of interregna
communication, interoperable agents, and other headaches that come with distributed computing and net!working. To some critics, the prospect of a single! agent language like Telescript as a world standard is disturbing. They worry that agents sound a bit too much like computer iruses, which instead of running errands may run amok. :endors such as "eneral 2agic go to great lengths to e&plain the precautions it has taken to make this impossible# the limits placed on the power of agents, the Kself!destructL mechanism built into their codes. 9et until electronic commerce ser ices are up and running on a large scale, it is impossible to know how well software agents will work. 1.1.8.3 Interface and Support Services The third layer, interface and support ser ices will pro ide interfaces for electronic commerce applications such as interacti e catalogs and will sup!port directory ser ices! functions necessary for information search and access. These two concepts are ery different. Interacti e catalogs are the customi/ed interface to consumer applications such as home shopping. An interacti e catalog is an e&tension of the paper!based catalog and incorporates additional features such as sophisticated graphics and ideo to make the ad ertising more attracti e. .irectories, on the other hand, operate behind the scenes and attempt to organi/e the enormous amount of information and transactions generated to facilitate electronic commerce. .irectory ser ices databases make data from any ser er appear as a local file. A classic e&ample of a directory is the telephone White ,ages, which allows us to locate people and telephone numbers. In the case of electronic commerce, directories would play an important role in information management functions. 4or instance, take the case of buying an airline ticket with se eral stopo ers with the ca eat that the time between layo ers be minimi/ed. This search would re=uire se eral =ueries to arious on! line directories to!find empty seats on arious airlines and then the a ail!ability of seats would7 be coordinated with the amount of time spent in the air!port terminals. The primary difference between the two is that unlike interacti e catalogs, which deal with people, directory support ser ices interact directly with soft!ware applications. 4or this reason, they need not ha e the multimedia glitter and %a// generally associated with interacti e catalogs. 4rom a computing perspecti e, we can e&pect that there will be no one common user interface that will gla/e the surface of all electronic commerce applications, but graphics and ob%ect
manipulation will definitely dominate. Tool de elopers
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and designers might incorporate common tools for interface building, but the shape of catalogs or directories will depend on the users desires and functional re=uirements. 1.1.1. Secure !essaging and Structured #ocument $nterc%ange Services The importance of the fourth layer, secured messaging, is clear. E eryone in business knows that electronic messaging is a critical business issue. $onsider a familiar business scenario# 9ou hand o er an urgent fa& 2onday and find out Tuesday that its still sitting on your fa& operators desk. What happenedM The line was busy and he thought hed try again later. 3r, the number was wrong, but he forgot to let you know. 3r youre in ;ondon and you need to send a spreadsheet that details a marketing plan for a product introduction strategy to a co!worker in 'ew 9ork. This must be done today, not tomorrow when the courier ser ice would deli er. There is a solution to these common and frustrating problems. Its called Integrated 2essaging# a group of computer ser ices that through the use of a network send, recei e, and combine messages, fa&es, and large data files. (ome better!known e&amples are electronic mail, enhanced fa&, and electronic data interchange. <roadly defined, messaging is the software that sits between the network infrastructure and the clients or electronic commerce applications, masking the peculiarities of the en ironment. 3thers define messaging as a frame!work for the total implementation of portable applications, di orcing you from the architectural primiti es of your system. In general, messaging products are not applications that sol e problems7 they are more enablers of the applications that sol e problems. 2essaging ser ices offer solutions for communicating non formatted -unstructured0 data!letters, memos, and reports as weft as! formatted -structured0 data such as purchase orders, shipping notices, and in oices. 6nstructured messaging consists of fa&, e!mail, and form!based systems like ;otus 'otes. (tructured documents messaging consist of the automated inter!change of standardi/ed and appro ed messages between computer applications, ia telecommunications lines. E&amples of structured document messaging include E.I. 2essaging is gaining momentum in electronic commerce and seems to ha e many ad antages. It supports both synchronous -immediate0 and asynchronous -delayed0 message deli ery and processing. With asynchronous messaging, when a message is sent, work continues -software doesnt wait for a response0.This
allows
the
transfer of messages through store!and!forward methods.

Another ad antage of messaging is that it is not associated with any particular communication protocol. 'o pre!processing is necessary, although there is an increasing need for programs to interpret the message. 2essaging is well suited for both client ser er and peer!to!peer computing models. In distributed systems, the messages are treated as Kob%ectsL that pass between systems. 2essaging is central to work!group computing that is changing the way businesses operate. The ability to access the right information at the right time across di erse work groups is a challenge. Today, with the messaging tools, people can communicate and work together more effecti ely!no matter where they are located. When an employee sends an electronic mail form, the information tra els along with the form. (o one person can start the form, mail it to the ne&t person, fill it in? sign it, mail it to the ne&t, and so on. This is known as message!enabled work!flow solutions. The main disad antages of messaging are the new types of applications it enables! which appear to be more comple&, especially to traditional programmers and the %ungle of standards it in ol es. <ecause of the lack of standards, there is often no interoperability between different messaging endors leading to islands of messaging. Also, security, pri acy, and confidentiality through data encryption and authentication techni=ues are important issues that need to be resol ed for ensuring the legality of the message!based transactions themsel es. 1.1.1.3 !iddle*are Services 2iddleware is a relati ely new concept that emerged only recently. ;ike so many other inno ations, it came into being out of necessity. 6sers in the )*G1s, when endors, deli ered homogeneous systems that worked, didnt ha e a need for middlewareH>heR conditions changed!along with the hardware and the software the organi/ations couldnt cope# The tools were inade=uate, the backlog was enormous, and the pressure was o erwhelming. And, the users were dissatisfied. (omething was needed to sol e all the interface, translation, transformation, and interpretation problems that were dri ing application de elopers cra/y. With the growth of networks, client!ser er technology, and all other forms of communicating between?among unlike platforms, the problems of get! ting all the pieces to work together grew from formidable to horrendous. As the cry for distributed computing spread, users demanded interaction between dissimilar systems, networks that permitted shared resources and applications that could be accessed by
NOTES
21
DBA 1727
NOTES
multiple software programs. In simple terms, middleware is the ultimate mediator between di erse software pro!grams that enables them talk to one another. Another reason for middleware is the computing shift from application centric to data centric. That is, remote data controls all of the applications in the network instead of applications controlling data. To achie e data!centric computing, middleware ser ices focus on three elements# transparency, transaction security and management, and distributed ob%ect management and ser ices. 2ransparenc( Transparency implies that users should be unaware that they are accessing multiple systems. Transparency is essential for dealing with higher!le el issues than physical media and interconnection that the underlying network infrastructure is in charge of. The ideal picture is one of a K irtualL network# a collection of workgroup, departmental, enterprise, and inter enterprise ;A's that appears to the end user or client application to be a seamless and easily accessed whole. Transparency is accomplished using middleware that facilitates a distributed computing en ironment. This gi es users and applications transparent access to data, computation, and other resources across collections of multi! endor, heterogeneous systems. The strategic architectures of e ery ma%or system endor are now based on some form of middleware. The key to reali/ing the theoretical benefit of such architecture is transparency. 6sers need not spend their time trying to understand where something is. 'or should application de elopers ha e to code into their applications the e&act locations of resources o er the network. The goal is for the applications to send a re=uest to the middleware layer, which then satisfies the re=uest any way it can, using remote information. 2ransaction Securit( and !anagement (upport for transaction processing -T,0 is fundamental to success in the electronic commerce market. (ecurity and management are essential to all layers in the electronic commerce model. At the transaction security le el, two broad general categories of security ser ices e&ist# authentication and authori/ation. Transaction integrity must be a gi en for businesses that cannot afford any loss or inconsistency in data. (ome commercial sites ha e had gigantic centrali/ed T, systems running for years. 4or electronic commerce, middleware pro ides the =ualities e&pected in
22
a standard T, sys!tem# the so!called A$I. properties -atomicity, consistency, isolation, and durability0. #istri.uted O.4ect !anagement and Services 3b%ect orientation is pro ing fundamental to the proliferation of network! based applications for the following reasons# It is too hard to write a net!work! based application without either e&tensi e de eloper retraining or a technology that camouflages the intricacies of the network. 3b%ects are defined as the combination of data and instructions acting on the data. 3b%ects are an e olution of the more traditional programming concept of functions and procedures. A natural instance of an ob%ect in electronic commerce is a document. A document carries data and often carries instructions about the actions to be performed on the data. Today, the term ob%ect is being used interchangeably with document resulting in a new form of computing called document oriented computing. Aere, the trend is to mo e away from single data!type documents such as te&t, pictures, or ideo toward integrated documents known as com!pound document architectures. The best e&ample of this approach is an acti e document. If you create a new document that is an integration of the spreadsheet, word processor, and presentation package, what youll see in the ne&t generation of operating systems is that as you scroll through your document, the tool bar will automatically change from a spreadsheet too bar, to a word processing tool bar, to a presentation package tool bar. These applications will also be able to access and retrie e data from any file in the computing network. L($t 4ut not t,e le($t i$ t,e Net2or3 In"r($tructure5 2,ic, 2ill 4e de(lt in t,i$ unit l(ter. 1.1.6 Ad7(nt()e$ o" E-Commerce Electronic $ommerce can increase sales and decrease costs. Ad ertising done well on the web can get e en a small firms
busin esses can e&ch ange infor mati on, whic h redu ces costs on both sides of trans actio ns.
promotional message out to potential customers in e ery country in the world. <usinesses can use electronic commerce to identify new suppliers and business partners. Electronic $ommerce increases the speed and accuracy with which
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DBA 1727
NOTES
E!$ommerce pro ides buyers with a wider range of choices than
traditional commerce because buyers can consider many different products and ser ices from a wider ariety of sellers. Electronic payments of ta& refunds, public retirement and welfare support cost less to issue and arri e securely and =uickly when transmitted o er the Internet. 1.1.18 Di$(d7(nt()e$ o" E-Commerce (ome business processes such as perishable foods and high!cost,
uni=ue items such as custom!designed %ewelry might be impossible to inspect ade=uately from a remote location. $osts, which are a function of technology, can change dramatically e en during short!li ed electronic commerce implementation pro%ects because the technologies are changing so rapidly. 2any firms ha e trouble recruiting and retaining employees with the
technological, design and business process skills needed to create an effecti e electronic commerce presence. 4irms facing difficulty of integrating e&isting databases and transaction! processing software designed for traditional commerce into the software that enables electronic commerce. $ompanies that offer software design and consulting ser ices to tie e&isting systems into new online business systems can be e&pensi e. $onsumers are fearful of sending their credit card numbers o er the Internet and ha ing online merchants. $onsumers are simply resistant to change and are uncomfortable iewing merchandise on a computer screen rather than in person. 1. DRI9IN: FORCES OF E-COMMERCE E!$ommerce is becoming popular, it is worthwhile to e&amine todays business en ironment so let us understand the pressures it creates on organi/ations and the responses used by organi/ations.
24
1. .1 En7ironment(l "(ctor$ t,(t cre(te !u$ine$$ ;re$$ure$' 2arket, economical, societal and technological factors are creating a highly competiti e business en ironment in which consumers are the focal point. These factors change =uickly, sometimes in an unpredictable manner and therefore companies need to react fre=uently not only in the traditional actions such as lowering cost and closing unprofitable facilities but also inno ati e acti ities such as customi/ing products, creating new products or pro iding superb customer ser ice. Economic Forces 3ne of the most e ident benefits of e!commerce is economic efficiency resulting from the reduction in communications costs, low!cost technological infrastructure, speedier and more economic electronic transactions with suppliers, lower global information sharing and ad ertising costs, and cheaper customer ser ice alternati es. Categories of Economic 5orces Lo2er m(r3etin) co$t$' marketing on the Internet maybe cheaper and
operations and processes. This allows critical business information to be stored in a digital form that can be retrie ed instantly and transmitted electronically. Internal integration is best e&emplified by corporate intranets.
can reach a wider crowd than the normal marketing medium. Lo2er $(le$ co$t$' increase in the customer olume do not need an increase in staff as the sales function is housed in the computer and has irtually unlimited accessibility Lo2er orderin) +roce$$in) co$t' online ordering can be automated
with
checks to ensure that orders are correct before accepting, thus reducing errors and the cost of correcting them. Ne2 $(le$ o++ortunitie$' the website is accessible all the time and reaches the global audience which is not possible with traditional storefront. Economic integration is either e&ternal or internal. E&ternal integration refers to the electronic networking of corporations, suppliers, customers?clients, and independent contractors into one community communicating in a irtual en ironment -with the Internet as medium0. Internal integration, on the other hand, is the networking of the arious departments within a corporation, and of business
NOTES
DBA 1727
NOTES
Among the companies with efficient corporate intranets are ,rocter and "amble, I<2, 'estle and Intel. E". (E(A2i.'ET# ;inking Asian 2arkets through <@< Aubs (E(A2i.'ET is Asias largest <@< e!hub, a irtual e&change integrating and connecting businesses -small, medium or large0 to trading partners, e!marketplaces and internal enterprise systems for the purpose of sourcing out supplies, buying and selling goods and ser ices online in real time. The e!hub ser es as the centre for management of content and the processing of business transactions with support ser ices such as financial clearance and information ser ices. It is strategically and dynamically linked to the "lobal Trading Web -"TW0, the worlds largest network of trading communities on the Internet. <ecause of this ery important link, (E(A2i reaches an e&tensi e network of regional, ertical and industry!specific interoperable <@< e!markets across the globe. !ar"et 5orces $orporations are encouraged to use e!commerce in marketing and promotion to capture international markets, both big and small. The Internet is likewise used as a medium for enhanced customer ser ice and support. It is a lot easier for companies to pro ide their target consumers with more detailed product and ser ice information using the Internet. (trong competition between organi/ations, e&tremely low labor cost in some countries, fre=uent and significant changes in markets and increased power of consumers are the reasons to create market forces. 2ec%nolog( 5orces The de elopment of information and communications technology -I$T0 is a key factor in the growth of ecommerce. 4or instance, technological ad ances in digiti/ing content, compression and the promotion of open systems technology ha e pa ed the way for the con ergence of communication ser ices into one single platform. This in turn has made communication more efficient, faster, easier, and more economical as the need to set up separate networks for telephone ser ices, tele ision broadcast, cable tele ision, and Internet access is eliminated. 4rom the
standpoint of firms? businesses
and consumers, ha ing communications costs.
only
one
information
pro ider
means
lower
26
2oreo er, the principle of uni ersal access can be made more achie able with con ergence. At present the high costs of installing landlines in sparsely populated rural areas is incenti e to telecommunications companies to install telephones in these areas. Installing landlines in rural areas can become more attracti e to the pri ate sector if re enues from these landlines are not limited to local and long distance telephone charges, but also include cable T: and Internet charges. This de elopment will ensure affordable access to information e en by those in rural areas and will spare the go ernment the trouble and cost of installing e&pensi e landlines Societal and environmental forces To understand the role of E!commerce in todays organi/ations, it becomes necessary to re iew the factors that create societal and en ironmental forces. $hanging nature of workforce "o ernment deregulations (hrinking go ernment subsidies Increased importance of ethical and legal issues Increased social responsibility of organi/ations Rapid political changes
or pre ent
1. . Critic(l re$+on$e (cti7itie$ 4% Or)(ni<(tion$: A response can be a reaction to a pressure already in e&istence, or it can be an initiati e that will defend an organi/ation against future pressures. It can also be an acti ity that e&ploits an opportunity created by changing conditions. 3rgani/ations ma%or responses are di ided into fi e categories# strategic systems for competiti e ad antage, continuous impro ement efforts, business process reengineering -<,R0, business alliances and E$. These se eral responses can be interrelated and E! commerce can also facilitate the other categories. The four categories are described below. Strategic S(stems (trategic systems pro ide organi/ations with strategic ad antages, thus enabling them to increase their market share, better negotiate with their suppliers,
NOTES
DBA 1727
NOTES
competitors from entering into their territory. There is a ariety of E$ supported strategic systems. An e&ample is 4edE&s o ernight deli ery system and the companys ability to track the status of e ery indi idual package anywhere in the system. 2ost of 4edE&s competitors ha e already mimicked the system. (o 4edE& mo ed the system to the Internet. Aowe er, the competitors =uickly followed and now 4edE& is introducing new acti ities. Continuous $mprovement Efforts In order to impro e the companys producti ity and =uality, many companies continuously conduct inno ati e programs. The efforts taken by companies for continuous impro ement are Impro ed producti ity Impro ed decision making 2anaging Information $hange in management $ustomer ser ice Inno ation and $reati ity.
4or e&ample, .ell $omputer takes its orders electronically and impro ed mo es them ia Enterprise Resources ,lanning software -from (A, $orp.0 into the %ust!in!time assembly operation. Intel is taking its productsconsumption in )) of its largest customers, using its e&tranets, almost in real time, and determining production schedules and deli eries accordingly. Business Process /eengineering &BP/' <usiness ,rocess Reengineering refers to a ma%or inno ation in the organi/ations structure and the way it conducts business. Information technology and especially E$ play a ma%or role in <,R. Electronic $ommerce pro ides fle&ibility in manufacturing, permits faster deli ery to customers and supports rapid and paperless transactions among suppliers, manufacturers and retailers. The ma%or areas in which E!$ommerce supports <,R are Reducin) c%cle time (nd time to m(r3et' Reducing the business process time -cycle time0 is e&tremely important for increasing producti ity and competiti eness. (imilarly, reducing the time from the inception of an idea
until
its
implementationN
time to marketNis important because those who can be first on the market with a product, or who can pro ide customers with a ser ice faster than competitors, en%oy a distinct competiti e ad antage. Em+o2erment o" em+lo%ee$ (nd coll(4or(ti7e 2or3' Empowerment is related to the concept of self!directed teams. 2anagement delegates authority to teams who can e&ecute the work faster and with fewer delays. Information Technology allows the decentrali6ation of decision making and authority but simultaneously supports a centrali/ed control. 4or e&ample, the Internet and the intranets enable empowered employees to access data, information and knowledge they need for making =uick decisions. =no2led)e m(n()ement' Employees can access organi/ational know!how ia their companys intranet. (ome knowledge bases are open to the public for a fee o er the Internet, generating income. Cu$tomer-"ocu$ed (++ro(c,' $ompanies are becoming increasingly customer oriented. This can be done in part by changing manufacturing processes from mass production to mass customi/ation. In mass production, a company produces a large =uantity of identical items. In mass customi/ation, items are produced in a large =uantity but are customi/ed to fit the desires of each customer. Electronic commerce is an ideal facilitator of mass customi/ation. Business alliances 2any companies reali/e that alliances with other companies, e en competitors can be beneficial. There are se eral types of alliances, such as sharing resources, establishing permanent supplier!company relationships and creating %oint research efforts. 3ne of the most interesting types is the temporary %oint enture, in which companies form a special organi/ation for a specific, limited!time mission. 1. .& E-Commerce Communitie$ What it is that will dri e e!commerce in the futureM N in a word, its community. We certainly ha e the technology to build great business!to!consumer and business!to! business ecommerce applications into our business models. And, yes, attributes such as iable application design, integration with business processes, and o erall performance matter.
NOTES
29
DBA 1727
NOTES
A successful community strategy must embrace the idea of mo ing the one! on! one communication that occurs offline into the irtual world of e!commerce. (uch a strategy currently re=uires multiple technical approaches. Aowe er, we belie e community solutions will soon become more integrated and far!reaching. The tools that form online communities include discussion or forum software, chat functions, instant messaging, two!way mailing lists, online collaboration tools, audio, ideo, and more. 9ou may choose to in est slowly at first and increase your community commitment o er time. 3nline con ersation with business partners will also gi e net positi e results. A pri ate discussion area or secured online meetings can go a long way toward building stronger relationships between companies. This will also ser e to potentially dri e new business opportunities for both parties. <uilding community has to be at the heart of any successful ecommerce strategy. 1. .* I$ e-Commerce t,e S(me ($ e-!u$ine$$> While some use e!commerce and e!business interchangeably, they are distinct concepts. In e!commerce, information and communications technology -I$T0 is used in inter!business or inter!organi/ational transactions -transactions between and among firms? organi/ations0 and in business!to!consumer transactions -transactions between firms? organi/ations and indi iduals0. In e!business, on the other hand, I$T is used to enhance ones business. It includes any process that a business organi/ation -either a for!profit, go ernmental or non!profit entity0 conducts o er a computer!mediated network. A more comprehensi e definition of e!business is# KThe transformation of an organi/ations processes to deli er additional customer alue throughthe application of technologies, philosophies and computing paradigm of the new economy.L Three primary processes are enhanced in e!business# 1. Production processes, which include procurement, ordering and replenishment of stocks7 processing of payments7 electronic links with suppliers7 and production control processes, among others7
2.
Customer-focused processes7 which include promotional and marketing efforts, selling o er the Internet, processing of customers purchase orders and payments, and customer support, among others7 and 3. $nternal management processes, which include employee ser ices, training, internal information!sharing, ideoconferencing, and recruiting. Electronic applications enhance information flow between production and sales forces to impro e sales force producti ity. Workgroup communications and electronic publishing of internal business information are likewise made more efficient. The Internet economy pertains to all economic acti ities using electronic networks as a medium for commerce or those acti ities in ol ed in both building the networks linked to the Internet and the purchase of application ser ices such as the pro ision of enabling hardware and software and network e=uipment for Web! based?online retail and shopping malls -or Ke!mallsL0. 1.& !ENEFITS AND LIMITATIONS OF E-COMMERCE 4ew inno ations in human history encompass as many potential benefits as E$ does. The global nature of the technology, low cost, opportunity to reach hundreds of millions of people -pro%ected within )1 years0, interacti e nature, ariety of possibilities, and resourcefulness and rapid growth of the supporting infrastructures -especially the Web0 result in many potential benefits to organi/ations, indi iduals, and society. These benefits are %ust starting to materiali/e, but they will increase significantly as E$ e&pands. 1.&.1 T,e !ene"it$ o" EC to The new markets could be accessed through the online and e&tending the ser ice offerings to customers globally. Internet shrinks the globe and broaden current geographical parameters operate globally 2arketing and promotional campaigns can be done globally at the reduced cost. Retaining the customer and the customer ser ices could be impro ed drastically. (trengthen relationships with customers and suppliers M (treamline business processes and administrati e functions
NOTES
31
DBA 1727
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'o added sales staff A catalogue which is =uickly and easily updateable. This means that when prices or stocks are changed, you dont ha e to ha e hundreds or thousands of obsolete catalogues lying around. 9ou dont ha e to wait for the printer to deli er the catalogue before the new prices can come into effect. The facility to ad ertise daily, weekly or monthly Especials and sales, any special discounts ! and they can be changed within minutes, when and if necessary. 9ou can also add a marketing message which highlights your strengths, as the range and =uality of your products or ser ices ! or anything else you want to tell your customers.
or
such
1.3.1.1. Benefits to Organi6ations Electronic commerce e&pands the marketplace to national and
international markets. With minimal capital outlay, a company can easily and =uickly locate more customers, the best suppliers, and the most suitable business partners worldwide. Electronic commerce decreases the cost of creating, processing, distributing, storing, and retrie ing paper!based information. 4or e&ample, by introducing an electronic procurement system, companies can cut the purchasing administrati e costs by as much as 85 percent. Ability for creating highly speciali/ed businesses. 4or e&ample, dog toys which can be purchased only in pet shops or department and discount stores in the physical world, are sold now in a speciali/ed www.dogtoys.com Electronic commerce allows reduced in entories and o erhead by facilitating KpullL!type supply chain management. In a pull!type system the process starts from customer orders and uses %ust!in!time manufacturing. Electronic commerce reduces the time between the outlay of capital and receipt of products and ser ices. Electronic commerce initiates business processes reengineering pro%ects. <y changing processes, producti ity of salespeople,
the
know ledge work ers,
much
and administrators can increase by )11 percent or more. Electronic commerce lowers telecommunications cost!the Internet is cheaper :A's. than
32
3ther benefits include impro ed image, impro ed customer ser ice, newfound business partners, simplified processes, compressed cycle and deli ery time, increased producti ity, eliminating paper, e&pediting access to information, reduced transportation costs, and increased fle&ibility.
them .
1.3.1.2 Benefits to Consumers Electronic commerce enables customers to shop or do other
transactions @C hours a day, all year round, from almost any location. Electronic commerce pro ides customers with more choices7 they can select. Electronic commerce fre=uently pro ides customers with less e&pensi e products and ser ices by allowing them to shop in many places and conduct =uick comparisons. In some cases, especially with digiti/ed products, E$ allows =uick deli ery. $ustomers can recei e rele ant and detailed information in seconds, rather than days or weeks. Electronic commerce makes it possible to participate in irtual auctions. Electronic commerce allows customers to interact with other customers in electronic communities and e&change ideas as well as compare e&periences. Electronic commerce facilitates competition, which results in substantial discounts . 1.3.1.3 Benefits to Societ( Electronic commerce enables more indi iduals to work at home and to
Electronic commerce facilitates deli ery of public ser ices, such as health care, educ ation , and distri butio n of go e rnme nt socia l ser i ces at a redu ced cost and? or impr o ed =uali ty. Aeal th! care ser i ces,
do less tra elling for shopping, resulting in less traffic on the roads and lower air pollution. Electronic commerce allows some merchandise to be sold at lower prices, so less affluent people can buy more and increase their standard of li ing. Electronic commerce enables people in Third World countries and rural areas to en%oy products and ser ices that otherwise are not a ailable to
for e&ample, can reach patients in rural areas.
NOTES
33
DBA 1727
NOTES
1.&. T,e Limit(tion$ o" EC The limitations of E$ can be grouped into technical and non!technical categories. 1.3.2.1 2ec%nical Limitations of EC in There is a lack of system security, reliability, standards, and some communication protocols. Insufficient telecommunication bandwidth. The software de elopment tools are still e ol ing and changing rapidly. It is difficult to integrate the Internet and E$ software with some e&isting applications and databases. 9endor$ m(% need $+eci(l ?e4 $er7er$ (nd ot,er in"r($tructure$5 (ddition $er7er$. to t,e net2or3
(ome E$ software might not fit some hardware, or may be incompatible with some operating systems or other components.
1.3.2.2 0on-tec%nical Limitations 3f the many non!technical limitations that slow the spread of E$, the following are the ma%or ones. Cost and 4ustification# The cost of de eloping E$ in!house can be ery high, and mistakes due to lack of e&perience may result in delays. There are many opportunities for outsourcing, but where and how to do it is not a simple issue. 4urthermore, to %ustify the system one must deal with some intangible benefits -such as impro ed customer ser ice and the alue of ad ertisement0, which are difficult to =uantify. Securit( and privac(# These issues are especially important in the <@$ especially security issues which are percei ed to be more serious than they really are when appropriate encryption is used. ,ri acymeasures are constantly impro ed. 9et, the customers percei e these issues as ery important, and, the E$ industry has a ery long and difficult task of con incing customers that online transactions and pri acy are, in fact, ery secure. Lac" of trust and user resistance: $ustomers do not trust an unknown
area,
facel
ess seller -sometimes they do not trust e en known ones0, paperless

like
transactions, and electronic money. (o switching from physical to irtual stores may be difficult. Ot%er limiting factor:. ;ack of touch and feel online. (ome customers to touch items such as clothes and like to know e&actly what they are buying.
2any legal issues are as yet unresol ed, and go ernment regulations
and standards are not refined enough for many circumstances. Electronic commerce, as a discipline, is still e ol ing and changing rapidly. 2any people are looking for a stable area before they enter into it. There are not enough support ser ices. 4or e&ample, copyright clearance centres for E$ transactions do not e&ist, and high!=uality e aluators, or =ualified E$ ta& e&perts, are rare. In most applications there are not yet enough sellers and buyers for profitable E$ operations. Electronic commerce could result in a breakdown of human relationships. Accessibility to the Internet is still e&pensi e and?or incon enient for many potential customers. -With Web T:, cell telephone access, kiosks, and constant media attention, the critical mass will e entually de elop.0 .espite these limitations, rapid progress in E$ is taking place. 4or e&ample, the number of people in the 6nited (tates who buy and sell stocks electronically increased from H11,111 at the beginning of )**+ to about )1 million in fall )***. As e&perience accumulates and technology impro es, the ratio of E$ benefits to costs will increase, resulting in a greater rate of E$ adoption. The potential benefits may not be con incing enough reasons to start E$ acti ities 1.* DATA MININ: 1.*.1 Introduction to D(t( Minin) .ata mining, the extraction of hidden predictive information from large data ases, is a powerful new technology with great potential to help companies focus on the most important information in their data warehouses. .ata mining tools predict future trends and beha iours, allowing businesses to make proacti e, knowledge!dri en decisions. The automated, prospecti e analyses offered by data mining mo e beyond the analyses of past e ents pro ided by retrospecti e tools
typical of decision support systems. .ata mining tools can answer business =uestions that traditionally were too time! consuming to resol e. They scour databases for hidden patterns, finding predicti e information that e&perts may miss because it lies outside their e&pectations.
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2ost companies already collect and refine massi e =uantities of data. .ata mining techni=ues can be implemented rapidly on e&isting software and hardware platforms to enhance the alue of e&isting information resources, and can be integrated with new products and systems as they are brought on!line. 1. .1.1. +%at is #ata !ining8 .ata mining is the semi!automatic disco ery of patterns, associations, changes, anomalies, rules, and statistically significant structures and e ents in data. That is, data mining attempts to e&tract knowledge from data. .ata mining differs from traditional statistics in se eral ways# formal statistical inference is assumption dri en in the sense that a hypothesis is formed and alidated against the data. .ata mining in contrast is disco ery dri en in the sense that patterns and hypothesis are automatically e&tracted from data. (aid another way, data mining is data dri en, while statistics is human dri en. The branch of statistics that data mining resembles most is e&ploratory data analysis, although this field, like most of the rest of statistics, has been focused on data sets far smaller than most that are the target of data mining researchers. .ata mining also differs from traditional statistics in that sometimes the goal is to e&tract =ualitati e models which can easily be translated into logical rules or isual representations7 in this sense data mining is human centered and is sometimes coupled with human!computer interfaces research. .ata mining is a step in the data mining process, which is an interacti e, semi! automated process which begins with raw data. Results of the data mining process may be insights, rules, or predicti e models. The field of data mining draws upon se eral roots, including statistics, machine learning, databases, and high performance computing. Aere, we are primarily concerned with large data sets, massi e data sets, and distributed data sets. <y large, we mean data sets which are too large to fit into the memory of a single workstation. <y massi e, we mean data sets which are too large to fit onto the disks of a single workstation or a small cluster of workstations. Instead, massi e clusters or tertiary storage such as tape are re=uired. <y distributed, we mean data sets which are geographically distributed.
The focus on large data sets is not a %ust an engineering challenge7 it is an essential feature of induction of e&pressi e representations from raw data. It is only by analy/ing large data sets that we can produce accurate logical descriptions that can be translated automatically into powerful predicti e mechanisms. 3therwise, statistical and machine learning principles suggest the need for substantial user input -specifying meta!knowledge necessary to ac=uire highly predicti e models from small data sets0. 1.*. T,e Sco+e o" D(t( Minin) .ata mining deri es its name from the similarities between searching for aluable business information in a large database N for e&ample, finding linked products in gigabytes of store scanner data N and mining a mountain for a ein of aluable ore. <oth processes re=uire either shifting through an immense amount of material, or intelligently probing it to find e&actly where the alue resides. "i en databases of sufficient si/e and =uality, data mining technology can generate new business opportunities by pro iding these capabilities# Autom(ted +rediction o" trend$ (nd 4e,(7iour$. .ata mining automates the process of finding predicti e information in large databases. A typical e&ample of a predicti e problem is targeted marketing. .ata mining uses data on past promotional mailings to identify the targets most likely to ma&imi/e return on in estment in future mailings. 3ther predicti e problems include forecasting bankruptcy and other forms of default, and identifying segments of a population likely to respond similarly to gi en e ents. Autom(ted di$co7er% o" +re7iou$l% un3no2n +(ttern$. .ata mining
tools
sweep through databases and identify pre iously hidden patterns in one step. An e&ample of pattern disco ery is the analysis of retail sales data to identify seemingly unrelated products that are often purchased together. 3ther pattern disco ery problems include detecting fraudulent credit card transactions and identifying anomalous data that could represent data entry keying errors. .ata mining techni=ues can yield the benefits of automation on e&isting software and hardware platforms, and can be implemented on new systems as e&isting platforms are upgraded and new products de eloped. When data mining tools are implemented on high performance parallel processing systems, they can analy/e massi e databases in minutes.
4aste r proc essin g mea ns that users can auto mati cally e&pe rime nt with more mod els to unde rstan d com ple& data. Aigh spee d mak es it pract ical for users to analy /e huge
=uantities of data. ;arger databases, in turn, yield impro ed predictions.

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1.*.& Tec,ni@ue$ u$ed in D(t( Minin) The most commonly used techni=ues in data mining are# Arti"ici(l neur(l net2or3$# 'on!linear predicti e models that learn
through training and resemble biological neural networks in structure. Deci$ion tree$# Tree!shaped structures that represent sets of decisions. These decisions generate rules for the classification of a dataset. (pecific decision tree methods include $lassification and Regression Trees -$ART0 and $hi (=uare Automatic Interaction .etection -$AAI.0 . :enetic (l)orit,m$# 3ptimi/ation techni=ues that use processes such genetic combination, mutation, and natural selection in a design based on the concepts of e olution. Ne(re$t nei),4our met,od# A techni=ue that classifies each record in dataset based on a combination of the classes of the k record-s0 most similar to it in a historical dataset -where k O )0. (ometimes called the k!nearest neighbour techni=ue. Rule induction# The e&traction of useful if!then rules from data based statistical significance. 2any of these technologies ha e been in use for more than a decade in speciali/ed analysis tools that work with relati ely small olumes of data. These capabilities are now e ol ing to integrate directly with industry!standard data warehouse and 3;A, platforms. 1.*.* #o2 D(t( Minin) ?or3$ The techni=ue that is used to perform these feats in data mining is called modeling. 2odeling is simply the act of building a model in one situation where you know the answer and then applying it to another situation that you dont. 4or instance, if you were looking for a sunken (panish galleon on the high seas the first thing you might do is to research the times when (panish treasure had been found by others in the past. 9ou might note that these ships often tend to be found off the coast of <ermuda and that there are certain characteristics to the ocean currents, and certain routes that ha e likely been taken by the ships captains in
as
on
that era. 9ou note these similarities and
build a model that includes the characteristics that are common to the locations of these sunken treasures. With these models in hand you sail off looking for treasure where your model indicates it most likely
might be gi en a similar situation in the past. Aopefully, if you e got a good model, you find your treasure. This act of model building is thus something that people ha e been doing for a long time, certainly before the ad ent of computers or data mining technology. What happens on computers, howe er, is not much different than the way people build models. $omputers are loaded up with lots of information about a ariety of situations where an answer is known and then the data mining software on the computer must run through that data and distil the characteristics of the data that should go into the model. 3nce the model is built it can then be used in similar situations where you dont know the answer. 4or e&ample, say that you are the director of marketing for a telecommunications company and youd like to ac=uire some new long distance phone customers. 9ou could %ust randomlygo out and mail coupons to the general population ! %ust as you could randomly sail the seas looking for sunken treasure. In neither case would you achie e the results you desired and of course you ha e the opportunity to do much better than random ! you could use your business e&perience stored in your database to build a model. As the marketing director you ha e access to a lot of information about all of your customers# their age, se&, credit history and long distance calling usage. The good news is that you also ha e a lot of information about your prospecti e customers# their age, se&, credit history etc. 9our problem is that you dont know the long distance calling usage of these prospects -since they are most likely now customers of your competition0. 9oud like to concentrate on those prospects who ha e large amounts of long distance usage. 9ou can accomplish this by building a model. Table ).C.C.-a0 illustrates the data used for building a model for new customer prospecting in a data warehouse. T(4le 1.*.*.(() - D(t( Minin) "or ;ro$+ectin)
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The goal in prospecting is to make some calculated guesses about the information in the lower right hand =uadrant based on the model that we build going from $ustomer "eneral Information to $ustomer ,roprietary Information. Test marketing is an e&cellent source of data for this kind of modeling. 2ining the results of a test market representing a broad but relati ely small sample of prospects can pro ide a foundation for identifying good prospects in the o erall market. Table ).C.C.-b0 shows another common scenario for building models# predict what is going to happen in the future. T(4le 1.*.*.(4) - D(t( Minin) "or ;rediction$
If someone told you that he had a model that could predict customer usage how would you know if he really had a good modelM The first thing you might try would be to ask him to apply his model to your customer base ! where you already knew the answer. With data mining, the best way to accomplish this is by setting aside some of your data in a ault to isolate it from the mining process. 3nce the mining is complete, the results can be tested against the data held in the ault to confirm the models alidity. If the model works, its obser ations should hold for the aulted data.
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1.*.- ;ro"it(4le A++lic(tion$
NOTES
A wide range of companies ha e deployed successful applications of data mining. While early adopters of this technology ha e tended to be in information! intensi e industries such as financial ser ices and direct mail marketing, the technology is applicable to any company looking to le erage a large data warehouse to better manage their customer relationships. Two critical factors for success with data mining are# a large, well!integrated data warehouse and a well! defined understanding of the business process within which data mining is to be applied -such as customer prospecting, retention, campaign management, and so on0. (ome successful application areas include# A pharmaceutical company can analy/e its recent sales force acti ity and their results to impro e targeting of high! alue physicians and determine which marketing acti ities will ha e the greatest impact in the ne&t few months. The data needs to include competitor market acti ity as well as information about the local health care systems. The results can be distributed to the sales force ia a wide!area network that enables the representati es to re iew the recommendations from the perspecti e of the key attributes in the decision process. The ongoing, dynamic analysis of the data warehouse allows best practices from throughout the organi/ation to be applied in specific sales situations. A credit card company can le erage its ast warehouse of customer transaction data to identify customers most likely to be interested in a new credit product. 6sing a small test mailing, the attributes of customers with an affinity for the product can be identified. Recent pro%ects ha e indicated more than a @1! fold decrease in costs for targeted mailing campaigns o er con entional approaches. A di ersified transportation company with a large direct sales force can apply data mining to identify the best prospects for its ser ices. 6sing data mining to analy/e its own customer e&perience, this company can build a uni=ue segmentation identifying the attributes of high! alue prospects. Applying this segmentation to a general business database such as those pro ided by .un > <radstreet can yield a prioriti/ed list of prospects by region.
A large consumer package goods company can apply data mining to impro e its sales process to retailers. .ata from consumer panels, shipments, and
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competitor acti ity can be applied to understand the reasons for brand and store switching. Through this analysis, the manufacturer can select promotional strategies that best reach their target customer segments. Each of these e&amples has a clear common ground. They le erage the knowledge about customers implicit in a data warehouse to reduce costs and impro e the alue of customer relationships. These organi/ations can now focus their efforts on the most important -profitable0 customers and prospects, and design targeted marketing strategies to best reach them.
1.*./ Trend$ t,(t E""ect D(t( Minin) In this section, we describe fi e e&ternal trends which promise to ha e a fundamental impact on data mining. #ata 2rends. ,erhaps the most fundamental e&ternal trend is the e&plosion of digital data during the past two decades. .uring this period, the amount of data probably has grown between si& to ten orders of magnitude. 2uch of this data is accessible ia networks. 3n the other hand, during this same period the number of scientists, engineers, and other analysts a ailable to analy/e this data has remained relati ely constant. 4or e&ample, the number of new ,h...s in statistics graduating each year has remained relati ely constant during this period. 3nly one conclusion is possible# either most of the data is destined to be write!only, or techni=ues, such as data mining, must be de eloped, which can automate, in part, the analysis of this data, filter irrele ant information, and e&tract meaningful knowledge. )ard*are 2rends. .ata mining re=uires numerically and statistically intensi e computations on large data sets. The increasing memory and processing speed of workstations enables the mining of data sets using current algorithms and techni=ues that were too large to be mined %ust a few years ago. In addition, the commoditi/ation of high performance computing through (2, workstations and high performance workstation clusters enables attacking data mining problems that were accessible using only the largest supercomputers of a few years ago.
42
0et*or" 2rends.
NOTES
The ne&t generation internet -'"I0 will connect sites at 3$!H -)55 2<its?sec0 speeds and higher. This is o er )11 times faster than the connecti ity pro ided by current networks. With this type of connecti ity, it becomes possible to correlate distributed data sets using current algorithms and techni=ues. In addition, new protocols, algorithms, and languages are being de eloped to facilitate distributed data mining using current and ne&t generation networks. Scientific Computing 2rends. As mentioned abo e, scientists and engineers today iew simulation as a third mode of science. .ata mining and knowledge disco ery ser es an important role linking the three modes of science# theory, e&periment and simulation, especially for those cases in which the e&periment or simulation results in large data sets. Business 2rends. Today businesses must be more profitable, react =uicker, and offer higher =uality ser ices than e er before, and do it all using fewer people and at lower cost. With these types of e&pectations and constraints, data mining becomes a fundamental technology, enabling businesses to more accurately predict opportunities and risks generated by their customers and their customers transactions. 1.- DATE ?ARE#OUSIN: 1.-.1 ?,(t I$ D(t( ?(re,ou$in)> The primary concept of data warehousing is that the data stored for business analysis can most effecti ely be accessed by separating it from the data in the operational systems. A data warehouse is a collection of computer!based information that is critical to successful e&ecution of enterprise initiati es. Adata warehouse is more than an archi e for corporate data and more than a new way of accessing corporate data. A data warehouse is a sub%ect!oriented repository designed with enterprise!wide access in mind. It pro ides tools to satisfy the information needs of the employees organi/ational le els!not %ust for comple& data =ueries, but as general facility for getting =uick, accurate and often insightful
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information. A data warehouse is designed so that its users can recogni/e the information they want and access that information using simple tools. 3ne of the principal reasons for de eloping a data warehouse is to integrate operational data from arious sources into a single and consistent architecture that supports analysis and decision!making within the enterprise. 3perational systems create, update and delete production data that feed the data warehouse. A data warehouse is analogous to a physical warehouse. 3perational systems create data Eparts that are loaded into the warehouse. (ome of those parts are summarised into information Ecomponents and are stored in the warehouse. .ata warehouse users make re=uests and are deli ered information Eproducts that are created from the components and parts stored in the warehouse. A data warehouse is typically a blending of technologies, including relational and multidimensional databases, client? ser er architecture, e&traction ? transformation programs, graphical user interfaces, and more. 1.-. De"inition$ D(t( ?(re,ou$e' The term .ata Warehouse was coined by <ill Inmon in )**1, which he defined in the following way# KA warehouse is a sub%ect!oriented, integrated, time! ariant and non! olatile collection of data in support of managements decision making processL. Ae defined the terms in the sentence as follows# Su4Aect Oriented' .ata that gi es information about a particular sub%ect instead of about a companys ongoing operations. Inte)r(ted ' .ata that is gathered into the data warehouse from a ariety of sources and merged into a coherent whole. Time7(ri(nt'
All data in the data warehouse is identified with a particular time period.
Non-7ol(tile
NOTES
.ata is stable in a data warehouse. 2ore data is added but data is ne er remo ed. This enables management to gain a consistent picture of the business. This definition remains reasonably accurate almost ten years later. Aowe er, a single!sub%ect data warehouse is typically referred to as a data mart, while data warehouses are generally enterprise in scope. Also, data warehouses can be olatile. .ue to the large amount of storage re=uired for a data warehouse, -multi!terabyte data warehouses are not uncommon0, only a certain number of periods of history are kept in the warehouse. 4or instance, if three years of data are decided on and loaded into the warehouse, e ery month the oldest month will be Krolled offL the database, and the newest month added. Ralph Fimball pro ided a much simpler definition of a data warehouse. A data warehouse is Ka copy o f transaction data specifically structured for =uery and analysisL. This definition pro ides less insight and depth than 2r. Inmons, but is no less accurate. .ata warehousing is essentially what you need to do in order to create a data warehouse, and what you do with it. It is the process of creating, populating, and then =uerying a data warehouse and can in ol e a number of discrete technologies such as# 1.-.& AD9ANTA:ES OF DATA ?ARE#OUSE Implementing a .ata warehouse pro ides significant benefits many tangible, some intangible. More co$t e""ecti7e deci$ion m(3in) - A .ata Warehouse allows reduction of staff and computer resources re=uired to support =ueries and reports against operational and production databases. This typically offers significant sa ings. Aa ing a .ata Warehouse also eliminates the resource drain on production systems when e&ecuting long ! running, comple& =ueries and reports. !etter enter+ri$e intelli)ence - Increased =uality and fle&ibility of enterprise analysis arises from the multi ! tired data structures of a .ata Warehouse that supports data ranging from detailed transactional le el to high ! le el summary information. "uaranteed data accuracy and reliability result from ensuring that a .ata Warehouse contains only Etrusted data.
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En,(nced cu$tomer $er7ice - An enterprise can maintain better
customer relationships by correlating all customer data ia a single .ata Warehouse architecture. !u$ine$$ reen)ineerin) - Allowing unlimited analysis of enterprise information often pro ides insights into enterprise processes that may yield breakthrough ideas for reengineering those processes. Bust defining the re=uirements for .ata Warehouse, results in better enterprise goals and measure. Fnowing what information is important to an enterprise will pro ide direction and priority for reengineering efforts. In"orm(tion $%$tem$ reen)ineerin) - A .ata Warehouse that is based upon enterprise! wide data re=uirements pro ides a cost ! effecti e means of establishing both data standardi/ation and operational system interoperability. .ata Warehouse de elopment can be an effecti e first step in reengineering the enterprises legacy systems. 1.-.* T%+e$ o" D(t( 2(re,ou$e$' The term data warehouse is currently being used to describe a number of different facilities each with di erse characteristics. P%(sical data *are%ouse# This is an actual, physical database into which all the corporate data for the data warehouse are gathered, along with schemas -information about data0 and the processing logic used to organi/e, package and pre!process the data for end user access. Logical data *are%ouse: This contains all the metadata, business rules and processing logic re=uired scrub, organi/e, package, and pre!process the data. In addition, it contains the information re=uired to find and access the actual data, where er it actually resides. #ata li.rar(: This is a subset of the enterprise wide data warehouse. Typically, it performs the role of departmental, regional, or functional data warehouse. As part of the data warehouse process, the organi/ation builds a series of data libraries o er time and e entually links them ia an enterprise wide logical data warehouse. #ecision support s(stems &#SSs': These systems are not data warehouses but applications that make use of the data warehouse. They are also called e&ecuti e information systems -EI(0
46
1.-.- A$+ect$ o" D(t( ?(re,ou$e Arc,itecture
NOTES
This list of aspects of architecture that the data warehouse decision maker will ha e to deal with themsel es. There are many other architecture issues that affect the data warehouse, e.g., network topology, but these ha e to be made with all of an organi/ations systems in mind -and with people other than the data warehouse team being the main decision makers.0 D(t( con$i$tenc% (rc,itecture This is the choice of what data sources, dimensions, business rules, semantics, and metrics an organi/ation chooses to put into common usage. It is also the e=ually important choice of what data sources, dimensions, business rules, semantics, and metrics an organi/ation chooses not to put into common usage. This is by far the hardest aspect of architecture to implement and maintain because it in ol es organi/ational politics. Aowe er, determining this architecture has more to do with determining the place of the data warehouse in your business than any other architectural decision. In my opinion, the decisions in ol ed in determining this architecture should dri e all other architectural decisions. Re+ortin) d(t( $tore (nd $t()in) d(t( $tore (rc,itecture The main reasons we store data in a data warehousing systems are so they can be# )0 reported against, @0 cleaned up, and -sometimes0 H0 transported
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D(t( modelin) (rc,itecture This is the choice of whether you wish to use demorali/ed, normali/ed, ob%ect! oriented, proprietary multidimensional, etc. data models. As you may guess, it makes perfect sense for an organi/ation to use a ariety of models. Tool (rc,itecture This is your choice of the tools you are going to use for reporting and for what I call infrastructure. ;roce$$in) tier$ (rc,itecture This is your choice of what physical platforms will do what pieces of the concurrent processing that takes place when using a data warehouse. This can range from an architecture as simple as host!based reporting to one as complicated. Securit% (rc,itecture If you need to restrict access down to the row or field le el, you will probably ha e to use some other means to accomplish this other than the usual security mechanisms at your organi/ation. 'ote that while security may not be technically difficult to implement, it can cause political consternation. In the long run, decisions on data consistency architecture will probably ha e much more influence on the return of in estment in the data warehouse than any other architectural decisions. To get the most return from a data warehouse -or any other system0, business practices ha e to change in con%unction with or as a result of the system implementation. $onscious determination of data consistency architecture is almost always a prere=uisite to using a data warehouse to effect business practice change.
48
1./ NET?OR= INFRASTRUCTURE REBUIREMENTS The network infrastructure is the underlying foundation of the system. It forms the ser ices that create the operating makeup of your network. In a $ommunications (er ices deployment, determining your network infrastructure from the pro%ect goals ensures that you will ha e an architecture that can scale and grow. 1./.1 T,e E.i$tin) Net2or3 We need to understand our e&isting network infrastructure to determine how well it can meet the needs of our deployment goals. <y e&amining our e&isting infrastructure, we identify if we need to upgrade e&isting network components or purchase new network components. We should build up a complete map of the e&isting network by co ering these areas# ). ,hysical communication links, such as cable length, grade, and so forth @. $ommunication links, such as analog, I(.', :,', TH, and so forth, and a ailable bandwidth and latency between sites H. (er er information, including# Aost names I, addresses .omain 'ame (ystem -.'(0 ser er for domain membership C. ;ocations of de ices on your network, including# Aubs (witches 2odems Routers and bridges ,ro&y ser ers 5. 'umber of users at each site, including mobile users
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After completing this in entory, you need to re iew that information in con%unction with your pro%ect goals to determine what changes are re=uired so that you can successfully deli er the deployment. 1./. Net2or3 In"r($tructure Com+onent$ The following common network infrastructure components ha e a direct impact upon the success of your deployment# Routers and switches 4irewalls ;oad balancers (torage Area 'etwork -(A'0 .'(
/outers and S*itc%es Routers connect networks of your infrastructure, enabling systems to communicate. 9ou need to ensure that the routers ha e spare capacity after the deployment to cope with pro%ected growth and usage. In a similar ein, switches connect systems within a network. Routers or switches running at capacity tend to induce escalating bottlenecks, which result in significantly longer times for clients to submit messages to ser ers on different networks. In such cases, the lack of foresight or e&penditure to upgrade the router or switch could ha e a personnel producti ity impact far greater than the cost. 5ire*alls 4irewalls sit between a router and application ser ers to pro ide access control. 4irewalls were originally used to protect a trusted network -yours0 from the untrusted network -the Internet0. These days, it is becoming more common to protect application ser ers on their own -trusted, isolated0 network from the untrusted networks -your network and the Internet0. Router configurations add to the collecti e firewall capability by screening the data presented to the firewall. Router configurations can potentially block undesired ser ices
-such as '4(, 'I(, and so forth0 and use packet!le el filtering to block traffic from untrusted hosts or networks. In addition, when installing a (un ser er in an en ironment that is e&posed to the Internet, or any untrusted network, reduce the (olaris software installation to the minimum number of packages necessary to support the applications to be hosted. Achie ing minimi/ation in ser ices, libraries, and applications helps increase security by reducing the number of subsystems that must be maintained. The (olarisI (ecurity Toolkit pro ides a fle&ible and e&tensible mechanism to minimi/e, harden, and secure (olaris systems. Load Balancers 6se load balancers to distribute o erall load on your Web or application ser ers, or to distribute demand according to the kind of task to be performed. If, for e&ample, you ha e a ariety of dedicated applications and hence different application ser ers, you might use load balancers according to the kind of application the user re=uests. If you ha e multiple data centers, you should consider geographic load balancing. "eographic load balancing distributes load according to demand, site capacity, and closest location to the user. If one center should go down, the geographic load balancer pro ides failo er ability. 4or load balancers on Web farms, place the hardware load balancers in front of the ser ers and behind routers because they direct routed traffic to appropriate ser ers. (oftware load balancing solutions reside on the Web ser ers themsel es. With software solutions, one of the ser ers typically acts a traffic scheduler. A load balancing solution is able to read headers and contents of incoming packets. This enables you to balance load by the kind of information within the packet, including the user and the type of re=uest. A load balancing solution that reads packet headers enables you to identify pri ileged users and to direct re=uests to ser ers handling specific tasks. Storage -rea 0et*or"s &S-0s' 6nderstanding the data re=uirements of the storage system is necessary for
a successful deployment. Increasingly, (A's are being deployed so that the storage is
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independent of the ser ers used in con%unction with it. .eploying (A's can represent a decrease in the time to reco er from a non!functional ser er as the machine can be replaced without ha ing to relocate the storage dri es. 6se these =uestions to e aluate if your deployment storage re=uirements would be best ser ed through a (A'# Are reads or writes more pre alentM .o you need high I?3 rate storageM Is striping the best optionM .o you need high uptimeM Is mirroring the best optionM Aow is the data to be backed upM When is it going to be backed upM
#omain 0ame S(stem &#0S' (er ers which make hea y usage of .'( =ueries should be e=uipped with a local caching .'( ser er to reduce lookup latency as well as network traffic. When determining your re=uirements, consider allocating host names for functions such as mailstore, mail!relay!in, mail!relay!out, and so forth. 9ou should consider this policy e en if the host names all are currently hosted on one machine. With ser ices configured in such a way, relocation of the ser ices to alternate hardware significantly reduces the impacts of the change. 1./.& ;l(nnin) Cour Net2or3 In"r($tructure L(%out In deri ing your infrastructure topology, you need to consider the following topics# .2P Intranet Internal network ,ro&ies 4irewall $onfiguration 2obile users
#emilitari6ed 9one &#!9' These days, most company networks are configured for a .2P. The .2P separates the corporate network from the Internet. The .2P is a tightly secured area into
52
which you place ser ers pro iding Internet ser ices and facilities -for e&ample, web ser ers0. These machines are hardened to withstand the attacks they might face. To limit e&posure in case of a security breach from such attacks, these ser ers typically contain no information about the internal network. 4or e&ample, the name ser er facilities only include the ser er and the routers to the Internet. ,rogressi ely, .2P implementations ha e mo ed the segment behind the firewall as firewall security and facilities ha e increased in robustness. Aowe er, the .2P still remains segmented from the internal networks. 9ou should continue to locate all machines hosting Web ser ers, 4T, ser ers, mail ser ers, and e&ternal .'( on a .2P segment. A simpler network design might only define separate .2P segments for Internet ser ices, :,' access, and remote access. Aowe er, security issues e&ist with :,' and remote access traffic. 9ou need to separate appropriate connections of these types from the rest of the network. The firewall pro iding the .2P segmentation should allow only inbound packets destined to the corresponding ser ice ports and hosts offering the ser ices within the .2P. Also, limit outbound initiated traffic to the Internet to those machines re=uiring access to the Internet to carry out the ser ice they are pro iding -for e&ample, .'( and mail0. 9ou might want to segment an inbound!only .2P and an outbound!only .2P, with respect to the type of connection re=uests. Aowe er, gi en the potential of a denial!of!ser ice attack interrupting .'( or email, consider creating separate inbound and outbound ser ers to pro ide these ser ices. (hould an email!based Tro%an horse or worm get out of control and o errun your outbound mail ser er, inbound email can still be recei ed. Apply the same approach to .'( ser ers. $ntranet The .2P pro ides a network segment for hosts that offer ser ices to the Internet. This design protects your internal hosts, as they do not reside on the same segment as hosts that could be compromised by an e&ternal attack. Internally, you also ha e similar ser ices to offer -Web, mail, file ser ing, internal .'(, and so on0 that are meant solely for internal users. Bust as the Internet ser ices are segmented, so too, are the internal ser ices. (eparation of ser ices in this manner also permits tighter controls to be placed on the router filtering.
NOTES
53
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Bust as you separate the Internet!facing ser ices into the .2P for security, your pri ate internal ser ices should reside in their own internal .2P. In addition, %ust as multiple .2Ps can be beneficialNdepending on your ser ices and your networks si/eNmultiple intranets might also be helpful. The firewall rules pro iding the segmentation should be configured similarly to the rules used for the .2Ps firewall. Inbound traffic should come solelyfrom machines relaying information from the .2P -such as inbound email being passed to internal mail ser ers0 and machines residing on the internal network. $nternal 0et*or" The segments that remain make up your internal network segments. These segments house users machines or departmental workstations. These machines re=uest information from hosts residing on the intranet. .e elopment, lab, and test network segments are also included in this list. 6se a firewall between each internal network segment to filter traffic to pro ide additional security between departments. Identify the type of internal network traffic and ser ices used on each of these segments to determine if an internal firewall would be beneficial. 2achines on internal networks should not communicate directly with machines on the Internet. ,referably, these machines a oid direct communication with machines in the .2P. 6ltimately, the ser ices they re=uire should reside on hosts in the intranet. Ahost on the intranet can in turn communicate with a host in the .2P to complete a ser ice -such as outbound email or .'(0. This indirect communication is acceptable. Pro:ies 3nly the machines directly communicating with machines on the Internet should reside in the .2P. If users re=uire Internet access, though, this creates a problem based on your pre ious topology decisions. In this situation, pro&ies become helpful. ,lace a pro&y on an internal network segment, or, better yet, an intranet segment. A machine re=uiring access to the Internet can pass its re=uest onto the pro&y, which in turn makes the re=uest on the machines behalf. This relay out to the Internet helps shield the machine from any potential danger it might encounter.
54
<ecause the pro&y communicates directly with machines on the Internet, it should reside in the .2P. Aowe er, this conflicts with the desire to pre ent internal machines from directly communicating with .2P machines. To keep this communication indirect, use a double pro&y system. A second pro&y residing in the intranet passes connection re=uests of the internal machines to the pro&y in the .2P, which in turn makes the actual connection out on the Internet. 5ire*all Configuration In addition to the typical packet!filtering features, most firewalls pro ide features to pre ent I, spoofing. 6se I,!spoofing protection whene er possible. 4or instance, if there is only one entry point into your network from the Internet and a packet is recei ed from the Internet with a source address of one of your internal machines, it was likely spoofed. <ased on your networks topology, the only packets containing a source I, address from your internal machines should come from within the network itself, not from the Internet. <y pre enting I, spoofing, this possibility is eliminated, and the potential for bypassing I, address! based authori/ation and the other firewall! filtering rules is reduced. 6se the same I,!spoofing protection on any internal firewall as well. !o.ile ;sers When you ha e remote or mobile users, pay attention to how you will pro ide them access to the facilities. Will there be any facilities they cannot accessM What kind of security policies do you need to addressM Will you re=uire ((; for authenticationM Also, e&amine whether your mobile user population is stable or is e&pected to increase o er time. 1.0 TRANSMISSION CONTROL ;ROTOCOLDINTERNET ;ROTOCOL TC; D I; 1.0.1 Introduction to TC;DI;' The reali/ation that stand ! alone computers made no sense made the network possible. When there were too many of them, people reali/ed that stand ! alone networks
55
NOTES
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made little sense either, and that they also needed to talk to one another. This was the problem confronting the 6( "o ernment and the academic community in the late +1s. E erything they had was heterogeneous!computers, networks, operating systems and networking software. $onnecting these networks was either impossible or done using e&pensi e proprietary network de ices. (omething had to be done. Rather than surrender to the monopoly of endors, the 6( .epartment of .efence -.3.0 initiated work on a pro%ect with a simple ob%ecti e# de elop a set of standard rules -,rotocols0 which could be used by all machines and networks to communicate. The solution had to be endor ! neutral, independent of the hardware or the operating system, and e en the geographical location. The solution they found was T$,?I,?. It became so successful that both the Internet and the World Wide Web adopted it is their protocol. T$, and I, were de eloped to connect a number different networks designed by different endors into a network of networks -the KInternetL0. It was initially successful because it deli ered a few basic ser ices that e eryone needs -file transfer, electronic mail, remote logon0 across a ery large number of client and ser er systems. (e eral computers in a small department can use T$,?I, -along with other protocols0 on a single ;A'. The I, component pro ides routing from the department to the enterprise network, then to regional networks, and finally to the global Internet. 3n the battlefield a communications network will sustain damage, so the .3. designed T$,?I, to be robust and automatically reco er from any node or phone line failure. This design allows the construction of ery large networks with less central management. Aowe er, because of the automatic reco ery, network problems can go undiagnosed and uncorrected for long periods of time. 1.0. ;rotocol$' Internet
A +rotocol is a set of rules that determines how two computers communicate with one another o er a network. The protocols around which the Internet was designed embody a series of design principles. Interoperable!the system supports computers and software from different endors. 4or E$, this means that the customers or businesses are not re=uired to buy specific systems in order to conduct business. ;ayered!the collection of Internet protocols works in layers with each
layer
building on the layers at lower le els. This layered architecture is shown in
56
(imple!each of the layers in the architecture pro ides only a few functions or operations. This means that application programmers are hidden from the comple&ities of the underlying hardware. End!to end! the Internet is based on end!to!end protocols. This means the interpretation of the data happens at the application layer-i.e the sending and the recei ing side0 and not at the network layers. It is much like the post office. The %ob of the post office is to deli er the mail, only the sender and the recei er are concerned about its contents.
NOTES
that
1.0.& ?,(t i$ TC;DI;> T$,?I, is a set of protocols de eloped to allow cooperating computers to share resources across a network. It was de eloped by a community of researchers centered around the AR,Anet. $ertainly the AR,Anet is the best! known T$,?I, network. The most accurate name for the set of protocols are describing is the KInternet protocol suiteL. T$, and I, are two of the protocols in this suite. <ecause T$, and I, are the best known of the protocols, it has become common to use the term T$,?I, or I,? T$, to refer to the whole family.
57
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T$,?I, is a family of protocols. A few pro ide Klow! le elL functions needed for many applications. These include I,, T$,, and 6.,. I; ! is responsible for mo ing packet of data from node to node. I,
forwards each packet based on a four byte destination address -the I, number0. The Internet authorities assign ranges of numbers to different organi/ations. The organi/ations assign groups of their numbers to departments. I, operates on gateway machines that mo e data from department to organi/ation to region and then around the world. TC; ! is responsible for erifying the correct deli ery of data from client to ser er. .ata can be lost in the intermediate network. T$, adds support to detect errors or lost data and to trigger retransmission until the data is correctly and completely recei ed. ;#P -6ser .atagram ,rotocol0 is a simple transport!layer protocol. It not pro ide the same features as T$,, and is thus considered Kunreliable.L Again, although this is unsuitable for some applications, it does ha e much more applicability in other applications than the more reliable and robust T$,. 3ne of the things that makes 6., nice is its simplicity. <ecause it doesnt need to keep track of the se=uence of packets, whether they e er made it to their destination, etc., it has lower o erhead than T$,. This is another reason why its more suited to streaming!data applications# theres less screwing around that needs to be done with making sure all the packets are there, in the right order, and that sort of thing. 3thers are protocols for doing specific tasks, e.g. transferring files between computers, sending mail, or finding out who is logged in on another computer. 1.0.* TC;DI; Ser7ice$ Initially T$,?I, was used mostly between minicomputers or mainframes. These machines had their own disks, and generally were self! contained. Thus the most important KtraditionalL T$,?I, ser ices are# 5ile transfer. The file transfer protocol -4T,0 allows a user on any computer to get files from another computer, or to send files to another computer. (ecurity is
does
handled by re=uiring
the user to specify a user name and password for the other computer.
58
/emote login
The network terminal protocol -TE;'ET0 allows a user to log in on any other computer on the network. 9ou start a remote session by specifying a computer to connect to. 4rom that time until you finish the session, anything you type is sent to the other computer. 'ote that you are really still talking to your own computer. <ut the telnet program effecti ely makes your computer in isible while it is running. E ery character you type is sent directly to the other system. "enerally, the connection to the remote computer beha es much like a dialup connection. That is, the remote system will ask you to log in and gi e a password, in whate er manner it would normally ask a user who had %ust dialed it up. Computer mail. This allows you to send messages to users on other computers. 3riginally, people tended to use only one or two specific computers. They would maintain Kmail filesL on those machines. The computer mail system is simply a way for you to add a message to another users mail file. There are some problems with this in an en ironment where microcomputers are used. The most serious is that a micro is not well suited to recei e computer mail. When you send mail, the mail software e&pects to be able to open a connection to the addressees computer, in order to send the mail. If this is a microcomputer, it may be turned off, or it may be running an application other than the mail system. 4or this reason, mail is normally handled by a larger system, where it is practical to ha e a mail ser er running all the time. 2icrocomputer mail software then becomes a user interface that retrie es mail from the mail ser er. 1.0.- Fe(ture$ O" Tc+DI+ A protocol is a set of rules that ha e to use by two or more machines to talk to one another. These rules are independent of the applications that ha e no idea of what is going on at the two ends of the communication channel. The goals of T$,?I, were set by the 6( .epartment of .efence, and today, they are its inherent features# Independence of endor, type of machine and network ! This was necessary to finally break the monopoly of endors who claimed that
NOTES
their product alone will sa e the world.

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4ailure reco ery ! <eing originally meant for the defence network, it
should be able to di ert data immediately through other routes if one or more parts of the network went down. 4acility to connect new sub networks without significant disruption of ser ices Aigh error rate handling ! The transmission, irrespecti e of the distance tra elled, must be )11D reliable, with facilities for full error control. Enable reliable transmission of files, remote login and remote e&ecution commands. T$,?I, originally began by the de elopment of a collection of programs -the .AR,Aset0 that enabled computers to talk among themsel es. ;ater, <erkeley de eloped an entire suite of tools that are today known as the r Q utilities because all their command names are prefi&ed with an Kr. (ome of the most important application a ailable in the T$, ? I, family are# "t+ and re+ for file transfer telnet (nd rlo)in "or lo))in) in to remote m(c,ine$ rsh -rcmd in ($3 6'IR0 for e&ecuting a command in a remote
of
machine without logging in The 'etwork 4ile (ystem -'4(0 which lets one machine treat the file system of a remote machine as its own The electronic mail ser ice using the (imple 2ail Transport ,rotocol
-(2T,0, ,ost 3ffice ,rotocol -,3,0 and the mail, pine and elm mailers Remote printing which allows people to access printers on remote computers as if they were connected locally The Ayper Te&t Transport ,rotocol -ATT,0 of the World Wide Web
which browsers like 'etscape use to fetch AT2; documents The point Q to Q ,oint ,rotocol -,,,0 which makes all these facilities a ailable through a telephone line 1.0./ TC;DI; Terminolo)%
The Internet standards use a
specific set of terms when referring to network elements and concepts related to T$,?I, networking. These terms pro ide a foundation for subse=uent chapters illustrates the components of an I, network. S
NOTES
Element$ o" (n I; net2or3 $ommon terms and concepts in T$,?I, are defined as follows# Node Any de ice, including routers and hosts, which runs an implementation of I,. Router A node that can forward I, packets not e&plicitly addressed to itself. 3n an I, + network, a router also typically ad ertises its presence and host configuration information. #o$t A node that cannot forward I, packets not e&plicitly addressed to itself -a non!router0. A host is typically the source and the destination of I, traffic. A host silently discards traffic that it recei es but that is not e&plicitly addressed to itself. U++er-l(%er +rotocol A protocol abo e I, that uses I, as its transport. E&amples include Internet layer protocols such as the Internet $ontrol 2essage ,rotocol -I$2,0 and Transport layer protocols such as the Transmission $ontrol ,rotocol -T$,0 and 6ser .atagram ,rotocol -6.,0. LAN $e)ment A portion of a subnet consisting of a single medium that is bounded bridges. by
Su4net 3ne or more ;A' segments that are bounded by routers and use the same I, address prefi&. 3ther terms for subnet are network segment and link. Net2or3 Two or more subnets connected by routers. Another term for
network work.
is
internet
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Air A node connected to the same subnet as another node. Inter"(ce The representation of a physical or logical attachment of a node to a subnet. An e&ample of a physical interface is a network adapter. Addre$$ An identifier that can be used as the source or destination of packets and that is assigned at the Internet layer to an interface or set of interfaces. ;(c3et The protocol data unit -,.60 that e&ists at the Internet layer comprises an I, header and payload.
I,
and
In a network, a computer is known as a host, sometimes a node, and e ery such host has a hostname. This name is uni=ue throughout the network. Each machine is fitted with a network interface card that is connected by wire to the corresponding cards in other machines. All communication between hosts normally takes place through these network interfaces only. E ery T$,?I, network has an address that is used by e&ternal networks to direct their messages. E ery host in the network has an address as well, and the combination of these two addresses forms the complete network address of the host. 4or instance, )*@.)+8 -or strictly speaking, )*@.)+8.1.10 could be the address of a network, and a host within the network could ha e the host address of C5.+G. In that case, )*@.)+8.C5.+G represents the complete network address of the host. This address has to be uni=ue not only within the network, but also to all connected networks. And, if the network is hooked up to the Internet, it has to be uni=ue throughout the world. When two or more networks are connected together, and uses the T$,?I, protocol for communication, we ha e an internet, popularly known as an intranet, which is the super Q network of all networks. A local internet or intranet may easily be connected to the Internet which also uses the same protocol. 'ow many installations ha e se eral kinds of computers, including microcomputers, workstations, minicomputers, and mainframes. These computers are likely to be configured to perform speciali/ed tasks. Although people are still likely to work with one specific computer, that computer will call on other systems on the net for speciali/ed ser ices. This has led to the Kser er?clientL model of network ser ices. A ser er is a system that pro ides a specific ser ice for the rest of the network. A client is another system that uses that ser ice. -'ote that the ser er and client need
not be on different computers. They
could be different programs running on the same computer.0 Aere are the kinds of ser ers typically present in a modern computer setup. 'ote that these computer ser ices can all be pro ided within the framework of T$,?I,.
net*or" file s(stems. A network file system pro ides the illusion that disks or other de ices from one system are directly connected to other systems. There is no need to use a special network utility to access a file on another system. 9our computer simply thinks it has some e&tra disk dri es. These e&tra K irtualL dri es refer to the other systems disks. This capability is useful for se eral different purposes. It lets you put large disks on a few computers, but still gi e others access to the disk space. Aside from the ob ious economic benefits, this allows people working on se eral computers to share common files. It makes system maintenance and backup easier, because you dont ha e to worry about updating and backing up copies on lots of different machines. A number of endors now offer high!performance diskless computers. These computers ha e no disk dri es at all. They are entirely dependent upon disks attached to common Kfile ser ersL. remote printing. This allows you to access printers on other computers they were directly attached to yours. -The most commonly used protocol is the remote lineprinter protocol from <erkeley 6ni&0 remote e:ecution. This is useful when you can do most of your work
connected to one of these, you simply type the name of a computer, and you are connected to it. "enerally it is possible to ha e acti e connection s to more than one computer at the same time. The terminal ser er will ha e pro isions to switch between
as if
on a
small computer, but a few tasks re=uire the resources of a larger system. There are a number of different kinds of remote e&ecution. (ome operate on a command by command basis. That is, you re=uest that a specific command or set of commands should run on some specific computer. Aowe er there are also Kremote procedure callL systems that allow a program to call a subroutine that will run on another computer. name servers. In large installations, there are a number of different collections of names that ha e to be managed. This includes users and their passwords, names and network addresses for computers, and accounts. It becomes ery tedious to keep this data up to date on all of the computers. Thus the databases are kept on a small number of systems. 3ther systems access the data o er the network. terminal servers. 2any installations no longer connect terminals directly to computers. Instead they connect them to terminal ser ers. Aterminal ser er is simply a small computer that only knows how to run telnet -or some other protocol to do remote login0. If your terminal is
NOTES
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connections rapidly, and to notify you when output is waiting for another connection. net*or"-oriented *indo* s(stems. 6ntil recently, high!performance graphics programs had to e&ecute on a computer that had a bit! mapped graphics screen directly attached to it. 'etwork window systems allow a program to use a display on a different computer. 4ull! scale network window systems pro ide an interface that lets you distribute %obs to the systems that are best suited to handle them, but still gi e you a single graphically!based user interface.
1.0.0 TC;DI; E Connectionle$$ tec,nolo)%' T$,?I, is built on KconnectionlessL technology. Information is transferred as a se=uence of KdatagramsL. Adatagram is a collection of data that is sent as a single message. Each of these datagrams is sent through the network indi idually. There are pro isions to open connections -i.e. to start a con ersation that will continue for some time0. Aowe er at some le el, information from those connections is broken up into datagrams, and those datagrams are treated by the network as completely separate. 4or e&ample, suppose you want to transfer a )5111 octet file. 2ost networks cant handle a )5111 octet datagram. (o the protocols will break this up into something like H1 511!octet datagrams. Each of these datagrams will be sent to the other end. At that point, they will be put back together into the )5111!octet file. Aowe er while those datagrams are in transit, the network doesnt know that there is any connection between them. It is perfectly possible that datagram )C will actually arri e before datagram )H. It is also possible that somewhere in the network, an error will occur, and some datagram wont get through at all. In that case, that datagram has to be sent again. 1.1 #C;ERTEFT MAR=U; LAN:UA:E (#TML) 1.1.1 ?e4 !($ed Client D Ser7er 3 er the past three or four years, the World Wide Web -WWW0 has come to dominate the traffic on the Internet. The ast ma%ority of E$ applications are Web based. In such applications, the clients are called Web browsers and the ser ers are simply called Web ser ers. ;ike other client?ser er applications, Web browsers and ser ers need as way
)0 to locate each other so they can send re=uests and responses back and forth and @0 to communicate with one another. To fulfil these needs, a new addressing scheme Q the 6R; ! and a new protocol Q the Ayperte&t Transport ,rotocol -ATT,0 were introduced. 1.1.1.1 ;niversal /esource Locator &;/L' 6ni ersal Resource ;ocators -6R;s0 are ubi=uitous, appearing on the Web, in print, on billboards, on tele ision, and anywhere else a company can ad ertise. We are all familiar with Kwww .anywhere.comL. This is the default synta& for a 6R;. The complete synta& for an KabsoluteL 6R; is access Q method# ?? ser er Qname T# portU?directory?file, where the access Q method can be http, ftp, gopher, or telnet. In the case of a 6R; like www.ge.com, for e&ample, the access Q method -http0, port -810, directory, and file -e.g., home page.htm0 take default alues, as opposed to the following e&ample where all the alues are e&plicitly specified# ht t p# ??info . cer n.c h#8 1?hyper t e&t ?. at a (ources? "eographical.html. What this 6R; represents is the Web page K"eographical.htmlL on the ser er Kinfo.cern.chL stored in the directory K.ata (ourcesL. 1.1.1.2 )(perte:t 2ransfer Protocol &)22P' Ayperte&t Transfer ,rotocol -ATT,0 is the set of rules, or protocol that go erns the transfer of hyperte&t between two or more computers. The World Wide Web encompasses the uni erse of information that is a ailable ia ATT,. Ayperte&t is te&t that is specially coded using a standard system called Ayperte&t 2arkup ;anguage -AT2;0. The AT2; codes are used to create links. These links can be te&tual or graphic and when clicked on, can KlinkL the user to another resource such as other AT2; documents, te&t files, graphics, animation and sound. ATT, is based on client?ser er principle. ATT, allows the client to establish a connection with the ser er and make a re=uest. The ser er re=uest identifies the resource that the client is interested in and tells the ser er what KactionL to take on the resource.
When a user selects a hyperte&t link, the client program on their computer uses ATT, to contact the ser er, identify a resource, and ask the ser er to respond with an
NOTES
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action. The ser er accepts the re=uest, and then uses ATT, to respond to or perform the action. ATT, also pro ides access to other Internet protocols like 4ile Transfer ,rotocol -4T,0, (imple 2ail Transfer ,rotocol -(2T,0, 'etwork 'ews Transfer ,rotocol -''T,0, WAI(, "opher, Telnet, etc. 1.1. M(r3 U+l(n)u()e$ (nd T,e ?e4 Web pages can include many elements, such as graphics, photographs, sound clips, and e en small programs that run in the web browser. Each of these elements is stored on the Web ser er as a separate file. The most important parts of a Web page, howe er, are the structure of the page and the te&t that makes up the main part of the page. The page structure and te&t are stored in a te&t file that is formatted, of marked up, using a te&t mark up language. A te&t mark up language specifies a set of tags that are inserted into the te&t. These mark up tags, also called tags, pro ide formatting instructions that Web client software can understand. The Web client software uses those instructions as it renders the te&t and page elements contained in the other files into the Web page that appears on the screen of the client computer. The markup language most commonly used on the web is AT2;, which is a subset of a much older and far more comple& te&t markup language called St(nd(rd :ener(li<ed M(r3u+ L(n)u()e (S:ML). AT2;, R2; and RAT2; ha e descended from the original ("2; specification. ("2; was used for many years by the publishing industry to create documents that needed to be printed in arious formats and they were re ised fre=uently. In addition to its role as a markup language, ("2; is a met( l(n)u()e, which is a language that can be used to define other languages. Another markup language that was deri ed from ("2; for use on the Web is E.ten$i4le M(r3u+ L(n)u()e (FML)5 which is increasingly used to mark up information that companies share with each other o er the Internet 1.1.& #%+erte.t M(r3u+ L(n)u()e (#tml) A web page is created using AT2;. AT2; stands for Ayperte&t 2arkup ;anguage. AT2; is a special kind of te&t document that is used by Web browsers to present te&t and graphics.AT2; consists of standardi/ed codes or Etags that are used to define the structure of information on a web page.
66
The te&t includes markup tags such as VpW to indicate the start of a paragraph, and V?pW to indicate the end of a paragraph. AT2; documents are often referred to as KWeb pagesL. The browser retrie es Web pages from Web ser ers that thanks to the Internet can be pretty much anywhere in World. AT2; is standardi/ed and portable. A document that has been prepared using AT2; markup KtagsL can be iewed using ariety of web browsers such as 'etscape, ;yn& etc... Abrowser interprets the tags in an AT2; file and presents the file as a formatted readable web page. 1.1.3.1 )2!L 2ags: AT2; tags are used to define areas of document as ha ing certain characteristics. The tags used in AT2; usually consist of a code in between two KwicketsL. These codes are called container tags because the formatting described by the tag affects only the te&t contained between the tags. start with a title add headings and paragraphs add emphasis to your te&t add images add links to other pages use arious kinds of lists
NOTES
Start !ith a title E ery AT2; document needs a title. Aere is what you need to type# GtitleHM% "ir$t #TML documentGDtitleH $hange the te&t from K2y first AT2; documentL to suit your own needs. The title te&t is preceded by the start tag VtitleW and ends with the matching end tag V?titleW. The title should be placed at the beginning of your document. To try this out, type the abo e into a te&t editor and sa e the file as Ktest.htmlL, then iew the file in a web browser. If the file e&tension is K.htmlL or K.htmL then the browser will recogni/e it as AT2;. 2ost browsers show the title in the window caption bar. With %ust
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a title, the browser will show a blank page. .ont worry. The ne&t section will show how to add displayable content. Add ,e(din)$ +(r()r(+,$ (nd
If you ha e used 2icrosoft Word, you will be familiar with the built in styles for headings of differing importance. In AT2; there are si& le els of headings. A) is the most important7 A@ is slightly less important, and so on down to A+, the least important. Aere is how to add an important heading# G,1HAn im+ort(nt ,e(din)GD,1H and here is a slightly less important heading# G, HA $li),tl% le$$ im+ort(nt ,e(din)GD, H Each paragraph you write should start with a VpW tag. The V?pW is optional, unlike the end tags for elements like headings. 4or e&ample# G+HT,i$ i$ +(r()r(+,.GD+H G+HT,i$ i$ +(r()r(+,.GD+H t,e "ir$t
t,e
$econd
"dding a it of emphasis 9ou can emphasi/e one or more words with the VemW tag, for instance# T,i$ i$ ( re(ll% GemHintere$tin)GDemH to+icI Addin) intere$t to %our +()e$ 2it, im()e$ Images can be used to make your Web pages distincti e and greatly help to get your message across. The simple way to add an image is using the VimgW tag. ;ets assume you ha e an image file called Kpeter.%pgL in the same folder?directory as
your AT2; file. It is @11 pi&els wide by )51 pi&els high.
Gim) $rcJK+eter.A+)K ,ei),tJK1-8LH
2idt,JK 88L
The src attribute names the image file. The width and height arent strictly necessary but help to speed the display of your Web page. (omething is still missingX ,eople who
cant see the image need a description they can read in its absence. 9ou can add a short description as follows# Gim) $rcJK+eter.A+)K 2idt,JK 88L ,ei),tJK1-8L (ltJKM% "riend ;eterKH The alt attribute is used to gi e the short description, in this case K2y friend ,eterL. 4or comple& images, you may need to also gi e a longer description. Assuming this has been written in the file Kpeter.htmlL, you can add one as follows using the longdesc attribute# Gim) $rcJK+eter.A+)K 2idt,JK 88L ,ei),tJK1-8L (ltJKM% "riend ;eterK lon)de$cJK+eter.,tmlKH 9ou can create images in a number of ways, for instance with a digital camera, by scanning an image in, or creating one with a painting or drawing program. 2ost browsers understand "I4 and B,E" image formats, newer browsers also understand the ,'" image format. To a oid long delays while the image is downloaded o er the network, you should a oid using large image files. "enerally speaking, B,E" is best for photographs and other smoothly arying images, while "I4 and ,'" are good for graphics art in ol ing flat areas of color, lines and te&t. All three formats support options for progressi e rendering where a crude ersion of the image is sent first and progressi ely refined. "dding lin#s to other pages What makes the Web so effecti e is the ability to define links from one page to another, and to follow links at the click of a button. Asingle click can take you right across the worldX ;inks are defined with the VaW tag. ;ets define a link to the page defined in the file Kpeter.htmlL in the same folder?directory as the AT2; file you are editing# T,i$ ( lin3 to G( ,re"JK+eter.,tmlKH;eterM$ +()eGD(H. The te&t between the VaW and the V?aW is used as the caption for the link. It is common for the caption to be in blue underlined te&t.
NOTES
69
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If the file you are linking to is in a parent folder?directory, you need to put K..?L in front of it, for instance# G( ,re"JK..Dm(r%.,tmlKHM(r%M$ +()eGD(H If the file you are linking to is in a subdirectory, you need to put the name of the subdirectory followed by a K?L in front of it, for instance# G( ,re"JK"riend$D$ue.,tmlKHSueM$ +()eGD(H The use of relati e paths allows you to link to a file by walking up and down the tree of directories as needed, for instance# G( ,re"JK..Dcolle)eD"riend$DAo,n.,tmlKHNo,nM$ +()eGD(H Which first looks in the parent directory for another directory called KcollegeL, and then at a subdirectory of that named KfriendsL for a file called K%ohn.htmlL. To link to a page on another Web site you need to gi e the full Web address -commonly called a 6R;0, for instance to link to www.wH.org you need to write# T,i$ i$ ( lin3 to G( ,re"JK,tt+'DD222.2&.or)DKH?&CGD(H. 9ou can turn an image into a hyperte&t link, for e&ample, the following allows you to click on the company logo to get to the home page# G( ,re"JKDKHGim) $rcJKlo)o.)i"K (ltJK,ome +()eKHGD(H This uses K?L to refer to the root of the directory tree, i.e. the home page. 2%ree "inds of lists AT2; supports three kinds of lists. The first kind is a bulletted list, often called an unordered list. It uses the VulW and VliW tags, for instance# GulH GliHt,e "ir$t li$t itemGDliH GliHt,e $econd li$t itemGDliH GliHt,e t,ird li$t itemGDliH GDulH
70
'ote that you always need to end the list with the V?ulW end tag, but that the V?liW is optional and can be left off. The second kind of list is a numbered list, often called an ordered list. It uses the VolW and VliW tags. 4or instance# GolH GliHt,e "ir$t li$t itemGDliH GliHt,e $econd li$t itemGDliH GliHt,e t,ird li$t itemGDliH GDolH ;ike bulletted lists, you always need to end the list with the V?olW end tag, but the V?liW end tag is optional and can be left off. The third and final kind of list is the definition list. This allows you to list terms and their definitions. This kind of list starts with a VdlW tag and ends with V?dlW Each term starts with a VdtW tag and each definition starts with a VddW. 4or instance# GdlH GdtHt,e "ir$t termGDdtH GddHit$ de"initionGDddH GdtHt,e $econd termGDdtH GddHit$ de"initionGDddH GdtHt,e t,ird termGDdtH GddHit$ de"initionGDddH GDdlH The end tags V?dtW and V?ddW are optional and can be left off. 'ote that lists can be nested, one within another. 4or instance# GolH GliHt,e "ir$t li$t itemGDliH GliH t,e $econd li$t item GulH GliH"ir$t ne$ted itemGDliH GliH$econd ne$ted itemGDliH GDulH
71
NOTES
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GDliH GliHt,e t,ird li$t itemGDliH GDolH 9ou can also make use of paragraphs and headings etc. for longer list items. )2!L %as a %ead and a .od( If you use your web browsers iew source feature -see the :iew or 4ile menus0 you can see the structure of AT2; pages. The document generally starts with a declaration of which ersion of AT2; has been used, and is then followed by an VhtmlW tag followed by VheadW and at the ery end by V?htmlW. The VhtmlW ... V?htmlW acts like a container for the document. The VheadW ... V?headW contains the title, and information on style sheets and scripts, while the VbodyW ... V?bodyW contains the markup with the isible content. Aere is a template you can copy and paste into your te&t editor for creating your own pages# GIDOCTC;E ,tml ;U!LIC O-DD?&CDDDTD #TML *.81 Tr(n$ition(lDDENK O,tt+'DD222.2&.or)DTRD,tml*Dloo$e.dtdKH G,tmlH G,e(dH GtitleH replace *it% (our document<s title GDtitleH GD,e(dH G4od%H replace *it% (our document<s content GD4od%H V?htmlW 2id(ing up (our mar"up A con enient way to automatically fi& markup errors is to use AT2; Tidy which also tidies the markup making it easier to read and easier to edit. I recommend you regularly run Tidy o er any markup you are editing. Tidy is ery effecti e at cleaning up markup created by authoring tools with sloppy habits. Tidy is a ailable for a wide range of operating systems from the Tidy;ib (ourceforge site, and has also been integrated into a ariety of AT2; editing tools.
1.6 OLA;' ON-LINE ANALCTICAL ;ROCESSIN: 1.6.1 Introduction:
NOTES
The term 3;A, -3n!;ine Analytical ,rocessing0 was coined by E.4. $odd in )**H to refer a type of application that allows a user to interacti ely analy/e data. An 3;A, system is often contrasted to an 3;T, -3n!;ine Transaction ,rocessing0 system that focuses on processing transactions such as orders, in oices or general ledger transactions. 3;A, is now acknowledged as a key technology for successful management in the *1s. It describes a class of applications that re=uire multidimensional analysis of business data. 3;A, systems enable managers and analysts to rapidly and easily e&amine key performance data and perform powerful comparison and trend analyses, e en on ery large data olumes. They can be used in a wide ariety of business areas, including sales and marketing analysis, financial reporting, =uality tracking, profitability analysis, manpower and pricing applications and many others. 3;A, technology is being used in an increasingly wide range of applications. The most common are sales and marketing analysis7 financial reporting and consolidation7 and budgeting and planning. 3;A, is being used for applications such as product profitability and pricing analysis, acti ity based costing, manpower planning7 =uality analysis, in fact for any management system that re=uires a fle&ible top down iew of an organi/ation. 1.6. ?,(t i$ OLA;> 3n!;ine Analytical ,rocessing -3;A,0 is a category of software technology that enables analysts, managers and e&ecuti es to gain insight into data through fast, consistent, interacti e access to a wide ariety of possible iews of information that has been transformed from raw data to reflect the real dimensionality of the enterprise as understood by the user. 3;A, functionality is characteri/ed by dynamic multi!dimensional analysis of consolidated enterprise data supporting end user analytical and na igational acti ities including# calculations and modeling applied across dimensions, through hierarchies and?
or across members trend analysis o er se=uential time periods

DBA 1727
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slicing subsets for on!screen iewing drill!down to deeper le els of consolidation reach!through to underlying detail data rotation to new dimensional comparisons in the iewing area
3;A, is implemented in a multi!user client?ser er mode and offers consistently rapid response to =ueries, regardless of database si/e and comple&ity. 3;A, helps the user synthesi/e enterprise information through comparati e, personali/ed iewing, as well as through analysis of historical and pro%ected data in arious Kwhat!ifL data model scenarios. This is achie ed through use of an 3;A, (er er. 3;A, allows business users to slice and dice data at will. 'ormally data in an organi/ation is distributed in multiple data sources and are incompatible with each other. A retail e&ample# ,oint!of!sales data and sales made ia call!center or the Web are stored in different location and formats. It would a time consuming process for an e&ecuti e to obtain 3;A, reports such as ! What are the most popular products purchased by customers between the ages )5 to H1M ,art of the 3;A, implementation process in ol es e&tracting data from the arious data repositories and making them compatible. 2aking data compatible in ol es ensuring that the meaning of the data in one repository matches all other repositories. An e&ample of incompatible data# $ustomer ages can be stored as birth date for purchases made o er the web and stored as age categories -i.e. between )5 and H10 for in store sales. It is not always necessary to create a data warehouse for 3;A, analysis. .ata stored by operational systems, such as point!of!sales, are in types of databases called 3;T,s. 3;T,, Online 2ransaction Process, databases do not ha e any difference from a structural perspecti e from any other databases. The main difference, and only, difference is the way in which data is stored. E&amples of 3;T,s can include ER,, $R2, ($2, ,oint!of!(ale applications, $all $enter. 3;T,s are designed for optimal transaction speed. When a consumer makes a purchase online, they e&pect the transactions to occur instantaneously. With a database design, call data modeling, optimi/ed for transactions the record E$onsumer name, Address, Telephone, 3rder 'umber, 3rder 'ame, ,rice,
,ayment 2ethod
is
created =uickly on the database and the results can be recalled by managers e=ually =uickly if needed.
NOTES
D(t( Model "or OLT;

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NOTES
.ata are not typically stored for an e&tended period on 3;T,s for storage cost and transaction speed reasons. 3;A,s ha e a different mandate from 3;T,s. 3;A,s are designed to gi e an o er iew analysis of what happened. Aence the data storage -i.e. data modeling0 has to be set up differently. The most common method is called the star design.
St(r D(t( Model "or OLA; The central table in an 3;A, start data model is called the fact table. The surrounding tables are called the dimensions. 6sing the abo e data model, it is possible to build reports that answer =uestions such as# The super isor that ga e the most discounts. The =uantity shipped on a particular date, month, year or =uarter. In which /ip code did product A sell the most.
To obtain answers, such as the ones abo e, from a data model 3;A, cu.es are created. 3;A, cubes are not strictly cuboids ! it is the name gi en to the process of linking
data from the different dimensions. The cubes can be de eloped along business units such as sales or marketing. 3r a giant cube can be formed with all the dimensions.
3;A, (er er is often the preferred method.
OLA; Cu4e 2it, Time5 Cu$tomer (nd ;roduct Dimen$ion$ 3;A, can be a aluable and rewarding business tool. Aside from producing reports, 3;A, analysis can aid an organi/ation e aluate balanced scorecard targets.
Ste+$ in t,e OLA; Cre(tion ;roce$$ 1.6.& OLA; Ser7er An 3;A, ser er is a high!capacity, multi!user data manipulation engine specifically designed to support and operate on multi!dimensional data structures. A multi!dimensional structure is arranged so that e erydata item is located and accessed based on the intersection of the dimension members which define that item. The design of the ser er and the structure of the data are optimi/ed for rapid ad!hoc information retrie al in any orientation, as well as for fast, fle&ible calculation and transformation of raw data based on formulaic relationships. The 3;A, (er er may either physically stage the processed multi!dimensional information to deli er consistent and rapid response times to end users, or it may populate its data structures in real!time from relational or other databases, or offer a choice of both. "i en the current state of technology and the end user re=uirement for consistent and rapid response times, staging the multi!dimensional data in the
NOTES
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1.6.* U$e$ O" Ol(+ 3;A, applications span a ariety of organi/ational functions. 4inance departments use 3;A, for applications such as budgeting, acti ity Q based costing -allocations0, financial performance analysis, and financial modelling. (ales analysis and forecasting are two of the 3;A, applications found in sales departments. Among other applications, marketing departments use 3;A, for market research analysis, sales forecasting, promotions analysis, customer analysis, and market ? customer segmentation. Typical manufacturing 3;A, applications include production planning and defect analysis. 4or all the abo e applications is the ability to pro ide managers with the information they need to make effecti e decisions about an organi/ations strategic directions. The key indicator of a successful 3;A, application is its ability to pro ide information, as needed, i.e., its ability to pro ide K%ust Q in ! timeL information for effecti e decision! making. This re=uires more than a base le el of detailed date. Analy/ing and modelling comple& relationships are practical only if response times are consistently short. In addition, because the nature of data relationships may not be known in ad ance, the data model must be fle&ible. Atruly fle&ible data model ensures that 3;A, systems can respond to changing business re=uirements as needed for effecti e decision making. 1.6.- OLA; !ene"it$' 3;A, applications increase the producti ity of business managers, de elopers, and whole organi/ations. The inherent fle&ibility of 3;A, systems means business users of 3;A, applications can become more self sufficient. 2anagers are no longer dependent on IT to make schema changes, to create %oins or worse. ,erhaps more importantly, 3;A, enables managers to model problems that would be impossible using less fle&ible systems with lengthy and inconsistent response times. 2ore control and timely access to strategic information e=ual more effecti e decision!making. IT de elopers also benefit from using the right 3;A, software. Although it is possible to build an 3;A, system using software designed for transaction processing or data collection, it is certainly not a ery efficient use of de eloper time. <y using software specifically designed for 3;A,, de elopers can deli er
applications
to
business users faster,

pro iding better ser ice. 4aster deli ery of applications also reduces the applications backlog 3;A, reduces the applications backlog still further by making business users self! sufficient enough to build their own models. Aowe er, unlike standalone departmental applications running on ,$ networks, 3;A, applications are dependent on data warehouses and transaction processing systems to refresh their source le el data. As a result, IT gains more self!sufficient users without relin=uishing control o er the integrity of the data. IT also reali/es more efficient operations through 3;A,. <y using software designed for 3;A,, IT reduces the =uery drag and network traffic on transaction systems or the data warehouse. 1.18 CRC;TO:RA;#C 1.18.1 Introduction to Cr%+to)r(+,% The origin of the word cryptology lies in ancient "reek. The word cryptology is made up of two components# KkryptosL, which means hidden and KlogosL which means word. $ryptology is as old as writing itself, and has been used for thousands of years to safeguard military and diplomatic communications. 4or e&ample, the famous Roman emperor Bulius $aesar used a cipher to protect the messages to his troops. Within the field of cryptology one can see two separate di isions# cryptography and cryptanalysis. The cryptographer seeks methods to ensure the safety and security of con ersations while the cryptanalyst tries to undo the formers work by breaking his systems. 1.18. Cr%+to)r(+,ic $er7ice$ The main goals of modern cryptography can be seen as# user authentication, data authentication -data integrity and data origin authentication0, non!repudiation of origin, and data confidentiality. ;ser -ut%entication If you log to a computer system there must -or at least should0 be some way that you can con ince it of your identity. 3nce it knows your identity, it can erify whether you are entitled to enter the system. The same principal applies
when one person tries to
NOTES
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communicate with another# as a first step you want to erify that you are communicating with the right person. Therefore there must be some way in which you can pro e your identity. This process is called user authentication. There are se eral ways to obtain user authentication. 9ou can gi e him something only you can know# a password, a -predesigned0 user!id, a pincode, and so on. 3r you could ha e some specific items with which you can identify yourself# a magnetic strip card, a smart card -a hand! held computer the si/e of a credit!card0, a token. 3ne might make use of biometric properties7 it is a well!known fact that fingerprints, the shape of the hand and retinal pattern of a person are good decision criteria. These howe er re=uire speciali/ed e=uipment and thus a big in estment. Aowe er, these biometric systems are not perfect# some legitimate users will ine itably fail the identification and some intruders will be accepted as genuine. 3ther techni=ues include measurements of how a person types his name or writes his signature, or can take into account the location of the user. 4or the time being the first two methods are the ones generally applied, and many practical systems use a combination of both. (ince the users memory is limited, this information should not ary too much o er time. Whether it is a password, a pincode or a user!id, all these items are being defined at a certain time and often dont change from there on. 3ne might argue that you could change your password, but this is not done each time you access the computer. This indicates that someone who can ea esdrop this information will later be able to impersonate the user. Asimilar obser ation holds true for a magnetic strip card or memory chip. All these systems pro ide static authentication only. If the user possesses a de ice which can perform simple computations, the security can be increased significantly by introducing the well!known challenge! response idea. If a person tries to identify himself to the system, the system generates a random challenge and sends it to the person or to his de ice. In case of a token -a mini!calculator0, the user will ha e to enter the challenge on the keyboard. The de ice will then compute the corresponding response, using secret information which has been assigned to him. This response is then sent back to the system, which erifies it. If more sophisticated protocols are used, the erifier does not need secret information -this re=uires public!key protocols0, or will e en not learn the secret of the users -this re=uires /ero!knowledge protocols0. 'ote that in this case the procedure does not authenticate the user but rather his de ice. In order to increase the security, the user should authenticate himself with respect to
the de ice, using
something
he alone knows. This makes the de ice useless if it is stolen.
NOTES
In general, one also re=uires that the computer authenticates itself to the person logging on. If both parties are authenticated to each other, we use the term mutual aut%entication . #ata aut%entication .ata authentication consists of two components# the fact that data has not been modified -data integrity0 and the fact that you know who the sender is -data origin authentication0. #ata integrit( A data integrity ser ice guarantees that the content of the message, that was sent, has not been tampered with. .ata integrity by itself is not meaningful# it does not help you to know that the data you ha e recei ed has not been modified, unless you know it has been sent directly to you by the right person. Therefore it should always be combined with data origin authentication. 9ou should always be alert for possible intruders in your network or in your communication system. A well!known e&ample is the Internet that connects uni ersities and companies world!wide. Electronic mail o er the Internet does not offer any security. As a conse=uence, an educated computer user can tap into the messages that are being transmitted o er the line. It is ery easy to read and modify someones electronic mail, which is commonly seen as being pri ate. We ha e A-lice0 who sends a message to <-ob0. There is also an enemy who taps the line between them. If you dont support data integrity, this enemy can %ust change the message and then relay it to <. < will not see that the message has been tampered with and will assume A really intended it the way he got it. 3ne could argue that acti e wire!tapping is difficult. In general wire!tapping is only a matter of cost# tapping a telephone line is ob iously easier than tapping a coa&ial cable or a micro!wa e. Acti e wire!taps -modifying and then relaying the messages0 are also more difficult than passi e wire!taps -listening in on the messages0.
81
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#ata origin aut%entication Aere one wants to make sure that the person who is claiming to be the sender of the message really is the one from whom it originates. If A sends a message to <, but the enemy intercepts it and sends it to <, claiming Ahas sent it, how can < be sure of the real origin of this dataM A ariation on this theme is# the enemy could send a message to < claiming it A is the originator. Thanks to cryptography, there are techni=ues to ensure against this type of fraud. 0on-repudiation of origin 'on!repudiation protects against denial by one of the entities in ol ed in a communication of ha ing participated in all or part of the communication. 'on! repudiation with proof of origin protects against any attempts by the sender to repudiate ha ing sent a message, while non!repudiation with proof of deli ery protects against any attempt by the recipient to deny, falsely, ha ing recei ed a message. An e&ample will illustrate the importance of non!repudiation of origin. (uppose < is the owner of a mail!order company and he decides to let his customers order through electronic mail. 4or him it is really important that he can show to an arbitrary third party that A really ordered the things he is claiming otherwise it would be easy for a customer to deny the purchase of the goods. In a paper and pencil world, non!repudiation is pro ided by a manual signature. #ata confidentialit( This aspect of data security certainly is the oldest and best known. The e&ample of $aesars cipher gi en in the introduction clearly demonstrates this. The fact that confidentiality was considered to be much more important than authentication of both sender and data, together with non!repudiation of origin can be e&plained as follows# the latter ser ices ha e been pro ided implicitly by the physical properties of the channel# a letter was written in a recogni/able handwriting, with a seal and a signature. With data confidentiality we try to protect oursel es against unauthori/ed disclosure of the message. If A sends a message to <, but the enemy intercepts it, one wants to make sure that this enemy ne er understands his contents. $onfidentiality protection is ery
82
important in the medical world and also in the banking sector. World!wide there are se eral million transactions each day and all of these ha e to be passed from one financial institution to another. If there were no way to protect confidentiality, e erybody would be able to see who had purchased what, who has made what kind of withdrawal, and so on. $learly this would iolate indi iduals and companies rights to pri acy. In order to pro ide confidentiality, it is necessary to transform the message with a cipher. 1.18.& +rimiti7e$ Cr%+to)r(+,ic
The abo e cryptographic ser ices can be reali/ed by se eral cryptographic primiti es# we distinguish between primiti es for encryption, primiti es for authentication, and cryptographic protocols. Encryption primiti es can be used to pro ide confidentiality, authentication primiti es can be used to pro ide data authentication. We will also discuss protocols for user authentication and for key management. Encr(ption primitives In cryptography one often makes use of encryption. With encryption we transform the clear!te&t -or plainte&t0 into cipher!te&t. To get back to the original te&t, we apply the in erse transformation, called decryption. These transformations themsel es are public# this makes it possible to analy/e these algorithms and to de elop efficient implementations. Aowe er they use a secret parameter# the keys which are known only by the sender and? or the recei er. This key is the only thing one needs to know in order to encipher or decipher. Thus it is really important to manage ones keys and keep them secret where necessary. . We discuss two types of encryption primiti es, symmetric or con entional ciphers and asymmetric or public!key ciphers. S(mmetric cip%ers
<asically there are two kinds of encryption! schemes. The oldest ones and most used until now are the symmetric ciphers. In these schemes, the key used to decipher the cipher!te&t is e=ual to the one used to encipher the plainte&t.
NOTES
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NOTES
The best known cipher in this category is the .ata Encryption (tandard -.E(0 that was adopted in )*GG by the American '<( -'ational <ureau of (tandards0 as 4I,( C+. (ince then it has been used all o er the world and until now no ma%or flaws ha e been disco ered. -s(mmetric cip%ers The asymmetric or public!key ciphers are the most recent cryptographic tools. In contrary to the symmetric systems the key used to encipher and the one used to decipher are different. Each partner thus has two keys. Ae keeps one key secret and makes the other one public. If A wants to send a message to <, he %ust enciphers it with <s public key. (ince < is the only one who has access to the secret key, < is the only one who can decipher the message and read the contents. The most popular public!key cipher is the R(A system -R(A stands for Ri est, (hamir and Adleman, the names of the three in entors0. The security of this scheme is related to the mathematical problem of factori/ation# it is easy to generate two large primes and to multiply them, but gi en a large number that is the product of two primes, it re=uires a huge amount of computation to find the two prime factors. S(mmetric versus as(mmetric cip%ers The biggest drawback of the asymmetric systems up until now has been the relati e low performance compared to the symmetric ones. ,ublic!key systems pro ide significant benefits in terms of key management# if e ery user generates his own key, only an authentic channel is re=uired, eliminating -e&pensi e0 secret channels like couriers. In systems without a central trusted ser er, the number of keys can be reduced. Indeed, suppose we ha e a network of n users each of whom wanting to communicate with the others. (ince each communication re=uires a secret key, the total number of keys re=uired e=uals nY-n!)0?@.
84
1.18.* Aut,entic(tion +rimiti7e$ One-*a( functions and %as% codes
NOTES
A one!way function is defined as a function f such that for e ery & in the domain of f, f-&0 is easy to compute7 but for irtually all y in the range of f, it is computationally infeasible to find an & such that yZf-&0. In addition one re=uires that it is hard to find a second pre!image# gi en an & and the corresponding alue of f-&0, it should be hard to find an & different from & which has the same image under f. 3ne!way functions are used to protect passwords# one will store a one!way image of the password in the computer rather than the password itself. 3ne applies then the one! way function to the input of the user and erifies whether the outcome agrees with the alue stored in the table. A hash function is a function which maps an input of arbitrary length into a fi&ed number of output bits. In order to be useful for cryptographic applications, a hash function has to satisfy some additional re=uirements. 3ne can distinguish two types of hash functions. A2A$ -2essageAuthentication $ode0 that uses a secret key, and an 2.$ -2anipulation .etection $ode0 that works without a key. 4or a 2A$ one re=uires that it should be impossible to compute the 2A$ without knowledge of the secret key. 4or an 2.$ one re=uires that it is a one!way function, and ! in most cases ! that it is collision resistant, which means that it should be hard to find two arguments hashing to the same result. Aash functions can be used to protect the authenticity of large =uantities of data with a short secret key -2A$0, or to protect the authenticity of a short string -2.$0. (ometimes an 2.$ is used in combination with encryption, which can yield protection of both confidentiality and authenticity. There are se eral schemes which ha e been proposed for use as hash functions. The widely used construction for a 2A$ is the $<$ mode of the .E( -with an additional output transformation0, as specified in I(3!*G*G. (e eral 2.$s ha e been constructed based on the .E(. 3ther dedicated designs are (AA -(ecure Aash Algorithm or 4I,( )810, and RI,E!2. )+1. These hash functions achie e a ery high throughput -2bit?s0, e en in software implementations.
85
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#igital signature ,ublic!key techni=ues can also be used for other purposes than for enciphering information. If Alice adds some redundancy to her message and transforms the result using her secret key, anyone who knows Alices public key can erify that this message was sent byAlice -by erifying the redundancy0. In this way one can create a digital signature, which is the e=ui alent of the hand!written signature on a document. (ince it is not physically connected to the signed data or the originator, it will depend on this data and on the secret key of the originator. (e eral signature schemes ha e been proposed. The R(A public!key cryptosystem is the only one which can be used for both enciphering and digital signatures. (chemes which can only be used for digital signature purposes are the .(A and the 4iat!(hamir scheme. 'ote that it is possible to produce a digital signature based on con entional ciphers like the .E(. Aowe er, these schemes are less efficient in terms of memory and computations. 3ther constructions use a con entional cipher in combination with tamper resistant hardware# this offers only a limited protection. Assume <ob has recei ed from Alice a digitally signed message. If Alice subse=uently denies ha ing sent the message, <ob can go to a third party -e.g., a %udge0, who will be able to obtain Alices public key. (ubse=uently he can erify the alidity of the signature. In this way a digital signature can pro ide non! repudiation of origin. It is easy to see that it pro ides in addition data authentication, i.e., data integrity and data origin authentication. )as% functions versus digital signatures Aash functions can only be used in a situation where the parties mutually trust each other# they cannot be used to resol e a dispute -unless one uses, in addition tamper resistant hardware0. As in the case of encryption, hash functions tend to be three orders of magnitude faster than digital signatures. This e&plains why in general one will first compute the hashcode of the message with a fast hash function and subse=uently apply the digital signature to this short hashcode. This pro ides digital signatures which are not only faster and shorter, but also more secure.
86
1.18.- Cr%+to)r(+,ic +rotocol$
NOTES
A cryptographic protocol is an interaction between one or more entities to achie e a certain goal. In fact, encryption and digital signatures can be seen as a special case of cryptographic protocols. While a huge number of protocols ha e been de eloped, we will restrict this section to two types of protocols# protocols for user authentication and protocols for key management. ;ser aut%entication protocols The design of cryptographic protocols for user authentication is ery comple&. A large number of protocols ha e been presented in the a ailable literature, many of which e&hibit some weaknesses. The simplest protocol pro iding unilateral authentication consist of sending a password. 2ore comple& challenge!response protocols can be designed in which the user does not transmit his secret information. They are based on an encryption algorithm, a 2A$ or a digital signature and the use, in addition, of so called nonces -ne er used more than once0# random numbers, se=uence numbers or time stamps. 2ore comple& protocols are re=uired to achie e mutual authentication. =e( !anagement Protocols 3ne of the main links in the cryptographic keychain is the key management protocol# e ery cryptographic ser ice will make use of cryptographic keying material, whose confidentiality and?or integrityhas to be protected. 4or the distribution of this keying material, one can use a new cryptographic primiti e, and ultimately, a physical channel. In this way one builds a key hierarchy# secret keys for bulk encryption with a symmetric cipher system will be encrypted using an asymmetric cipher system and signed with a digital signature scheme. The public keys of the asymmetric cipher can be distributed ia an authentic channel which can be pro ided for e&ample by combining con entional mail with oice authentication. An alternati e is to sign these public keys with a single master key# now one only has to distribute a single master key ia an authentic channel.
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These signed public keys are called certificates. The central authority certifies that a certain public key belongs to a particular user. The commonly used scheme nowadays in based on the IT6!T R.51* recommendation. 'ote that there also e&ist public!key protocols which result in the agreement of a secret key between two parties, by e&changing public keys or parameters. A well known e&ample in this class is the .iffie!Aellman key agreement scheme. This protocol is different from a key transport protocol, in which one party generates the secret key and enciphers it with the public key of the other party. The key agreement protocols ha e the ad antage that they result in an increased security le el. In the conte&t of public!key cryptography, re ocation of public keys is ery important# once the users secret key is compromised, anybody can read his messages or forge his signatures. Although public!key systems re=uire no on!line central management system, the system has to pro ide a means to protect the user in the case by warning the other users that his public key is no longer alid. SUMMARC 1. De"ine EC (nd de$cri4e it$ t%+e$' Electronic commerce is an emerging model of new selling and merchandising tools in which buyers are able to participate in all phases of a purchase decision, while stepping through those processes electronically rather than in a physical store or by phone -with a physical catalogue0. There are a number of different types of E!$ommerce . <@< ! <usiness to <usiness <@$ ! <usiness to $onsumer $@< ! $onsumer to <usiness <@E ! <usiness to Employee $@$ ! $onsumer to $onsumer
Arc,itectur(l "r(me2or3 o" e commerce' The electronic commerce application architecture consists of si& layers of functionality, or ser ices# )0 @0 Applications brokerage ser ices, data or transaction management7
H0 interface, and support layersL C0 secure messaging, security and electronic document interchange7 50 middle ware and structured document interchange7 and +0 network infrastructure and basic communications ser ices
NOTES
En7ironment(l "(ctor$ (nd m(Aor re$+on$e$' 2arket, economical, societal and technological factors are creating a highly competiti e business en ironment in which consumers are the focal point. 3rgani/ations ma%or responses are di ided into fi e categories# strategic systems for competiti e ad antage, continuous impro ement efforts, business process reengineering -<,R0, business alliances and E$. & !ene"it$ o" EC' The global nature of the technology, low cost, opportunity to reach hundreds of millions of people, interacti e nature, ariety of possibilities, and resourcefulness and rapid growth of the supporting infrastructures -especially the Web0 result in many potential benefits to or)(ni<(tion$5 indi7idu(l$5 (nd $ociet%. The ;imitations of E$# T,e limit(tion$ o" EC c(n 4e )rou+ed into tec,nic(l (nd non-tec,nic(l c(te)orie$. D(t( minin) (nd tec,ni@ue$ u$ed in D(t( minin)' .ata mining, the extraction of hidden predictive information from large data ases, is a powerful new technology with great potential to help companies focus on the most important information in their data warehouses. The most commonly used techni=ues in data mining are# Artificial neural networks, .ecision trees, "enetic algorithms, nearest neighbour method, and Rule induction# Trend$ t,(t E""ect D(t( Minin)# 4i e e&ternal trends which promise to ha e a fundamental impact on data mining are #ata 2rends7 )ard*are 2rends7 0et*or" 2rends7 Scientific Computing 2rends and Business 2rends. D(t( 2(re,ou$e$ (nd t%+e$ o" d(t( 2(re,ou$e$' A data warehouse is a collection of computer!based information that is critical to successful e&ecution of enterprise initiati es. The term data warehouse is currently being used to describe a number of different facilities each with di erse characteristics!,hysical data warehouse, ;ogical data warehouse, .ata
library, .ecision support systems -.((s0
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1 6
Net2or3 In"r($tructure Com+onent$ Routers and switches 4irewalls ;oad balancers (torage Area 'etwork -(A'0 .'( ?,(t i$ TC;DI;> T$,?I, is a set of protocols de eloped to allow cooperating computers to share resources across a network. It was de eloped by a community of researchers centred around the AR,Anet. $ertainly the AR,Anet is the best! known T$,?I, network. #TML' AT2; stands for Ayperte&t 2arkup ;anguage. AT2; is a special kind of te&t document that is used by Web browsers to present te&t and graphics.AT2; consists of standardi/ed codes or Etags that are used to define the structure of information on a web page. OLA;' 3n!;ine Analytical ,rocessing -3;A,0 is a category of software technology that enables analysts, managers and e&ecuti es to gain insight into data through fast, consistent, interacti e access to a wide ariety of possible iews of information that has been transformed from raw data to reflect the real dimensionality of the enterprise as understood by the user. Cr%+to)r(+,%' The word cryptology is made up of two components# KkryptosL, which means hidden and KlogosL which means word. $ryptology is as old as writing itself, and has been used for thousands of years to safeguard military and diplomatic communications.
18
11
Bue$tion$ "or re7ie2 ). @. H. C. 5. What is e$ommerceM What so you understand by E.IM E&plain different types of E$M E&plain Electronic $ommerce Application (er ices ;ist the ad antages and disad antages of E$#
+. G.
;ist the organi/ational, consumer and societal benefits of E$ $arefully e&amine the non!technological limitations of E$. Which of them are company!dependent and which are generic. 8. ;ist the ma%or acti ities taken by organi/ations to deal with the business pressures. *. ;ist the ma%or acti ities of <,R )1. What is data miningM ;ist the techni=ues used in data mining )). .escribe fi e e&ternal trends which promise to ha e a fundamental impact on data mining. )@. )H. )C. )5. )+. )G. )8. )*. @1. What is data warehouseM ;ist the ad antages of data warehouse. .iscuss the 'etwork infrastructure components What is T$,?I,M .iscuss the traditional T$,?I, ser icesM What is AT2;M What are AT2; tags and where are they usedM What is 3;A, and discuss the data model of 3;A,M What are the benefits of 3;A,M What is $ryptographyM .iscuss the ma%or goals of modern cryptographyM .iscuss about encryption primiti es. What are cryptography protocolsM
NOTES
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92
NOTES
UNIT II
!USINESS A;;LICATIONS IN E-COMMERCE
.1 RETAILIN: IN E-COMMERCE .1.1 Electronic Commerce (nd Ret(ilin) Retailing is e&pected to change with the rapid de elopment of new online sales and distribution channels that literally can be used from anywhere, anytime! from work, school, a hotel, car, or airplane. These de elopments should impact retailing as much as the ad ent of strip malls, catalogue retailing, and T:!based home shopping. Almost e ery retailer is re!e aluating e ery aspect of its operation from customer ser ice to ad ertising, merchandising to store design, and logistics to order fulfilment. 4urthermore, reacting to the pressure of retailers, suppliers are assessing technology based solutions to dri e down costs -labour, deli ery, and production0 and become more efficient producers of goods. 3nline channels such as online ser ices and the Web are also impacting traditional retail business models. In the traditional model, the customer went to the store and located the product. In the online model, the retailer seeks out the customer. The success of catalog retailers demonstrates that a significant portion of consumers ha e embraced the re erse model# the retailer going to the consumer. Aowe er, retailers need to consider the following issues in de eloping a business model# ;roductDContent I$$ue$# What kind of products are suited for online re! tailingM So"t2(re Inter"(ce I$$ue$# What kind of features will constitute an effecti e interfaceM What features make it easy to find and select items for on! line purchaseM
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;roce$$ I$$ue$# What are the specific steps in the shopping process from a consumers perspecti eM What kind of processes should companies de! elop to fulfill orders efficientlyM
<efore e&amining the implications of changing consumer beha ior and online retailing in the e&isting retail business, let us step back for a moment and ask the =uestion# Why should retailers consider the online en ironment as a way of doing businessM The answer lies in understanding the market changes that affect retailing and that will continue to affect it in the future. .1. E-Ret(ilin) E!retailing essentially consists of the sale of goods and ser ices. (ometimes we refer to this as the sale of tangible and intangible goods, as shown in 4igure @.).@-a0 We can di ide tangible goods into two categories# physical goods and digital goods. E&amples of physical goods would be a book, a tele ision set, a ideo recorder, a washing machine, etc. E&amples of digital goods are software and music, which may be downloaded from the internet. The sale of intangible goods is sometimes called E! ser icing. E&amples of ser ices that may be sold are information such as the most recent stock prices, the most recent foreign e&change rate, or education. Entertainment such as !games that would be played on the internet are also e&amples of e!ser ices. (o are the sales of ser ices such as telecommunication ser ices or banking ser ices. The sale of tangible and intangible goods are all referred to as $ustomer oriented e! commerce or e! retailing, if they are sold directly to the consumer who is the end user. Aere we discuss the sale of tangible goods.
Se
) o" di""erent t%+e o" )ood$

.1.& Di""erence 4et2een Tr(dition(l ret(ilin) (nd E-ret(ilin) 2raditional retailing Traditional retailing essentially in ol es selling to a final customer through a physical outlet or through direct physical communication. This normally in ol es a fairly e&tensi e chain starting from a manufacturer to a wholesaler and then to the retailer who through a physical outlet has direct contact with the final customer. E&amples of physical outlets that retailers currently use are# 2alls generali/ed stores -e.g. department store0 speciali/ed stores franchise stores It is useful to reflect that e en in traditional retailing we ha e mo ed away from %ust using a static physical outlet within which a customer can ha e direct contact with the retailer. Thus, more recent forms of traditional retailing include direct mailing telemarketing door!to!door sales ending machines
NOTES
.irect mailing to a customer normally in ol es sending a brochure or catalogue to a customer. The customer browses through this catalogue and then carries out mail ordering. In some respects, this notion of browsing through a catalogue is a forerunner of e!retailing. .irect mailing, telemarketing, door!to!door sales, or the use of ending machines includes other forms that ha e actually mo ed away from a physical fi&ed outlet and in a way are intermediate forms of the mo ement away from traditional physical retailing outlet to the irtual retailing we see on the internet. E-retailing The internet has allowed a new kind of speciali/ation to emerge. Instead of speciali/ing %ust in a special product line, they allow speciali/ation in particular classes of
95
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customers and sellers. Thus, we see lastminute.com, which allows last minute purchases of tra el tickets, gift, and entertainment to be matched against last minute sellers of the same items. Aere, we see speciali/ation not in a product line but in a class of purchasers and a class of sellers. This kind of speciali/ation would not ha e been possible before we had the internet. In addition to these speciali/ed stores, we also get generali/ed e!stores where a store sells se eral product lines under a single management. E&amples of these generali/ed stores include B$ penny and Walmart. We also ha e the electronic counterpart of malls or e!malls. E!malls essentially pro ide a web!hosting ser ice for your indi idual store much in the way that mall pro ide a hosting ser ice in the sense of a physical location for your store. E&amples of these e!malls are 9ahooX (tore, "E3 (hops, and $'ET stores# .1.* !ene"it$ o" E-Ret(ilin) To cu$tomer t,e
$ustomers en%oy a number of benefits from e! retailing. The first of these is con7enience. It is con enient for the customer as he does not ha e to mo e from shop to shop physically in order to e&amine goods. Ae is able to sit in front of a terminal and search the net and e&amine the information on goods. The second aspect of con enience he gets is in terms of time. 'ormally, the traditional shop has an opening time and a closing time and the customer can only isit the shop within these periods. 3n the net, the customer can choose at any time to isit a site to e&amine the goods that are a ailable and actually carry out his purchasing at ones own con enient time. The third type of con enience that the customer gets is that he has access to a search engine, which will actually locate the products that he describes and also the site where they may be a ailable, or perhaps e en locate the sites where they may be a ailable at the best price The second type of benefit to customers is 4etter in"orm(tion. The Internet and the World Wide web are essentially communication media that allow
retailers to put on =uite
e&tensi e information related to their products, which is a ailable to the customers.
96
The third type of benefit that the customer gets is com+etiti7e +ricin). This is due to two factors. The first is lowered costs to the retailer because he does not ha e to maintain a physical showroom, he does not ha e to hire se eral shop assistants, and these sa ings can be passed on to customers in the form of reduced prices. (econdly, competiti e pricing pressure that arises from the fact that the customer is now able to look at prices at se eral sites. Therefore, the pressure is always there on the retailer to maintain a competiti e price for his products. To t,e 4u$ine$$ There are a number of benefits of e!retailing to the business itself. The first of these is )lo4(l re(c,. The retailer now is no longer restricted to customers who are able to reach the store physically. They can be from anywhere around the globe. The retailer must, of course, deli er the goods of a purchase to the customer. The second benefit is better cu$tomer $er7ice. The use of email and the use of electronic interchange of messages between the customer and the retailer allow better communication between the customer and the retailer. These allow one to easily in=uiries and deal with complaints. These also allow a much more rapid response time than was possible in the days of fa&es and postal mail. The third benefit is the lo2ered c(+it(l co$t to t,e ret(iler. The retailer does not ha e to maintain showrooms7 he can probably ha e lower in entories. Thus, while Ama/on.com lists o er a few million titles, it keeps an in entory of a few thousand best selling titles only. Therefore, the retailer has lower warehousing costs. Ae does not ha e to ha e many shop assistants who are physically answering =uestions and. (howing the customer goods. The fourth benefit to the retailer is m($$ cu$tomi<(tion. <ased on re=uests by the customers, the retailer is now able to carry out mass customi/ation with reduced time to market for the customi/ed
prod ucts.
NOTES
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NOTES
The ne&t ad antage is t(r)eted m(r3etin). The retailer is now able to pick on a specific targeted group of customers and direct marketing towards these customers. The retailer is also able to pro ide more 7(lue-(dded $er7ice$ in the way of better information, add!on ser ices to basic ser ices, or add!on options to products that he is selling. The last ad antage to the retailer consists of di""erent ne2 "orm$ o" $+eci(li<ed $tore$ t,(t ,e i$ no2 (4le to utili<e.
.1.- Model$ o" E-Ret(ilin) There are se eral models for e!retailing and these include (peciali/ed e!store "enerali/ed e!store E!mall .irect selling by the manufacturer (upplementary distribution channel E!broker E!ser ices
S+eci(li<ed e-$tore$ The first class of model what we mention in e!retailing was the speciali/ed e!store and here you can distinguish between two different kinds of speciali/ation# the more traditional speciali/ation along product lines and speciali/ation by function. When you ha e speciali/ation by product line, essentially you ha e a store that decides to pick one particular product line, say books, flowers, $.s, clothes, and sells only this particular product line. It may also choose to position itself in a particular part of the product line, e.g. clothes7 it could choose to position itself at the ery e&pensi e end of the market selling brand names [ "ucci and Armani. Alternati ely it could do more mass marketing by selling non ! brand names at a much lower price, or it could go into discount selling. (o, you can ha e a speciali/ation by product line, and then you could ha e speciali/ation ! positioning within that product line to cater for a particular part of the marker. In contrast to this, a new kind of speciali/ation is emerging on the internet, as mentioned. earlier, namely speciali/ation by function. A good e&ample of this is lastminute.com In lastminute.com they sell gifts, tra el tickets, and other items for last
98
minute shoppers who want to purchase these items at a ery short notice. "enerally, when one purchases an item at a ery short notice -e.g. tra el0, he often pays a premium, which is an e&tra amount for the con enience of booking the tra el at the last minute. 'ow, this means that the air ticket is likely to cost much more than if he had purchased it some time before tra eling and made use of different discounts or promotions. The producers of the web site lastminute.com reali/ed that there are groups of customers who make these purchases at the last minute and feel some degree of angst at ha ing to pay the premium for doing this shopping at the last minute. 3n the other hand, you will find that you may ha e sellers, e.g. airline companies, that ha e empty seats at the last minute which they are unable to fill. (o, what lastminute.com does is bring together tra elers who want to book at the last minute and an airline which has got spare capacity at the last minute, and allow the former to buy from the latter at the last minute. In this situation, the purchaser may get his airline ticket at a reduced price. (o, there is a win!win situation for both the purchaser and the seller. This is a uni=ue kind of speciali/ation. It is ery difficult to do this unless one utili/es the internet to carry out this kind of speciali/ation. :ener(li<ed e-$tore$ The ne&t category of e!retailing models that we intend to look at is generali/ed e!stores. "enerali/ed e!stores sell a large number of product lines rather than con!fining themsel es to %ust one or a ery few product lines. E-m(ll$ The ne&t e!retailing model we consider is the e!mall. In an e!mall, cyberspace is rented out to cyber e!stores that wish to sell their goods. This store could be a speciali/ed or generali/ed e!store. (o, se eral product lines can be present. in a single e!mall. Aowe er, unlike the generali/ed e!store which is under a single unified management, in an e!mall, each store is under its own management. E!mall management is responsible only for creating the cyber sites that can be rented and can support ser ices and marketing of the mall. It, thus, pro ides a web hosting ser ice. (e eral e!malls also pro ide software tools, which can be utili/ed by a prospecti e e!store to create and maintain it[ e!store. The ad antage for an e! store is that it is grouped together with other stores in a well! known e!mall site
and, therefore, is likely to pick up isitors to the mall.
NOTES
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NOTES
Direct $ellin) 4% t,e m(nu"(cturer A number of manufacturers with well!known brand name products ha e chosen to use the internet to carry out direct selling ia the internet. 3ne. of the best known here is 4ord, which utili/es the internet to achie e direct selling but uses its dealer network to facilitate distribution and deli ery. The other well !known e&amples are $isco systems and .ell computers. 'ote that this approach permits mass customi/ation to meet customer preferences. This direct selling by the manufacturer has an important disintermediation effect leading to reduced costs to the end customer and increased profitability to the manufacturer. A note of caution is important here. <y and large, this approach can be used by manufacturers of well!known brands of products because the customer already knows the pro!duct. (econdly, the manufacturer must ha e a thorough understanding of customer preferences, otherwise he has to rely on the customer knowledge of a retailer. !ro3er$ or intermedi(rie$ This class of e!retailers is essentially an e&tension of the notion of a broker from the physical to the cyber world. A 4ro3er i$ (n intermedi(r% 2,o may take an order from a customer and pass it on to a supplier may put a customer with specific re=uirements in touch with a supplier
who can meet those re=uirements may pro ide a ser ice to a customer, such as a comparison between goods, with respect to particular criteria such as price, =uality, etc. Thus, brokers pro ide comparison shopping, order taking and fulfilment, and ser ices to a customer. That is the reason why they are sometimes referred to as electronic intermediaries. T,ere (re $e7er(l di""erent model$ "or electronic 4ro3er$ (nd t,e$e include' <rokers that pro ide a registration ser ice with directory, search facilities, e!payment facilities, and security!related facilities. Any
busin
ess can register with such an e!broker -e.g. anewshop.com0.

<r oker s that meet a cert ain re=uirement such as a fi&ed price -e.g.,riceline.com0. <rokers that pro ide comparison shopping between products -e.g. my(imon.com or bestbooksbuy.com0.The last model i.e. E!ser ices is discussed in the ne&t lecture.
NOTES
.1./ Fe(ture$ o" E-Ret(ilin) ). The pro ision of an on!line catalogue, which allows one to browse through different categories of goods. Thus, it is dynamic and linked with order process. The pro ision of a search engine, which is a ery important feature that does not e&ist in traditional retailing. The pro ision of a shopping cart, which allows con enient goods selection. An ability to pro ide an automatic price update. ,ersonali/ation of store layouts, promotions, deals, and marketing. The ability to distribute digital goods directly. Thus, these goods can be downloaded instantly. An on!line customer salesperson, KwhoL can help customers to na igate through the site. An order status checking facility, which is a useful feature before submission. The use of 4orums -collaborati e purchasing circles0 to create a customer community and thus increase Kstickiness.L
@. H. C. 5. +. G. 8.
.1.0 C,(n)in) Ret(il Indu$tr% D%n(mic$ Important factors that affects the retailing industry dynamics are# 3 erbuilding and e&cess supply. $hange in consumer demographics, which more premium placed on
efficient use of time $hanges in consumer beha ior, with less focus on brand name and more on lowest prices. Technology impro ements that pro ide greater con enience and more information than traditional retailing.
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O7er4uildin) C(+(cit%
(nd
E.ce$$
With online retailing, constraints of time and space disappear. There is no bricks and mortar storefront to worry about, no critical locations. This new way of retailing can se erely affect companies that ha e in ested in e&pansion and adding capacity. It is important to understand the trouble traditional retailers will face if online retailing takes off. The )*81s was a period of o ere&pansion and turmoil for retailers. <y the end of the decade, complaints about e&cessi e retail space were being oiced. ,rofits were declining and control of operating e&penses became a paramount management ob%ecti e. Retailers reduced staff and minimi/ed merchandising in order to enhance profits. (ales growth and market share de elopment were gi en second priority behind profit enhancement. In the )**1s, companies are under pressure to grow and produce profit. An important measurement of profit gains is gross margin per s=uare foot. 4or many retailers, these numbers is either growing slowly or declining, partially reflecting a less fa orable product mi& and more competition. Inade=uate producti ity, both per worker and per unit of space, is also reducing profit margins. 3 erbuilding also resulted in a growing shortage of low! cost, entry!le el workers for the retail industry. The shortage of entry !le el workers means that retailers are using under trained workers who are less able to empathi/e with shopper needs!leading to a perception that retailers in general and shopping centres in particular are unable or unwilling to pro ide =uality ser ice. $learly, with crowded domestic markets and competition constantly grinding away at operating profit, new ways of retailing are being e&plored by forward! thinking companies such as Wal!2art. Demo)r(+,ic C,(n)e$ (hopping patterns are beginning to change with the increase of time !strapped, two!career couples and the aging ofAmerica. :alue and time management are the consumer concerns dri ing interest in online retailing. Recent retail data shows a decline in the amount of time Americans are spending in shopping malls TE.R*5U. The suggested reasons ary# time constraints, safety concerns, and growing frustration with the lack of courteous ser ice and insufficient product information. 6nderstanding the implications of time constraints on consumer shopping beha ior is important as they portend the trends to come.
4or instance, Americans ha e
openly embraced shopping channels like \:$ and Aome (hopping 'etwork and retailers like $6$ International.
102
Todays time!strapped shoppers ha e less time and want better alues, fewer hassles, and more options. Today, a shopping trip re=uires a consumer to decide what he or she or the family needs, bra e the traffic on the way to a store, hunt for parking, find and select items for purchase, take them to a checkout, wait in line, pay for the items, sometimes bag them, and carry them back home. It can be a hassle and a lot of work, so most working professionals ha e learned to dread shopping trips. As technology impro es, it may not be long before dri ing to the store gi es way to online shopping with home deli ery as pro ided by ,eapod. In contrast, there is a growing segment of the population for whom time constraints are less of a problem. The demographic outlook in the 6nited (tates is for an increasing share of older shoppers -age 51 and abo e0 who prefer shopping at stores rather than online. Aowe er, the product mi& offered bymany department stores and malls is increasingly out of touch with the aging population and does not reflect the shift in purchasing power. Also, with the aging of the population, there is e idence to indicate a shift in consumer interest away from material goods and toward e&periences, such as tra el and recreation. In addition, as people get older, they tend to become more frugal. Retailers will need to concentrate on alue by offering new product mi&es. <y this we mean a product mi& that includes not only merchandise but also bundles in entertainment and KrecreationalL shopping with mo ie theatres, restaurants, bookstores, libraries, and community meeting facilities. This sort of change is already occurring in bookstore design -such as <orders <ookstores and <arnes and 'oble0, which include a ariety of facilities such as coffee shops. Aowe er, building shopping malls based on these new business models is a risky enture and re=uires huge in estments. Con$umer !e,(7ior $onsumer beha ior is more olatile than e er before, and companies need new ways of responding to consumer needs and satisfying demand. According to one sur ey, the typical consumer spent only four hours a month in a shopping mall in )**1 ersus ten hours in )*85, and sales per s=uare foot dropped. (pecialty retailing!power centres, discount malls, discount stores, and catalogue shopping! has become one solution for closely monitoring consumer trends and reacting to them =uickly. All of these alter!nati es ha e one thing in common# they pro ide consumers with a ery large selection of producers priced with deep discounts.
NOTES
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$onsumers are no longer as influenced by brand names as they used to be. The emergence of the alue shopper is changing retailing. Today, the shopper is less willing to pay the premium for the brand name and much more attenti e to =uality and alue. The decline in gross margins is the first e idence of the impact of that change, reflecting lower initial mark!ups and more discriminating shoppers in that segment clearly, retailers that are focused on pro iding alue!the best price, ser ice, and selection!regardless of the brand name will be successful. The real differentiating characteristic for retailers will be in their ability to define what the broad or niche consumer segment is looking for, identifying characteristics of customers in each target segment, and learning how to bundle products and package brands so that they become the preferred choice for online customers Tec,nolo)% Im+ro7ement$ in Electronic Ret(ilin) Today, electronic retailing is still far from being a competiti e threat to more traditional store retailing -see Table0, but it is becoming increasingly attracti e as technology and applications impro e, and retailers gain e&perience.
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Three dominant forms of electronic retailing channels are# tele ision re! tailing, $.! R32 retailing, and online ser ice based retailing, in which we include Web!based retailing. 'ow we can discuss about the most prominent one# the tele ision retailing. Tele7i$ion Ret(ilin)' Tele ision retailing grossed an estimated Rs. H.@ billion in )**C. 3ne of the pioneers in this area is Aome (hopping 'etwork, Inc. -A('0, which began broadcasting electronic retailing to a small, local audience in )*8@. Three years later they took this still unpro en idea national! and made it work. Today, A(' is a tele ision!based retail, entertainment company, and online retailer -owns Internet (hopping 'etwork0, with coast!to!coast customers and annual sales of J) ] billion. The breadth and reach of T: retailing are ama/ing. In. )**C, A(' reached +5.8 million tele ision households throughout the 6nited (tates. These households recei ed the signals ia cable, broadcast, and satellite dish, twenty!four hours a day, se en days a week. 6nlike online audiences, which tend to be predominantly affluent and well educated -net annual in!come is estimated at Rs. +1,111 ! Rs. 81,1110, the target audience for tele ision re!tailing is moderate income households and mostly women. Aow does it workM The T: retail marketing and programming are di ided into segments that are tele ised li e, with a show host who presents the merchandise and con eys information relating to the product, including price, =uality, features, and benefits. (how hosts engage callers in on!air discussions regarding the currently featured product or the callers pre ious e&perience with the companys products. :iewers place orders for products by calling a toll!free telephone number. "enerally, merchandise is deli ered to customers within se en to ten business days of placing an order. The purchased item may be returned within thirty days for a full refund of the purchase price, including the original shipping and handling charges. The success of tele ision shopping is the result of the effecti e utili/ation of electronic media for capturing the power and influence of celebrity and the magic of showmanship, and bringing them to bear on a sale. In its annual report, the Aome (hopping 'etwork states that a celebrity can de!but a line of %ewelry on A(' and sell more than Rs. @ million in a single weekend. 3f course, theres
another ad antage to tele ision retailing. When customer interest, which is monitored by the number of calls being recei ed, begins to
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wane, the retailer knows it instantly and can simply mo e on to the ne&t product. 2ore recently, infomercials ha e become a crucial retailing topic. The infomercial has become a new and interesting way to retail specialty products. 2odem filming techni=ues and ingenuity make it possible to create high!=uality, cost!efficient, and entertaining documentaries that sell. This $oincides with the tele ision iewing publics appetite for information. Infomercials are an especially logical medium since retailers ha e the opportunity to economically test and e aluate a product through mass channels such as tele ision retailing before committing ma%or capital resources to infomercial production. M(n()ement Ret(ilin) C,(llen)e$ in Online
While changes in retailing may be dri en by technology, managerial ision is re=uired for successful implementation. Traditionally, retailing has been a low! tech en ironment in which retailing e&ecuti es often relegated technology issues to back!room operators. These managers are most at risk, as they do not ha e a clue that a ma%or re olution has begun. 2ost of them ha e ne er used a computer -or had to0, ne er been on an online ser ice, and do not know what the Internet is or what it can do. The winners will be the players who understand how to le erage the uni=ue capabilities of the on!line medium to effecti ely meet the changing needs of the consumer. While the technology re=uired to implement online retailing is maturing, many management issues remain unanswered. 'o one really knows yet how to build and run a successful, mass market online mall. The sales 2edium is new, the technology is new, and retailers ha e a lot to learn about tricky technology, customer beha ior, and management issue. <ut one thing is clear# 4or online retailing to succeed, online technology must complement management and operational strategy. Online Storie$ Ret(ilin) Succe$$
,eapod, $6$ International, and :irtual :ineyards help to e&plain the intricacies of online retailing. Online Ret(ilin)' E.+erience ;e(+odM$
,eapod, based in
E anston, Illinois, is using the online medium for food retailing ser ices. 4ounded in )*8* by two brothers, ,eapod -http#??www.peapod.com?0 is a
member of an online grocery ? drug!store shopping and deli ery ser ice that already has thousands of customers in the $hicago, (an 4rancisco, and <oston areas. ,eapod was founded on the idea that people do not want to go to the grocery store. ,eapod has an online database of o er @5,111 grocery and drugstore items, and allows comparison shopping based on price, nutritional content, fat, or calories. 3ther features include electronic coupons, retailer preferred customer discounts, and other benefits like recipes, tips, and information. ,eapod membership also allows users to use the shopping and home deli ery ser ice. ,eapod has a staff of professional shoppers, produce specialists, and deli ery people who fulfil the order. #o2 Doe$ It ?or3> ,eapod pro ides customers with home shopping ser! ices ia ,c. $ustomers need to buy a software application that enables them to access ,eapods database through an online computer ser ice. ,eapod initially had a .3(!based system with graphics. They introduced a new ersion of the software in )**5!a Windows platform in which product pictures are a ailable. 6sing the ,$, a consumer can access all of the items in a grocery store and drug store. ,eapod customers create their own grocery aisles in their own irtual store. $ustomers can re=uest a list of items by category -cereals0, by item -4rosted 4lakes0, by brand -Felloggs0, or e en by what is on sale in the store on a gi en day. Within categories, they can choose to ha e the items arranged alphabetically by brand or sorted by lowest cost per ounce, package si/e, unit price, or nutritional alue. $ustomers also can cre!ate repeated use shopping lists -baby items, barbecue needs, and the like0. ,eapods back office is linked with the mainframe databases of the super!markets at which it shops for its customers -Bewel in $hicago and (afeway in (an 4rancisco0, allowing it to pro ide the supermarkets stock keeping units and shelf prices electronically to its customers. 3nce consumers ha e made a selection, they can then gi e specific shopping instructions, such as Ksubstitute with same calories,L or red grapes only.L They can click on the K$ommentL button and type in any e&tra information they would like the ,eapod shopper to know. At any time during the order, a consumer can subtotal the amount purchased, or access the KAelpL screen for immediate assistance. 3nline ordering is simple# users double! click on the ,eapod icon and then enter their user I.s and passwords. 3n erification, users get access to a whole grocery store and drug store of items.
<efore the actual purchase of an item, users can iew images of it and the nutritional content as well. The system allows users to sort items by arious criteria like price, price? unit, total calories, fat, protein,
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carbohydrates, and cholesterol. With these features, ,ea pod aims to target the health and fitness conscious consumer who chooses foods tailored to specific dietary needs. There are also search features to help locate a particular item. AK4ind ItemL option at the top of the screen lets users search either by brand name or product type. When users ha e finished shopping, they click on K.oneL and the order is electronically routed to ,eapod. .uring the transaction closing process, users need to choose a deli ery time within a *1! minute slot. ,inpoint deli ery within a H.minute window0 can be selected for a small additional charge. ,ayment can be made by check, charge, or ,eapod Electronic ,ayment. Eighty!fi e to ninety percent of ,eapods orders come in ia computer7 the rest are fa&ed or phoned. ,eapod orders are taken centrally, and then fa&ed to the stores. The store gets a printout with the order, the deli ery ad!dress, and instructions for getting there. Each order is filled by a ,eapod employee, who shops the aisles of the store. The employee pays for the groceries, often at special ,eapod counters in the back of the store. The order is then taken to a holding area in the supermarket, where the appropriate items are kept cold or fro/en until the deli erer picks up a set of orders and takes them to the customers within their *1! minute pre!selected windows. At each stage!ordering, shopping, holding, and deli ery!the processes are tailored to pro ide personali/ed ser ice at a relati ely low cost. If a customer has a problem, he or she can call 2embership (er ices, and a ser ice representati e will try to resol e the matter. ,eapod treats each call as an opportunity to learn -and remember0 each customers preferences and to figure out what the company can do to impro e ser ice as a whole. 4or e&ample, ser ice representati es found that some customers were recei ing fi e bags of grapefruits when they really wanted only fi e grapefruits. In response, ,eapod began asking customers to confirm orders in which order! entry errors may occur. ,eapod members are charged actual shelf prices, plus a monthly ser ice fee, a per!order charge of Rs. 5.11 plus 5 percent of the order amount. $ustomers are willing to pay these e&tra charges for con enience and because ,eapod pro ides a lower cost shopping e&perience for the consumer. $onsumers sa e money!despite the e&tra o erhead!because they use more coupons, do better comparison shopping, and buy fewer impulse items than they would if they shopped at a real supermarket. Reducing impulse purchases is important when you consider that 81 percent of the items purchased in a grocery store are impulse items!non!planned purchases. In addition, consumers sa e time and ha e more control because they can shop from home or work whene er they want.
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?,(t i$ t,e !u$ine$$ Model>
NOTES
Rather than automating the trip to a retail store, as other online pro iders are doing, ,eapod is using interacti e technology to change the shopping e&perience altogether. Indeed, the formula for ,eapods success is the busy American lifestyle. The homes it deli ers to cut across many demographics. The one thing these demographics ha e in common is they ha e better things to do than grocery shop. (till, if it were not for well! managed logistics, these customers would be back in the stores in a second. The behind! the!scenes logistics are central to what ,eapod is all about7 ,eapod has to make sure the orders get to the stores and that they are shopped correctly. #o2 doe$ Ret(iler$> ;e(+od Com+ete 2it, Tr(dition(l
Traditional retailers make money from the suppliers. They pro ide access to customers and make their money by buying on deals, olume discounts, and getting coop ad ertising. ,eapod makes all of its money on the customers it ser es, it is a mass customi/er. It creates the supply chain after identifying a specific demand from a specific customer, and it feeds off the e&isting infrastructure to do it. Aowe er, e&isting retailers do ha e some ad antages. An important, though subtle, ad antage en%oyed by food retailers is the shoppers resistance to switching food stores because of familiarity with the shelf locations of products purchased. It is also incon enient for consumers to relearn do/ens of product locations at a new store. The online en ironment must offer significant ad antages to o ercome shopper inertia and induce trial, let alone continued, patronage. Is ,eapod a competitor to the retail grocerM 'ot really. ,eapods strategy has been to partner with the retailer rather than compete directly. A lot of credibility comes with the name of the retailer in its indi idual market. ,eapod can help grocers e&pand into places that might not otherwise be practical from a capital in estment standpoint. Aowe er, it is =uite possible that in the future ,eapod may be tempted to compete with grocers by emulating certain aspects of their warehousing. WhyM As these new retail formats emerge , and once ,eapod gains enough customers, ,eapod will be tempted to say it is costing a lot to go to the store and pick up product off the shelf. To a oid the o erhead , ,eapod could ha e its own warehouse. As soon as the ,eapod does that it is likely to fall into the same traps as the retailers, such as ha ing an o erflow
warehouse when something is a ailable on a deal or buying products before there is actual need.
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INTERNET CONSUMERS AND MAR=ET RESEARC#
. .1 ?,(t i$ Internet M(r3etin)> If traditional marketing is about creating e&changes that simultaneously satisfy the firm and customers, what is Internet marketingM Internet marketing is the process of building and maintaining customer relation! ships through online acti ities to facilitate the e&change of ideas, products, and ser !ices that satisfy the goals of both parties. This definition can be di ided into fi e components# A ;roce$$ ;ike a traditional!marketing program, an Internet!marketing program in ol es a process. The se en stages of the Internet marketing program process are setting corporate and business!unit strategy, framing the market opportunity, formulating the marketing strategy, designing the customer e&perience, designing the marketing program, crafting the customer interface, and e aluating the results of the marketing program. These se en stages must be coordinated and internally consistent. While the process can be described in a simple linear fashion, the marketing strategist often has to loop back and forth during the se en stages. !uildin) (nd M(int(inin) Cu$tomer Rel(tion$,i+ The goal of marketing is to build and create lasting customer relationships. Aence, the focal point shifts from finding customers to nurturing a sufficient number of committed, loyal customers. (uccessful marketing programs mo e target customers through three stages of relationship building# awareness, e&ploration, and commitment. It is important to stress that the goal of Internet marketing is not simply building relationships with online customers. Rather, the goal is to build offline -as rele ant0 as well as online relationships. The Internet marketing program may well be part of a broader campaign to satisfy customers who use both online and offline ser ices.
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Online
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<y definition, Internet marketing deals with le ers that are a ailable in the world of the Internet. Aowe er, as noted abo e, the success of an Internet marketing program Emay rest with traditional, offline marketing ehicles. $onsider, for e&ample, the recruiting and %ob!seeking ser ice 2onster.com. 2onsters success can be tied directly to the effecti eness of its tele ision ad ertising and, in particular, its widely successful of the past two years. E.c,(n)e At the core of both online and offline marketing programs is the concept of e&change. In both the online and offline worlds, e&change is still the heart of marketing. In the new economy, firms must be ery sensiti e to cross!channel e&changes. That is, an online marketing program must be e aluated according to its o erall e&change impact!not %ust the online e&change impact. Aence, online marketing may produce e&changes in retail stores. 4irms must be increasingly sensiti e to these cross channel effects if they are to measure the independent effects of online and offline marketing programs. S(ti$"(ction ;(rtie$ o" :o(l$ o" 4ot,
3ne of the authors of this book is a loyal user of the website weather.com. Each day he arises and checks the weather in his city as well as the weather in cities he will be tra eling to during the week. Ae is clearly satisfied with and loyal to the site. To the e&tent that weather.com can moneti/e this loyalty!most likely, in the form of ad ertising re enue! both parties will be satisfied. Aowe er, if the firm is unable to meet its financial obligations to employees, suppliers, or shareholders, then the e&change is unbalanced. $ustomers are still happy, but the firm is unable to sustain its re enue model. <oth parties must be satisfied for e&change to continue. . . Sco+e M(r3etin) o" Internet
2arketing is the process of planning and e&ecuting the conception, pricing, promotion, and distribution of ideas, goods, and ser ices to create
e&changes that satisfy indi idual and organi/ational goals
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The definition summari/ed abo e has four critical features. These are# M(r3etin) i$ ( ;roce$$ A process is a particular method of doing an acti ity, generally in ol ing a series of steps or operations. The classical marketing approach in ol es four broad steps# market analysis, market planning, implementation, and control. 5 2arket analysis in ol es searching for opportunities in the marketplace, upon which a particular firm!with uni=ue skills!can capitali/e. 2arket planning re=uires segmentation, target market choice, positioning, and the design of the marketing mi& -also termed the C,s, or marketing program0. 2arket implementation includes the systems and processes to go to market with the marketing pro!gram. 4inally, marketing control refers to the informal and formal mechanisms that marketing mangers can use to keep the marketing program on course. Analysis, planning, implementation, and control collecti ely pro ide a process for marketing managers to follow in the design and e&ecution of marketing programs. $t $nvolves a !i: of Product7 Pricing7 Promotion7 and #istri.ution (trong marketing programs do not in ol e one action, such as the design of a great product. Rather, the most successful marketing programs in ol e mixing the ingredients of marketing to deli er alue to customers. This mi&ing entails blending the right amounts of the C, ingredients, at the right time, and in the right se=uence. Too often, marketing programs fail because they allocate too many -or too few0 resources in an uncoordinated way. Aow often ha e you witnessed the hot $hristmas toy ad ertised!but not found it on the shelfM In the Internet en ironment, this translates into significant problems with order fulfilment at the most pressing times of the year. $t is a.out E:c%ange 2arketing is not successful unless two parties e&change something of alue. The buyer may e&change time, money, or ser ices, while the seller must e&change something of alue to the buyer. The traditional retail conte&t pro ides the simplest illustration of this principle. Agi en consumer e&changes money for a particular good or ser ice. Aowe er, e&change also occurs in a wide ariety of conte&ts, many of which are non monetary. These include bartering, olunteering ser ices, and political donations.
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$t is $ntended to Satisf( $ndividual and Organi6ational 0eeds The aim of marketing is to pro ide a satisfactory outcome for both the firm and the customer. 4irms can ha e highly satisfied customers if they pro ide ser ices for free. Aowe er, those organi/ations are not likely to ha e a long life. The key to modern marketing is simultaneously satisfying the customer, the firm, and its shareholders. In the long run, the firm must ha e a positi e cash flow or show a clear path to profitability for in estors to maintain confidence. . .& E-!u$ine$$ I$$ue$ P Internet M(r3etin) At its core, the mission of marketing is to attract and retain customers. To accomplish this goal, a traditional bricks!and mortar marketer uses a ariety of market!ing ariables!including pricing, ad ertising, and channel choice!to satisfy cur!rent and new customers. In this conte&t, the standard marketing!mi& toolkit includes such mass!marketing le ers as tele ision ad ertising, direct mail, and public relations, as well as customer!specific marketing techni=ues such as the use of sales reps. With the emergence of the Internet and its associated technology!enabled, screen! to!face interfaces -e.g., mobile phones, interacti e tele ision0, a new era of marketing has emerged. Well!respected academics and practitioners ha e called for new rules and urged debate about fundamental tenets of marketing, including segmentation, mass marketing, and regionali/ed programs.0 At the Eother e&treme, pundits and academics alike ha e argued that both the basic building blocks of marketing strategy and the pathways to competiti e ad antage ha e remained the same The approach taken in the current olume falls between these polar iews. That is, new le ers ha e been added to the marketing mi&, segments ha e been narrowed to finer gradations, consumer e&pectations about con enience ha e fore er been altered, and competiti e responses happen in real time. In short, these are new, e&citing changes that ha e a profound impact on the practice of marketing. At the same time, some of the fundamentals of business strategy! seeking competiti e ad antage based on superior alue, building uni=ue resources, and positioning in the minds of customers! ha e remained the same. The intent of this te&t is to pro ide a clear indication of what has changed and what has not changed. At the same time, the te&t would not be complete -and indeed might be actionable from the standpoint of business practiceX0 if it did not propose a broader
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framework to understanding the practice of Internet marketing. 4rameworks such as the C,s of marketing or the fi e forces of competiti e analysis are important because they pro ide easy!to!remember, simplifying structures for comple& problems. They also ser e as guides to managerial action. Thus, under!standing the fi e forces enables firms to comprehensi ely map their competiti e en ironment while simultaneously identifying specific actions for their managers -e.g., reduce buyer power by increasing the number of buyers0. . .* T,e M(r3etin) Se7en St()e$ o" Internet
114
The gi en figure pro ides an o er iew of the se en stages of Internet marketing. The se en stages are these# setting corporate and business!unit strategy, framing the market opportunity, formulating the marketing strategy, designing the customer e&perience, designing the marketing program, crafting the customer interface, and e aluating the results of the marketing program. T,e Se7en St()e C%cle O" internet M(r3etin) St()e One' Settin) Cor+or(te (nd !u$ine$$-Unit Str(te)% $orporate strategy addresses the interrelationship between the arious business units in a firm, including decisions about which units should be kept, sold, or augmented. <usiness!unit strategy focuses on how a particular unit in the company attacks a market to gain competiti e ad antage. $onsider, for e&ample, Ama/on.com. $orporate!strategy issues relate to the choice, mi&, and number of business units such as kitchen, music, electronics, books, and tools?hardware. 3nce these business units are established and incubated in Ama/ons corporate head^ =uarters, the senior leadership team of each unit sets the strategic direction and steers the business unit toward its goals. St()e T2o' Fr(min) t,e M(r3et O++ortunit% (tage two entails the analysis of market opportunities and an initial first pass of the business concept!that is, collecting sufficient online and offline data to establish the burden of proof of opportunity assessment. ;ets say, for e&ample, that you are running a ma%or dot!com business such as Ama/on. The senior management team is continually confronted with go?no!go decisions about whether to add a new business unit or de elop a new product line within an e&isting business unit. What mechanism do they put in place to e aluate these opportunitiesM In this second part of the Internet!marketing process, a simple si&! step methodology helps e aluate the attracti eness of the opportunity The si& steps include# seeding the opportunity, specifying unmet or underser ed customer needs, identifying the target segment, declaring the companys resource!based opportunity for ad antage, assessing opportunity attracti eness, and making the final go?no!go decision. The final go? no!go choice is often a corporate or business! unit decision. Aowe er, it is ery important to stress that marketing plays a critical role in this market!opportunity assessment phase. In order for the firm to make an informed choice about the opportunity, the management team needs to obtain a sufficient picture of the marketplace and a
clear
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articulation of the customer e&perience that is at the core of the opportunity. Thus, during the market!opportunity assessment phase, the firm also needs to collect sufficient market research data. St()e T,ree' Str(te)% Formul(tin) t,e M(r3etin)
Internet marketing strategy is based upon corporate, business unit, and o erall marketing strategies of the firm. This set of linkages is shown in figure . The marketing strategy goals, resources, and se=uencing of actions must be tightly aligned with the business! unit strategy. 4inally, the o erall marketing strategy comprises both offline and online marketing acti ities. Cor+or(te5 Cor+or(te !u$ine$$-unit5 (nd M(r3etin) Str(te)%
St()e Four' E.+erience
De$i)nin)
t,e
Cu$tomer
4irms must understand the type of customer e&perience that needs to be deli ered to meet the market opportunity. The e&perience should correlate with the firms positioning and marketing strategy. Thus, the design of the customer e&perience constitutes a bridge between the high!le el marketing strategy -step three0 and the marketing program tactics -step fi e0.
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St()e Fi7e' De$i)nin) t,e M(r3etin) ;ro)r(m
NOTES
The completion of stages one through four results in clear strategic direction for the firm. The firm has made a go?no!go decision on a particular option. 2oreo er, it has decided upon the target segment and the specific position that it wishes to own in the minds of the target customer. (tage fi e entails designing a particular combination of marketing actions -termed le ers0 to mo e target customers from aware!ness to commitment. The framework used to accomplish this task is the 2arket space 2atri&. (imply put, the Internet marketer has si& classes of le ers -e.g., pricing, community0 that can be used to create target customer awareness, e&ploration, and, it is hoped, commitment to the firms offering. Aowe er, prior to discussion of the 2arket space 2atri&, the stages of the customer relationship and the associated classes of le ers that can be employed must be defined. Building and 0urturing Customer /elations%ips A relationship can be defined as a bond or connection between the firm and its customers. This bond can originate from cogniti e or emotional sources. The connection may manifest itself in a deep, intense commitment to the brand -e.g., the Aarley!.a idson A3" club!member0 or a simple, functional based commitment -e.g., regular use of weather.com0. Whether defined as a function or an organi/ation!wide culture, marketing is responsible for ac=uiring and retaining target customers. In this process, successful marketers manage to mo e desirable customers from awareness through e&ploration and, finally, commitment. 3nce customers reach commitment, the firm is in a position to obser e their beha ior patterns and determine which customers to nurture and which customers to terminate -or ser e at a lower le el of cost0. 2anaging this building and pruning process is one of marketings key tasks. The four stages of customer relationships are briefly outlined below A2(rene$$ When customers ha e some basic information, knowledge, or attitudes about a firm or its offerings but ha e not initiated any communications with the firm, they are in the awareness stage. $onsumers become aware of firms through a ariety of sources, including word!of!mouth, traditional marketing such as tele ision ad ertising, and online marketing programs such as banner ads.
Awareness is the first step in a potentially deeper relationship

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with the firm. Aowe er, as one can imagine, awareness without action is not in the best interests of the firm. E.+lor(tion In the e&ploration stage, the customer -and firm0 begin to initiate communications and actions that enable an e aluation of whether or not to pursue the four key stages of customer relationship.
This stage is also likely to include some trial on the part of the customer. E&ploration is analogous to sampling songs, going on a first date, or test! dri ing a car. In the online world, e&ploration may take the form of fre=uent site isits, some e!commerce retail e&changes, and possibly e en the return of merchandise. It may include phone call follow! ups on deli ery times or e!mails about product in entory. The e&ploration stage may take only a few isits or perhaps years to unfold. Commitment $ommitment in ol es feeling a sense of obligation or responsibility for a product or firm. When customers commit to a website, their repeated, enduring attitudes and beha iors reflect loyalty. Di$$olution 'ot all customers are e=ually aluable to the firm. In an industrial! marketing conte&t, managers often refer to the 81?@1 rule of profitability. That is, @1 percent of customers pro ide 81 percent of the profit. <y implication, therefore, a large number of customers are unprofitable or ha e high cost to ser e. 4irms should segment their most aluable and less aluable customers. The most aluable customers may be identified based on profit, re enue, and?or strategic significance -e.g., a large well!regarded customer may not be profitable but opens the door to new accounts0. The firm does not want this set of customers to terminate the relationship. 6nprofitable, non strategic customers are a different matter.
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3ften it is in the best interests of the firm to terminate the relationship or encourage this set of customers to disengage with the firm. The four stages ary by the Eintensity of the connection between the firm and the customer Intensity of connection may be defined as the degree or amount of connection that unfolds between the firm and its target customers. Three dimensions capture intensity# ). The fre=uency of the connection. -Aow often does the customer isit the siteM0 @. The scope of the connection. -Aow manydifferent points of contact does the customer ha e with the firmM0 H. The depth of contact. -Aow thoroughly is the customer using the siteM0 A customer might isit a website such as Ama/on on a regular basis, but only to purchase books. This isitor would ha e a high le el of fre=uent contact but a low le el of scope. Another customer might isit Ama/on fre=uently but not stay on the site for a long duration or engage in deeper connections such as writing re iews, commenting on products, or communicating with other Ama/on users. This customer would ha e high fre=uency but low depth. In all cases, relationship intensity is correlated with the stage of the relationship. St()e Si.' Inter"(ce Cr("tin) t,e Cu$tomer
NOTES
The Internet has shifted the locus of the e&change from the marketplace -i.e., faceNto!face interaction0 to the market space -i.e., screen!tb!face interaction0. The key difference is that the nature of the e&change relationship is now mediated by a technology interface. This interface can be a desktop $%& sub! notebook, personal digital assistant, mobile phone, wireless applications protocol -WA,0 de ice, or other Internet enabled appliance. As this shift from people! mediated to technology !mediated interfaces unfolds, it is important to consider the types of interface design considerations that confront the senior management team. What is the look!andN feel, or conte&t, of the siteM (hould the site include commerce acti itiesM Aow important are communities in the business modelM St()e Se7en' ;ro)r(m E7(lu(tin) t,e M(r3etin)
This last stage in ol es the e aluation of the o erall Internet marketing program. This includes a balanced focus on both customer and financial metrics.
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. .- Cu$tomer Rel(tion$,i+ M(n()ement(CRM) Cross-selling and ;p-selling This application has the capability to =ualify prospects, track contact or the Kmoments of truth and refer them to sales persons when appropriate. <y implementing a cross!sell strategy, complete with the applications necessary to track customer contacts, triggers can be established to identify prospects for additional sales. 4or e&ample, in a bank an e ent would be a large deposit, which would then trigger a sales person to call the customer and ask if she or he would be interested in in estment options. $ross!sell and up!sell application may be used to schedule sales calls, keep detailed records of sales acti ities, and check on the status of the customer orders. $ross!selling and up!selling depend on identifying life!path needs. 4or instance, in the finance industry, banks are attempting to build lasting relationships with customers by matching their life!path needs to complementary products and ser ices. As customers approach retirement, banks could recommend assets such as money markets, bonds and annuities. If customers with young children can be identified, then banks could cross!sell education sa ings plans or e en loan consolidation plans. #irect !ar"eting and 5ulfilment This includes pre!sale interaction such as ad ertising that either influences or pro ides potential customers with the necessary information to make a purchase decision. 2arketing automation is critical, as organi/ations grow larger. This is because, it becomes more difficult to manage multiple simultaneous programs and track costs across multiple channels. $ampaign management, a direct marketing process, allows companies to manage, integrate and le erage marketing programs by automating such tasks as managing responses, =ualifying leads, and arranging logistical aspects of e ents. Another critical core competency is fulfilment. 2arketing departments today are being deluged with re=uests for information ia the Web and other channels. The goal of effecti e fulfilment is to pro ide a myriad of information to customers and prospects =uickly, easily and efficiently. Whether it is product or ser ice in=uiries, direct mail responses, pricing or billing issues, or re=uests for literature, responding to re=uests in a timely manner is critical. This creates a need for fulfilment capabilities that can get product information, literature, collateral packages, or other correspondence into the hands of the
customers
and
prospects when theyare most recepti e.

Effecti e fulfilment is not tri ial7 it re=uires a sophisticated interface with campaign management, sales force automation, and posting systems. Customer Service and Support $ustomer support pro ides customer care and other ser ices. The applications include support for ser ice re=uest management, account management, contact and acti ity management, customer sur eys, return material authori/ations, and detailed ser ice agreements. These discrete applications work together to ensure that customer ser ice representati es can =uickly assign, create and manage ser ice re=uests, as well as look up detailed information about customer ser ice contracts, contacts and acti ities. $ustomer support capabilities are used to manage customers who are ha ing problems with a product or ser ice and to resol e those problems. Aelp! desk software automates the management and resolution of support calls and impro es efficiency and effecti eness. These applications typically include capabilities to erify customer status -e.g., what le el of support they are entitled to0 track specific tasks needed to resol e problems across multiple workgroups, monitor ser ice!le el agreements, maintain permanent incident histories, and capture support costs for charge backs. Armed with this complete customer and product information, ser ice professional can resol e customer issues efficiently and effecti ely. 5ield Service Operations There is nothing like the hands!on approach to in they with of the customers about the company your company. 4ield ser ice is the hands on e&tension of e&ternal customer support, acti ated when a problem can be sol ed o er the phone and re=uires sending a repair person to the customer site to perform maintenance or repair. 4ield ser ice and dispatch applications ha e become mission critical tools that affect a companys ability to deli er effecti e customer ser ice and contain costs. The field ser ice application pro ides the organi/ation with features for scheduling and dispatching repair personnel, managing in entory and logistics, and handling contracts and accounting. /etention !anagement Effecti e $ustomer Relation must be based on differentiating customers
based on account and transaction histories. Today, ery few organi/ations are able to make these
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distinctions. The ability to effecti ely segment customers depends on the decision support technology, which most e&ecuti es see as a powerful enabler of $ustomer Relation 2anagement. Effecti e decision support depends on the ability to gather customer information at great le els of detail. .etailed knowledge about customers allows companies to treat all customers indi idually and, in many cases, disengage from customers are high maintenance, low!margin prospects. . ./ !ene"it "rom (n e-Commerce S(le$ Str(te)% The internet is changing the balance of power between business and the customer. <efore online shopping, companies could be reasonably certain that buying almost anything was not easy, so once a customer found a supplier they were comfortable with they tended to stick with them, at least until something went wrong. <ut with the ad ent of e!commerce, customers can check out the options anywhere, and then buy from anyone. $ustomers can use comparison sites or shopping agents, or KbotsL as they are known, to search the web for a bundle of products and report back on which supplier is offering them the cheapest. As a general rule, whate er sells in print in a catalogue will also sell on the internet. There are se eral ma%or ad antages to de eloping an e!commerce sales strategy# E""icienc%# Electronic purchase orders and sales orders are more economical to place, track and manage. Con7enience# <uying and selling can go on @C hours a day, G days a week, H+5 days a year from any location. S+eed# It takes far less time to complete the entire buy?sell process, thus speeding payment. Accur(c%# :irtually eliminates processing errors. <uying and selling firms ha e the same iews of the transactions, which make online commerce more precise. :lo4(l Re(c,# "i es businesses an instant global reach to find supplies
anywhere in the
world, in any time or currency /one.

Lo2 Co$t Entr%# <efore the web, selling direct to consumers could be e&pensi e. (etting up a retail outlet or printing a glossy catalogue could cost hundreds of thousands of pounds. 3n the web, you can sell direct to consumers worldwide for a hundred pounds a month. U+-to-d(te St(tu$ (nd Alert$' "enerates instant pager, fa& and e!mail notification to identify potential problems, enabling problem a oidance or swifter solutions.Also pro ides order histories. . .0 Critic(l $ucce$$ "(ctor$ "or internet m(r3etin) e.ecuti7e$ 2arketers ha e always been in the business of anticipating and managing change, and technology has been their principle tool for managing it. The Internet presents an adapti e challenge for the marketing e&ecuti e. Todays Internet marketing e&ec!uti e must ha e all the traditional skills of the offline marketing professional, but must place e&tra emphasis on some of them to account for the new economy. These critical new skills include customer ad ocacy and insight, integration, balanced thinking, and a willingness to accept risk and ambiguity. Cu$tomer Ad7oc(c% (nd In$i),t An insatiable curiosity for customers and marketplaces is a bare necessity for todays marketing professional. This innate curiosity fuels an indi iduals desire to transform mounds of customer data into meaningful and actionable insights, which in turn become a platform for ad ocacy. <ecause the Internet enables a much greater degree of interaction with customers, designing and promoting these interactions around customers needs and progressi ely gaining deeper insights are critical components of creating positi e customer e&perience. A true customer ad ocate will be looking to pro ide demonstrable added alue to each customer interaction to form the basis for a meaningful relationship. As both customer beha iors and enabling technologies simultaneously e ol e, a deep understanding of customer needs should ser e as the guidepost dri ing marketing decisions. 2arketing professionals will need to strategically collect information from many disparate sources, create insightful customer mosaics, and effecti ely trans!late them into marketing strategies and tactics.
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Inte)r(tion The Internet represents both a new channel and a new communications medium. The new!economy marketing professional needs to ha e an integrated orholistic iew of the customer and the enterprise in order to create a uni=uely ad antaged strategic plan. In todays multi channel en ironment, a consistent message and e&perience must be maintained across customer touch points in order to create a consistent brand image. <eyond strategy, a marketing manager must fundamentally understand how to integrate these new tools into the o erall marketing mi&. 2anagers who are able to hone their marketing plan in a highly integrated fashion are more likely to capitali/e on the synergies between marketing elements and thus dri e greater effecti eness. !(l(nced T,in3in) An Internet marketing professional needs to be highly analytical and ery creati e. $ulling specific customer insights from a eritable fire hose of data is critically important for new economy managers. It re=uires understanding the dynamic tension between one!to! one marketing and mass marketing and being able to strike a strategic balance between them. It also re=uires determining the appropriate customer data re=uirements. Internet marketing professionals must also be technologically sa y. 6nderstanding the strategic and tactical implications of the Internet, le eraging the rapid learning en ironment and accelerated decision!making process it creates, and then creati ely applying the insights gleaned from analysis are critical success factors for all Internet marketing professionals. ;($$ion (nd Entre+reneuri(l S+irit Although ery hard to ob%ecti ely assess, passion, or fire in the belly, is what will differentiate leaders from followers in the new economy. Trying to change the status =uo is ne er easy and only people with con iction and passion will be heard o er the din of the ine itable naysayer. (uccessful marketing managers use this passion to fuel their entrepreneurial instincts and ision, creating Kbleeding edgeL tools as they lead their teams to success. ?illin)ne$$ to Acce+t Ri$3 (nd Am4i)uit% In the new economy, Internet marketing professionals need to retool them! sel es and their companies to enter into a whole new era of customer!centric marketing. The
124
Internet has enabled customers to ha e much more information and many more choices than e er before, thus shifting the balance of power toward the customer and creating the need for a whole new set of KpullL !based marketing tools. (uccessful Internet professionals need to rely on a whole new set of marketing tools that work in an e&traordinarily dynamic en ironment. Aa ing the courage to try new things is the key to de eloping break!through Internet marketing. The risk and ambiguity of managing in such uncharted territory is tremendous, and the most successful Internet marketers will be willing to play at the edges. Todays online marketing professionals must ha e the basic skill set of the offline marketing professional. <ut they must also react more =uickly and manage more information and channels in order to stay one step ahead of the competition. The skill set has not changed tremendously, but!the tools need to be applied with more igor and sometimes with greater speed. (uccessful Internet marketers will build their business models and alue propositions around a deep understanding of customer needs!not around the product. .& E-COMMERCE SECTOR .&.1 E-Ser7ice$ The deli ery of ser ices ia the internet to consumers or other businesses can be referred to by the generic term of e!ser ices. There is a wide range of e! ser ices currently offered through the internet and these include banking, loans, stock trading, %obs and career sites, tra el, education, consultancy ad ice, insurance, real estate, broker ser ices, on!line publishing, and on!line deli ery of media content such as ideos, computer games, etc. This list is by no means e&hausti e and it is growing all the time. In this lecture, we will gi e an o er iew of eser ices. In order to bring some order to the discuss of these wide ariety of e! ser ices, we organi/e them into the following categories, namely 1. ?e4-en(4lin) $er7ice$5 which were pre iously pro ided by humans in office agencies and?or their branches. The primary purpose here is that these ser ices help to sa e time and effort for the user7 bring con enience, and impro e the =uality of life. In many cases, it can result in a reduced cost for the consumer. FOR SER9ICE
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E!ser ices that fall into this category include <anking (tock trading Education
In some cases, this may bring a new dimension to the original ser ice, enhancing and altering it. E!education is an e&ample of this. It may also bring into the catchments new groups of consumers of the ser ice to whom it might not ha e been pre iously accessible. . M(tc,m(3in) $er7ice$. These take a need from an indi idual or business customer and pro ide mechanisms -from pro iders0 for matching that need. E!ser ices that fall into this category include Bobs and employment sites Tra el Insurance ;oans including mortgage loans Real estate sales <rokers
The ad antage of this kind of matchmaking through the internet is that the ability to search electronically o er a wider area to satisfy the customer need and to more precisely meet the customer need is greatly facilitated by both computeri/ation and communication o er the internet. &. In"orm(tion-$ellin) on t,e 2e4. This group essentially sells information content of one sort or another and includes ecommerce sites that pro ide on! line publishing such as web!based newspapers consultancy ad ice speciali/ed financial or other information
126
*.
Entert(inment $er7ice$. These pro ide internet!based access to ideos, mo ies, electronic games, or theme sites. This E!entertainment sector is e&pected to grow rapidly in the ne&t few years, with a con ergence of T: and internet!based technologies. S+eci(li<ed $er7ice$ $uc, ($ (uction$. 2any different auction sites ha e appeared and these are discussed further in this lecture. It is not possible to discuss all the different eser ices in this lecture and so we will briefly sample only a few e&amples for each category. +e.-Ena.led
5. internation al trade including settlement instrument s, foreign e&change transaction s, etc.
-.
2.3.1.1. Services
Web!enabled ser ices include personal banking, stock trading, and education. E-.an"ing (ecurity 4irst 'etwork <ank -(4'<7 www.sfnb.com?0was the first internet bank. It pro ides most of the banking ser ices on the web. Therefore, you can do your banking with your fingers instead of your feet. ;ooking at e!banking, we can distinguish between twp distinct models# ). ,ure cyber banks @. Traditional banks that pro ide e!banking to complement their retail banking (4'<. is a p ur e cybe r ba nk, while t he ho mep age o f < ank o f Amer ica -www.bankofamerica.com0 illustrates the second model. While not all banks offer the full range of ser ices on the internet, banks in both the mentioned groups offer a aried range of ser ices including ). personal banking @. commercial banking for both small businesses and large corporations H. financial ser ices C. loan application ser ices
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There are significant ad antages for both the indi idual or corporation as well as the bank in using e!banking. An indi idual doing personal banking on the internet can, amongst other things, pay bills, do account transfers, make =ueries on account balances, obtain statements, in some cases iew images of checks, etc., and import transactions directly into home account management software. 4urthermore, one can make such transactions @C hours a day from any place with internet access around the world. In addition to these, a number of banks offer personal financial ser ices including making personal loan applications on the internet. All these represent a large increase in con enience and time sa ing for the bank customer, sa ing him trips to the bank branch, =ueuing, etc. The ad antages to the banking institutions themsel es include ). @. H. reduction in the number of retail banking branches, sa ing rentals or ownership of the related properties. reduction in staffing because of the reduction in paper processing as well as face!to! face bank teller contact. bringing about increase in the time the bank hangs on to the money before making the re=uired transfers, leading to increase in interest recei ed by the banks. These ad antages are so significant that some banks offer customers a number of incenti es to !switch to internet banking, such as free checks, reduced fees, increased deposit rates, etc.
E-stoc" trading and e-investing (e eral companies such as E!Trade -www.etrade.com0. .atek.on!line, American E&press 4inancial (er ices, etc. allow you to trade stocks, bonds, mutual funds, etc. on the internet. These companies offer you to trade at a ery small cost compared to discount brokers or full!ser ice brokers. This has resulted in these on! line trading companies grabbing an increasing market share. In response to this, discount brokers including $harles (chwab and full!ser ice brokers ha e also mo ed to introduce internet trading of stocks. The steps in ol ed essentially are the following# ). @. place a re=uest to trade, say buy a stock the system responds with current Kon the web siteL prices
128
H.
the internet trader has to confirm this trade or cancel it (e eral companies allow one to create a simulated portfolio, which one watches o er time without actually buying or selling the stocks in reality. An e&ample of this can be found on the (mart 2oney site -www.smartmoney.com0.
brand
The ma%or ad antages to the person doing the trading are ). @. H. the reduced cost7 the con enience of being able to trade anywhere in the world with internet access, e.g. while tra elling7 and access to a wide ariety of information on a number of sites.
In addition to actually allowing you to trade, these sites pro ide a considerable amount of information. The reduction in margins a ailable to stockbrokers as a result of internet trading is beginning to ha e an effect on other more traditional forms of brokers. This has led to some traditional brokers also pro iding internet trading of stocks. E-education A number of e!uni ersities are being spawned around the world. Again, three models can be seen# ). @. ,ure cyber uni ersities, such as Bones International 6ni ersity -http#??www. %onesinternationa.edu0 Traditional uni ersities setting up new cyber ehicles for pro iding uni ersity education perhaps with other business partners. An e&ample of this the Aong Fong $yber6 .-www.hkcyberu.com.hk70 which was set by the Aong Fong ,olytechnic 6ni ersity and ,acific $entury $yberWorks. Traditional uni ersities offering courses themsel es on the internet. There are a number of web!based technology tools for this purpose. An e&ample is Web $T. A number of so called Kopen uni ersitiesL that pre iously pro ided distance learning ha e mo ed into pro iding an internet!based ersion of their courses. These traditional uni ersities ha e a number of ad antages. They can now reach a client base that is outside their catchment. They also e&pect to be able to deli er these courses at a reduced cost7 howe er, the %ury is still out on this. Another ad antage a traditional uni ersity has on the internet o er a new pure cyber uni ersity is that it has an established
H.
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name. There are a ariety of issues that need to be e&plored carefully when preparing to deli er educational material on the internet and these include the following# ). @. a .oes one use a distance learning model where the student uses a ,6;; model to ac=uire the materialM .oes one use a traditional lecture model using ideo streamingM This is ,6(A model whereby a teacher KpushesL the materials to the students. The use of the Einternet for education opens up many possibilities, namely use of =ui//es, tests to pro ide the student with instant feedback on his?her masteryof the materials, use of graphics and animation to e&plain concepts, particularly those that ha e a dynamic character to them. It is anticipated that the internet will not only lead to cyber uni ersities of one kind or another but will also ha e a marked effect on teaching and learning in traditional uni ersities. 3ne among some of the inno ations that are being e&plored is the %oint teaching by two uni ersities on different continents in order to enhance the learning e&perience. 2.3.1.2 !atc%ma"ing Services This has perhaps been the area in which there has been the greatest growth in e! ser ices. Essentially, in most of these applications, the customer who could be an indi idual or business specifies his re=uirements in relation to the ser ice. The e!commerce site then does a search o er its own databases or o er the internet using mobile agents, or o er other databases or web sites to look for one or more matches to these re=uirements. The information is then returned to the e! ser ice pro ider site to gi e the customer the re=uired ser ice. 2ravel Services <efore the internet, one might ha e gone along to a tra el agent in order to book ones tra el re=uirements such as air tickets, train tickets, car hire, hotel, tours, etc. The tra el agent would try his best to meet these re=uirements by pro iding information regarding schedules, pricing, promotions, as well as suggestions on changes to de itinerary. These bookings could be for indi iduals or corporations in ol ing corporate rates, etc. A large number of e!commerce sites
ha e appeared, which address
this precise market segment. These include trip.com tra elweb.com, and priceline.com. These web sites work in e&actly
the same way. When a customer pro ides re=uirements, these sites do a search of their own databases or send agents our [ e&plore other web sites and respond to the consumer. Amongst the re=uirement that the customer could specify is an acceptable price. Anumber of sites, such as priceline.com, re=uire that pro ided the price specified is met, the customer cannot refuse the offer found. These ecommerce sites are beginning to grab an increasing part of the tra el market. They are attracti e to consumers because of the con enience, the ability to meet re=uirements such as specified prices, and in some cases like lastminute.com, a special customer need -i.eL booking at the last minute0. These tra el sites often also ha e a lot of information on promotions, suggestions, etc., which are useful for customers. These ecommerce sites are ha ing a strong KdisintermediationL effect. .isintermediation refers to the remo al of intermediaries such as tra el agents from the process in ol ed in the purchase of the ser ice. A recent increasing trend has also seen the primary pro ider of a ser ice such as an airline introducing internet based booking at reduced prices, further emphasi/ing the disintermediation effect. E-emplo(ment 4o.s and e-
In some areas, such as real estates e.g., -www.re alestate.c om0 the isuali/at ion E H . f a c i l i t i e s p r o i d e d o n t h e w e b a l
There are se eral different kinds of ser ices pro ided here, namely ). @. H. sites sites where you can get ad ice on de eloping your resumes and can post your resumes on the web recruiters who use the web site to post a ailable %obs, such as Aot %obs -www.hot%obs.com0 or Bobdirect employers who list a ailable %obs on the web a. b. matchmaking facilities that search the internet for %obs for %obseekers based on a specification, such as www.monster.com matchmaking facilities to search the internet for resumes that best fit a %ob description gi en by a prospecti e employer use of agents to do the search These approaches of using the internet for e!employment or e%obs a oid many of the costs and difficulties associated with traditional approaches to ad ertising, such as high cost, limited duration, and minimal information.
Ot,er$
low one to either
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show isuali/ations of buildings at the drawing board stage, or allow people distant from the physical site of building to actually isuali/e it
This area of matchmaking and brokering ser ices is e&pected to grow greatly in the near future with e!commerce sites e&ploiting new market niches. This is also an area with the greatest likelihood of disinter mediation, and traditional agents or brokers will ha e to build new dimensions to their ser ices in order to sur i e. E-Entertainment This is e&pected to be a growing area of e!commerce in the future. A number of companies are gaining access to or ha e purchased large in entories of mo ies or other entertainment material with the iew of allowing people to download this on the web. (ites here ary from theme sites that use a small amount of interacti e entertainment to promote their products, such as .isney, to others that pro ide games either for a fee or are free coupled together with ad ertising that pays for the site. An important issue here is that the payments in ol ed are relati ely small for each transaction, and hence the use of micro payment techni=ues is likely to be of considerable importance here. .&. Electronic Commerce (nd !(n3in) K<anking is ital to a healthy economy. <anking as a business can be subdi ided into fi e broad types# retail, domestic wholesale, international wholesale, in estment, and trust. 3f all these types, retail and in estment banking are most affected by online technological inno ations and are the ones that stand to profit most from electronic commerce. The role of electronic commerce in banking is multifaceted impacted by changes in technology, rapid deregulation of many parts of finance, the emergence of new banking institutions, and basic economic restructuring. "i en these en ironmental changes, banks are reassessing their cost and profit structures. 2any banks feel that in order to be profitable they need to reduce operating e&penses and maintain strict cost control. This philosophy is e ident in the many mergers and ac=uisitions occurring in the banking industry. The challenge behind bank restructuring lies in ade=uately operational /ing the notion of cost control.
132
Tec,nolo)% i$ t,e +redomin(nt $olution "or controllin) co$t$. !(n3$ (re Increasingly help to reduce operating costs and still pro ide ade=uate customer ser ice. Inno ation and technology are becoming the key differentiators in the financial ser ices business. Ad ance in networking, processing, and decision analytics ha e allowed institutions to lower ser ice costs. Technology has also accelerated the pace of product inno ation. 4or e&ample, sophisticated arbitrage instruments like deri ati es are changing the nature of in estment banking. The (ecurities and E&change $ommissions decision to allow (pring (treet <rewery to trade its stock online may also fundamentally change in estment banking by disinter mediating the traditional role of underwriting. Technology is enabling the de elopment of new products and ser ices. 4or e&ample, technology is capable of replacing or e&pediting tedious financial e&ercises like check writing, filing ta&es, and transferring funds. Although large businesses ha e automated these tasks, many small businesses and most households still do them manually. This is not surprising7 large businesses ha e been undergoing computeri/ation for more than thirty years, whereas ,$s ha e been entering households in significant numbers only in the last few years. Technology is changing the interaction between banks and consumers. In particular, technological inno ations ha e enabled the following capabilities# online deli ery of bank brochures and marketing information7 electronic access to bank statements7 ability to re=uest the transfer of funds between accounts7 electronic bill payment and presentment7 ability to use multiple financial software products with KmemoryL -thus eliminating the need to re!enter the same data07 online paymentsNencrypted credit cards for transferring payment instructions between merchant, bank, customer7 and finally, micro payments -or nickel!and!dime transactions using electronic cash and electronic checks0. These online capabilities increase the facility and speed of retail banking. Aowe er, new technology is a double!edged sword. While it enables banks to be more competiti e through huge in estments, it also enables new competition from fast!mo ing, non banking firms. This trend can be seen in the area of online payments, where recent inno ations ha e pro ided an opportunity for non banks to break into the banking business, threatening the banking stronghold on one of the last key ser ices pro ided by banks. The present nature of online payments is a clear indication that if the banking industry fails to meet the demand for new products, there are many industries that are both willing and able to fill the oid.
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Technology also creates problems in the product de elopment lifecycle. In the past, banks had the lu&ury of long roll!out periods because successful in estment in retail banking re=uired a large monetary commitment for product de elopment. This financial re=uirement pre! ented new participants from entering the market and was a key determinant of success. This is no longer the case. Instead of a single institution doing e erything, technology allows the creation of a K irtual financial institutionL made up of firms, each contributing the best!of! breed software or products to the o erall product. In this new K irtual model,L banks compete with the twel e!to!eighteen!month product de elopment times of companies like Intuit or 'etscape, which ha e product life!cycle times of only si& to nine months. C%anging #(namics $n Ban"ing $ndustr( In recent years, there has been a ma%or change in the way banks stri e for increased profitability. In the past, the banking industry was chiefly concerned with asset =uality and capitali/ation7 if the bank was performing well along these two dimensions, then the bank would likely be profitable. Today, performing well on asset =uality and capitali/ation is not enough. <anks need to find new ways to increase re enues in a Kmature marketL for most traditional banking ser ices, particularly consumer credit. A thorough understanding of this competiti e en ironment is needed before banks can determine their online strategy. 4i e distinct factors contribute to the new competiti e en ironment# $hanging consumer needs dri en by online commerce 3ptimi/ation of branch networks in order to reduce costs, $hanging demographic trends and potential new consumer markets $ross!industry competition caused by deregulation, and 'ew online financial products.
C%anging Consumer 0eeds $onsumer re=uirements ha e changed substantially in the last decade. $ustomers want to access account!related information, download account data for use with personal finance software products, transfer funds between accounts, and pay bills electronically. 3f course, along with these ser ices, banks must be able to supply?guarantee the pri acy and confidentiality that customers demand, which is not a tri ial matter to implement on the part of the banks.
134
2any consumer re=uirements are based on a simple premise# customers and financial institutions both seek closer and more multifaceted relation!ships with one another. $ustomers want to be able to bank at their con enience, including o er the weekend or late at night. <ankers want more stable and long term relationships with their customers. 4rom the banks perspecti e, de eloping and maintaining this relation!ship is difficult. Although financial products are essentially information products and financial institutions are highly automated, there is a gulf between automated information and the banks ability to reach the consumer in a unified way. This gulf is filled with established methods, such as branches, postage and mail, ad ertising, and people on telephones. These methods can be costly and impersonal. Electronic banking pro ides a method of communication that will enable the bank customer to be reached, ser ed, and sold products and ser ices in their homes and offices whene er it is con enient for them!twenty!four hours a day, se en days a week. 2.3.3. Ban"ing >ia Online Services Although personal finance software allows people to manage their money, it only represents half of the information management e=uation. 'o matter which software package is used to manage accounts, information gets man!aged twice once by the consumer and once by the bank. If the consumer uses personal finance software, then both the consumer and the bank are responsible for maintaining systems7 unfortunately, these systems do not communicate with one another, thus gi ing new meaning to double!entry bookkeeping. 4or e&ample, a consumer enters data once into his system and transfers this information to paper in the form of a check, only to ha e the bank then transfer it from paper back into electronic form. 6nfortunately, off!the!shelf personal finance software cannot bridge the communications gap or reduce the duplication of effort described abo e. <ut a few Khome bankingL systems that can help are beginning to take hold. In combination with a ,$ and modem, these home banking ser ices let the bank become an electronic gateway, reducing the monthly paper chase of bills and checks
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Citi4(n3 (nd ;rodi)%
To understand the more contemporary online banking ser ices, we look at $iti<ank and ,rodigy. ,rodigy has been pro! iding home banking to consumers since )*88, and has relationships with more banks than any commercial online ser ice. To e&pand the attracti eness of its online banking ser ices, in )**+ $itibank began offering ,rodigy subscribers a free and direct link to its electronic home banking ser ice. Access to $itibank is a ailable to ,rodigy sub!scribers at no e&tra fee throughout the 'ew 9ork metropolitan area. The agreement represents the first time that $iti<ank has e&panded access to its proprietary ,$ <anking ser ice through a commercial online ser ice. To en!courage $iti <ank customers to try online banking through ,rodigy, free ,rodigy software will be made a ailable at local $iti <ank branches. $iti<anking on ,rodigy offers a full range of banking ser ices. $ustomers can check their account balances, transfer money between accounts, pay bills electronically, re iew their $iti <ank credit card account, and buy and sell stock trough $iti $orp In estment (er ices. $iti <ank and ,rodigy al! low customers to e&plore the wide array of ser ices using an interacti e, hands!on demonstration. Ban"ing via t%e +e.: Securit( 5irst 0et*or" Ban" With the e&plosi e growth in Internet use, banking ia the World Wide Web will undoubtedly catch on =uickly. The goal of this approach to banking is to pro ide superior
136
customer ser ice and con enience in a secure electronic en ironment. The competitors in this segment are banks that are setting up Web sites, and firms like Intuit that can easily transport their product to the Internet. <anking on the Internet is not the same as banking ia online ser ices. Internet banking means that# $onsumers do not ha e to purchase any additional software -the Web browser is sufficient0, store any data on their computer, back up any information, or wait months for new ersions and upgrades, since all transactions occur on a secure ser er o er the Internet. $onsumers can conduct banking anywhere as long as they ha e a com! puter -not necessarily their own computer0 and a modem!whether at home, at the office, or in a place outside the 6nited (tates. <anking ia online ser ices is restricti e in that the consumer has to install a soft!ware package onto her computer. This limits the customer to banking only from that computer, making a call to access a separate network, working with a separate software company, and banking during limited hours of operation. $onsumers can download account information into their own choice of programs rather than following the dictates of the ser ice pro ider. Internet banking allows banks to break out of the hegemony of software de elopers. If bank customers -end users0 install personal financial management software on their ,$s, these customers become direct customers of software firms. <y controlling the software interface, software firms such as Intuit can control the kinds of transactions end users make and with whom these transactions occur. <y maintaining a direct relationship with end users ia the Web, banks can offer additional ser ices and pro ide a personal feel to the interface, without seeking the cooperation of a software company. If banks choose to offer home banking ia personal financial management software, they lose control o er the end user interface and the relationship they ha e with customers. This loss of control has tremendous long!term implications. The software industry history offers com! pelling proof of the importance of organi/ations ha ing a direct relationship with consumers. In the early )*81s, I<2 decided that operating systems were not central to I<2 business strategy. As a result, I<2 licensed .3( from a small software company called 2icrosoft. I<2 called this operating system ,$!.3( and allowed 2icrosoft to
market this same operating system to competing computer manufacturers under the name of 2(.3(. I<2s seal of
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appro al made .3( an industry standard. Aowe er, I<2 was unable to mo e the industry to a new operating system called 3(?@ in the late )*81s because 2icrosoft controlled the customer relationship and was able to con ert most end !users to Windows. 4or banks, too, losing control o er the interface could ha e dire conse=uences. 2.3.3.1 !anagement issues in Online Ban"ing The challenge facing the banking industry is whether management has the creati ity and ision to harness the technology and pro ide customers with new financial products necessary to satisfy their continually changing financial needs. <anks must deli er high =uality products at the customers con enience with high! tech, high!touch personal and affordable ser ice. In order to achie e this, management has to balance the fi e key alues that increasingly dri e customers banking decisions# simplicity, customi/ed ser! ice, con enience, =uality, and price. 3nline banking will reali/e its full potential when the following key elements fall into place# The de elopment of an interesting portfolio of products and ser ices
that is attracti e to customers and sufficiently differentiated from competitors. The creation of online financial supply chains to manage the shift from banks as gatekeeper models to banks as gateways. the The emergence of low!cost interacti e access terminals for the home as well as affordable interacti e home information ser ices. The identification of new market segments with untapped needs such as willingness to pay for the con enience of remote banking. The establishment of good customer ser ice on the part of banks. The fact that technology increases the ease of switching from one bank to an!other means that banks that do not offer superior customer ser ice may see low le els of customer loyalty. The de elopment of effecti e back!office systems that can support sophisticated retail interfaces. !ar"eting Customers $ssues: -ttracting
The benefits
of
online banking are often not made clear to the potential user. $onsumer =uestion includes #
138
Aow is balancing the checking account online superior to doing it on paperM Is paying bills online superior to the familiar 5 of writing checksM Where is the consumer gaining alueM ,erhaps the answers to these =uestions are not clear to the bankers themsel es. Regardless of how a bank chooses to answer these =uestions, it is clear that make a mistake trying to sell online banking ser ices on the basis of con enience. While short term con enience is important, consumers want )*!term ability to control and organi/e their finances more than they want con enience. <anks must also look beyond home consumers for online banking consumers. The rapidly growing use of personal computers by small business! pro ides a solid opportunity for banks to build a profitable base of small business until a broader consumer market e ol es. There are mil!lions of small businesses with annual sales ranging from Rs. @51,111 to Rs. 5 million. 2any of these firms ha e ,$s and modems. 'ew ser ices like interacti e cash management ser ices could generate significant re enues for banks. Industry studies indicate that '( percent of small businesses are immediate prospects for online banking and are willing to pay more than indi idual consumers for the ser ice!up to J)11 a Kmonth. Thus, banks ha e opportunity to tap into this market segment. !ar"eting $ssues: =eeping Customers Feeping customers -or customer loyalty0 re=uires the following# ). <anks must switch the costs of mo ing from one software platform to other to keep customers from mo ing. $ustomers are increasingly familiar with using technology to access bank accounts and to handle financial affairs, and this familiarity increases interest in additional ices and increases switching costs. <anks must pro ide integrated ser ices. The oftcited time s=uee/e on consumers! long commutes, hea y workload, family obligations, household management is pushing consumers toward integrated ser ices that can speed up financial procedures. These integrated ser ices contribute to cementing the customer relationship. <anks can reali/e the positi e cost implications for the longterm alue of building customer loyalty. In the online world, there is not a big cost dif! ference between ser ing one customer and ser ing )11,111 customers. $learly, marketers must also work on building a loyal customer base not only in order to maintain the e&isting
base, but also in order to be attracti e to potential customers.
@.
H.
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DBA 1727
NOTES
.* AD9ERTISIN: AND ONLINE ;U!LIS#IN: 2. .1 -dvertising and Online Pu.lis%ing With the intention of attracting ad ertising dollars, maga/ines and newspapers ha e also set up sites on the Web. 2any online periodicals include traditional ad ertisements as well as icons, which display an ad ertisers logo and, when clicked with a mouse, send a user across the Web to the ad ertisers Web site. Among periodicals that ha e gone from print to online ad ertising with some degree of ad ertising success are# Fnight!Ridders (an Bose 2ercury 'ews newspaper, which reportedly charges Rs. )11 per day for an ad ertisement, and maga/ines such as Aot Wired, ,layboy, and ,eople, which reportedly charge Rs. H1,111!Rs. C5,111 per =uarter for an ad ertiser to place an icon in the periodical. ,romotions are also common. In many cases, ad ertisers ask site isitors to pro ide their names and addresses in e&change for a product discount. 2. .1.1 /easons e:pected for t%e increase in -dvertising spending S%orter -ccess 2imes As more bandwidth becomes a ailable, users will spend a larger proportion of their time on Web sites and a smaller proportion waiting to access them. With more time a ailable to draw users attention, ad ertisers should be willing to pay more per user to place their icons in online periodicals. (horter access times also enable increasingly comple& graphics to be placed on Web sites, without re=uiring additional access time. This should draw to the Web ad ertisers who may ha e been concerned that the current graphical =uality was insufficient for displaying their products. With more ad ertisers, ad ertising rates should rise. /educed -ccess 5ees 'ew Internet users will be attracted by reduced ac!cess fees, with part of the reduction co ered by ad ertisers. The cost of the access fee itself can be shared by an ad ertiser if, for e&ample, the ad ertiser pays for the access time used when accessing online yellow pages.
140
$ncreasingl( Convenient -ccess to $nformation
NOTES
As the amount of information online increases, it should be increasingly important for ad ertisers to get users to their sites =uickly, leading them to pay more for placement in online periodicals. $ncreasingl( >alua.le $nformation ,roduct descriptions can be enhanced through online ad ertising. With more information a ailable, the decision to purchase should be easier and more purchases should occur -assuming the product is desirable0. This should boost the appeal of the Web and in! crease the rates that ad ertisers could be charged for placing their icons in an online periodical. 2. .1.2 Better !easurement of -dvertising Effectiveness ,roduct ad ertising is far more effecti e if it leads to a purchase. If online ad ertising encourages users to shift a portion of their purchases to the Web, then companies may pay far more to ad ertise. Aowe er, a measurement system will not be useful until# ). @. an online publisher can use it to determine ad ertising rates and the appeal of its articles, and an ad ertiser can use it to %ustify the cost of promoting a Web site, maintaining a Web site, and placing a site !linked icon in an online page.
.espite the popularity of ad ertising on Web sites, few publishers ha e attempted to measure how many ad ertising dollars are being spent. There are three reasons for this# The market is too small to %ustify the cost of measuring its si/e. There is not a clear definition of what ad ertising e&penses should be counted. (pending can be the amount that ad ertisers pay other Web sites such as periodicals and games to display their icons or product offerings. The market is changing too rapidly to de elop an effecti e means of measurement.
141
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Effecti e measurement of online ad ertising is taking centre stage. It was reported in 2ediaWeek T2W*+U that ,rocter > "amble was ready to spend some of its JH.H billion ad budget to ad ertise on arious Web sites. Aowe er, the packaged goods giant told the online publishing community that it will compensate the ad banners it buys only on a Kclick!throughL ba!sis. In other words, standard impressions!deli ered when an Internet surfer sees an ad banner but does not click on it to connect to a Web site !are considered to ha e no alue by ,>". The anticipated ,>" strategy, a sharp departure from the industry standard which measures hits ,has sent a shi er down the spine of many ad sales e&ecuti es. The concern was that other ad ertisers will follow ,>"s lead. 2. .1.3 #igital Cop(rig%ts and Electronic Pu.lis%ing Intellectual property rights -copyrights, trademarks, and licenses0 are an important asset possessed by the publishers in their respecti e markets. ,rotecting intellectual property rights and collecting dues from online users is pro ing to be =uite challenging. The scope and magnitude of the problem is clear. The potential of online copyright infringement astly surpasses the damage that can be inflicted with a photocopy machine. Anyone with a computer can make and distribute countless copies of anything digital, be it a book, a T: or computer program, or a piece of music. E en worse, the digital ersion can be sent to friends or e en a bulletin board system -<<(0 for downloading by anyone with a modern. Ad ances in technology ha e raised the stakes considerably. Today, irtually any work can be Kdigiti/ed,L archi ed, and used in the digital format. This increases the ease and speed with which a work can be reproduced, the =uality of the copies, the ability to manipulate and change the work, and the speed with which copies -authori/ed and unauthori/ed0 can be Kdeli eredL to the public. Works also can be combined with other works into a single medium, such as a $.!R32, causing a blurring of the traditional content lines. The establishment of high!speed networking makes it possible for one indi idual, with a few key strokes, to deli er perfect copies of digiti/ed works to scores of other indi iduals. In short, the emergence of the Internet is dramatically changing how consumers and businesses deal in information and entertainment products and ser ices7 as well as how works are created, owned, distributed, reproduced, displayed, performed, licensed, managed, presented, organi/ed, sold, accessed, used, and stored. All of this has led to a clarion call for changes in the copyright law.
142
The stakes are high. 3wners of copyrights are not willing to put their interests at risk if appropriate protections are not in place to permit them to set and enforce the terms and conditions under which their works are made a ailable online. ;ikewise, the public will not use the ser ices a ail!able and create the market necessary for online publishings success un!less access to a wide ariety of works is pro ided under e=uitable and reasonable terms and conditions, and unless the integrity of those works is assured. Online Cop(rig%t Protection !et%ods 6nauthori/ed access to published content can be restricted by two methods# ). Restricting access to the source of the work. This includes controlling Web ser er access or controlling indi idual document access.
@. Restricting manipulation of the electronic file containing the work. .*. Electronic ;+u4li$,in) Commerce (nd Online
that simply ha ing a presence on the Web did not guarantee profits. They disco ered that offering e&citing technology without compelling content is insufficient to capture market share. These firms are learning that the best way to capture consumers attention is to de elop a business model that allows the company to
The Web may ha e blossomed because of peer!to!peer publishing, but %udging from recent product offerings, there is an enormous groundswell of interest among both commercial and corporate publishers in the Web. 4or instance, it was reported that, in less than three months, the Wall (treet Bournal Interacti e Edition attracted 511,111 registered readers on the Web, and that number is growing by some H,111 readers per day. Also, the electronic edition has attracted more than thirty ad ertisers paying to reach this audience. Initially, growth in the online publishing marketplace was dri en by the potential of new interacti e technologies and applications. The promise of new interacti e publishing captured the imagination of both content pro iders and the public. Aowe er, from )**H to )**5 much of online publishing was inhibited by a lack of business purpose. At that time, the con!tent creation side of online publishing was dominated by techno! sa y indi iduals who were not e&perienced at selling and who did not under!stand the business of publishing. In addition, there were publishing companies who took a KBust "et 2e on the WebXL approach, failing to define the business purposes dri ing their online presence. As the initial euphoria wore off, publishers reali/ed
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offer uni=ue and aluable information, programming, and ser ices. This content, no matter how it is deli ered, must be packaged so that it pro ides more alue than alternati e sources of information. The key is to identify what the customer wants and finds interesting and to a oid being distracted by new technologies. ,ublishers need to pay more attention to their core competency of packaging and deli ering content and making money online. These are tricky but necessary conditions to successful online publishing. 2any online publishing pioneers ha e gone up the technology cur e and are confronting tough management =uestions such as how to gain market share and how to be profitable sooner than later. (ome of these firms ha e in ested tens of millions of dollars in people, e=uipment, and marketing, and they ha e not yet turned a profit. (ome of the sites employ hundreds of people, with millions of dollars in payroll alone. 2any early pioneers in ested a huge amount of money into brand building, marketing, and content, but they ha e not been able to figure out which business model works best for making money. 3nline publishers are de eloping new business models to charge customers directly and con ince them that such charges are %ustified. As more and more firms begin to offer online content, they are being forced to ad%ust to new customer attitudes regarding pricing. ,ublishers currently finance their businesses by offering ad ertisers mass markets for deli ering their message in return for large ad ertising fees. The public has been trained to think that the news, information, and entertainment they recei e should be subsidi/ed or nearly free and that ad ertisers will pay the bill. This approach may not be iable in the online medium when mass markets are re!placed by customers selecting their information and deli ery methods. The early online publishing pioneers are trying to accomplish a difficult feat. 'ewspaper and maga/ine publishers, some of the first to stake their claims on the Internet, are tinkering with new ad ertising models for their fledgling Web sites. In general, mainstream ad ertisers ha e been skittish about pumping money into a medium with an audience whose si/e and habits are nearly impossible to figure out. As a result of relati ely low ad re enues, none of the Web publishers ha e turned a profit. While ad re enues are not coming close to co ering e&penses now, they could grow substantially in coming years as the traffic increases and brand names become established. <rand de elopment is important because e ery time a user sits in front of a Web browser, she needs to make a decision about where to go. The better the brand, the more likely it is to pop up in the consumers
mind another key
issue in online publishing relates to digital copyrights.

Effecti e technological protection mechanisms are ital to ensuring the a ailability of =uality content online. Today, publishers such as AddisonNWesley only offer catalogs or sample selections of works a ailable online. They do not and cannot offer more because in an en ironment where the culture and technology pro ide so little protection for the rights of content producers, there is too great a risk to their intellectual property. The Internet makes it e&tremely easy to copy, retransmit, and alter works without the permission or the copyright holder. 2oreo er, the digital world has no international boundaries, and policing is impossible since the le els of protections and sanctions against infringement ary widely in countries across the globe, which makes the risk e en greater. 2. .2.1 Online Pu.lis%ing Strategies As with any new de elopment, there are generally three strategies for publishing companies to consider# E(rl% Mo7er$ These are highly skilled independent publishers with e&isting access to such key capabilities as direct marketing and order fulfilment. These publishers ha e the capacity to deri e the highest benefits from new media as their learning cur es are much shorter than others, and they already ha e many of the necessary resources at hand. ?(tc,er$ These are large publishing companies that employ scale!sensiti e economics. They are unlikely to iew online publishing as a sufficiently attracti e channel until costs fall and distribution widens. This category includes publishers of unbranded or less distincti e content who cannot attract a sufficiently large initial consumer franchise, as well as fo!cused publishers in categories not easily suited for the online medium. Te$ter$ These are the ma%ority of publishers that face either attracti eness and? or skill challenges. "athered here are many multi category and specialty publishers who are competing successfully in traditional markets, who are uncertain who will win in the online marketplace, and who neither need nor want to make a choice
now. Testers also include
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branded general publishers with robust consumer franchises and attracti e distribution channels already in place. 4or this group, the online medium appears to be an alternati e. In general, publishers are educating themsel es about the potential opportunities without committing themsel es to anyone position. Those with strong brand images and e&isting consumer franchises may choose to post!pone entry until they find iable ser ice pro iders and distributors. ,ublishers such as the Wall (treet Bournal and 'ew 9ork Times are taking part in targeted tests and pilot pro%ects aimed at learning what online publishing has to offer, building re=uired skills, and e&ploring the attracti eness of potential channels. These tests often include a skill!building program as well as an early warning system so that a company can =uickly identify and re!act to changes within the industry or economy. $ontent, incenti es, ser ice, =uality, and price will not be enough to compete in this new en ironment. (peed of deli ery, bundling of products, and di ersity of choice also become critical success factors. ,ublishers will ha e to inno ate constantly and challenge present concepts if this form of commerce is to become widely accepted and popular. Winning in online publishing will entail de eloping new skills in areas such as tailored ad ertising, order processing and fulfilment, and customer ser ice as well as re!learning the fundamental principles concerning why people subscribe. 2. .2.2 Online Pu.lis%ing -pproac%es There are four contrasting content publishing approaches. to The online archi e approach. This is new to the Web, but is a logical e&tension of the trends in electronic deli ery o er the past se eral years. The new medium approach. This is more contro ersial and more difficult implement, but also more e&citing. The publishing intermediation approach. This is an online e&tension of the third! party publisher role off!line. The dynamic and %ust!in!time approach. In this approach, content is assembled in real!time and transmitted in the format best suited to the users tastes and preferences. T,e Online Arc,i7e A++ro(c,
The online archi e
approach -including bibliographic databases and full!te&t search? retrie al ser ices0 is one that appeals to corporate publishers and, to some e&tent,
commercial publishers -such as academic or %ournal publishers0 who ha e an e&isting digital archi e that they want to deli er o er the Web as well as on paper, $.! R32, or other media. The most pre alent e&ample of online archi e approach is library catalogs and bibliographic databases. 2ost libraries ha e replaced traditional card catalogs with sophisticated electronic online bibliographic databases offering an incredible range of functions. At re enues of o er J) billion a year, bibliographic databases represent a si/able chunk of the online data!base market. An e&ample of a bibliographic database is 2E.;I'E, de eloped by the 'ational ;ibrary of 2edicine -';20, which caters to an increasing number of physicians who rely on online medical databases to keep up to date with the latest de elopments and literature. The spread of ,$s has enabled physicians to directly search databases used only by librarians in the past. 2E.;I'E and other medical databases are a ailable free of charge on the Internet. The online archi e approach is also being used by niche publishers such as Piff! .a is, which began its enture into electronic publishing in .)*85 with a bulletin board system for readers of ,$ 2aga/ine. That bulletin board e ol ed in )*88 to become ,$ 2ag!'et on $ompu(er e, which =uickly grew in popularity. In )**), Piff!.a is created the P. 'et subscription ser ice on $ompu(er e to pro ide a ser ice supporting online ersions of all its publications. 2embers of the P. 'et?$ompu(er e edition ha e access to se eral features, including the P. 'et 6ni ersity series of comprehensi e online Kcontinuing education courses, sophisticated on!line forums with top industry personalities, and a comprehensi e database of past articles. In addition to its successful $ompu(er e subscription ser! ice, the P. 'et Web Edition -http#??www./dnet.com0 logs access by more than G11,111 Internet hosts each month and is reportedly showing a profit. T,e Ne2 A++ro(c, Medium
approach currently has some teething problems because of technological limitations. 4or instance, the formatting limitations of the Web are frustrating at the moment, but with technological
The new medium approach -including real !time news deli ery, personali/ed news deli ery, and edutainment0 aims to create new material for the Web!to treat the Web as its own medium, one deser ing its own material. This approach will ha e the most appeal to commercial print publishers, such as maga/ines, that iew the Web as an alternati e, not a replacement, for print publications. 4or e&ample, Wired maga/ine sees ery little crosso er in content between its maga/ine and its AotWired enture. (ome writers may write for both media, but separate content streams will be de eloped for each medium. This
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ad ancements they will soon be forgotten. The frustrations are more than offset by the e&citement of the interacti ity the Web offers7 its model is both broadcasting and con ersation at the same time. With online publishing there may be a well!known starting point, but with no controlling gatekeeper, the subse=uent alue!added impro isation from readers makes each online maga/ine a uni=ue e&perience. E en if the technology constraints were o ercome, the e&pectations of the Web are so different from print media that new content, written for a Web audience, must be created. It =uickly becomes apparent that under this model, the old paradigms do not work. The publisher gi es up not only its brand name, but its intellectual content, too!once the information is out there, it is no longer, owned. 4aced with that model, all a publisher can do is Kbe the first with the most interesting stuff,L an approach that AotWired is taking in its attempt to create a place where readers can see what the world has to say on a minute!by minute basis. T,e ;u4li$,in) A++ro(c, Intermedi(tion
The publishing intermediation approach -including online directories0 e&ploits new ser ice opportunities for intermediaries. 4or e&ample, in the growing market for educational material such as course packs and other customi/ed books, companies offering material owned by more than one publisher face the daunting task of obtaining permissions. 'ew organi/ations that speciali/e in the management of copyright clearance are emerging as key players. 3nline directories are important for se eral reasons. $ompanies and consumers interested in conducting electronic commerce often struggle to na igate the Internet to create an electronic marketplace. 3nce on that sprawling network, they are ha ing trouble finding other companies, products, and ser ices. The success of 9ahoos initial public offering -I,30 underscores the importance of online directories. 9ahoo -which stands for 9et Another Aierarchical 3fficious 3racle0 was created in )**C by .a id 4ilo and Berry 9ang, two (tanford, 6ni ersity electrical engineering ,h. students who began .9 simply compiling lists of their fa orite Web sites. It went on to become one of the most popular means of na igating around the Internet. 9ahoo is the first place millions of Internet users go when they try to find their way around the rapidly growing Internet. At one time, 9ahoo was getting about + million isitors per day, which
made
it
the
second most acti e Web site ne&t to 'etscapes home page.

$learly, there will be a demand for intermediation because there will al! ways be a need for a good directory to help people locate goods, ser ices, and products. The future is bright for the publishing intermediaries who offer ease of operation, speed, and detailed information. T,e D%n(mic (nd Nu$t-in-Time ;u4li$,in) A++ro(c, 3nline content is no longer static information. $ontent can now be created in real! time and transmitted on the fly in the format best suited to the users location, tastes, and preferences. 2ore importantly, the content engine recogni/es repeat isitors to a site and configures the Web pages to match the indi iduals known preferences. 4or e&ample, a publisher planning to deploy a large product catalog will no longer ha e to author and update each indi idual Web page. Instead, the elements of each page!te&t, graphics, ideo, and sound!are stored separately in a database and used to create indi iduali/ed pages on the fly as each user browses the site. The page content can be further customi/ed to reflect which Web browser is being used, the users geographic location, and modem speed. Another way of looking at dynamic publishing is that it is %ust!in!time publishing. That is, the stories, applets, and content flow into the computer %ust as consumers need them, and then self!destruct after usage. A number of micro payment schemes are emerging. The world of online entertainment!specifically Kpay!for!playL outlets being de eloped by (ony, (ierra 3n! ;ine, and others!could ser e as the best model for e ery!one else T,$W*+U. $learly publishers and de elopers should be thinking about low! alue payments, but it is still too early for most companies to de!ploy. 4or micro payments to work, transaction costs must be ery small -around )1 cents0, and they are nowhere near that yet. What is more, the proposed schemes ary widely and many kinks in the micro payment pu//le ha e to be worked out.
NOTES
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.- ! ! E-COMMERCE .-.1 ! ! - !u$ine$$ to !u$ine$$ E-Commerce E!commerce has been in use for =uit a few years and is more commonly known as E.I -electronic data interchange0. In the past E.I was conducted on a direct link of some form between the two businesses where as today the most popular connection is the internet. The two businesses pass information electronically to each other. <@< e!commerce currently makes up about *CD of all e!commerce transactions. Typically in the <@< en ironment, E!$ommerce can be used in the following processes# ,rocurement7 order fulfilment7 2anaging trading!partner relationships.
4or many Welsh (2Es, <@< E!$ommerce is synonymous with the ision of integrated supply chains. This might be the ultimate ob%ecti e, but, in the short term, <@< E!$ommerce could be used as a significant enabler in their mo e towards greater trading partner collaboration. E!$ommerce technologies ha e allowed e en the smallest businesses to impro e the processes for interfacing with customers. They are now able to de elop ser ices for indi idual clients rather than pro ide a standard ser ice. ,entwyn (plicers based in ,ontypool manufacture pneumatic splicers for the 6F and world te&tile market. They e aluated all aspects of their business process to determine where the greatest return could be obtained. 6sing the Web to sell more products was an initial consideration, but it was in the pro ision of customer ser ice and support to their o erseas distributors that the greatest benefits ha e been achie ed. An alternati e way of thinking of <@< e$ommerce is to think of it as being used to# Attract, de elop, retain, and culti ate relationships with customers7 (treamline the supply chain, manufacturing, and procurement processes, and automate corporate processes to deli er the right products and ser ices to customers =uickly and cost!effecti ely7
150
$apture, analy/e, and share, information about customers and company operations, in order to make better decisions.
In business!to!business electronic commerce businesses use the Internet to integrate the alue! added chain, which can e&tend from the supplier of raw materials to the final consumer. <usiness for business dominates the total alue of e!commerce acti ity, accounting for about 81 per cent at present. <ecause the! economic factors affecting the adoption of e!commerce between businesses are such different from those affecting business!to! consumer ecommerce, business!to! business e!commerce is likely to maintain for enlarge is ad antage for the foreseeable future# Electronic links between businesses are not new. They ha e e&isted for decades, in the form of electronic data interchange -E.I0 supplied by alue!added networks -:A'0 operated o er leased telephone lines. ;arge manufacturing firms are the main users of E.I. "eneral Electric -"E0, one of the largest E.I ser ice suppliers, estimates that 81 per cent of suppliers are not connected to an E.I system but rely on from, telephone or mail. .ri ers and inhibitors of business!to!business electronic commerce in business! to!business e!commerce, three factors are likely to lead to e!commerce a reduction in transaction costs and impro ement of product =uality?customer ser ice a. a defensi e reaction A competitors engaging in commerce7
suppliers. 4or e&ample, the 6( Automoti e 'etwork e&change -A'R0, de eloped by the Automoti e IndustryAction "roup -AIA"0, makes use of the Transport $ontrol ,rotocol?Internet ,rotocol -T$,?I,0 to link automoti e
and b. Insistence by large businesses that all of their suppliers link into their e! commerce system as a condition of!doing business. The first factor, reduced transaction costs, dri es the second and third and will be e&plored in greater detail in the ne&t chapter. Aowe er, electronic commerce clearly reduces these costs and thus dri es its adoption. It is e&pected that by @11)!1@, many barriers, such as =uestions of security and reliability, which now limit the e&tension of Internet E.I to unknown firms, will ha e been o ercome. As a result, there will be a significant increase in business!to!business e!commerce as it draws in smaller second! and third!tier
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suppliers to each other and to original e=uipment manufacturers -3E20 -e.g. "2, 4ord and $hrysler0. .ispensing with the multiple networks and protocols that now link first!tier suppliers to 3E2s, the new system will pro ide a single common system that can be e&tended to include all suppliers. The largest impact of business Qto Q business e!commerce is likely to be on small and medium si/ed enterprises -(2Es0, because many large business already ha e E.T systems in place. The accessibility of the Internet makes electronic commerce realistic possibility for (2Es and is likely to lead to its widespread diffusion. In addition to migrating e&isting acti ity to e!commerce, new businessNto!business products are being created which did not, or could not, e&ist before electronic commerce o er the Internet made them economically iable. 4or e&ample, spot markets that match buyers and sellers for a wide ariety of goods ranging from electronic components to agricultural commodities to transportation futures ha e sprung up7 they represent only the beginning of what is e&pected to be a wide number of new business!to! business opportunities. Another e&ample is the e&tension of E.I!type links ia the Internet. ,arcel deli ery, logistics and order fulfillment ser ices, fre=uently by the same firm, are also e&periencing growth as ecommerce increases. As businesses mo e to Kbuild!to!orderL processing and %ust!in! time in entories, a premium is placed on timely, accurate inbound and outbound logistics. In addition, there is greater demand by final consumers for fast order fulfillment and the ability to track an order as it is being processed and deli ered. 2.3.2 -utomated 2ransactions Ecommerce
It is a term also used in electronic commerce and to describe automated processes between trading partners. The olume of <@< transactions is much higher than the olume of <@$ transactions. 3ne reason for this is that businesses ha e adopted electronic commerce technologies in greater numbers than consumers. Also, in a typical supply chain there will be many <@< transactions but only one <@$ transaction, as the completed product is retailed to the end customer. An e&ample of a <@< transaction is a chicken feed company selling its product to a chicken farm, which is another company. An e&ample of a <@$ transaction is a grocery store selling grain!fed chickens to a consumer. <@< can also describe marketing acti ities between businesses, not %ust the final transactions that result from marketing, though the term can be used to identify sales
transactions
between businesses -also referred to as

Kinstitutional salesL0. 4or e&ample, a company selling photocopiers would more likely be a <@< sales organi/ation than a <@$ sales organi/ation. K<usiness!to!businessL can also refer to all transactions made in an industry alue chain before the finished product is sold to the end consumer. 2.3.3 C%aracteristics of B2B EC !u$ine$$ E to E 4u$ine$$ electronic commerce implies that both the sellers and buyers are <usiness $orporation, while business Q to Q consumer electronic commerce implies that the buyers are indi idual consumers. <usiness!to Q business E$ is e&pected to grow to J),HH1.* billion by @11H and continue to be the ma%or share of the E$ market -4ree!man )**8, Retter and $alyniuk )**80. The percentage of Internet Q based <@< E$ compared to total <@< commerce will e&pand from.@ percent in )**G to @.) percent in @111 and *.C percent in@11H. $omputing electronics, utilities, shipping and warehousing, motor ehicles, petrochemicals, paper and office products, food, and agriculture are the leading items in <@< E$. <usiness!to!business E$ co ers a broad spectrum of applications that enable an enterprise or business to form electronic relationships with their distributors, resellers, suppliers, and other partners. As Aandfield and 'ichols -)***0 suggest, <@< applications will offer enterprises access to the following sorts of information# share ;roduct Q specifications, prices, sales history Cu$tomer Q sales history and forecasts Su++lier Q product line and lead times, sales terms and conditions ;roduct +roce$$ Q capacities, commitments, product plans Tr(n$+ort(tion Q carriers, lead times, costs In7entor% Q in entory le els, carrying costs, locations Su++l% c,(in (lli(nce Q key contacts, partner roles and responsibilities, schedules Com+etitor Q benchmarking, competiti e product offerings, market S(le$ (nd m(r3etin) Q point of seal -,3(0 , promotions Su++l% c,(in +roce$$ (nd +er"orm(nce Q process descriptions, performance measures, =uality, deli ery time, customer satisfaction
NOTES
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2.3. +%at is B2B !ar"eting Communications8 <@< marketing communications is how businesses promote their products and ser ices to other businesses using tactics other than direct sales. The purpose of <@< marketing communications is to support the marketers sales effort and impro e company profitability. <@< marketing is generally considered to be more comple& than <@$ marketing, often complicated by a longer sales cycle and multiple decision makers on the buyers side. <@< marketing communications tactics generally include ad ertising, public relations, direct mail, trade show support, sales collateral, branding, and interacti e ser ices such as website design and search engine optimi/ation. The <usiness 2arketing Association is the trade organi/ation that ser es <@< marketing professionals. It was founded in )*@@ and offers certification programs, research ser ices, conferences, industry awards and training programs. ! ! M(r3etin) Met,odolo)ie$ Positioning Statement An important first step in business to business marketing is the de elopment of your positioning statement. This is a statement of what you do and how you do it differently and better than your competitors. #eveloping (our messages The ne&t step is to de elop your messages. There is usually a primary message that con eys more strongly to your customers what you do and the benefit it offers to them, supported by a number of secondary messages, each of which may ha e a number of supporting arguments, facts and figures. Building a campaign plan Whate er form your <@< marketing campaign will take, build a comprehensi e plan up front to target resources where you belie e they will deli er the best return on in estment, and make sure you ha e all the infrastructure in place to support each stage of
the marketing process ! and that doesnt %ust include de eloping the lead ! make sure the entire organi/ation is geared up to handle the in=uiries appropriately. Briefing an agenc( A standard briefing document is usually a good idea for briefing an agency. As well as focusing the agency on whats important to you and your campaign, it ser es as a checklist of all the important things to consider as part of your brief. Typical elements to an agency brief are# 9our ob%ecti es, target market, target audience, product, campaign description, your product positioning, graphical considerations, corporate guidelines, and any other supporting material and distribution. !easuring results The real alue in results measurement is in tying the marketing campaign back to business results. After all, youre not in the business of de eloping marketing campaigns for marketing sake. (o always put metrics in place to measure your campaigns, and if at all possible, measure your impact upon your desired ob%ecti es, be it $ost ,er Ac=uisition, $ost per ;ead or tangible changes in customer perception. B2B standards 6'?E.I4A$T is one of the most well!known and established <@< standards. A'(I A($ R)@ is a popular standard in 'orth America. Rosetta'et is an R2;!based, emerging <@< standard in the high tech industry. An approach like 6'?$E4A$Ts 2odeling 2ethodology -6220 might be used to capture the collaborati e space of <@< business processes. 2.3.3 E-!ar"etplace KE!L or KelectronicL marketplace in a business!to!business conte&t is primarily a large online platform -<@< portal0 or website that facilitates interaction and?or transactions between buyers and suppliers at organi/ational or institutional rather than indi idual le els. (ince the builders of such marketplaces primarily aim at facilitating buyer!seller interaction -in most cases without being a buyer or seller themsel es0, these are also referred to as Kthird!partyL <@< marketplaces.
NOTES
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These marketplaces can do one or more of the following# ). Aelp buyers find new suppliers and ice ersa @. Aelp reduce the time and cost of interaction for <@< transactions H. Aelp increase trade between distant geographies C. Aelp manage payments and track orders for <@< transactions 5. Aelp reduce the number of profits after ta& +. Aelp increase the greenhouse gas emissions in the country G. Aelp the en ironment by using appropriate technology that is en ironmentally friendly >ertical e-!ar"etplace A ertical e!marketplace spans up and down e ery segment of one specific industry. Each le el of the industry has access to e ery other le el, which greatly increases collaboration. <uyers and sellers in the industry are connected to increase operating efficiency and decrease supply chain costs, in entories and cycle times. This is possible because buying?selling items in a single industry standardi/es needs, thereby reducing the need for outsourcing many products. E! commerce has a ariety of different opinions going out towards different people in different organi/ation that are committed to such technology. Therefore e! commerce is not well no where near the ad anced technology that us in organi/ations use now a days. )ori6ontal e-!ar"etplace A hori/ontal e!marketplace connects buyers and sellers across many industries. The most common type of materials traded hori/ontally are 2R3 -maintenance, repair and operations0 materials. 2ainly business and consumer articles, these items are in demand because they are crucial to the daily running of a business, regardless of industry and le el within that industry. 2any corporations ha e 2R3 materials bought directly on!line by the maintenance team in order to relie e the purchasing department. 0o-frills e-!ar"etplace .e eloped in response to customers wanting to purchase products without ser ice -or with ery limited ser ice0, the no!frills e!marketplace parallels the <@$ offering of no!frills budget airlines. The sub%ect of se eral Aar ard and I2. articles?case!studies, no!frills <@< e!marketplaces enable the effecti e de!bundling
of ser ice from
product ia
clear Kbusiness rules.L This pro ides the basis of differentiation from con entional <@< sales?purchasing channels. Et(molog( The term Kbusiness!to!businessL was originally coined to describe the electronic communication relations between businesses or enterprises in order to distinguish it from the communications between businesses and consumers -<@$0. It e entually came to be used in marketing as well, initially describing only industrial or capital goods marketing. Aowe er, today it is widely used to describe all products and ser ices used by enterprises. 2.3.? E#$ Standards E.I stands for Electronic .ata Interchange. This is one of the applications of E $ommerce which makes <usiness to <usiness transactions possible o er a network. Electronic data interchange -E.I0 is a technology poised for e&plosi e growth in use as the Internet pro ides an affordable way for businesses to connect and e&change documents with customers and suppliers of any si/e. E.I is the electronic e&change of business documents, data, and other information in a public!standard format. It cuts the cost of managing business!to!business transactions by eliminating the need for labor!intensi e manual generation and processing of documents. In this lecture we will discuss the E.I standards, the E.I networks and the E.I software that interfaces these two elements and the business applications. These elements together with the E.I Agreement are co ered in detail in this lecture. LetM$ $t(rt 2it, EDI St(nd(rd$. EDI St(nd(rd$ At the heart of any E.I application is the E.I standard. The essence of E.I is the coding and structuring of the data into a common and generally accepted format !anything less is nothing more than a system of file!transfers. $oding and structuring the documents for business transactions is no easy matter. There ha e been a number of E.I standards de eloped in arious industry sectors or within a specific country and there are comple& committee structures and procedures to support them.
NOTES
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4ollowing on from the arious sectorial and national E.I standards is the 6nited 'ations -6'0 E.I (tandard# E.I4A$T. This is the standard that should be adopted for any new E.I application. E.I pro ides an electronic linkage between two trading partners. <usiness transactions are output from the sending computer system, transmitted or transported in electronic format and input into the second, recei ing computer system. The computer systems that e&change data need a common format7 without a common format the data is meaningless. Two organi/ations that e&change data can, with relati e ease, agree a format that meets their mutual needs. As the network of e&changes de elops then the number of organi/ations needing to be party to the agreement grows. To illustrate this, assume a network of three customers -say supermarkets0 ordering goods from four suppliers -food manufacturers0, see
Interc,(n)e$ 4et2een Cu$tomer$ (nd Su++lier$. The network in is )@ separate interchanges. It is unlikely that each of these
e&changes would ha e its own
format but it is perfectly possible that each customer would ha e de eloped its own standards -gi ing each supplier three separate standards to cope with0.
It is also possible that new e&changes added to the system will ha e re=uirements not en isaged when the data formats were originally agreed7 this would re=uire a change to the e&isting standard or the introduction of an additional standard. The o erall picture is one of unnecessary comple&ity and incompatibility. E.I standards o ercome these difficulties. The E.I standard pro ides, or attempts to pro ide, a standard for data interchange that is# Ready formulated and a ailable for use7 $omprehensi e in its co erage of the data re=uirements for any gi en transaction7 Independent of hardware and software7 Independent of the special interest of any party in the trading network.
standards to meet the needs of a specific user communit y.
E.I (tandards pro ide a common language for the interchange of standard transactions. 2ost of the work on E.I standards has been concerned with the interchange of trade documentation and financial transactions but the principle applies to any interchange where the data can be systemati/ed and codified. E.I standards are used for the interchange of information as di erse as weather station readings and school e&am results. 'ow lets see how the arious standards e ol e. 0ational and Sectorial Standards E7olution St(nd(rd$ o" EDI
The first E.I standards e ol ed from the formats used for file transfer of data between computer applications. The e olution of E.I standards can be seen as ha ing three stages -although in practice it was and is somewhat more comple& than that0# ). The first formats that might properly be called E.I were de eloped by organi/ations that had to process data from a large number of customer organi/ations. The data recipients set the standard and the customers conformed to it. The concept of E.I as an application independent interchange standard e ol ed and se eral industry sector and ? or national standards bodies de eloped E.I
@.
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H.
The re=uirements of international and cross sector trade meant that the sector and national standards were becoming an impediment to the further de elopment of electronic trading. E.I4A$T was de eloped, under the auspices of the 6nited 'ations -6'0, as a uni ersal standard for commercial E.I.
2%e $nternational E#$ Standard As already outlined, E.I de eloped in closed user communities within trade sectors and ? or national boundaries. The use of sector and national standards for this type of trade was satisfactory. Aowe er, as electronic trade de eloped to co er wider trading relationships there is a growing problem of trade between organisations using different E.I standards. In addition to the problem of cross sector trade there is a desire to use E.I for international trade. This -sensibly0 re=uires a common format for the e&change of the standard business forms -order, in oice, etc.0 between organisations in differing countries. International trade also re=uires a great deal of additional documentation for shipping, customs authorities, international credit arrangements, etc. ! all of this is potentially electronic and ob iously a common format is ery desirable. To facilitate this cross sector and international de elopment of E.I the EDIFACT standard has been, and is being, de eloped. EDIFACT is the 6nited 'ations standard of Electronic D(t( 2.3.@ Business - 2O - Business -ctions <usiness Q to!business auctions are growing following benefits they pro ide# :ener(tin) Re7enue 'ew sales channel that supports e&isting online sales. 4or e&ample, ery rapidly due to the
Weirton steel $orp. doubled its customer base when it started auctions, 'ew enue for disposing of e&cess, obsolete, and returned products =uickly and easily.
160
Incre($in) ;()e 9ie2$ and generate more page iews than other users. Ac@uirin) (nd Ret(inin) Mem4er$
NOTES
Auctions gi e KstickinessL. Auction users spend more time on a site
All bidding transactions result in additional registered
members. There are three ma%or types of <@< auctions according to 4orrester Research# ). Independent auctions. In this case companies use a third Q party auctioneer to create the site and sell the goods. -e.g., www.fairmarket.com, www.im& e&change.com, and www.auctionagate.com0. $ommodity auctions. In this case many buyers and sellers come together to a third Q party Web site. 4or e&ample, access energy, utilities, and telecommunications are sold at www.band Q &.com. The .utch flower market is another e&ample. Typical intermediaries are www.metalsite.net and www.fastparts.com. ,ri ate auctions by in itation only. (e eral companies by pass the intermediaries and auction their products by themsel es. Ingram 2icro has its own site, www.autionblock.com, for selling obsolete computer e=uipment to its regular business customers.
@.
H.
.-.1 !u$ine$$ E TO E !u$ine$$ Ser7ice$ 2any companies pro ide ser ices that are intended to facilitate <@<. (ome of these ser ices are pro ided by intermediaries, others by specialists. Aere are some e&amples. CommerceNet $ommerce'et -www.co mmerce. net0 is a global non!profit membership organi/ation that aims to meet the needs of companies doing E$. It targets promoting and supporting emerging communities of E$. $ommerce'et established a forum for companies doing E$ to meet and e&change their e&periences, while introducing the latest technology to them to facilitate their business.
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It does contain information about members, which can be buyer or supplier companies. Aowe er, no specific product information is stored in its database. In fact, $ommerce'et mainly acts as a ser ices pro ider, not dealing with any of the indi idual transactions. $ommerce'et also certifies Internet!enabled E.I products. O+en !u%in) Internet on t,e
The 3pen <uying on the Internet -3<I0 $onsortium -www.openbuy.org0 is a non! profit organi/ation dedicated to de eloping open standards for <@< Internet commerce. 2embership in the consortium, an independent collaborati e managed by $ommerce'et, is open to buying and selling organi/ations, technology pro iders, financial institutions, and other interested parties on an annual fee basis. ConnectUS $onnect6( is an online ser ice designed for use by companies paying with corporate purchasing cards. It is basically for Q fee database, operated by Thomas ,ublishing $o. and "eneral Electric Information (ystems, allowing companies to search for suppliers anywhere in the world. The ser ice may cut up to *1 percent of the transaction cost for the a erage -J)510 purchase. $onnect6( also aids companies in o ercoming the shortfalls of purchasing card programs, which are difficult to audit, sometimes resulting in endor o erpayment. $onnect6( pro ides all the necessary information that supports card purchasing and facilities trades done E.I. The ser ice is now as part of www.geis.com and www.thomasregister.com systems. Summ(r % 1. EC (nd Ret(ilin)' Retailing is e&pected to change with the rapid de elopment of new online sales and distribution channels that literally can be used from anywhere, anytime!from work, school, a hotel, car, or airplane. These de elopments should impact retailing as much as the ad ent of strip malls, catalogue retailing, and T:! based home shopping.
162
. There are se eral models for e!retailing and these include (peciali/ed e!store "enerali/ed e! store E!mall .irect selling by the manufacturer (upplementary distribution channel E!broker E!ser ices &.
NOTES
Internet M(r3etin)' Internet marketing is the process of building and maintaining customer relation!ships through online acti ities to facilitate the e&change of ideas, products, and ser ices that satisfy the goals of both parties. E-commerce S(le$ $tr(te)%' There are se eral ma%or ad antages to de eloping an e!commerce sales strategy# Efficiency, $on enience, (peed, Accuracy, "lobal Reach, ;ow $ost Entry, 6p!to!date (tatus and Alerts. E-Ser7ice$' The deli ery of ser ices ia the internet to consumers or other businesses can be referred to by the generic term of e!ser ices. There is a wide range of e! ser ices currently offered through the internet and these include banking, loans, stock trading, %obs and career sites, tra el, education, consultancy ad ice, insurance, real estate, broker ser ices, on!line publishing, and on!line deli ery of media content such as ideos, computer games, etc We organi/e e!ser ices into the following categories, namely Web!enabling ser ices, 2atchmaking ser ices, Entertainment ser ices, (peciali/ed ser ices such as auctions EC in !(n3in)' The role of electronic commerce in banking is multifaceted impacted by changes in technology, rapid deregulation of many parts of finance, the emergence of new banking institutions, and basic economic restructuring. EC (nd On-line +u4li$,in)' The Web may ha e blossomed because of peer!to! peer publishing, but %udging from recent product offerings, there is an enormous groundswell of interest among both commercial and corporate publishers in the Web.
*.
-.
/.
0.
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1.
! ! EC' In business!to!business electronic commerce businesses use the Internet to integrate the alue! added chain, which can e&tend from the supplier of raw materials to the final consumer. <usiness for business dominates the total alue of e! commerce acti ity, accounting for about 81 per cent at present.
Bue$tion$ "or re7ie2 ). Aow do you differentiate between traditional and E retailingM @. What are the benefits of E retailing for a customerM H. What are the benefits of E retailing for a businessM C. .escribe the se eral models of E!retailingM 5. What is Internet 2arketingM +. What are the E!<usiness issuesM G. What is $R2M 8. What are the critical success factors for internet marketing e&ecuti es?M *. .iscuss about the wide ariety of E!(er icesM )1. Aow do you find E!education to be better than the traditional oneM )). What are the ad antages of E!bankingM )@. What is 3n!line bankingM .iscuss the management issues in 3n!;ine bankingM )H. .iscuss about on!line publishing and its strategies )C. What is <@< E$M ;ist the characteristics of <@< E$. )5. What is E!2arketplace in a <@< E$M )+. .iscuss <@< auctions and <@< ser ices
164
UNIT III
NOTES
E-COMMERCE INFRASTRUCTURE
&.1 INTERNET &.1.1 ?,(t i$ t,e Internet> The Internet is a worldwide, publicly accessible series of interconnected computer networks that transmit data by packet switching using the standard Internet ,rotocol -I,0. It is a Knetwork of networksL that consists of millions of smaller domestic, academic, business, and go ernment networks, which together carry arious information and ser ices, such as electronic mail, online chat, file transfer, and the interlinked web pages and other resources of the World Wide Web -WWW0. The Internet and the World Wide Web are not synonymous. The Internet is a collection of interconnected computer net!or#s, linked by copper wires, fiber! optic cables, wireless connections, etc. In contrast, the Web is a collection of interconnected documents and other resources, linked by hyperlinks and 6R;s. The World Wide Web is one of the ser ices accessible ia the Internet, along with arious others including e!mail, file sharing, online gaming and others described below. Americ( Online5 Comc($t5 E(rt,lin3, etc. are e&amples of Internet ser ice pro iders. They make it physically possible for you to send and access data from the Internet. They allow you to send and recei e data to and from their computers or routers which are connected to the Internet. ?orld ?ide ?e4 is an e&ample of an in"orm(tion +rotocolD$er7ice that can be used to send and recei e information o er the Internet. It supports# Multimedi( In"orm(tion -te&t, mo ies, pictures, sound, programs . . . 0.
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#%+erte.t In"orm(tion -information that contains links to other
information resources0 :r(+,ic U$er Inter"(ce -so users can point and click to re=uest information instead of typing in te&t commands0. The ser er software for the World Wide Web is called an #TT; $er7er -or informally a Web ser er0. E&amples are A+(c,e (nd IIS. The client software for World Wide Web is called a Web browser. E&amples are# Net$c(+e5 Internet E.+lorer5 S("(ri5 Fire"o.5 (nd Mo<ill(. These e&amples are particular KbrandsL of software that ha e a similar function, %ust like ;otus )@H and E&cel are both spreadsheet software packages. 3.1.2 $nternet Structure The Internet is an international network of computers connected by wires such as telephone lines. (chools, businesses, go ernment offices, and many homes use the Internet to communicate with one another. 9ou ha e access to the Internet when you work in one of this uni ersitys computer labs. 9ou also may ha e access at home or in your residence hall. If not, you can obtain access once you ha e three things. 4irst, you need a computer and a modem, a de ice that allows you to connect your computer with the Internet. 2any new computers ha e built! in modems. (econd, you need a browser, a piece of software that allows you to iew information on the Internet. 2anynew computers also come with a browser, usually Internet E&plorer. 9ou also can download another popular browser, 'etscape 'a igator, from the Internet for free. 4inally, you need to subscribe to an Internet Ser7ice ;ro7ider5 or IS;5 such as America 3nline or $arolina 3nline. 3ne popular component of the Internet is electronic mail, or e-m(il, which people at separate locations can use to send messages to one another. In general, each of these peo ple has an e! ma il addr ess, which usually lo o ks so met hing like t his# mark.canada_uncp.edu. The first part of the address -.mark.canada0 specifies the indi idual user, and the rest of the address refers to the ser er -uncp.edu0, which is a computer that can store a lot of information. In addition to allowing people to send e!mail messages to one another, the Internet also allows organi/ations and indi iduals to post information about themsel es so that others can see it. 4or e&ample, many companies post pictures and descriptions on ?orld
166
?ide ?e4 $ite$. In fact, you can set up your own World Wide Web site by reser ing space on a ser er. To understand how this process works, imagine that you wanted to store some articles you ha e written at a library so that people could come and read them. 4irst, you would need to obtain permission from the librarians, who would assign you a folder where they would store your articles. Whene er you finished a new article, you would put a name on it and send it to the librarians, who would then place it in your folder. When people wanted to read one of these articles, they would need to know the address of the library, the name of your folder, and the name of the specific article they want to read. When they supplied this information, the librarian would gi e them the article they want. The World Wide Web works the same way. 4irst you need to identify an Internet company -librarian0 and ask permission to sa e Web pages -articles0 on its ser er -library0. The company -librarian0 then assigns you a directory -folder0 where it will store your Web pages -articles0. As you create each Web page -article0, you gi e it a filename -name0 and publish it on the ser er -send it to the library0. When people want to read your Web page -article0, they need your Web address, sometimes called a 6niform Resource ;ocator, or 6R;. The 6R; consists of the domain name of the ser er -address of the library0, name of your directory -name of your folder0, and the filename of the particular Web page -name of article0. 3.1.3 2%e C%aracteristics $nternet and its
NOTES
The Internet by the late )**1s has e ol ed into a comple& en ironment. 3riginally a military communications network it is now routinely used for fi e types of operations# -i0 long!distance transactions -e.g. e!commerce, form!filling, remote work, entertainment07 -ii0 interpersonal communication7 -iii0 data storage7 -i 0 research -i.e. data finding07 - 0 remote data access and downloading. The Internet is a dynamic and mercurial system endowed with a number of traits. These are# ). Tec,nolo)ic(l neutr(lit%. The Internet %oins together computers of arious si/es and architectures. They may run on arious operating systems and utilise a great ariety of communication links.
167
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@.
H.
!uilt-in +ieceme(l c,(n)e (nd e7olution. The Internet is not a one!off de elopment. It is an energetic, polycentric, comple&, growing, and self! refining system. It is a network which is geared to e&pansion and growth. It is a system which scales up e&tremely well. Ro4u$tne$$ (nd reli(4ilit%. All basic technical features of the 'et such as the T$,?I, -transfer control protocol?internet protocol0 -Fessler and (hepard )**G0, the multiplicity of routes followed by the packet!switched data, and the sturdiness of related software are designed to eliminate errors, to handle une&pected interruptions and interferences, to ad ise users of encountered difficulties and to reco er gracefully from any disasters and down!times. Lo2 co$t. The Internet makes new uses of old technologies -standalone computers, operating systems, telecommunication networks0. Whene er possible, Internet operations piggyback on already e&isting solutions. They rely on modularised, configurable, easy!to!replace, and easy!to!upgrade off! the!shelf software and hardware. U4i@uit%. The robustness, modularisation and low cost of the system is coupled with the growing densities of dedicated computer lines, network backbones, as well as wired and wireless phone networks. This means that Internet!enabled tools are deployed in e er growing numbers in an e er widening range of en ironments
C.
5.
&.1.* T,e Internet Tool$ (nd t,eir C,(r(cteri$tic$ The e olution of the Internet is punctuated by the introduction and mass acceptance of such key resources and tools as 6ni&, Email, 6senet newsgroups, Telnet, ;istser 2ailing ;ist (oftware, 4ile Transfer ,rotocol, Internet Relay $hat, WAI(, "opher, WWW, and more recently by the Alta ista search engine, Ba a language UNIF The foundations of an operating system called 6ni& were laid at AT>T <ell ;aboratories in )*+*. 6ni& is not a product of Internet culture. It is its catalyst and cornerstone. Internet culture owes 6ni& a ma%or debt in the four areas. These conceptual and procedural debts are# multitasking, community fostering, openness and e&tensibility, and public access to the source code. ;ets briefly look at each of these debts.
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6ni& was one of the first operating systems which embodied the principle of multitasking -time!sharing0. In most general terms it means that se eral users could simultaneously operate within a single en ironment and that the system as a whole coped well with this complicated situation. 6ni& was the first operating system which demonstrated in practical terms robustness and tolerance for the ariety of its users simultaneous acti ities. Email Email is the first of the Internets tools dedicated to the pro ision of fast, simple and global communication between people. This re olutionary client?ser er software implied for the first time that indi iduals -both as persons and roles0 could ha e their uni=ue electronic addresses. Within this framework messages were now able to chase their indi idual recipients anywhere in the world. The initial format of email communication was that of a one!to!one e&change of electronic messages. This simple function was subse=uently augmented by emails ability to handle arious attachments, such as documents with comple& formatting, numbers and graphic files. ;ater, with the use of multi! recipient mailing lists electronic mail could be used for simple multicasting of messages in the form of one!to!many transmissions. ;senet 0e*sgroups 6senet -6ni& 6sers 'etwork0, the wide!area array of sites collating and swapping 66$,!based messages was pioneered in )*G*. 6senet was originally concei ed as a surrogate for the Internet -then called AR,A'ET0. It was to be used by people who did not ha e ready access to the T$,?I, protocol and yet wanted to discuss their arious 6ni& tools. It was only in )*8G that the ''T, -'etwork 'ews Transfer ,rotocol0 was established in order to enable 6senet to be carried on the Internet -i.e. T$,?I,0 networks -;aursen )**G0.
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2elnet The networking tool called Telnet was in ented in )*81 -,ostel )*810. It allowed people -with ade=uate access rights0 to login remotely into any networked computer in the world and to employ the usual gamut of computer commands. Thereby files and directories could be established, renamed and deleted7 electronic mail read and dispatched7 6senet flame wars indulged in7 and statistical packages run against numeric data ! all at a distance. 2oreo er, results of all these and other operations could be remotely directed to a printer or ia 4T, to another networked computer. In short, Telnet ga e us the ability to engage in long distance man!machine transactions, that is, ability to do the work as telecommuters. 5ile Protocol 2ransfer
The 4T, client?ser er technology was first introduced in )*85 -<arnes )**G0. Its usefulness to Internet culture is three!fold. 4irstly, the 4T, was a first widely!accepted tool for systematic permanent storage and world!wide transmission of substantial electronic information -e.g. programs, te&t files, image files0. (econdly, 4T, archi es promoted the use of anonymous login -i.e. limited public access0 techni=ues as a way of coping with the mounting general re=uests for access to the archi ed information. That no el techni=ue placed electronic isitors in a strictly circumscribed work en ironment. There they could browse through data subdirectories, copy rele ant files, as well as deposit -within the conte&t of a dedicated area0 new digital material. Aowe er, the 4T, software would not let them wander across other parts of the host, nor did the isitors ha e the right to change any component part of the accessed electronic archi e. Thirdly, the rapid proliferation in the number of public access 4T, archi es all o er the world necessitated techni=ues for keeping an authoritati e, up!to!date catalogue of their contents. This was accomplished through the Archie database -.eutsch et al. )**50 and its many mirrors. Archie used an automated process which periodically scanned the entire contents of all known Kanonymous 4T,L sites and report findings back to its central database. This approach, albeit encumbered by the need to gi e e&plicit instructions as to which of the 4T, systems need to be monitored, ne ertheless integrated a motley collection of online resources into a single, cohesi e, distributed information system.
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3.1.3 +e. .ased ClientAServer ,op%er
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"opher client?ser er software was used for the first time in )**) -;a Tour nd7 ;iu, $. et al. )**C0. It was a ground!breaking de elopment on two accounts. 4irstly, it acted as a predictable, unified en ironment for handling an array of other electronic tools, such as Telnet, 4T, and WAI(. (econdly, "opher acted as electronic glue which seamlessly linked together archipelagos of information tracked by and referenced by other gopher systems. In short, "opher was the first e er tool capable of the creation and mapping of a rich, large!scale, and infinitely e&tendable information space. +orld +ide +e. Server The first prototype of the WWW ser er was built in )**) -$ailliau )**5, <erners! ;ee, nd7 <erners!;ee )**80. The WWW ser er is an in ention which has redefined the way the Internet is isuali/ed by its users. 4irstly, the WWW ser er introduced to the Internet the powerful point!and! click hyperte&t capabilities. The hyperte&t notions of a home page and links spanning the entire body of data was first successfully employed on a small, standalone scale in )*8+ in the 2acintosh software called Aypercard -"oodman )*8G0. The WWW howe er, was the first hyperte&t technology applied to distributed online information. This in ention was pre iously theoretically anticipated by a number of writers, including in the )*C5 by :anne ar <ush of the )emex fame, and again in the )*+5 by Theodor 'elson who embarked on the ne er!completed $ro*ect +anadu -'ielsen )**5, "ilster )**G#@+G0. Ayperte&t itself is not an new idea. It is already implicitly present -albeit in an imperfect because a paper! based form0 in the first alphabetically ordered dictionaries such as ,rand dictionnaire histori-ue, compiled in )+GC by ;ouis 2oreriego7 or Bohn Aarris .exicon Technicum which was published in )G1C -,W' )*+C0. It is also e ident in the apparatus, such as footnotes, commentaries, appendices and references, of a )*th century scholarly monograph. The hyperte&t principle as employed by the WWW ser er meant that any part of any te&t -and subse=uently, image0 document could act as a portal leading directly to any other nominated segment of any other document anywhere in the world.
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(econdly, the WWW ser er introduced an e&plicit address for subsets of information. $ommon and simple addressing methodology -6ni ersal Resource ;ocater T6R;U scheme0 enabled users to uni=uely identify A'. access any piece of networked information anywhere in the document, or anywhere on ones computer, or ! with the same ease ! anywhere in the world. Thirdly, the WWW pro ided a common, simple, effecti e and e&tendable language for document markup. The AT2; language could be used in three different yet complementary ways# -a0 as a tool for establishing the logical structure of a document7 -b0 as a tool for shaping the si/e, appearance and layout of lines of te&t on the page7 -c0 as a tool for building the internal -i.e. within the same document0 and e&ternal -to a different document residing on the same or totally different ser er0 hyperte&t connections. The interlocking features of the hyperte&t, 6R;s and the markup language, ha e laid foundations for todays global, blindingly fast and infinitely comple& cyberspace. 2oreo er, the World Wide Web, like gopher before it, was also a powerful electronic glue which smoothly integrated not only most of the e&isting Internet tools -Email, 6senet, Telnet, ;istser s 4T,, IR$, and "opher -but, surprisingly, not WAI(0, but also the whole body of online information which could accessed by all those tools. Aowe er, the re olutionary strengths of the Web ha e not been immediately ob ious to the most of the Internet community, who initially regarded the WWW as a mere -and possibly clumsy0 ariant of the then popular "opher technology. This situation has changed only with the introduction of ,$!based Web browsers with user!friendly, graphics!interfaces. +orld +ide +e. Bro*sers The principle of a client?ser er di ision of labour was put to work yet again in the form of a series of WWW browsers such as 2osaic -built in )**H0, ;yn& -which is an A($II, Telnet!based client software0, Erwise, :iola, $ello, as well as, since )**C, se eral editions of 'etscape and E&plorer Each of the Web browsers, e&cept for ;yn&, which constitutes a deliberately simplified and thus ery fast software, pro ided Internauts with series of no el capabilities. These are# -a0 an ability to handle multi!format, or multimedia -numbers, te&t, images, animations, ideo, sound0 data within the framework of a single
online document7
-b0 the
ability to configure and modify the appearance of recei ed information in a manner which best suits the preferences of the reader7 -c0 the ability to use the browser as a W9(IW9" -Kwhat you see is what you getL0 tool for crafting and proofreading of the locally created AT2; pages on a users ,$7 -d0 ability to ac=uire, sa e and display the full AT2; source code for any and all of the published web documents. &.1./ Element$ Arc,itecture ;rotocol L(%erin) To communicate using the Internet system, a host must implement the layered set of protocols comprising the Internet protocol suite. A host typically must implement at least one protocol from each layer. The protocol layers used in the Internet architecture are as follows A++lic(tion L(%er The Application ;ayer is the top layer of the Internet protocol suite. The Internet suite does not further subdi ide the Application ;ayer, although some application layer protocols do contain some internal sub!layering. The application layer of the Internet suite essentially combines the functions of the top two layers ! ,resentation and Application ! of the 3(I Reference 2odel TAR$A#8U. The Application ;ayer in the Internet protocol suite also includes some of the function relegated to the (ession ;ayer in the 3(I Reference 2odel. We distinguish two categories of application layer protocols# user protocols that pro ide ser ice directly to users, and support protocols that pro ide common system functions. The most common Internet user protocols are# o" Internet
NOTES
,rotocol ;ayering 'etworks Routers Addressing Architecture
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Telnet -remote login0 4T, -file transfer0 (2T, -electronic mail deli ery0
There are a number of other standardi/ed user protocols and many pri ate user protocols. (upport protocols, used for host name mapping, booting, and management include ('2,, <33T,, T4T,, the .omain 'ame (ystem -.'(0 protocol, and a ariety of routing protocols. 2ransport La(er The Transport ;ayer pro ides end!to!end communication ser ices. This layer is roughly e=ui alent to the Transport ;ayer in the 3(I Reference 2odel, e&cept that it also incorporates some of 3(Is (ession ;ayer establishment and destruction functions. There are two primary Transport ;ayer protocols at present# Transmission $ontrol ,rotocol -T$,0 6ser .atagram ,rotocol -6.,0
T$, is a reliable connection!oriented transport ser ice that pro ides end! to!end reliability, rese=uencing, and flow control. 6., is a connectionless -datagram0 transport ser ice. 3ther transport protocols ha e been de eloped by the research community, and the set of official Internet transport protocols may be e&panded in the future. $nternet La(er All Internet transport protocols use the Internet ,rotocol -I,0 to carry data from source host to destination host. I, is a connectionless or datagram internetwork ser ice, pro iding no end!to!end deli ery guarantees. I, datagrams may arri e at the destination host damaged, duplicated, out of order, or not at all. The layers abo e I, are responsible for reliable deli ery ser ice when it is re=uired. The I, protocol includes pro ision for addressing, type!of!ser ice specification, fragmentation and reassembly, and security.
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The datagram or connectionless nature of I, is a fundamental and characteristic feature of the Internet architecture. The Internet $ontrol 2essage ,rotocol -I$2,0 is a control protocol that is considered to be an integral part of I,, although it is architecturally layered upon I, ! it uses I, to carry its data end!to!end. I$2, pro ides error reporting, congestion reporting, and first!hop router redirection. The Internet "roup 2anagement ,rotocol -I"2,0 is an Internet layer protocol used for establishing dynamic host groups for I, multicasting. Lin" La(er To communicate on a directly connected network, a host must implement the communication protocol used to interface to that network. We call this a ;ink ;ayer protocol. (ome older Internet documents refer to this layer as the 'etwork ;ayer, but it is not the same as the 'etwork ;ayer in the 3(I Reference 2odel. This layer contains e erything below the Internet ;ayer and abo e the ,hysical ;ayer -which is the media connecti ity, normally electrical or optical, which encodes and transports messages0. Its responsibility is the correct deli ery of messages, among which it does not differentiate. ,rotocols in this ;ayer are generally outside the scope of Internet standardi/ation7 the Internet -intentionally0 uses e&isting standards whene er possible. Thus, Internet ;ink ;ayer standards usually address only address resolution and rules for transmitting I, packets o er specific ;ink ;ayer protocols.
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Net2or3$ The constituent networks of the Internet system are re=uired to pro ide only packet -connectionless0 transport. According to the I, ser ice specification, datagrams can be deli ered out of order, be lost or duplicated, and?or contain errors. 4or reasonable performance of the protocols that use I, -e.g., T$,0, the loss rate of the network should be ery low. In networks pro iding connection! oriented ser ice, the e&tra reliability pro ided by irtual circuits enhances the end! end robustness of the system, but is not necessary for Internet operation. $onstituent networks may generally be di ided into two classes# ;ocal!Area 'etworks -;A's0 ;A's may ha e a ariety of designs.
;A's normally co er a small geographical area -e.g., a single building or plant site0 and pro ide high bandwidth with low delays. ;A's may be passi e -similar to Ethernet0 or they may be acti e -such as AT20. Wide!Area 'etworks -WA's0 "eographically dispersed hosts and ;A's are interconnected by wide!area networks, also called long!haul networks. These networks may ha e a comple& internal structure of lines and packet! switches, or they may be as simple as point!to!point lines. Router$ In the Internet model, constituent networks are connected together by I, datagram forwarders which are called routers or I, routers. In this document, e ery use of the term router is e=ui alent to I, router. 2any older Internet documents refer to routers as gateways. Aistorically, routers ha e been reali/ed with packet!switching software e&ecuting on a general!purpose $,6. Aowe er, as custom hardware de elopment becomes cheaper and as higher throughput is re=uired, special purpose hardware is becoming increasingly common. This specification applies to routers regardless of how they are implemented. A router connects to two or more logical interfaces, represented by I,
subnets or unnumbered point to point
lines . Thus, it has at least one physical interface. 4orwarding an I, datagram generally re=uires the router to choose the address and rele ant interface of
176
the ne&t!hop router or -for the final hop0 the destination host. This choice, called relaying or forwarding depends upon a route database within the router. The route database is also called a routing table or forwarding table. The term KrouterL deri es from the process of building this route database7 routing protocols and configuration interact in a process called routing. The routing database should be maintained dynamically to reflect the current topology of the Internet system. A router normally accomplishes this by participating in distributed routing and reachability algorithms with other routers. Routers pro ide datagram transport only, and they seek to minimi/e the state information necessary to sustain this ser ice in the interest of routing fle&ibility and robustness. ,acket switching de ices may also operate at the ;ink ;ayer7 such de ices are usually called bridges. 'etwork segments that are connected by bridges share the same I, network prefi& forming a single I, subnet. These other de ices are outside the scope of this document. &.1.0 Common Internet Em(il The concept of sending electronic te&t messages between parties in a way analogous to mailing letters or memos predates the creation of the Internet. E en today it can be important to distinguish between Internet and internal e!mail systems. Internet e!mail may tra el and be stored unencrypted on many other networks and machines out of both the senders and the recipients control. .uring this time it is =uite possible for the content to be read and e en tampered with by third parties, if anyone considers it important enough. ,urely internal or intranet mail systems, where the information ne er lea es the corporate or organi/ations network, are much more secure, although in any organi/ation there will be IT and other personnel whose %ob may in ol e monitoring, and occasionally accessing, the e!mail of other employees not addressed to them. T,e ?orld ?e4 ?ide u$e$ o" t,e
2any people use the terms Internet and /orld /ide /e -or %ust the /e 0 interc hange ably, but, as discus sed abo e , the two terms are not synon ymou s.
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The World Wide Web is a huge set of interlinked documents, images and other resources, linked by hyperlinks and 6R;s. These hyperlinks and 6R;s allow the web ser ers and other machines that store originals, and cached copies, of these resources to deli er them as re=uired using ATT, -Ayperte&t Transfer ,rotocol0. ATT, is only one of the communication protocols used on the Internet. Web ser ices also use ATT, to allow software systems to communicate in order to share and e&change business logic and data. (oftware products that can access the resources of the Web are correctly termed user agents. In normal use, web browsers, such as Internet E&plorer and 4irefo&, access web pages and allow users to na igate from one to another ia hyperlinks. Web documents may contain almost any combination of computer data including photographs, graphics, sounds, te&t, ideo, multimedia and interacti e content including games, office applications and scientific demonstrations.
Through keyword!dri en Internet research using search engines like 9ahooX and "oogle, millions of people worldwide ha e easy, instant access to a ast and di erse amount of online information. $ompared to encyclopedias and traditional libraries, the World Wide Web has enabled a sudden and e&treme decentrali/ation of information and data. It is also easier, using the Web, than e er before for indi iduals and organi/ations to publish ideas and information to an e&tremely large audience. Anyone can find ways to publish a web page or build a website for ery little initial cost. ,ublishing and maintaining large, professional websites full of attracti e, di erse and up!to!date information is still a difficult and e&pensi e proposition, howe er. 2any indi iduals and some companies and groups use Kweb logsL or blogs, which are largelyused as easily updatable online diaries. (ome commercial organi/ations encourage staff to fill them with ad ice on their areas of speciali/ation in the hope that isitors will be impressed by the e&pert knowledge and free information, and be attracted to the corporation as a result. 3ne e&ample of this practice is 2icrosoft, whose product de elopers publish their personal blogs in order to pi=ue the publics interest in their work. $ollections of personal web pages published by large ser ice pro iders remain popular, and ha e become increasingly sophisticated. Whereas operations such as Angelfire
178
and "eo$ities ha e e&isted since the early days of the Web, newer offerings from, for e&ample, 4acebook and 2y(pace currently ha e large followings. These operations often brand themsel es as social network ser ices rather than simply as web page hosts. Ad ertising on popular web pages can be lucrati e, and e!commerce or the sale of products and ser ices directly ia the Web continues to grow. In the early days, web pages were usually created as sets of complete and isolated AT2; te&t files stored on a web ser er. 2ore recently, websites are more often created using content management system -$2(0 or wiki software with, initially, ery little content. $ontributors to these systems, who may be paid staff, members of a club or other organi/ation or members of the public, fill underlying databases with content using editing pages designed for that purpose, while casual isitors iew and read this content in its final AT2; form. There may or may not be editorial, appro al and security systems built into the process of taking newly entered content and making it a ailable to the target isitors. Remote (cce$$ The Internet allows computer users to connect to other computers and information stores easily, where er they may be across the world. They may do this with or without the use of security, authentication and encryption technologies, depending on the re=uirements. This is encouraging new ways of working from home, collaboration and information sharing in many industries. An accountant sitting at home can audit the books of a company based in another country, on a ser er situated in a third country that is remotely maintained by IT specialists in a fourth. These accounts could ha e been created by home!working bookkeepers, in other remote locations, based on information e!mailed to them from offices all o er the world. (ome of these things were possible before the widespread use of the Internet, but the cost of pri ate leased lines would ha e made many of them infeasible in practice. An office worker away from his desk, perhaps on the other side of the world on a business trip or a holiday, can open a remote desktop session into his normal office ,$ using a secure :irtual ,ri ate 'etwork -:,'0 connection ia the Internet. This gi es the worker complete access to all of his or her normal files and data, including e!mail and other applications, while away from the office.
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This concept is also referred to by some network security people as the :irtual ,ri ate 'ightmare, because it e&tends the secure perimeter of a corporate network into its employees homes7 this has been the source of some notable security breaches, but also pro ides security for the workers. Coll(4or(tio n The low cost and nearly instantaneous sharing of ideas, knowledge, and skills has made collaborati e work dramatically easier. 'ot only can a group cheaply communicate and test, but the wide reach of the Internet allows such groups to easily form in the first place, e en among niche interests. An e&ample of this is the free software mo ement in software de elopment, which produced "'6 and ;inu& from scratch and has taken o er de elopment of 2o/illa and 3pen3ffice.org -formerly known as 'etscape $ommunicator and (tar3ffice0. 4ilms such as 0eitgeist, .oose %hange and Endgame ha e had e&tensi e co erage on the Internet, while being irtually ignored in the mainstream media. Internet KchatL, whether in the form of IR$ Kchat roomsL or channels, or ia instant messaging systems, allow colleagues to stay in touch in a ery con enient way when working at their computers during the day. 2essages can be sent and iewed e en more =uickly and con eniently than ia e!mail. E&tension to these systems may allow files to be e&changed, KwhiteboardL drawings to be shared as well as oice and ideo contact between team members. :ersion control systems allow collaborating teams to work on shared sets of documents without either accidentally o erwriting each others work or ha ing members wait until they get KsentL documents to be able to add their thoughts and changes. File $,(rin) A computer file can be e!mailed to customers, colleagues and friends as an attachment. It can be uploaded to a website or 4T, ser er for easy download by others. It can be put into a Kshared locationL or onto a file ser er for instant use by colleagues. The load of bulk downloads to many users can be eased by the use of KmirrorL ser ers or peer!to!peer networks.
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In any of these cases, access to the file may be controlled by user authentication7 the transit of the file o er the Internet may be obscured by encryption, and money may change hands before or after access to the file is gi en. The price can be paid by the remote charging of funds from, for e&ample, a credit card whose details are also passedN hopefully fully encryptedNacross the Internet. The origin and authenticity of the file recei ed may be checked by digital signatures or by 2.5 or other message digests. These simple features of the Internet, o er a worldwide basis, are changing the basis for the production, sale, and distribution of anything that can be reduced to a computer file for transmission. This includes all manner of print publications, software products, news, music, film, ideo, photography, graphics and the other arts. This in turn has caused seismic shifts in each of the e&isting industries that pre iously controlled the production and distribution of these products. Internet collaboration technology enables business and pro%ect teams to share documents, calendars and other information. (uch collaboration occurs in a wide ariety of areas including scientific research, software de elopment, conference planning, political acti ism and creati e writing. Stre(min) medi( 2any e&isting radio and tele ision broadcasters pro ide Internet KfeedsL of their li e audio and ideo streams -for e&ample, the <<$0. They may also allow time!shift iewing or listening such as ,re iew, $lassic $lips and ;istenAgain features. These pro iders ha e been %oined by a range of pure Internet KbroadcastersL who ne er had on!air licenses. This means that an Internet! connected de ice, such as a computer or something more specific, can be used to access on!line media in much the same way as was pre iously possible only with a tele ision or radio recei er. The range of material is much wider, from pornography to highly speciali/ed, technical web casts. ,od casting is a ariation on this theme, whereNusually audioNmaterial is first downloaded in full and then may be played back on a computer or shifted to a digital audio player to be listened to on the mo e. These techni=ues using simple e=uipment allow anybody, with little censorship or licensing control, to broadcast audio! isual material on a worldwide basis. Webcams can be seen as an e en lower!budget e&tension of this phenomenon. While some webcams can gi e full!frame!rate ideo, the picture is usually either small or
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updates slowly. Internet users can watch animals around an African waterhole, ships in the ,anama $anal, the traffic at a local roundabout or their own premises, li e and in real time. :ideo chat rooms, ideo conferencing, and remote controllable webcams are also popular. 2any uses can be found for personal webcams in and around the home, with and without two!way sound. 9ou Tube, sometimes described as an Internet phenomenon because of the ast amount of users and how rapidly the sites popularity has grown, was founded on 4ebruary )5, @115. It is now the leading website for free streaming ideo. It uses a flash! based web player which streams ideo files in the format 4;:. 6sers are able to watch ideos without signing up7 howe er, if users do sign up they are able to upload an unlimited amount of ideos and they are gi en their own personal profile. It is currently estimated that there are +C,111,111 ideos on 9ouTube, and it is also currently estimated that 8@5,111 new ideos are uploaded e ery day. 9oice (9oI;) tele+,on%
:oI, stands for :oice o er I,, where I, refers to the Internet ,rotocol that underlies all Internet communication. This phenomenon began as an optional two! way oice e&tension to some of the instant messaging systems that took off around the year @111. In recent years many :oI, systems ha e become as easy to use and as con enient as a normal telephone. The benefit is that, as the Internet carries the actual oice traffic, :oI, can be free or cost much less than a normal telephone call, especially o er long distances and especially for those with always!on Internet connections such as cable or A.(;. Thus, :oI, is maturing into a iable alternati e to traditional telephones. Interoperability between different pro iders has impro ed and the ability to call or recei e a call from a traditional telephone is a ailable. (imple, ine&pensi e :oI, modems are now a ailable that eliminate the need for a ,$. :oice =uality can still ary from call to call but is often e=ual to and can e en e&ceed that of traditional calls. Remaining problems for :oI, include emergency telephone number dialling and reliability. $urrently, a few :oI, pro iders pro ide an emergency ser ice, but it is not uni ersally a ailable. Traditional phones are line!powered and
operate during a power failure7
:oI, does not do so without a backup power source for the electronics.
182
2ost :oI, pro iders offer unlimited national calling, but the direction in :oI, is clearly toward global co erage with unlimited minutes for a low monthly fee. :oI, has also become increasingly popular within the gaming world, as a form of communication between players. ,opular gaming :oI, clients include :entrilo and Teamspeak, and there are others a ailable also. The ,lay(tation H and Rbo& H+1 also offer :oI, chat features. Internet (cce$$ $ommon methods of home access include dial!up, landline broadband -o er coa&ial cable, fiber optic or copper wires0, Wi!4i, satellite and H" technology cell phones. ,ublic places to use the Internet include libraries and Internet cafes, where computers with Internet connections are a ailable. There are also Internet access points in many public places such as airport halls and coffee shops, in some cases %ust for brief use while standing. :arious terms are used, such as Kpublic Internet kioskL, Kpublic access terminalL, and KWeb payphoneL. 2any hotels now also ha e public terminals, though these are usually fee!based. These terminals are widely accessed for arious usage like ticket booking, bank deposit, online payment etc. Wi!4i pro ides wireless access to computer networks, and therefore can do so to the Internet itself. Aotspots pro iding such access include Wi! 4i cafes, where would!be users need to bring their own wireless!enabled de ices such as a laptop or ,.A. These ser ices may be free to all, free to customers only, or fee!based. A hotspot need not be limited to a confined location. Awhole campus or park, or e en an entire city can be enabled. "rassroots efforts ha e led to wireless community networks. $ommercial Wi!4i ser ices co ering large city areas are in place in ;ondon, :ienna, Toronto, (an 4rancisco, ,hiladelphia, $hicago and ,ittsburgh. The Internet can then be accessed from such places as a park bench. Apart from Wi!4i, there ha e been e&periments with proprietary mobile wireless networks like Ricochet, arious high!speed data ser ices o er cellular phone networks, and fi&ed wireless ser ices. Aigh!end mobile phones such as smartphones generally come with Internet access through the phone network. Web browsers such as 3pera are a ailable on these ad anced
NOTES
183
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handsets, which can also run a wide ariety of other Internet software. 2ore mobile phones ha e Internet access than ,$s, though this is not as widely used. An Internet access pro ider and protocol matri& differentiates the methods used to get online. 3.1.1 !ar"eting The Internet has also become a large market for companies7 some of the biggest companies today ha e grown by taking ad antage of the efficient nature of low!cost ad ertising and commerce through the Internet, also known as e! commerce. It is the fastest way to spread information to a ast number of people simultaneously. The Internet has also subse=uently re olutioni/ed shoppingNfor e&ample7 a person can order a $. online and recei e it in the mail within a couple of days, or download it directly in some cases. The Internet has also greatly facilitated personali/ed marketing which allows a company to market a product to a specific person or a specific group of people more so than any other ad ertising medium. E&amples of personali/ed marketing include online communities such as 2y(pace, 4riendster, 3rkut, 4acebook and others which thousands of Internet users %oin to ad ertise themsel es and make friends online. 2any of these users are young teens and adolescents ranging from )H to @5 years old. In turn, when they ad ertise themsel es they ad ertise interests and hobbies, which online marketing companies can use as information as to what those users will purchase online, and ad ertise their own companies products to those users. 3.1.B Online $nternet Business !odels T,e out2(rd $i)n$ o" ( ro4u$t (nd t,ri7in) 4u$ine$$ (re' Re enue increases Ability to generate profits (uccess in creating meaningful alliances (uccess in e&panding into new markets .ifferentiating itself from other business models
184
?,(t (re t,e 3e% (re($ t,(t ( +ro"it(4le 2e4 $ite need$ to concentr(te on> .e elop a uni=ue e!business website $ontrol the product line Introduce new products on a regular basis Ensure easy and reliable credit!card payment methods ,ro ide customer!friendly policies 3n!time deli ery Feep promises .e elop a cle er marketing strategy <e the best in your field
NOTES
E:isting .usiness models are of man( "inds: Ad ertising ! banner and direct marketing (ubscription sites $ustomer ser ices .irectory ser ices $ontent pro iders ,roduct sales
2ost successful companies pursue se eral related but different models concurrently. They defy easy categori/ation by di ersifying re enue streams and becoming hybrids in a cost!efficient way. ;ets take a look at some of the top e!businesses in the field today# E!<ay Aome(tore.com 3racle $I($3 Ama/on.com .ouble$lick.com 9AA33X
185
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E!AC A company that has emerged unscathed from the recent dot!com bust with profits soaring to almost C11D and re enues doubling in the past one year. It has transformed auctions that were limited to garage sales and flea markets into highly e ol ed e! marketplaces. (elling %ust about anything, from anti=ues and %ewelry to computers, automobiles and e en auto insurance, it has @*.G million registered users today. Adopting an ama/ing and uni=ue culture, where buyers and sellers of all items are allowed to post their comments online, where credit!card payment facilities are secure and easy, the company pro%ects a trustworthy and reliable image. Apart from bidding, certain high =uality goods can be sold at prices fi&ed by the seller. This site also offers professional ser ices for all kinds of business needs. Awidespread global reach makes its easy for a buyer in Aong Fong to bid and buy a product from a seller in ,aris while the regional sites in 'orth America are able to offer hard!to!ship merchandise. ,erson!to!person trading and a barter economy ha e established the company on a secure <@< and <@$ platform. 3ther companies like 9ahooX and E&cite ha e been =uick to catch on and incorporate auctions into their sites. ,riceline.com, a site that offers airline tickets on discount has begun e&perimenting =uite successfully with this business model. To $umm(ri<e5 t,eir 4u$ine$$ model c(n 4e elucid(ted t,u$' Automation of traditional methods of selling uni=ue items Reliability in mode of payments $ustomer friendly company ,rofessional ser ices in addition to %ust plain selling of goods "lobal reach Regional di ersification (uccessful ad ertising
186
#OMESTORE.COM
NOTES
(tatistics ha e re ealed that realty sites account for about *.+D of all online isitors. Aomestore.com is a company that has dominated the real estate field with H.@8 million customers in Banuary @11) and is listed among the 4ortune top e!51. It registered a growth of @5@D at one stage. Aomestore.coms internet business model allows prospecti e buyers to re iew properties before buying. Is that allM 'o, they also offer financial ad ice, online loans, and buyers guides to homes and household items, home impro ement tips, remodeling, and safety and security aspects. 6seful ad ice when mo ing home and tips on resettling has ensured user satisfaction to the core. Their main re enue came in from subscriptions -5@D0 and the remaining from ad ertising. As a subscription site they picked a specific topic which a segment of the population would be passionate about and marketed their ser ices through strategic ad ertising. (ubscription sites that allow users access to a regularly updated online database of any kind for a fee are fast e ol ing into healthy and strong e! businesses. ORACLE This software and ser ice pro ider entered the digiti/ed world only in )**8, and metamorphosed into a digital pioneer in the span of two years. Inno ati e products and ser ices and integration of these ser ices ha e brought them into the forefront of web inno ation today. Internet business models like the <i/ 3nline Initiati e that deli er simple and complete online ser ices and a host of other tools that customers re=uire in setting up an e!business model, ha e made them a one stop shop for e!businesses today. Their built!in self!ser ice system for customers, employees and suppliers impro ed producti ity and accuracy and brought down costs by )11s of millions of dollars. $onsulting ser ices with ma%or firms like (un ,rofessional (ystems ha e established their reliability with customers.
187
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T,eir 4u$ine$$ "ormul(' Inno ati e products and packages Integration of internal processes E&emplary customer ser ice ! a user friendly web site that connects customers easily 4ast online e!business ser ices E&pert consultancy ser ice
Another company using a similar business model is E&odus $ommunications, an Internet data center that offers a range of web hosting ser ices, bandwidth on demand, security monitoring. Their ser ers host leading web sites like 9ahooX, e!<ay and 2erril ;ynch. They allow these firms to deli er content and applications online round the clock without fail. H5D of their re enue comes from a ery successful e!business consulting firm whom they ha e partnered with -(apient0. They are e&panding from )* data centers to HC data centers this year. CISCO $isco de elops switches and routers for ;ocalArea 'etworks -;A'0 and Wireless Area 'etworks -WA'0 and the related software. They ha e become the worldwide leaders in networking for the Internet today. *1D of their sales are conducted o er the Internet. They offer e&pertise in planning and e&ecuting Internet enabled solutions. The company has grown in the past G years with G) ac=uisitions to its credit, the latest being its in estments in an optical e=uipment company and speech recognition software makers. Their business model could be termed an ac=uisition oneX AMAQON.COM The customer is Fing hereX Ama/on pampers their customers, tracks their tastes and uses this information to create a uni=ue customer e&perience. This e! tailer culti ates relationships that lead to customers liking and trusting them. This kind of ser ice surpasses the most brilliant technology in use today. Ama/on brought in the world of successful one! to!one marketing, a personal touch from another era.
188
Recently though, they ha e suffered hea y losses, pro ing that any successful e! business strategy will sur i e pro ided it is based on a solid brick and mortar foundation, a la <arnes and 'oble, another famous online bookseller. Although barnesandnoble.com and <arnes the 'oble ;td. are run separately, a customer tends to associate trust and comfort in a known and established brand. To summari/e, e&emplary customer ser ice, successful online ad ertising and special discounted offers made Ama/on and books synonymous terms today. DOU!LECLIC=.COM This 4ortune e!51 company offers a collection of premium sites for custom ad! buys and sponsorships in arious fields ! <usiness, automobiles, entertainment, technology, tra el and health. They help markets build brands, increase sales, ma&imi/e re enue and build one!to!one relationships with their customers. They offer agencies plans to manage online campaigns. Their direct marketing strategies use customer data to refine marketing messages and increase in estment returns. 3ne of their di isions, Abacus is one of the largest databases of buyer beha ior in about *1 million households in the 6nited (tates itself. Another di ision, 222.di(meter.net conducts online research to e aluate and understand online campaigns and strategies. (ome of their clients include 222.m(cromedi(.com, 222.n($d(@.com, 222.net2orld$olution$.com and 222.+(lm.net. The web has pro en to be an ama/ing ehicle for ad ertising and reaching millions without spending a dime on postage and printing. Stu #einec3e Ser7ice$, an ad ertising solutions company used personali/ed cartoon direct mail and achie ed response rates as high as )11D. 3nline ads possess tremendous communication powers. <anner ads placed on sites like CNN, ;ycos, $ompu(er e, ,athfinder and T,e Ne2 Cor3 Time$ showed that# appropriate placement of the ad on specific targeted sites, using a search component or a womans face in a banner ad, using odd!shaped attention grabbing banners, including trading links with other sites, and hosting online chat are a sure fire way to get a response. 3nline ad ertising is international ad ertising that gets a @CRG e&posure for
muc h lesse r costs .
NOTES
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NOTES
CA#OOI The Koperating systemL of the net and a site for e ol ing search engines, free news and information ser ices, online ads, banner ads, sports and news, ideo and audio, clubs and auction stores has become the most popular directory in the web. The alue of this successful business model lies in its uni=ue and easy categori/ation of all pages and sub%ects ! a completely professional looking web site in all. <ut, a <,I -<uying ,ower Inde&0 report re eals that more online buying and popularity of a site dont go hand in hand. 3ther search engines like Alta ista, E&cite and Buno seem to ha e raked in more profits recently. 3nline ad ertising was the main re enue for 9ahooX, but they didnt really check on what kind of ads worked online. Immediate success stopped them from e ol ing and de eloping other important aspects of e!business. As a result, this year they ha e been forced to cut budgets and ads, showing that generali/ed media doesnt work compared to speciali/ed media. Also, all of 9ahoos content is owned by other sites and only licensed for their use. Among the other successful dot!coms, trends re ealed that online e!brokers offer the best economic models among consumer!centered Internet companies. Instead of spending on physical infrastructure they concentrated in increasing the olume of transactions. )!8114lowers.com blended telephone and Internet technologies, Reflect.com, a beauty customi/ation site outlasted other higher profile e!tailers in the business, thus pro ing that the basic <@$ business model is alid. (mart thinking, brilliant business plans, great and inno ati e promotional ideas are an integral part of any e!success. There is no doubt that in the near future, an a erage person anywhere in the world will surf the Internet more often than he or she watches tele ision or uses the telephone. As a result, it makes sense for entrepreneurs of all kinds to come up with ideas of generating income by marketing their products or ser ices to these surfers. $ompetition in cyberspace may become e en fiercer in the future and therefore the right business plan is what will e entually ensure long!term success.
190
&. INTRANET &. .1?,(t i$ (n Intr(net>
NOTES
The Internet has captured world attention in recent years. In reality, growth of internal networks based on Internet technologies known as the Intranet is outpacing the growth of the global Internet itself. An Intranet is a company!specific network that uses software programs based on the Internet T$,?I, protocol and common Internet user interfaces such as the web browser. (imply put, an Intranet is the application of Internet technologies within an organi/ation pri ate ;A' or WA' network. The Intranet en ironment is completely owned by the enterprise and is generally not accessible from the Internet at large. Today, many Intranets are built around Web ser ers deli ering AT2; pages.
An Intr(net i$ ( com+(n%-2ide net2or3 t,(t i$ 4($ed on Internet tec,nolo)ie$. &. . TC;DI; +rotocol $uite The T$,?I, protocol suite includes the Transport $ontrol ,rotocol, the Internet ,rotocol and other protocols. The protocol suite manages all the information that mo es
DBA 1727
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across the Intranet and Internet and each protocol transferring data across the network uses a different format. These protocols work together to transfer information across the network. Table H.@.@.a summaries the common T$,?I, protocols. $ommonly used T$,?I, protocols
T$,?I, e&ists as an open standard, anyone can use and de elop new applications on top of T$,?I,. It can manage almost all the network tasks on the Intranet and Internet and is also the only protocol re=uired to ensure that the computer systems and communications and networking software are interoperable. 3.2.3 2%e .enefits of $ntranets Cro$$+l(t"orm 2any corporate computing en ironments use different computing platforms. The capability to e&change information across platforms is crucial. The Intranet enables companies to unify communication within a multi!platform en ironment. Aence, companies can mi& and match platforms as needed with no ad erse effect on the o erall en ironment. Within an Intranet, uni ersal browsers such as 'etscape 'a igator and 2icrosoft Internet E&plorer enable the users to perform the following tasks
independent
of
the platforms used#

) create, iew and re ise documents, @ participate in discussions and news groups H interact with multimedia presentation C gain access to the Internet !re(3in) do2n t,e 4(rrier$
NOTES
Intranets dissol e the barriers of communication that are created by department walls, geographical location and decentrali/ed resources. Intranets create global accessibility by bringing together indi iduals and resources from a distributed en ironment. Employees, customers and endors are able to access information stored in multiple locations simultaneously. Reducin) di$tri4ution co$t <y combining computing and communication in the same system, Intranets reduce distribution costs byeliminating the traditional paper!based internal corporate communication media, such as printed pages, pamphlets, booklets and flyers. Instead, they are published electronically on the companys Intranet, sa ing the resources needed to print, distribute and update them. ,utting manuals on!line is an e&ample of how a company can reduce paper consumption and hence costs. 2ost companies ha e found that hundreds of paper!based applications can be eliminated using Intranets. Immedi(te deli7er% Information deli ered using an Intranet becomes a ailable almost instantaneously throughout the entire organi/ation. With AT2; form!support, users may e en fill out forms, post sign!up sheets and schedules on the Intranet. Information can mo e much more =uickly and effecti ely by remo ing the need for human inter ention. 4or e&ample, an employee can make a re=uest for taking lea e on an Intranet. The re=uest form can be filled out and submitted electronically and can reach the concerned parties in seconds.
193
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Incre($e intern(l communic(tion Intranets greatly facilitate communication among employees, especially when they are located in different buildings, cities or countries. Indi iduals and groups can distribute their ideas to those who need it without ha ing to go through the department traditionally responsible for the distribution of information. Employees in Aong Fong can communicate easily through e!mail with their counterparts in the 6nited (tates. They can, for e&ample, send pro%ect documents electronically, create online forums on new policies and use ideoconference to e&change ideas. Minim(l le(rnin) cur7e With the increase in popularity of the Internet and the World Wide Web, training users to use the Intranet is easy as many people are already familiar with the Web interface and can translate that e&perience to Intranet use =uickly. 2any companies ha e designed their Intranet pages to look as similar to the Web pages as possible. :ettin) t,e cu$tomer$ in7ol7ed In ol ing the customers with a companys Intranet will help that companys focus mo e from being product dri en to being more customer dri en. $ustomers are no longer re=uired to go through arious layers of organi/ational hierarchies to reach those who build the products or pro ide the ser ice. $ompanies are able to build a long!lasting relationship with their customers. Employees can learn first hand on how customers feel about the companys products and ser ices. At (un 2icrosystems, for e&ample, different departments are setting up their own ser ers to ser e their customers directly.
194
O+en $t(nd(rd$
NOTES
Internet technologies follow a set of open standards, which facilitate software de elopers to de elop cost effecti e and easy!to!implement Intranet solutions. 6sers can choose from a number of endors for software products. The growth of Internet technologies pro ides companies with a greater pool of resources to de elop their own Intranets. $on ersely, traditional "roupWare products ha e a more limited range of compatible products and fewer specially trained consultants to install and administer them. Sc(l(4ilit% (ince Intranets are based on Internet technologies, si/e is not a limitation with Intranets. 6nlike traditional "roupWare products, which often charge on a per!client basis, Intranets use open systems to distribute information. The only per!client cost associated with Intranets is the cost of the browsers. &. .* !($ic intr(net $tructure Internet technologies used behind the corporate firewall or in pri ate en ironment Internet standard mail, web ser ers, pro iding access to information, databases, scheduling, etc. threaded discussion groups 2ultimedia using mime type :irtual pri ate network o er public Internet Internet 4irewall Intranet
3.2.3 $nternet -rc%itecture The corporate intranet has been hailed as the most important business tool since the typewriter, but the track record so far has been mi&ed. .espite many successes, particularly in cost and time sa ings, many sponsors of corporate intranets are dissatisfied.
195
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They ha e spent time and money on de elopment, 'et!enabled desktops, e en intranet training, but still arent en%oying significant enough producti ity or cost sa ings. WhyM While critics often point to technological glitches, the real problems may lie in information design. Intranets should help employees collaborate on business processes such as product de elopment or order fulfillment, which create alue for a company and its customers. (pecifically, intranets centrali/e the business process in an easily accessible, platform! independent irtual space. (uccessful intranets allow employees from a ariety of departments to contribute the different skills necessary to carry out a particular process. While each department of a company may ha e its own irtual space, intranets should be organi/ed primarily around the business processes they help employees carry out, rather than the organi/ational chart of the company. 4ocusing on processes rather than departments is a widely!hailed business trend. Recent shifts in corporate structure point to the emergence of Kcommunities of process.L 2anagement gurus are helping companies mo e away from ertical, hierarchical organi/ational lines towards hori/ontal, process!oriented groups that link cross!functional teams focused on the same set of business tasks. The trouble is that this re=uires significant interaction between departments, functions, e en countries. Enter the intranet, the ideal ehicle for creating and empowering process!based corporate communities. (uccessful process!oriented intranets look and work as differently as the processes they enable, but they share se eral common characteristics. 4irst they are built on smart information design. (econd, they focus on tasks, not documents, and aim to integrate those tasks into distinct processes. 4inally, the best intranets encourage collaboration by creating shared and familiar spaces that reflect the personality of the company and create a common ground for all employees. #on<t Overloo" #esign Bust as physical work spaces rely on architectural plans to optimi/e efficiency, an intranet needs to be carefully designed to help employees access information and collaborate effecti ely. <ecause the public doesnt see the intranet, information design for intranets often recei es scant attention. 6nlike customers, employees are assumed to be insiders, able to easily locate company information. (o, while the company Web site usually has the input of the marketing department, design and structure of the intranet is often relegated to the IT
department.
<y default, an organi/ational chart of the company is often used to organi/e information on the intranet. While seemingly the ob ious candidate for the structure of the intranet, an organi/ational chart actually works against the collaboration the intranet is meant to foster. An organi/ational chart cant help employees from the marketing and legal departments collaborate on bringing a document through the appro al process. It wont allow employees from marketing and research and de elopment to work together to create a new product. 2%in" -.out 2as"s /at%er 2%an #ocuments Thinking of the intranet as a tool means understanding the intranet as more than a collection of documents. While important, documents are usually a means to an end. ,eople use documents to complete tasks. Tasks include fulfilling orders, looking up a customers billing history, or collaborating on a research document. To complete these tasks, people need to ha e related documents and tools close at hand. The principal of organi/ing by task can be demonstrated by the e&ample of working at a desk. When you sit down to begin a task -e.g., creating a budget0, you ha e a ariety of information and tools at hand. While a spreadsheet is a KcalculationL tool, and last years budget is an Kinternal document,L both need to be ne&t to each other in order to de elop a new budget. (imilarly, on the corporate intranet, the tasks of the users rather than the classification of documents or tools, should dictate the organi/ation of the intranet. .esigned effecti ely around dynamic tasks rather than static documents, intranets can contribute to dramatic increases in efficiency -as much as a C1D impro ement in time spent processing documents, according to the "I"A "roup0. 3rgani/ing documents within the conte&t of tasks also focuses employees on the function of the documents they are working with. 4or e&ample, to sa e employee time while signing up for arious retirement plans, information on arious retirement plans -including links to financial Web sites0 should be placed near the forms actually used to register for those plans. Organi6e 2as"s $nto Larger Processes Isolated tasks are usually part of a larger process. Intranets should group together all the tasks that make up a business process. ,rocesses can be relati ely discrete, such as tracking deli eries, or getting appro al for documents. 3r, they
can be comple&,
more
NOTES
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NOTES
such as de eloping or selling products. The most important processes in a company are those that create alue for a customer. These are the central processes which e ery intranet should help employees accomplish. E en simple processes can become more efficient when incorporated into an intranet. 4or e&ample, when 4ord implemented an intranet, the company included an application to help geographically dispersed engineers to get authori/ation for new pro%ects. What would pre iously be a time!consuming, e&pensi e process, in ol ing the potential for lost documents and delays, is now centrali/ed in an efficient electronic process. 2ore comple& processes can also be effecti ely integrated into an intranet. 4or e&ample, $adence (ystems created an integrated section of the intranet for its entire sales process. Each phase of the sales process is represented on the intranet with rele ant information and tools. (o, the section co ering an initial stage of the sales process includes links to customer presentations, sample letters, and internal forms. 3rgani/ing all steps of the sales process together also allows for easy tracking of each sales effort. Create >irtual Processes +or"groups Organi6ed -round
Intranets can break though departmental walls to help accomplish business processes more efficiently. 4or e&ample, a customer complaint might in ol e people and information from the accounting, sales and marketing department. E en though the employees necessary to resol e the complaint work in different departments, they are all in ol ed in the process of customer ser ice. <y creating spaces for cross!departmental collaboration, the intranet can help employees collaborate to efficiently carry out the central processes of the company, and cut costs by a oiding in!person conferences and employee reallocations. Intranets -and pri ate e&tranets0 can also bring together employees and partners who are geographically dispersed to work on common problems. Tra el costs are eliminated, and employees can increase their producti ity by sharing knowledge. 4or e&ample, a pharmaceutical company is using its intranet to allow scientists all o er the world to collaborate on research. A ma%or franchise retailer is using bulletin boards on its intranet to coordinate ma%or marketing pro%ects. $aterpillar is de eloping an e&tranet application so that e&perts from around the world can collaborate with employees to design new products. 3ther applications for intranet collaboration include comple& transactions with lawyers and multiple
parties,
which
rely on access to, and modification of, key documents.

The bulk of discussion about collaboration in and between companies centers around security, certainly an important issue to resol e. What recei es less attention!but is central to the alue of an intranet!is the design of irtual spaces, which encourage new forms of collaboration. These, in turn, increase the efficiency of key business processes such as product de elopment, marketing and customer ser ice. 2%e $ntranet /eflects t%e Compan(C t%e Compan( /eflects t%e $ntranet The corporate intranet can help a company organi/e around Kcommunities of processL both on! and off!line. When Te&as Instruments initiated a process! centered organi/ation, oriented around collaborati e work groups, software de elopment time fell from twenty!two to eight months. The Te&as Instruments intranet was established after this shift, and was designed to reflect and enhance the new organi/ation. Whether it precedes or follows the organi/ational shift, an intranet that encourages this type of collaborati e work en ironment can pro ide a significant return!on!in estment. At the same time, using an intranet to shift the way work is done in an organi/ation re=uires a cultural change within the organi/ation. 6nless there is a clear commitment from senior management to ha e employees collaborate across departments to more efficiently accomplish key business processes, the intranet may ha e only limited application and benefit. E en after the intranet is designed to encourage collaboration, marketing the intranet to employees remains essential. As the intranet creates new forms of collaboration, it will challenge traditional ways of doing work and obtaining information. 4or the intranet to be successful, it must pro ide ways of empowering all employees, offering concrete incenti es for employees to use, and encourage the use, of the intranet. The process!oriented intranet, then, is Kin syncL with the company it works for. And this is where graphic design, tone and standards emerge as ital to the intranets success. ;ike it or not, intranets ha e personalities, which are amalgams of isual style, tone and content. An intranet that reflects the culture of its company will make employees feel more at home, will help dispersed employees feel that they share the same space, and will encourage collaboration and communication around the processes they support. Turner Entertainment "roup, for e&ample, created a distincti e, casual feel for its intranet with a home page that uses a refrigerator with magnates to represent the arious di isions. The uni=ue imagery created a friendly, shared, familiar space for all employees.
NOTES
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3.2.? $nternetA$ntranet -pplications 4rom blue!chip companies to one!person start!ups, the Internet and its related technologies ha e pro ided new opportunities and new ways of doing business. Web! based systems ha e enabled organi/ations to pro ide maintainable, secure global access to their data and applications. The ease of deployment o er the web has made such applications ery attracti e for enterprise systems. Any de ice which has a web browser can potentially utili/e an internet?intranet application. These applications are no longer restricted to the traditional ,$ user running Windows, but are also a ailable for ,.As and mobile phones. The introduction of Web (er ices has widened the scope of web!based applications by allowing other systems to interact with them. Tessella has ac=uired wide ranging e&perience of internet and intranet applications, and the ma%ority of our work has a web!based component. We ha e worked on a ariety of web!based systems which ha e fulfilled many different business roles, including systems such as sophisticated workflow systems that help organi/ations manage their day to day business, and web front ends to large corporate and scientific databases. We also ha e e&perience of de eloping distributed applications deployed o er the internet such as climateprediction.net, the worlds largest climate prediction e&periment. Ad7(nt()e$ o" intr(net$ 1. ?or3"orce +roducti7it%' Intranets can help users to locate and iew information faster and use applications rele ant to their roles and responsibilities. With the help of a web browser interface, users can access data held in any database the organi/ation wants to make a ailable, anytime and ! sub%ect to security pro isions ! from anywhere within the company workstations, increasing employees ability to perform their %obs faster, more accurately, and with confidence that they ha e the right information. It also helps to impro e the ser ices pro ided to the users. Time' With intranets, organi/ations can make more information a ailable to employees on a KpullL basis -ie# employees can link to rele ant information at a time which suits them0 rather than being deluged indiscriminately by emails.
200
&.
Communic(tion# Intranets can ser e as powerful tools for communication within an organi/ation, ertically and hori/ontally. 4rom a communications standpoint, intranets are useful to communicate strategic initiati es that ha e a global reach throughout the organi/ation. The type of information that can easily be con eyed is the purpose of the initiati e and what the initiati e is aiming to achie e, who is dri ing the initiati e, results achie ed to date, and who to speak to for more information. <y pro iding this information on the intranet, staff ha e the opportunity to keep up!to! date with the strategic focus of the organi/ation. ?e4 +u4li$,in) allows Ecum ersome1 corporate knowledge to be maintained and easily accessed throughout the company using hypermedia and Web technologies. E&amples include# employee manuals, benefits documents, company policies, business standards, newsfeeds, and e en training, can be accessed using common Internet standards -Acrobat files, 4lash files, $"I applications0. <ecause each business unit can update the online copy of a document, the most recent ersion is always a ailable to employees using the intranet. !u$ine$$ o+er(tion$ (nd m(n()ement' Intranets are also being used as a platform for de eloping and deploying applications to support business operations and decisions across the internetworked enterprise. Co$t-e""ecti7e' 6sers can iew information and data ia web!browser rather than maintaining physical documents such as procedure manuals, internal phone list and re=uisition forms. ;romote common cor+or(te culture' E ery user is information within the Intranet. iewing the same
NOTES
*.
-.
/.
0.
1.
En,(nce Coll(4or(tion' With information easily accessible by all authorised users, teamwork is enabled. Cro$$-+l(t"orm C(+(4ilit%' (tandards!compliant web browsers are a ailable Windows, 2ac, and 6'IR.
6. for
201
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&.& EFTRANET &.&.1 ?,(t i$ (n E.tr(net> An e.tr(net is a pri ate network that uses Internet protocols, network connecti ity, and possibly the public telecommunication system to securely share part of an organi/ations information or operations with suppliers, endors, partners, customers or other businesses. An e&tranet can be iewed as part of a companys Intranet that is e&tended to users outside the company -e.g.# normally o er the Internet0. It has also been described as a Kstate of mindL in which the Internet is percei ed as a way to do business with a pre appro ed set of other companies business!to!business -<@<0, in isolation from all other Internet users. In contrast, business!to!consumer -<@$0 in ol es known ser er-s0 of one or more companies, communicating with pre iously unknown consumer users. <riefly, an e.tr(net can be understood as ( +ri7(te intr(net m(++ed onto t,e Internet or some other transmission system not accessible to the general public, but is managed by more than one companys administrator-s0. 4or e&ample, military networks of different security le els may map onto a common military radio transmission system that ne er connects to the Internet. Any pri ate network mapped onto a public one is a irtual pri ate network -:,'0. In contrast, an intranet is a :,' under the control of a single companys administrator-s0. An argument has been made that Ke&tranetL is %ust a bu//word for describing what institutions ha e been doing for decades, that is, interconnecting to each other to create pri ate networks for sharing information. 3ne of the differences that characteri/ed an e&tranet, howe er, is that its interconnections are o er a shared network rather than through dedicated physical lines. With respect to Internet ,rotocol networks, R4$ CH+C states KIf all the sites in a :,' are owned by the same enterprise, the :,' is a corporate intranet. If the arious sites in a :,' are owned by different enterprises, the :,' is an extranet. A site can be in more than one :,'7 e.g., in an intranet and se eral e&tranets. We regard both intranets and e&tranets as :,'s. In general, when we use the term :,' we will not be distinguishing between intranets and e&tranets. E en if this argument is alid, the term Ke&tranetL is still applied and can be used to eliminate the use of the abo e description.L
202
It is important to note that in the =uote abo e from R4$ CH+C, the term KsiteL refers to a distinct networked en ironment. Two KsitesL connected to each other across the public Internet backbone comprise a :,'. The term KsiteL does not mean Kwebsite.L 4urther, KintranetL also refers to %ust the web!connected portions of a Ksite.L Thus, a small company in a single building can ha e an Kintranet,L but to ha e a :,', they would need to pro ide tunneled access to that network for geographically distributed employees. (imilarly, for smaller, geographically united organi/ations, Ke&tranetL is a useful term to describe selecti e access to intranet systems granted to suppliers, customers, or other companies. (uch access does not in ol e tunneling, but rather simply an authentication mechanism to a web ser er. In this sense, an Ke&tranetL designates the Kpri ate partL of a website, where Kregistered usersL can na igate, enabled by authentication mechanisms on a Klogin pageL. An e&tranet re=uires security and pri acy. These can include firewalls, ser er management, the issuance and use of digital certificates or similar means of user authentication, encryption of messages, and the use of irtual pri ate networks -:,'s0 that tunnel through the public network. 3.3.2 5eatures of E:tranet E:tranets generall( %ave t%e follo*ing features: T,e u$e o" Internet tec,nolo)ie$ (nd $t(nd(rd$. These include the standardi/ed techni=ues for transmitting and sharing information and the methods for encrypting and storing information, otherwise known as the Internet ,rotocol, or I,. T,e u$e o" ?e4 4ro2$er$. 6sers access E&tranet information using a browser like 2icrosoft Internet E&plorer, 'etscape 'a igator or, more recently, 2o/illas 4irefo&. <rowser software uses relati ely small amounts of memory and resources on a computer. The great thing about browsers is that an application written for a browser can be read on almost any computer without regard to operating system or manufacturer. That makes an application de eloped for a browser a snap to deploy. A browser on a users machine is all the software he or she needs to take full ad antage of the E&tranet application. 'o messy and confounding installation disks7 fewer clogged hard dri es.
NOTES
web
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Securit%. <y their ery nature, E&tranets are embroiled in concerns
about security. To protect the pri acy of the information that is being transmitted, most E&tranets use either secure communication lines or pro en security and encryption technologies that ha e been de eloped for the Internet. Centr(l Ser7erDRe+o$itor%. E&tranets usually ha e a central ser er where documents or data reside. 2embers can access this information from any computer that has Internet access. While these are the broad attributes shared by most E&tranets, E&tranets ary dramatically in their design and implementation. They can be employed in a wide ariety of en ironments and for ery different purposes, like# (haring case information (haring of case!related documentsNmany E&tranets contain
document repositories that can be searched and iewed by both lawyer and client on! line $alendaringNkey dates and scheduling of hearings and trials can be shared on!line ,ro iding firm contact information Acting as a Kwork flow engineL for arious suppliers ,ro iding access to firm resources remotely (haring time and e&pense information
&.&.& Indu$tr% u$e .uring the late )**1s and early @111s, se eral industries started to use the term Ke&tranetL to describe central repositories of shared data made accessible ia the web only to authori/ed members of particular work groups. 4or e&ample, in the construction industry, pro%ect teams could login to and access a Epro%ect e&tranet to share drawings and documents, make comments, issue re=uests for information, etc. In @11H in the 6nited Fingdom, se eral of the leading endors formed the 'etwork of $onstruction $ollaboration Technology ,ro iders, or '$$T,, to promote the technologies and to establish data e&change standards between the different systems. The same type of construction!focused technologies ha e also been de eloped in the 6nited (tates, Australia,
(candina ia,
"ermany and <elgium, among others. (ome

applications are offered on a (oftware as a (er ice -(aa(0 basis by endors functioning as Application ser ice pro iders -A(,s0. (pecially secured e&tranets are used to pro ide irtual data room ser ices to companies in se eral sectors -including law and accountancy0. There are a ariety of commercial e&tranet applications, some of which are for pure file management, and others which include broader collaboration and pro%ect management tools. Also e&ist a ariety of 3pen (ource e&tranet applications and modules, which can be integrated into other online collaborati e applications such as $ontent 2anagement (ystems. $ompanies can use an e&tranet to# E&change large olumes of data using Electronic .ata Interchange -E.I0 (hare product catalogs e&clusi ely with wholesalers or those Kin the tradeL $ollaborate with other companies on %oint de elopment efforts Bointly de elop and use training programs with other companies ,ro ide or access ser ices pro ided by one company to a group of other companies, such as an online banking application managed by one company on behalf of affiliated banks (hare news of common interest e&clusi ely with partner companies
NOTES
3.3. E:tranet applications An e&tranet application is a software data application that pro ides limited access to your companys internal data by outside users such as customers and suppliers. The limited access typically includes the ability to order products and ser ices, check order status, re=uest customer ser ice and much more. A properly de eloped e&tranet application pro ides the supply chain connection needed with customers and suppliers to dramatically lessen routine and time consuming communications. .oing so frees up resources to concentrate on customer ser ice and e&pansion as opposed to administrati e office tasks such as data entry.
205
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Bust as intranets pro ide increased internal collaboration, e&tranets pro ide increased efficiencies between your company and its customers and?or suppliers. .e eloping and implementing an e&tranet application can pro ide you the competiti e edge to stay ahead of the competition in the eyes of your customers and a better ability to negotiate prices with your suppliers. &.&.- Di$(d7(nt()e$ ). E&tranets can be e&pensi e to implement and maintain within an organi/ation -e.g.# hardware, software, employee training costs0 N if hosted internally instead of ia an A(,.
@. (ecurity of e&tranets can be a big concern when dealing with aluable information. (ystem access needs to be carefully controlled to a oid sensiti e information falling into the wrong hands. H. E&tranets can reduce personal contact -face!to!face meetings0 with customers and business partners. This could cause a lack of connections made between people and a company, which hurts the business when it comes to loyalty of its business partners and customers &.&./ E-Commerce !u$ine$$ Model$ (ince e$ommerce consists of doing business online or electronically, the business or re enue models are somewhat different than that of a Kbrick and mortarL business. $ommon e$ommerce models are direct online sales, selling online ad ertising space, and online commissions. Direct online $(le$ model 9ou can establish your website as your place of business and directly sell to those entering your KstoreL to make a purchase. (ince deli ery is often by mail, this is similar to customers buying from a mail order catalog. (oftware products, e! books, music and ideo files can be deli ered to the customer through the downloading process. Ama/on.com is a good e&ample of a business using the direct sales model to gain re enue.
206
Online (d7erti$in) $+(ce model
NOTES
Bust as tele ision and radio stations gain re enue from ad ertisements, related to the reach or number of iewers they ha e, so too can popular websites charge for the number of iewers seeing an ad. A better method is to count the number of iewers that click on an ad, taking them to the companys website. Online commi$$ion model Indi iduals and companies can also be established as affiliates, where they gain a commission for sales made through a company using the direct online sales model. 3nline companies such as e<ay and ,ay,al charge a commission for their ser ices. "oogle gains a commission for ads placed on others websites. 3.3.?.1 Successful Ecommerce Business !odels 4i e different ways websites can generate re enue by Robert (amuelsen KTheres no such thing as a free lunchXL While this simple economic aphorism seems to ha e been forgotten in the world of cyberspace, it holds true as much today as it e er has. 4irst lets establish the fact that no site is free ! e ery web site costs money. The web site is stored on a computer, uses web ser er software, accesses telecommunication resources, and must be maintained. (omeone must pay for the computers, software, telecommunication charges, and time. The omnipresent cost either comes from your pocket or some bene olent benefactor. The cost and potential re enue constitutes a business model. Therefore, e en the KfreeL sites ha e a business model. A public site offered by a library, school, or uni ersity has a business model. 4ree email ser ice has a business model. 4ree home pages fit into a business model. E ery site in the entire world wide web has a business model. There are different business models underlying each website. In actuality, fi e distinct e$ommerce business models form the basic structure for the wide arietyof websites today. The fi e categories are called anity, billboard, ad ertising, subscriptions, and storefront sites. TEditors 'ote#
2r. (amuelsen considers affiliate

DBA 1727
NOTES
programs to be a ariant on the storefront model.U While not all dri e re enue directly, they all incur costs. In addition, many sites combine se eral of the fi e identified business models. Each of the fi e models ha e uni=ue characteristics which make it different from the other types. Therefore, it is important to understand their differences. 9(nit%# 2any web sites are started as anity sites. These sites are often created by indi iduals as an outlet of self e&pression, to share a hobby, promote a cause, or find others with similar interests. These sites are created with no intentions of deri ing re enue and no illusions of grandeur. It could be as simple as a one page family site or a comple& forum on a specific topic. The costs are borne either by the indi idual or by some altruistic enterprise such as uni ersities, libraries, communities, associations, and e en businesses. 'e ertheless, the costs are real of these KfreeL sites. !ill4o(rd# <illboard sites -also called brochure or information sites0 are designed to deri e economic benefit through indirect means from either referred sales, reduced cost, or both. Re enue comes from creating awareness of its products or ser ices ia the web, with the actual purchase transaction occurring off!line. Bust like a billboard on a highway, success is measured on iewer ship as net citi/ens KsurfL by and are influenced to purchase product. 2ost corporate sites today put up these electronic brochures to pro ide information about their products, employment information, or public information. Economic benefit is created through the indirect purchase of goods or ser ices from e&isting physical outlets and cost sa ings through the elimination of infrastructure or inefficiency. 4inally, some businesses feel this is the best way to a oid channel conflicts potential pricing disparity between different supply chains. Ad7erti$in)# 'etwork tele ision, radio, and many periodicals follow the ad ertising model. All programming and content is funded by ad ertising dollars, with consumer iewership measuring alue. Agencies conduct sophisticated sur eys to measure the alue and establish the pricing. 4or e$ommerce, ad ertising can be in the form of banners, sponsorships, e/ine ads, and other promotion methods. This is a much!ballyhooed but still largely unpro en model on the web. While there are a few sites that are entirely supported by ad ertising dollars, the lack of web! sa y iewership statistics hindering the mass adoption by ad ertisersM As the knowledge of consumer beha ior is further understood, e&perts
will prepare purchase pattern
analyses pro iding ad ertisers with empirical data to support their promotion campaigns.
Su4$cri+tion$# In other media, the subscription models are well established accepted by subscribers and nurtured by publishers. 3n the web, subscriptions are not yet widely accepted by consumers. 3f those that are accepted, the subscription model caters to sites targeted to particular niches of indi iduals who ha e specific needs. These sites are often speciali/ed with e&pert content and timely information. The subscriptions fund the de elopment and maintenance of the site. (ubscriptions can be paid on a weekly, monthly, or annual basis. ,ayment through a credit card account is a common payment scheme for subscription sites because of the ability to periodically process the purchase transaction electronically. Store"ront# To some people, a products!offered site is narrowly defined as a KtrueL e$ommerce site. A website that offers products for sale is the electronic ersion of a catalog. These irtual storefronts are built to describe the offering with pictures and words, offer promotions, pro ide a Kshopping cart,L and complete the purchase transaction. 3nce the product is purchased, the cyber enterprise arranges for product fulfillment including shipping and handling. The fulfillment is sometimes completed by the website enterprise or directly from the manufacturer in a drop shipping arrangement. (ome manufacturers are now passing up the intermediary wholesalers and retailers by offering their products directly to consumers. This collapsing of the supply chain is called disintermediation. Although the ast ma%ority of these sites offer tangible products, they can work for ser ice products too. The primary characteristic of these types of sites is the ability to make a one time purchase with no future obligations. While it is impossible to predict the future in this fast mo ing media, it is ob ious that all fi e business models will remain iable for the near term. Each model will continue to mature both in its acceptance and sophistication. $onsumers will increasingly look to the web for physical commerce alternati es because of the limitlessness of the media both in terms of geography and shopping hours. 4or net entrepreneurs, each model should be e&amined carefully to understand which model pro ides the ma&imum benefit. With the understanding of the business models, financial pro%ections can be easily created and business plans finali/ed. With the business plan in hand, you will reali/e e en in cyberspace, there is no such thing as a free lunch.
NOTES
209
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2o ert Samuelsen operates e3ine 4nline& !hich he descri es as 5The !e 1s first famil6 communication center featuring calendars& photo al ums& discussion groups& address oo#s& and more7all in a pass!ord protected famil6 environment.8 Summ(r% Internet' The Internet is a worldwide, publicly accessible series of interconnected computer networks that transmit data by packet switching using the standard Internet ,rotocol -I,0. It is a Knetwork of networksL that consists of millions of smaller domestic, academic, business, and go ernment networks, which together carry arious information and ser ices, such as electronic mail, online chat, file transfer, and the interlinked web pages and other resources of the World Wide Web -WWW0. The Internet Tools and their $haracteristics# T,e e7olution o" t,e Internet i$ +unctu(ted 4% t,e introduction (nd m($$ (cce+t(nce o" $uc, 3e% re$ource$ (nd tool$ ($ Uni.5 Em(il5 U$enet ne2$)rou+$5 Telnet5 Li$t$er7 M(ilin) Li$t So"t2(re5 File Tr(n$"er ;rotocol5 Internet Rel(% C,(t5 ?AIS5 :o+,er5 ???5 (nd more recentl% 4% t,e Alt(7i$t( $e(rc, en)ine5 N(7( l(n)u()e5 (nd "in(ll%5 t,e Element$ o" Internet Arc,itecture ,rotocol ;ayering 'etworks Routers Addressing Architecture T,e out2(rd $i)n$ o" ( ro4u$t (nd t,ri7in) 4u$ine$$ (re' Re enue increases Ability to generate profits (uccess in creating meaningful alliances (uccess in e&panding into new markets .ifferentiating itself from other business models Intr(net' An Intranet is a company!specific network that uses software programs based on the Internet T$,?I, protocol and common Internet user
interfaces such as
the
210
web browser. (imply put, an Intranet is the application of Internet technologies within an organi/ation pri ate ;A' or WA' network. ?,% (re intr(net$ +o+ul(r Ine&pensi e to implement Easy to use, %ust point and click (a es time and money, better information faster <ased on open standards (caleable and fle&ible $onnects across disparate platforms ,uts users in control of their data
NOTES
E.tr(net' An e.tr(net is a pri ate network that uses Internet protocols, network connecti ity, and possibly the public telecommunication system to securely share part of an organi/ations information or operations with suppliers, endors, partners, customers or other businesses. Com+(nie$ c(n u$e (n e.tr(net to' E&change large olumes of data using Electronic .ata Interchange -E.I0 (hare product catalogs e&clusi ely with wholesalers or those Kin the tradeL $ollaborate with other companies on %oint de elopment efforts Bointly de elop and use training programs with other companies ,ro ide or access ser ices pro ided by one company to a group of other companies, such as an online banking application managed by one company on behalf of affiliated banks (hare news of common interest e&clusi ely with partner companies
E!$ommerce <usiness 2odels' Common eCommerce model$ (re direct online $(le$5 $ellin) online (d7erti$in) $+(ce5 (nd online commi$$ion$.
211
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Bue$tion$ "or re7ie2 ). @. H. C. 5. +. G. 8. *. )1. )). )@. )H. )C. )5. )+. )G. What is an InternetM E&plain its characteristicsM ;ist the Internet tools and e&plain its characteristics What is 4T,M E&plain web based $lient?(er erM .escribe the elements of Internet architectureM E&plain the uses of InternetM What are the key areas that a profitable web site needs to concentrate onM .iscuss some successful companies that pursue different business modelsM What is an intranetM ;ist the benefits of Intranet ;ist the basic intranet structure .escribe Internet architecture .iscuss Internet?Intranet applications .iscuss the integration of web technologies with business models What is an E&tranet and list its features .escribe the e&tranet applications .iscuss E!$ommerce <usiness models
212
UNIT I9
NOTES
E-COMMERCE ;ACMENTS AND SECURITC

*.1 ELECTRONIC ;ACMENTS AND ;ROTOCOLS *.1.1 Electronic ;(%ment S%$tem$ Electronic payment is an integral part of electronic commerce. <roadly de! fined, electronic payment is a financial e&change that takes place online between buyers and sellers. The content of this e&change is usually some form of digital financial instrument -such as encrypted credit card numbers, electronic checks, or digital cash0 that is backed by a bank or an intermediary, or by legal tender. Three factors are stimulating interest among financial institutions in electronic payments# decreasing technology costs, reduced operational and processing costs, and increasing online commerce.
The desire to reduce costs is one ma%or reason for the increase in electronic payments. $ash and checks are ery e&pensi e to process, and banks are seeking less costly alternati es. It is estimated that appro&imately 5+ percent of consumer transactions in the 6nited (tates are cash and @* percent are check. $redits, debits, and other electronic transactions account for about )5 percent of all consumer transactions, and are e&pected to increase rapidly. Electronic transactions numbered HH billion in )**H and are e&pected to climb to ))8 billion by the year @111. 4or the same period, paper transactions are forecast to show ery modest growth, from ))G billion in )**H to )H5 billion in the year @111.
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<anks and retailers want to wean customers away from paper transactions because the processing o erhead is both labor intensi e and costly. The crucial issue in electronic commerce re ol es around how consumers will pay businesses online for arious products and ser ices. $urrently, consumers can iew an endless ariety of products and ser ices offered by endors on the Internet, but a consistent and secure payment capability does not e&ist. The solutions proposed to the online payment problem ha e been ad hoc at best. 4or instance, in one method marketed by $yber$ash, users install client software packages, sometimes known as Kelectronic wallets,L on their browsers. This software then communicates with Kelectronic cash registersL that run on merchantsWeb ser ers. Each endors client works with only that endors own ser er software, a rather restricti e scenario. $urrently, merchants face the unappealing option of either picking one standard and alienating consumers not subscribing to a standard or needing to support multiple standards, which entails e&tra time, effort, and money. Today, the proliferation of incompatible electronic payment schemes has stifled electronic commerce in much the same way the split between <eta and :A( standards stifled the ideo industrys growth in the )*G1s. <anks faced similar problems in off!line commerce in the early nineteenth century. 2any banks issued their own notes, and a recurrent problem was the tendency of some institutions to issue more notes than they had gold as backing. 4urther, getting one bank to honor anothers notes was a ma%or problem. Inno ations in payment methods in ol ed the creation of new financial instruments that relied on backing from go ernments or central banks, and gradually came to be used as money. <anks are sol ing these problems all o er again in an online en ironment. The goal of online commerce is to de elop a small set of payment methods that are widely used by consumers and widely accepted by merchants and banks. .1.1.1 2(pes S(stems of Electronic Pa(ment
Electronic payment systems are proliferating in banking, retail, health care, on!line markets, and e en go ernment!in fact, anywhere money needs to change hands. 3rgani/ations are moti ated by the need to deli er products and ser ices more cost effecti ely and to pro ide a higher =uality of ser ice to customers. Research into electronic payment systems for consumers can be traced back to the )*C1s, and the first applications!credit cards appeared soon after. In the
early )*G1s,
the emerging electronic payment technology was labelled electronic "und$ tr(n$"er (EFT). E4T is defined as Kany transfer of funds initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authori/e a financial institution to debit or credit an account.L E4T utili/es computer and telecommunication components both to supply and to transfer money or financial assets. Transfer is information! based and intangible. Thus E4T stands in marked contrast to con entional money and payment modes that rely on physical deli ery of cash or checks -or other paper orders to pay0 by truck, train, or airplane. Work on E4T can be segmented into three broad categories# !(n3in) +(%ment$ Ret(ilin) +(%ment$ $redit cards -e.g., :I(A or 2aster$ard0 ,ri ate label credit?debit cards -e.g., B.$. ,enney $ard0 $harge cards -e.g., American E&press0 On-line electronic +(%ment$ o 2o"en-.ased s(stems commerce pa(ment (nd "in(nci(l
E n c r y p t e d c r e d i t c a r d s e . g . , W o r l d W i d e W e
;arge!scale or wholesale payments -e.g., bank!to!bank transfer0 (mall!scale or retail payments -e.g., automated teller machines and cash dispensers0 Aome banking -e.g., bill payment0
Electronic cash -e.g., .igi$ash0 Electronic checks -e.g., 'et$he=ue0 (mart cards or debit cards -e.g., 2onde& Electronic $urrency $ard0 o Credit card-.ased pa(ment s(stems
b form based encryption0 Third!party authori/ation numbers -e.g., 4irst :irtual0
NOTES
215
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*.1. De$i)nin) Electronic ;(%ment S%$tem$ ;ri7(c%. A user e&pects to trust in a secure system7 %ust as the
telephone is a safe and pri ate medium free of wiretaps and hackers, electronic communication must merit e=ual trust. Securit%. Asecure system erifies the identity of two!party transactions through Kuser authenticationL and reser es fle&ibility to restrict information?ser ices through access control. Tomorrows bank robbers will need no getaway cars %ust a computer terminal, the price of a telephone call, and a little ingenuity. 2illions of dollars ha e been embe//led by computer fraud. 'o systems are yet fool!proof, although designers are concentrating closely on security. Intuiti7e inter"(ce$. The payment interface must be as easy to use as a telephone. "enerally speaking, users alue con enience more than anything. D(t(4($e inte)r(tion. With home banking, for e&ample, a customer wants to play with all his accounts. To date, separate accounts ha e been stored on separate databases. The challenge before banks is to tie these databases together and to allow customers access to any of them while keeping the data up!to!date and error free. !ro3er$. A Knetwork bankerL!someone to broker goods and ser ices, conflicts, and facilitate financial transactions electronically!must be in place. 3ne fundamental issue is how to price payment system ser ice. 4or e&ample, should subsidies be used to encourage users to shift from one form of payment to another, from cash to bank payments, from paper!based to e!cash. The problem with subsidies is the potential waste of resources, as money may be in ested in systems that will not be used. Thus in estment in systems not only might not be reco ered but substantial ongoing operational subsidies will also be necessary. 3n the other hand, it must be recogni/ed that without subsidies, it is difficult to price all ser ices affordably. ` (tandards. Without standards, the welding of different payment users into different networks and different systems is impossible. (tandards enable interoperability, gi ing users the ability to buy and recei e information, regardless of which bank is managing their money. 'one of these hurdles are insurmountable. 2ost will be %umped within the ne&t few years. These technical problems, e&perts hope, will be sol ed as technology is impro ed and e&perience is gained. The biggest =uestion concerns how customers will take to a paperless and -if not cashless0 less!cash world.
settle
216
*.1.& Secure Electronic Tr(n$(ction (SET) ;rotocol
NOTES
(ET protocol was initially designed by :isa and 2aster$ard in )**G and has e ol ed since then. (ET protocol meets the four security re=uirements for E$ as ((;-(ecure (ocket ;ayer0 does# authentication, encryption, integrity, and non repudiation. In addition, (ET defines the message format, certificate format, and procedure of message e&change as depicted in. The role of payment gateway is to connect the Internet and proprietary networks of banks. Each participating entity needs its own certificate. To keep the consumers certificate in his or her personal computer or I$ card, software called the electronic wallet, or digital !allet& is necessary. To connect the dig!ital wallet with arious merchants, interoperability is a ery important characteristic to meet. Electronic ?(llet To achie e perfect security, the electronic wallet has to be downloaded into the buyers personal computer. (ince the interoperability of the cardholders digital wallet with any merchants software is essential, a consortium of companies -:isa, 2aster$ard, B$<, and American E&press0 has established a company called (ET$o -(ecure Electronic Transaction ;;$ )***0. This company performs the interoperability test and issues a (ET 2ark as a confirmation of interoperability. I<2, 'etscape, 2icrosoft, :eri(ign, Tandem, and 2eta;and pro ide such interoperable digital wallets. Stor()e o" Certi"ic(te$ If the pri ate key and corresponding public key in a certificate are physically stored in the customers personal computer, the customer can use the certificate only at the computer. Aowe er, if the certificate is stored in an I$ card, the wallet can work if the I$ card is inserted into a card reader attached to a computer. Therefore, storing the certificate in I$ card seems to be the safest method.
217
DBA 1727
NOTES
Overvie* of main messages in SE2 The International $enter for Electronic $ommerce -I$E$ )***0 has de eloped a system named Smart-SET& which integrates (ET protocol with an I$ card that can store multiple certificates. (ecure socket layer protocol for electronic payment e en though (ET is a perfect solution for secure electronic payments, a relati ely simple ersion of ((; is currently widely adopted. This is because (ET protocol is comple& and certificates are not widely distributed in a stable manner. Theoretically, the ((; protocol may use a certificate but it does not include the concept of a payment gateway. 2erchants need to recei e both ordering information and credit card information because the capturing process initiated by the merchant. The (ET protocol, on the other hand, hides the customers credit card information from merchants and also hides the order information from banks to protect pri acy. This scheme is called dual signature. 6ntil (ET becomes popular, a simple ersion of ((; is a ery iable alternati e.
218
.1.3.1 +%at 5eatures does SE2 Specif(8
NOTES
The following ob%ecti es are addressed by (ET specifications# Con"identi(lit% o" In"orm(tion To facilitate and encourage financial transactions, it will be necessary for merchants and banks to assure consumers that their payment information is safe and accessible only by the intended recipient. Therefore, credit card account and payment information must be se!cured as it tra els across the network, pre enting interception of account numbers and e&piration dates by unauthori/ed indi iduals. (ET pro ides confidentiality by the use of message encryption. Inte)rit% o" In"orm(tion (ET ensures that message content is not altered during the transmission between originator and recipient. ,ayment information sent from consumers to merchants includes order information, personal data, and payment instructions. If any component is altered in transit, the transaction will not be processed accurately. In order to eliminate this potential source of fraud and?or error, (ET pro ides the means to ensure that the contents of all order and payment messages recei ed match the contents of messages sent. Information integrity is ensured by the use of digital signatures. Con$umerAccount Aut,entic(tion 2erchants need a way to erify that a consumer is a legitimate user of a alid account number. .igital signatures and digital certificates ensure consumer account authentication by pro iding a mechanism that links a consumer to a specific account number. (ET designates a third party called a certificate authority to authenticate the sender and recei er. Merc,(nt Aut,entic(tion The (ET specifications pro ide a way for consumers to confirm that a merchant has a relationship with a financial institution that allows that merchant to accept bank card payments. 2erchant authentication is ensured by the use of digital signatures and merchant certificates.
DBA 1727
NOTES
Intero+er(4ilit% The (ET specifications must be applicable on a ariety of hardware and software platforms, ands must not prefer one o er another. Any consumer with compliant software must be able to communicate with any merchant software that also meets the defined standard Interoperability by the use of standard protocols and message formats. *. SECURITC SC#EMES A:AINST INTERNET FRAUD *. .1 Securit% I$$ue$ The Internet is a huge place that hosts se eral millions of people. As all the people are not honest, illegal acti ity is ine itable. (tatistics show that only )1D of computer client is reported and only @D of the reported client results in with con ictions. There are two basic types of criminal acti ities# The person who tries to understand and learn the arious systems and capabilities of any pri ate network. In this case the person has no intentions to do any damage or to steal any resources but tries to obser e the system functionality. 4or e&ample teenagers who tries to enter into a network out of curiosity till they are caught or deducted. The persons who uses the Internet and the Web to benefit themsel es doing illegal acti ities such as, stealing softwares, information and causing damage to resources. This type of criminal acti ity raises the concern for network security. A large system like Internet has many holes and cre ices in which a determined person can easily find the way to get into any pri ate network. There are many terms used to signify the computer criminals. 2(pe of Computer Criminals #(c3er!is a person who has good knowledge about computers and tries to open the data packets and steal the information transmitted through the Internet.
by
220
Cr(c3er!is someone who specifically breaks into computer systems
by bypassing or by guessing login passwords. These persons enter into the network as authenticated users and can cause any harm to the system. ;,re(3$!are persons who hack phone systems. These people specifically try to scam long distance phone!time for them to control phone switch capability or to hack company automated E<R systems to get free oice!mail accounts or to raid companies e&isting oice!mail messages. ;,r(c3er!is the combination of freak and cracker. A phracker breaks phone systems and computer systems and speciali/es in total network destruction. Another ma%or issue in the Internet security is misrepresentation and fraud. 3ne of the reasons of misrepresentation is that on the net it is easy to appear as anyone or anything without the actual presence. 4or e&ample, shops site displaying goods, which the dealer may not ha e them physically. <ut at the same time, creating a scam site is not as easy as it seems to be, because one must host pages somewhere, which makes the pro ider responsible for the content. 4or this reason, most Web site pro iders e&amines sites and ha e access to the information that is been pro ided. With the rapid growth in use of Internet, in future the number of fraud cases in which perpetrators create their own pro ider site will probably increase. This is possible specially, in case of offshore ser ers where laws are more fa orable to the criminal and enforcement will be ery difficult. 4or this reason, it is increasingly important for Web users to protect themsel es. *. . Securit% Sc,eme$ .2.2.1 Encr(ption Encryption is a techni=ue for hiding data. The encrypted data can be read only by those users for whom it is intended. 'owadays arious encryption techni=ues are a ailable. 3ne of the a ailable techni=ues commonly used for encryption is ,ublic Fey. In ,ublic Fey encryption system, R(A .ata (ecurity of Redwood $ity offers the most popular and commercially a ailable algorithm. In a ,ublic Fey encryption system each user has two keys!public key and pri ate key. The encryption and decryption algorithms are designed in a way so
that only the pri ate key can decrypt data that is encrypted by the public key. And the public key can
into
NOTES
DBA 1727
NOTES
decrypt data, encrypted by the pri ate key. Therefore, one can broadcast the public key to all users. $omputer encryption is based on the science of cryptography, which has been used throughout history. <efore the digital age, the biggest users of cryptography were go ernments, particularly for military purposes. 2ost computer encryption systems belong in one of two categories. <roadly speaking, there are two types of encryption methods# (ecret!key encryption ,ublic!key encryption
SECRET - =EC ENCRC;TION

I n t e r n e t
Anne
Encrypt
.ecrypt
<ob
(ecret!key encryption, also known as symmetric encryption, in ol es the use of a shared key for both encryption by the transmitter and decryption by the recei er. (ecret! key encryption works in the following way# Anne wishes to send a purchase order -,30 to <ob in such a way that only <ob can read it. Anne encrypts the ,3 -the plainte&t0 with an encryption key and sends the encrypted ,3 -the cipher te&t0 to <ob. Encryption scrambles the message, rendering it unreadable to anyone but the intended recipient. <ob decrypts the cipher te&t with the decryption key and reads the ,3. 'ote that in secret!key encryption, the encryption key and decryption key are the same -see 4ig.0. The transmitter uses a cryptographic secret KkeyL to encrypt the message, and the recipient must use the same key to decipher or decrypt it. A widely adopted implementation of secret!key encryption is data encryption standard -.E(0. Although secret!key encryption is useful in many cases, it has significant limitations. All parties must know and trust each other completely, and ha e in their possession a
222
protected copy of the key. If the transmitter and recei er are in separate sites, they must trust not being o erheard during face!to!face meetings or o er a public messaging system -a phone system, a postal ser ice0 when the secret key is being e&changed. Anyone who o er!hears or intercepts the key in transit can later use that key to read all encrypted messages.
(crambled message scrambled
NOTES
I n t e r n e t
message
<uyer
Encrypt with pri ate key
. e cr yp t with pri ate key
seller
(ince shared keys must be securely distributed to each communicating party, secret! key encryption suffers from the problem of key distribution! generation, transmission, and storage of keys. (ecure key distribution is cumbersome in large networks and does not scale well to a business en ironment where a company deals with thousands of online customers. 4urther, secret!key encryption is impractical for e&changing messages with a large group of pre iously unknown parties o er a public network. 4or in!stance, in order for a merchant to conduct transactions securely with Internet subscribers, each consumer would need a distinct secret key as!signed by the merchant and transmitted o er a separate secure channel such as a telephone, adding to the o erall cost. Aence, gi en the difficulty of pro iding secure key management, it is hard to see secret!key encryption becoming a dominant player in electronic commerce. If secret encryption cannot ensure safe electronic commerce, what canM The solution to widespread open network security is a newer, more sophisticated form of encryption, first de eloped in the )*G1s, known as public!key encryption. ;u4lic-=e% Encr%+tion ,ublic!key encryption, also known as asymmetric encryption, uses two keys# one key to encrypt the message and a different key to decrypt the message. The two keys are mathematically related so that data encrypted with one key only be decrypted using the other.
223
DBA 1727
NOTES
6nlike secret!key encryption, which uses a single key shared by two -or more0 parties, public!key encryption uses a pair of keys for each party. 3ne of the two keys is KpublicL and the other is Kpri ate.L The public key can be made known to other parties7 the pri ate key must be kept confidential and must be known only to its owner. <oth keys, howe er, need to be protected against modification. The best known public!key encryption algorithm is R(A -named after its in entors Ri est, (hamir, and Adleman0. In the R(A method, each participant creates two uni=ue keys, a Kpublic key,L which is published in a sort of public directory, and a Kpri ate key,L which is kept secret. The two keys work together7 whate er data one of the keys Klocks,L only the other can unlock. 4or e&ample, if an indi idual wants to send a snoop!proof email message to a friend, she simply looks up his public key and uses that key to en!crypt her te&t. When the friend recei es the e!mail, he uses his pri ate key to con ert the encrypted message on his computer screen back to the senders original message in clear te&t. (ince only the bona fide author of an encrypted message has knowledge of the pri ate key, a successful decryption using the corresponding public key erifies the identity of the author and ensures message integrity. E en if a would! be criminal intercepts the message on its way to the intended recipient, that criminal has no way of deciphering the message without the pri ate key. The computer handles the hard work of manipulating the large numbers used in the math of encrypting and decrypting messages. Table compares secret! and public key systems. <oth types of systems offer ad antages and disad antages. 3ften, the two are combined to form a hybrid system to e&ploit the strengths of each method. To determine which type of encryption best meets its needs, an organi/ation first has to identify its security re=uirements and operating en ironment. ,ublic!key encryption is particularly useful when the parties wishing to communicate cannot rely on each other or do not share a common key. This is often the case in online commerce. Another prominent public key method being used in online commerce today is called Di)it(l Si)n(ture$
224
Com+(rin) Secret 3e% (nd +u4lic 3e% Encr%+tion met,od$.
NOTES
Di)it(l Si)n(ture .igital signatures are used for sending authentication. This also means that the originator cannot falsely deny ha ing signed the data. In addition, a digital signature enables the computer to notari/e the message, ensuring the recipient that the message has not been forged transit. ;et us consider the following scenario of a customer, interacting with a merchant, 3nline mart. When the customer orders something from 3nline mart, he uses 3nline marts public key to encrypt her confidential information. 3nline 2art then uses its pri ate key to decrypt the message -only a pri ate key can unlock a document deciphered with a public key07 thus the customer knows that only 3nline 2art recei ed that data. To ensure further security, the customer can enclose a digital signature, encrypted with her own pri ate key, which 3nline 2art could decrypt with the customers public key and know that only the particular customer could ha e sent it. In the other direction 3nline mart would send confidential information to the customer using her public key, and only she can decrypt it using her pri ate key. This shows how digital signature works in combination with public key encryption to ensure authentication and pri acy. Tec,nic(ll%5 #o2 Do Di)it(l Si)n(ture$ ?or3> .ata is electronically signed by applying the originators pri ate key to the data. To increase the speed of the process, the pri ate key is applied to a shorter form of the
225
DBA 1727
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data, called a KhashL or Kmessage digest,L rather than to the entire set of data. The resulting digital signature can be stored or transmitted along with the data. The signature can be erified by any party using the public key of the signer. This feature is ery useful, for e&ample, when distributing signed copies of irus!free .software. Any recipient can erify that the program re!mains irus!free. If the signature erifies properly, then the erifier has confidence that the data was not modified after )#Being signed and that the owner of the public key was the signer. .igital signatures ensure authentication in the following way. In order to digitally sign a document, a user combines her pri ate key and the document and performs a computation on the composite -key]docurnent0 in order to generate a uni=ue number called the digital signature. 4or e&ample, when an electronic document, such as an order form with a credit card number, is run through the digital signature process, the output is a uni=ue KfingerprintL of the document. This KfingerprintL is attached to the original message and further encrypted with the signers pri ate key. If a user is communicating with her bank, she sends the result of the second encryption to her bank. The bank then decrypts the document using her public key, and checks to see if the enclosed message has been tampered with by a third party. To erify the signature, the bank performs a computation in ol ing the original document, the purported digital signature, and the customers public key. If the results of the computation generate a matching KfingerprintL of the document, the digital signature is erified as genuine7 otherwise, the signature may be fraudulent or the message altered. .igital signatures, ariations of which are being e&plored by se eral companies, are the basis for secure commerce. A digital signature pro ides a way to associate the message with the sender, and is the cyberspace e=ui alent of KsigningL for purchases. In this way, consumers can use credit card accounts o er the Internet. Di)it(l Certi"ic(te$ Authentication is further strengthened by the use of digital certificates. <efore two parties, <ob and Alice, use public!key encryption to conduct business, each wants to be sure that the other party is authenticated. <efore <ob accepts a message with Alices digital signature, he wants to be sure that the public key belongs to Alice and not to someone mas=uerading as Alice on an open network. 3ne way to be sure that the public key belongs to Alice is to recei e it o er a secure channel directly fromAlice. Aowe er, in most circumstances this solution is not practical.
226
An alternati e to the use of a secure channel is to use a trusted third party to authenticate that the public key belongs to Alice. (uch a party is known as a certificate authority -$A0. 3nce Alice has pro ided proof of her identity, the certificate authority creates a message containing Alices name and her public key. This message, known as a certificate, is digitally signed by the certificate authority. It contains owner identification information, as well as a copy of one of the owners public keys. To get the most benefit, the public key of the certificate authority should be known to as many people as possible. Thus by using one public key -that of a $A0 as a trusted third! party means of establishing authentication, disparate parties can engage in electronic commerce with a high degree of trust. In many ways, digital certificates are the heart of secure electronic transactions. Through the use of a common third party, digital certificates pro ide an easy and con enient way to ensure that the participants in an electronic commerce transaction can trust each other. 4or e&ample, in the credit card industry, :isa pro ides digital certificates to the card!issuing financial institution, and the institution then pro ides a digital certificate to the cardholder. A similar process takes place for the merchant. At the time of the transaction, each partys software alidates both merchant and cardholder before any information is e&changed. The alidation takes place by checking the digital certificates that were both issued by an authori/ed and trusted third party. In short, digital certificates ensure that two computers talking to each other may successfully conduct electronic commerce. .2.2.2 5ire*all A firewall is simply a program or hardware de ice that filters the information coming through the Internet connection into your pri ate network or computer system. If an incoming packet of information is flagged by the filters, it is not allowed through. ;ets say that you work at a company with 511 employees. The company will therefore ha e hundreds of computers that all ha e network cards connecting them together. In addition, the company will ha e one or more connections to the Internet through something like T) or TH lines. Without a firewall in place, all of those hundreds of computers are directly accessible to anyone on the Internet. A person who knows what he or she is doing can probe those computers, try to make 4T, connections to them, try to make telnet connections to them and so on. If one employee makes a mistake and lea es a security hole, hackers can get to the machine and e&ploit the hole. With a firewall in place, the landscape is much different. A company will place a firewall at e ery connection to the Internet -for e&ample, at e ery T) line
coming into the
NOTES
DBA 1727
NOTES
company0. The firewall can implement security rules. 4or e&ample, one of the security rules inside the company might be# 3ut of the 511 computers inside this company, only one of them is permitted to recei e public 4T, traffic. Allow 4T, connections only to that one computer and pre ent them on all others. A company can set up rules like this for 4T, ser ers, Web ser ers, Telnet ser ers and so on. In addition, the company can control how employees connect to Web sites, whether files are allowed to lea e the company o er the network and so on. A firewall gi es a company tremendous control o er how people use the network. 4irewalls use one or more of three methods to control traffic flowing in and out of the network# ;(c3et "ilterin) ! ,ackets -small chunks of data0 are analy/ed against a
set of "ilter$. ,ackets that make it through the filters are sent to the re=uesting system and all others are discarded. ;ro.% $er7ice ! Information from the Internet is retrie ed by the firewall and then sent to the re=uesting system and ice ersa. St(te"ul in$+ection ! A newer method that doesnt e&amine the contents of each packet but instead compares certain key parts of the packet to a database of trusted information. Information tra elling from inside the firewall to the outside is monitored for specific defining characteristics, then incoming information is compared to these characteristics. If the comparison yields a reasonable match, the information is allowed through. 3therwise it is discarded *. .& Cre(tin) ( Secure S%$tem Its a known saying ,re ention is the best medicine and this implies e=ually well to compute security. TheL first step is to keep the security of your data files such that only the right people can see them. This is especially crucial for any of the following types of data and files. 6ser passwords <illing files
228
(ystem and user logs $redit card information
NOTES
Trusted remote system information $ompiler Administration tools
6ser passwords and usage logs should be kept secure to keep pirate from looking at those files to figure out how to gain further access to your system. Feeping your password files shadowed or hidden keeps pirates from remotely ac=uiring your file and then running password cracking programs on the file in their own time. 4inally, be sure to protect administration tools as well as compiler. "eneral users to your system should not ha e access to these tools because, if they fall into wrong hands, the tools can be used to create programs that aid the pirate in greasing security.L *. .* Storin) Secure In"orm(tion The most insure part of the Internet is not the 'et itself but the source and destination of users and computers on the net. As the user of the system, you should know the place and the method to store your data. When you are connected to the network your personal system is ulnerable. <ecause of the nature slip type connecti ity and T$,?I, networks, someone else could be probing your system while you are working. .ecrypted data residing on your hard disk may be a ailable to outside for snooping. As ser er and browser security increases almost pirates will be dri en to breaking into the system at the source or at the destination. This information of!course applies e=ually to the both the user and the storeowner. (toreowners must ensure that product information database is secure. Again store owners should ensure that they encrypt archi ed transactions, as well as transactions in the process of being fulfilled. If a business can afford only lesser security then the best you can do is keep permissions of files hidden from pirates. 3ne of the best security measures that you can take for physically stored data is to ha e hardware password protection. 2any commercial products pro ide this facility and often work well to keep the data secure. Another security measure is to delete the not re=uired data or information. (imply deleting the information is not enough. ,irates can easily undelete pre iously deleted information. They can e en unformatted a formatted disk after securely deleting file defrayment your dri e
using any popular disk utility. (uch program ensures that the original structure of the disk is recogni/ed lea ing no reco erable data. The best solution is to use
DBA 1727
NOTES
programs like the .efense .epartments recommended secure delete program. (uch programs are a ailable in software archi es throughout the Internet. <efore marking the file as deleted, such programs first write repeating se=uences of bits to each bit within the file. This ensures that magnetic particles are mi&ed se eral times so that traces of data are not readable. Another type of pirating is also done by using, the electromagnetic emissions that come from the monitors. In the early age of computing, programmers could debug programs by turning on a radio and placing it near the computer. The internal clock speed of the computer would oscillate like the radio stations. (o they could hear the programming se=uence running on the computer. The programmers soon learn how to interpret the different sound fre=uencies to determine what was happening in their program. A type of technology and research called TE2,E(T is a ailable that can re erse this electromagnetic radiation into a reasonable reproduction of the original information. The degree of security for computer connected Into Internet, depends upon the re=uirements and cost. E ery one should take the basic measures of creating secure passwords, not lea ing printouts laying around, and keeping hardL 9are secure. 3ne should encrypt sensiti e data that sent o er the Internet. The basic measures should be enough to co er the a erage security standards for the company. <ut monitor the system in, regular inter als. If security breaches are encounter, more sophisticated security measures should be implemented. ,articularly, the companies are ulnerable those are in ol ed in national security or those that ha e such companies as clients.
230
*.& ELECTRONIC FUNDS TRANSFER *.&.1 ?,(t i$ EFT>
NOTES
An electronic funds transfer -also known as E4T0 is a system for transferring money from one bank to another without using paper money. Its use has become widespread with the arri al of personal computers, cheap networks, impro ed cryptography and the Internet. (ince it is affected by financial fraud, the electronic funds transfer act was implemented. This federal law protects the consumer in case a problem arises at the moment of the transaction. The history electronic funds transfer originated from the common funds transfer of the past. (ince the )*th century, and with the help of telegraphs, funds transfers were an usual thing in commercial transactions. 4inally, it migrated itself to computers and became the electronic money transfers of today. *.&. ?,ere do 2e "ind EFT> 3ne of the most common E4Ts is .irect .eposit. It is used by employers for depositing their employees salary in a bank account. 3ther kind of E4T is the automatic charge to your check or sa ings account. 4or e&ample, when you are paying a mortgage, the bank will discharge the monthly payment from a pre! accorded bank account. The benefit is that you wont ha e to go to the bank to do it. Its automatic. AT2s are also used for E4Ts. (ince an automatic teller machine is much cheaper than a group of bank tellers, it has helped to bring costs down and beneficiate the costumer. ,oints of sale -also known as ,3(0 are also part of this group. Those little blue or dark blue machines in which you pass your card are doing an electronic fund transfer from your account to the retail account. *.&.& Ad7(nt()e$ o" EFT' The main ad antage of an electronic funds transfer is time. (ince all the
transaction is done automatically and electronically, the bank doesnt need to pay a person to do it, a
DBA 1727
NOTES
person to dri e the loans to the other bank, the cost of the transport, the cost of the maintenance of the transport, insurance and the gas of the transport. E4Ts ha e re olutioni/ed modern banking. 3ther benefit is immediate payment, which brings an up to date cash flow. 9ou wont hear either about lost checks causes by the inefficiency of normal mail -nowadays known as snail mail for its elocity compared to emails0 and up to date bookkeeping. *.&.* Electronic Fund$ Tr(n$"er$ Initi(ted !% T,ird ;(rtie$. 9ou may authori/e a third party to initiate electronic funds transfers between your account and the third partys account. These transfers to make or recei e payment may be one!time occurrences or may recur as directed by you. These transfers may use the Automated $learinghouse -A$A0 or other payments network. 9our authori/ation to the third party to make these transfers can occur in a number of ways. In some cases, your authori/ation can occur when the merchant posts a sign informing you of their policy. In all cases, the transaction will re=uire you to pro ide the third party with your account number and bank information. This information can be found on your check as well as on a deposit or withdrawal slip. Thus, you should only pro ide your bank and account information -whether o er the phone, the Internet, or ia some other method0 to trusted third parties whom you ha e authori/ed to initiate these electronic funds transfers. E&amples of these transfers include, but are not limited to# ;re(ut,ori<ed credit$. 9ou may make arrangements for certain direct deposits to be accepted into your checking or sa ings account-s0. ;re(ut,ori<ed +(%ment$. 9ou may make arrangements to pay certain recurring bills from your checking account-s0. Electronic c,ec3 con7er$ion. 9ou may pro ide your check to a
merchant or ser ice pro ider who will scan the check for the encoded bank and account information. The merchant or ser ice pro ider will then use this information to con ert the transaction into an electronic funds transfer. This may occur at the point of purchase, or when you pro ide your check by other means such as by mail or drop bo&. Electronic returned c,ec3 c,(r)e. (ome merchants or ser ice pro iders will initiate an electronic funds transfer to collect a charge in the e ent a
chec
k is returned for insufficient funds.

;imitations on fre=uency of transfers section regarding limitations that apply to sa ings accounts. AT2 Transfers Q types of transfers and dollar limitations Q 9ou may access your account-s0 byAT2 using your )aster)one69 card and personal identification number to# make deposits to checking account-s0 with a check card get cash withdrawals from checking with a check card
NOTES
transfer funds from checking to money market account-s0 with a check card get information about the account balance of your checking account-s0 with a check card. (ome of these ser ices may not be a ailable at all terminals. Currenc( Conversion. If you effect a transaction with your )aster)one69 $ard in a currency other than 6( .ollars. 2aster$ard International Incorporated will con ert the charge into a 6( dollar amount. 2aster$ard International will use its currency con ersion procedure, which is disclosed to institutions that issue 2aster$ard cards. $urrently, the con ersion rate used by 2aster$ard International to determine the transaction amount in 6( dollars for such transactions is generally either a go ernment mandated rate or a wholesale rate determined by 2aster$ard International for the processing cycle in which the transaction is processed , increased by an ad%ustment factor established from time to time by 2aster$ard International. The currency con ersion rate used by 2aster$ard International on the processing date may differ from the rate that would ha e been used on the purchase date or cardholder statement posting date. -dvisor( -gainst $llegal ;se. 9ou agree not to use your card-s0 for illegal gambling or other illegal purpose. .isplay of a payment card logo by, for e&ample an online merchant does not necessarily meant that transactions are lawful in all %urisdictions in which the cardholder may be located.
233
DBA 1727
NOTES
Computer 2ransfer D t(pes of transfers D 9ou may access your account-s0 by computer through the internet by logging onto our website at firststarbank.com and using your user identification number, your password, and a secure web browser, to# us transfer funds from checking to checking transfer funds from checking to money market transfer funds from money market to checking transfer funds from money market to money market transfer funds from line of credit to checking transfer funds from line of credit to money market make payments from checking to third parties make payments from checking or money market to loan account-s0 with get information about# the account balance of checking account-s0 the account balance of money market account-s0
Limit(tion$ on "re@uenc% o" tr(n$"er$. In addition to those limitations on transfers elsewhere described, if any, the following limitations apply# Transfers from a money market account to another account or to third parties by preauthori/ed, automatic, telephone, or computer transfer are limited to si& per month with no more than three by check, draft, or similar order to third parties. 4or security reasons, there are other limits on the number of transfers and dollar amount you can make by check card.
5$0-0C$-L $0S2$2;2$O0<S L$-B$L$2E ;iability for failure to make transfers. If we do not complete a transfer to or from your account on time or in the correct amount according to our agreement with you, we will be liable for your losses or damages. Aowe er, there are some e&ceptions. We will not be liable, for instance#
234
-)0 to -@0 -H0 ha e -C0 the
If, through no fault of ours, you do not ha e enough money in your account make the transfer. If you ha e an o erdraft line and the transfer would go o er the credit limit. If the automated teller machine where you are making the transfer does not enough cash. If the terminal or system was not working properly and you knew about
breakdown when you started the transfer. -50 If circumstances beyond our control -such as fire or flood0 pre ent the transfer, despite reasonable precautions that we ha e taken. -+0 There may be other e&ceptions stated in our agreement with you. CO05$#E02$-L$2E We will disclose information to third parties about your account or the transfers you make# -)0 -@0 -H0 -C0 where it is necessary for completing transfers7 or in order to erify the e&istence and condition of your account for a third party, such as credit bureau or merchant7 or in order to comply with go ernment agency or court orders7 or as e&plained in the separate ,ri acy .isclosure.
information7 and the ability to alert sales representati es and customers to bundled products and ser ices, promotions, and complementary products.
*.&.- Online C(t(lo)$ 3nline catalogs pro ide easy access to product information. $onsumers are benefited because they are able to obtain detailed, up to the minute information about a wide range of products o er the Internet, without ha ing to endure the incon enience of isiting a showroom. 4or assisted selling, a aluable tool is a marketing encyclopedia, an intelligent electronic catalog that connects sales representati es and customers to a companys most current product and ser ice information. It pro ides a single point of entry for harnessing and distributing all product information. ,roduct managers can update information in the database and immediately broadcast the changes throughout the enterprise. (ome critical re=uirements of any marketing encyclopedia are the ability to easily create and maintain a repository of product information7 the ability to create multiple search mechanisms to assist in locating
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*.&./ Intelli)ent A)ent$ The Intelligent agent is software that assists people and acts on their behalf. Intelligent agents work by allowing people to delegate work that they could ha e done, to the agent software. Agents can, %ust as assistants can, automate repetiti e tasks, remember things the user might ha e forgotten, intelligently summari/e comple& data, learn from the user and e en make recommendations to the user. In addition to making recommendations to the user, the agents can also make decisions and perform actions based on those decisions. 3ne typical use of the intelligent agent may be found in the e&ploration of data on the Internet. The Internet can be iewed as a large distributed Information resource, with connecting systems that are designed and implemented by many different organi/ations with arious goals and agendas. The growth of the Internet and correspondingly the ast amount of Information it holds, presents a problem to the users!information o erload. This causes a problem of locating the rele ant information. As a result much of the information is discarded and processed in a sub optimal manner. The agent technology may help the user by helping the user get around this problem. In times to come it is hoped that agent technology can enhance the feature of electronic commerce by efficiently matching buyers and sellers.
23 AN CH
Intelli)ent A)ent Com+utin) A)ent Three primary dimensions of the agents ha e been defined# agency, intelligence and mobility.
NOTES
1. A)enc%: The degree of autonomous action that can me taken7 that is actions performed without the need for direct human inter ention or inter ention by other agents. The agents should ha e control o er the actions performed within its system, i.e., not ha e actions performed by other agents. 3ther agents can re=uest actions, but the agent itself decides whether to appro e and allow the action. . Intelli)ence: The e&tent to which an agent can understand its own internal state and its e&ternal en ironment. The le el of intelligence is further classified according to its ability to respond, to adapt and to take initiati e. &. Re$+ond: Agents should percei e and respond to their en ironments. *.* CREDIT SCSTEM *.*.1 ?,(t c(rd> i$ CARD !ASED-ELECTRONIC ;ACMENT
credit
A credit c(rd is a system of payment named after the small plastic card issued to users of the system. A credit card is different from a debit card in that it does not remo e money from the users account after e ery transaction. In the case of credit cards, the issuer lends money to the consumer -or the user0 to be paid to the merchant. It is also different from a charge card -though this name is sometimes used by the public to describe credit cards0, which re=uires the balance to be paid in full each month. *.*. c(rd$ Secured credit
A secured credit card is a type of credit card secured by a deposit account owned by the cardholder. Typically, the cardholder must deposit between )11D and @11D of the total amount of credit desired. Thus if the cardholder puts down Rs. )111, he or she will be gi en credit in the range of Rs. 511QRs. )111. In some
cases, credit card issuers will offer incenti es e en on their secured card portfolios. In these cases, the deposit re=uired may be significantly less than the re=uired credit limit, and can be as low as )1D of the
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desired credit limit. This deposit is held in a special sa ings account. $redit card issuers offer this as they ha e noticed that delin=uencies were notably reduced when the customer percei es he has something to lose if he doesnt repay his balance. The cardholder of a secured credit card is still e&pected to make regular payments, as he or she would with a regular credit card, but should he or she default on a payment, the card issuer has the option of reco ering the cost of the purchases paid to the merchants out of the deposit. The ad antage of the secured card for an indi idual with negati e or no credit history is that most companies report regularly to the ma%or credit bureaus. This allows for building of positi e credit history. Although the deposit is in the hands of the credit card issuer as security in the e ent of default by the consumer, the deposit will not be debited simply for missing one or two payments. 6sually the deposit is only used as an offset when the account is closed, either at the re=uest of the customer or due to se ere delin=uency -)51 to )81 days0. This means that an account which is less than )51 days delin=uent will continue to accrue interest and fees, and could result in a balance which is much higher than the actual credit limit on the card. In these cases the total debt may far e&ceed the original deposit and the cardholder not only forfeits their deposit but is left with an additional debt. 2ost of these conditions are usually described in a cardholder agreement which the cardholder signs when their account is opened. (ecured credit cards are an option to allow a person with a poor credit history or no credit history to ha e a credit card which might not otherwise be a ailable. They are often offered as a means of rebuilding ones credit. (ecured credit cards are a ailable with both :isa and 2aster$ard logos on them. 4ees and ser ice charges for secured credit cards often e&ceed those charged for ordinary non!secured credit cards, howe er, for people in certain situations, -for e&ample, after charging off on other credit cards, or people with a long history of delin=uency on arious forms of debt0, secured cards can often be less e&pensi e in total cost than unsecured credit cards, e en including the security deposit. . .2.1 Securit( Overvie* $redit card security is based on pri acy of the actual credit card number.
This means that
whene er a person other than the card owner reads the number, security is
potentially compromised. (ince this happens most of the time when a transaction is made, security is low. Aowe er, a user with access to %ust the number can only make certain types of transactions. 2erchants will often accept credit card numbers without e&tra erification for mail order, but then the deli ery address will be recorded, so the thief must make sure he can ha e the goods deli ered to an anonymous address -i.e. not his own0 and collect them without being detected. (ome merchants will accept a credit card number for in!store purchases, whereupon access to the number allows easy fraud, but many re=uire the card itself to be present, and re=uire a signature. Thus, a stolen card can be cancelled, and if this is done =uickly, no fraud can take place in this way. 4or internet purchases, there is sometimes the same le el of security as for mail order -number only0 hence re=uiring only that the fraudster take care about collecting the goods, but often there are additional measures. The main one is to re=uire a security ,I' with the card, which re=uires that the thief ha e access to the card. . .2.2 Credit card num.ering The numbers found on credit cards ha e a certain amount of internal structure, and share a common numbering scheme. The card numbers prefix, called the <ank Identification 'umber, is the se=uence of digits at the beginning of the number that determine the bank to which a credit card number belongs. This is the first si& digits for 2aster$ard and :isa cards. The ne&t nine digits are the indi idual account number, and the final digit is a alidity check code. In addition to the main credit card number, credit cards also carry issue and e&piration dates -gi en to the nearest month0, as well as e&tra codes such as issue numbers and security codes. 'ot all credit cards ha e the same sets of e&tra codes nor do they use the same number of digits. *.*.& Credit ATM$ c(rd$ in
AT2 belongs to the same bank as the
2any credit cards can also be used in an AT2 to withdraw money against the credit limit e&tended to the card but many card issuers charge interest on cash ad ances before they do so on purchases. The interest on cash ad ances is commonly charged from the date the withdrawal is made, rather than the monthly billing date. 2any card issuers le y a commission for cash withdrawals, e en if the
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card issuer. 2erchants do not offer cash back on credit card transactions because they would pay a percentage commission of the additional cash amount to their bank or merchant ser ices pro ider, thereby making it uneconomical. 2any credit card companies will also, when applying payments to a card, do so at the end of a billing cycle, and apply those payments to e erything before cash ad ances. 4or this reason, many consumers ha e large cash balances, which ha e no grace period and incur interest at a rate that is -usually0 higher than the purchase rate, and will carry those balances for years, e en if they pay off their statement balance each month. *.*.* Credit net2or3$ C(rd +(%ment-online
?e c(n 4re(3 credit c(rd +(%ment on on-line net2or3$ into t,ree 4($ic c(te)orie$' 1. ;(%ment$ u$in) +l(in credit c(rd det(il$. The easiest method of payment is the e&change of unencrypted credit cards o er a public network such as telephone lines or the Internet. The low le el of security inherent in the design of the Internet makes this method problematic -any snooper can read a credit card number, and programs can be created to scan the Internet traffic for credit card numbers and send the numbers to its master0. Authentication is also a significant problem, and the endor is usually responsible to ensure that the person using the credit card is its owner. Without encryption there is no way to do this. . ;(%ment$ u$in) encr%+ted credit c(rd det(il$. It would make sense to encrypt your credit card details before sending them out, but e en then there are certain factors to consider. 3ne would be the cost of a credit card transaction itself. (uch cost would prohibit low! alue payments -micro payments0 by adding costs to the transactions. &. ;(%ment$ 7eri"ic(tion. u$in) t,ird-+(rt%
3ne solution to security and erification problems is the introduction of a
third party# a company that
collects and appro es payments from one client to another. After a certain period of time, one credit card transaction for the total accumulated amount is completed.
*.*.- Encr%+tion (nd Credit C(rd$
NOTES
Encryption is instantiated when credit card information is entered into a browser or other electronic commerce de ice and sent securely o er the net!work from buyer to seller as an encrypted message. This practice, howe er, does not meet important re=uirements for an ade=uate financial system, such as non refutability, speed, safety, pri acy, and security. To make a credit card transaction truly secure and non!refutable, the following se=uence of steps must occur before actual goods, ser ices, or funds flow# ). A customer presents his or her credit card information -along with an authenticity signature or other information such as mothers maiden name0 securely to the merchant. The merchant alidates the customers identity as the owner of the cred!it card account. The merchant relays the credit card charge information and signature to its bank or on!line credit card processors. The bank or processing party relays the information tot the customers7 bank for authori/ation appro al. The customers bank returns the credit card data, charge authentication, and authori/ation to the merchant.
@. H. C. 5.
In this scheme, each consumer and each endor generates a public key and a secret key. The public key is sent to the credit card company and put on its public key ser er. The secret key is re!encrypted with a password, and the unencrypted ersion is erased. To steal a credit card, a thief would ha e to get access to both a consumers encrypted secret key and password. The credit card company sends the consumer a credit card number and a credit limit. To buy something from endor R, the consumer sends endor R the message, EIt is now time T. I am paying 9 dollars to R for item P,L then the consumer uses his or her password to sign the message with the public key. The endor will then sign the message with its own secret key and send it to the credit card company, which will bill the consumer for 9 dollars and gi e the same amount -less a fee0 to R. -(ee 4ig.C.C.5-a0 'obody can cheat this system. The consumer cant claim that he didnt agree to the transaction, because he signed it -as in e eryday life0. The endor cant in ent fake charges, because he doesnt ha e access to the consumers key. Ae cant submit the same charge twice, because the consumer included the precise time in the message. To become useful, credit $ard systems
will ha e to de elop distributed key

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ser ers and card checkers. 3therwise, a con!centrated attack on these sites could bring the system to a halt. (upport for ,ri acy Enhanced 2ail -,E20 and ,retty "ood ,ri acy -,",0 encryption has been built into se eral browsers. <oth of these schemes can be substantially bolstered with the addition of encryption to defeat snooping attacks. 'ow any endor can create a secure system that accepts credit card numbers in about an hour.
Fi)ure *.*.-(() ,rocessing payments using encrypted credit cards *.*./ Ad7(nt()e$ (nd Di$(d7(nt()e o" credit c(rd$' $onsumers use credit cards by presenting them for payment and then paying an aggregate bill once a month. $onsumers pay either by flat fee or indi idual transaction charges for this ser ice. 2erchants get paid for the credit card drafts that they submit to the credit card company. <usinesses get charged a transaction charge ranging from ) percent to H percent for each draft submitted.
242
$redit cards ha e ad antages o er checks in that the credit card company assumes a larger share of financial risk for both buyer and seller in a transaction. <uyers can sometimes dispute a charge retroacti ely and ha e the credit card company act on their behalf. (ellers are ensured that they will be paid for all their salesNthey neednt worry about fraud. 3ne disad antage to credit cards is that their transactions are not anonymous, and credit card companies do in fact compile aluable data about spending habits. Record keeping with credit cards is one of the features consumers alue most because of disputes and mistakes in 4illin). .isputes may arise because different ser ices may ha e different policies. 4or e&ample, an information pro ider might charge for partial deli ery of a file -the user may ha e abandoned the session after reading part of the file0, and a mo ie distributor might charge depending on how much of the ideo had been downloaded. The cause of interrupted deli ery needs to be considered in resol ing disputes -e.g., intentional customer action ersus a problem in the network or pro iders e=uipment0. In general, implementing payment policies will be simpler when payment is made by credit rather than with cash. The comple&ity of credit card processing takes place in the erification phase, a potential bottleneck. If there is a lapse in time between the charging and the deli ery of goods or ser ices -for e&ample, when an airline ticket is purchased well in ad ance of the date of tra el0, the customer erification process is simple because it does not ha e to be done in real time. In fact, all the relaying and authori/ations can occur after the customer!merchant transaction is completed, unless the authori/ation re=uest is denied. If the customer wants a report -or e en a digital airline ticket0, which would be downloaded into a ,$ or other information appliance immediately at the time of purchase, howe er, many message relays and authori/ations take place in real time while the customer waits. (uch e&changes may re=uire many se=uence!specific operations such as staged encryption and decrying and e&changes of cryptographic keys. Encryption and transaction speed must be balanced, howe er, as research has show that on!line users get ery impatient and typically wait for @1 seconds before pursuing other actions. Aence, on!line credit card users must find the process to be accessible, simple, and fast. (peed will ha e design and cost implications, as it is a function of network capabilities,
computing power, a ailable at e ery ser er, and the specific form of the transaction. The infrastructure supporting the e&change must be reliable. The user must feel confident that the supporting payment
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infrastructure will be a ailable on demand and that the system will operate reasonably well regardless of component failures or system load conditions. The builders and pro iders of this infrastructure are aware of customer re=uirements and are in fierce competition to fulfill those needs. *.*.0 In"r($tructure ;roce$$in) "or On-Line Credit C(rd
$ompetition among these players is based on ser ice =uality, price, processing system speed, customer support, and reliability. 2ost third!party processors market their ser ices directly to large regional or national merchants rather than through financial institutions or independent sales organi/ations . !(rrier$ include to entr%
-)0 large initial capital re=uirements, -@0 ongoing e&penses related to establishing and maintaining an electronic transaction processing network, -H0 the ability to obtain competiti ely priced access to an e&isting network, and -C0 the reluctance of merchants to change processors. What e&actly is at stake hereM A lot. In the emerging world of ecommerce,, the companies that own the transaction infrastructure will be able to charge a fee, much as banks do today withAT2s. This could be e&tremely profitable. 2icrosoft, :I(A, and other companies understand that they ha e to do something. If they wait for a clear path to emerge, it will be Ktoo little too late.L They know all too well that ecommerce transaction architectures -similar to 2(!.3( or Windows0 on which other e!commerce applications are de eloped will be ery profitable. 2any companies are de eloping ad anced electronic ser ices for home! based financial transactions, and software companies are increasingly allying with banks to sell home banking. E entually, the goal would be to offer e erything from mutual funds to brokerage ser ices o er the network. 2any banks are concerned about this prospect and iew it as an encroachment on their turf. After years of dabbling, mostly unsuccessfully, with remote banking, banking is recei ing a %arring message# "et wired or lose customers.
The traditional roles
are most definitely being reshuffled, and electronic payment on the Internet can ha e a substantial effect on transaction processing in the KrealL -non
electronic0 world. According to some estimates, trans!action processing ser ices account, for as much as @5 percent of non interest income for banks, so banks clearly stand to lose business. Why banks are on the defensi e is ob ious if we look at banking in the last ten years. A decade ago, banks processed *1 percent of all bank card transactions, such as :I(A and 2aster$ard. Today, G1 percent of those transactions are processed by non! banks such as 4irst .ata Resources. If software companies and other interlopers become electronic toll!takers, banks could become mere homes for deposits, not the pro iders of lucrati e alue!added ser ices. E en more worrisome, banks could lose the all!important direct link to be the customers primary pro ider of financial ser ices that lets them hawk profitable ser ices. The effect of electronic commerce on the banking industry has been one of total confusion. To be fair, things are happening so fast in this area that its hard to keep up with it all. *.*.1 Ri$3$ "rom Mi$t(3e (nd Di$+ute$' Con$umer ;rotection :irtually all electronic payment systems need some ability to keep automatic records, for ob ious reasons. 4rom a technical standpoint, this is no problem for electronic systems. $redit and debit cards ha e them and e en the paper!based check creates an automatic record. 3nce information has been captured electronically, it is easy and ine&pensi e to keep -it might e en cost more to throw it away than to keep it0. 4or e&ample, in many transaction processing systems, old or blocked accounts are ne er purged and old transaction histories can be kept fore er on magnetic tape. "i en the intangible nature of electronic transactions and dispute resolution relying solely on records, a general law of payment dynamics and banking technology might be# 'o data need e er be discarded. The record feature is an after!the!fact transcription of what happened, created without any e&plicit effort by the transaction parties. 4eatures of these automatic records include -)0 permanent storage7 -@0 accessibility and traceability7 -H0 a payment system database7 and -C0 data transfer to payment maker, bank, or monetary authorities.
The need for record keeping for purposes of risk management conflicts with the transaction anonymity of cash. 3ne can say that anonymity e&ists today only because cash is a ery old concept, in ented long before the computer and networks ga e us the ability to track e erything. Although a segment of the payment!making public will always desire
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transaction anonymity, many belie e that anonymity runs counter to the public welfare because too many ta&, smuggling, and?or money laundering possibilities e&ist. The anonymity issue raises the =uestion# $an electronic payments hap!pen without an automatic record featureM 2any recent payment systems seem to be ambi alent on this point. 4or instance, the 2onde& electronic purse touts e=ui alence with cash, but its electronic wallets are designed to hold automatic records of the cards last twenty transactions with a statement built in. 3b iously, the card!reading terminals, machines, or telephones could all maintain records of all transactions and they probably ultimately will. With these records, the balance on any smart card could be reconstructed after the fact, thus allowing for additional protection against loss or theft. This would certainly add some alue ersus cash. In sum, anonymity is an issue that will ha e to be addressed through regulation co ering consumer protection in electronic transactions. There is considerable debate on this point. An anonymous payment system without automatic record keeping will be difficult for bankers and go ernments to accept. Were the regulation to apply, each transaction would ha e to be reported, meaning it would appear on an account statement making mistakes and disputes easier to resol e. Aowe er, customers might feel that all this record keeping is an in asion of pri acy resulting in slower than e&pected adoption of electronic payment systems. The ne&t risk in ol ed is the pri acy of the customer making a purchase. !anaging Privac( $nformation
The electronic payment system must ensure and maintain pri acy. E ery time one purchases goods using a credit card, subscribes to a maga/ine or accesses a ser er, that information goes into, a database somewhere. 4urthermore, all these records can be linked so that they constitute in effect a single dossier. This dossier would reflect what items were bought and where and when. This iolates one the unspoken laws of doing business# that the pri acy of customers should be protected as much as possible. All details of a consumers payments can be easily be aggregated# Where, when, and sometimes what the consumer buys is stored. This collection of data tells much about the person and as such can conflict with the indi iduals right to pri acy. 6sers must be assured that knowledge of transactions will be confidential, limited only to the parties in ol ed and their designated agents -if any0.,ri acy must be maintained against ea esdroppers on the network and against unauthori/ed insiders. The users must be assured that they cannot be
easily duped, swindled, or
falsely implicated in a fraudulent transaction. This protection must apply throughout the
whole transaction protocol by which a good or ser ice is purchased and deli ered. This implies that, for many types of transactions, trusted third!party agents will be needed to ouch for the authenticity and good faith of the in ol ed parties.. !anaging Credit /is" $redit or systemic risk is a ma%or concern in net settlement systems because a banks failure to settle its net position could lead to a chain reaction of bank failures. The digital central bank must de elop policies to deal with this possibility. :arious alternati es e&ist, each with ad antages and disad antages. Adigital central bank guarantee on settlement remo es the insol ency test from the system because banks will more readily assume credit risks from other banks. Without such guarantees the de elopment of clearing and settlement systems and money markets!may be impeded. A middle road is also possible, for e&ample, setting controls on bank e&posures -bilateral or multilateral0 and re=uiring collateral. If the central bank does not guarantee settlement, it must define, at least internally, the conditions and terms for e&tending li=uidity to banks in connection with settlement. .espite cost and efficiency gains, many hurdles remain to the spread of electronic payment systems. *.- De4it S%$tem c(rd 4($ed-Electronic ;(%ment
In some countries the debit card is multipurpose, acting as the AT2 card for withdrawing cash and as a check guarantee card. 2erchants can also offer KcashbackL?
*.-.1 ?,(t i$ ( de4it c(rd> A de4it c(rd -also known as a )i"t c(rd0 is a plastic card which pro ides an alternati e payment method to cash when making purchases. ,hysically the card is an I(3 G8)1 card like a credit card7 howe er, its functionality is more similar to writing a che=ue as the funds are withdrawn directly from either the cardholders bank account -often referred to as a chec# card0, or from the remaining balance on the card. .epending on the store or merchant, the customer may swipe or insert their card into the terminal, or they may hand it to the merchant who will do so. The transaction is authori/ed and processed and the customer erifies the transaction either by entering a ,I' or, occasionally, by signing a sales receipt.
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LcashoutL facilities to customers, where a customer can withdraw cash along with their purchase. The use of debit cards has become wide!spread in many countries and has o ertaken the check, and in some instances cash transactions by olume. ;ike credit cards, debit cards are used widely for telephone and Internet purchases. *.-. T%+e$ o" de4it c(rd A 4innish smart card. The H by 5 mm security chip embedded in the card is shown enlarged in the inset. The gold contact pads on the card enable electronic access to the chip. An e&ample of the front of a typical debit card# ). @. H. C. 5. +. G. Issuing bank logo E2: chip Aologram $ard number $ard brand logo E&piry date $ardholders name
An e&ample of the re erse side of a typical debit card# ). @. H. 2agnetic stripe (ignature strip $ard (ecurity $ode
Although many debit cards are of the :isa or 2aster$ard brand, there are many other types of debit card, each accepted only within a particular country or region, for e&ample (witch -now# 2aestro0 and (olo in the 6nited Fingdom, $arte <leue in 4rance, ;aser in Ireland, KE$ electronic cashL -formerly Eurocheck0 in "ermany and E4T,3( cards in Australia and 'ew Pealand. The need for cross! border compatibility and the ad ent of the euro recently led to many of these card networks -such as (wit/erlands KE$ direktL, Austrias K<ankomatkasseL and (witch in the 6nited Fingdom0 being rebranded
with the internationally recognised 2aestro logo, which is part of the 2aster$ard brand. (ome debit cards are dual branded with the logo of the -former0 national card as well as 2aestro -e.g. E$ cards in "ermany, ;aser cards in Ireland, (witch and (olo in the 6F, ,inpas cards in the 'etherlands, <ancontact cards in <elgium, etc.0. .ebit card systems ha e become popular in ideo arcades, bowling centers and theme parks. The use of a debit card system allows operators to package their product more effecti ely while monitoring customer spending. An e&ample of one of these systems is E$( by Embed International. *.-.& Online tr(n$(ction$ (nd o""line de4it
NOTES
Typical debit card transaction machine, branded to 2c.onalds. There are currently two ways that debit card transactions are processed# online de4it -also known as ;IN de4it0 and o""line de4it -also known as $i)n(ture de4it0. In some countries including the 6nited (tates andAustralia, they are often referred to at point of sale as Ode4itK and OcreditK respecti ely, e en though in either case the users bank account is debited and no credit is in ol ed. Online de4it Ode4itK) (O;IN de4itK or
3nline debit cards re=uire electronic authori/ation of e ery transaction and the debits are reflected in the users account immediately. The transaction may be additionally secured with the personal identification number -,I'0 authentication system and some online cards re=uire such authentication for e ery transaction, essentially becoming enhanced automatic teller machine -AT20 cards. 3ne difficulty in using online debit cards is the necessity of an electronic authori/ation de ice at the point of sale -,3(0 and sometimes also a separate ,I'pad to enter the ,I', although this is becoming commonplace for all card transactions in many countries. 3 erall, the online debit card is generally iewed as superior to the offline debit card because of its more secure authentication system and li e status, which alle iates problems with processing lag on transactions that may ha e been forgotten or not authori/ed by the owner of the card. <anks in some countries, such as $anada and <ra/il, only issue online debit cards.
249
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O""line de4it (O$i)n(ture de4itK or OcreditK) 3ffline debit cards ha e the logos of ma%or credit cards -e.g. :isa or 2aster$ard0 or ma%or debit cards -e.g. 2aestro in the 6nited Fingdom and other countries, but not the 6nited (tates0 and are used at point of sale like a credit card. This type of debit card may be sub%ect to a daily limit, as well as a ma&imum limit e=ual to the amount currently deposited in the current?checking account from which it draws funds. 3ffline debit cards in the 6nited (tates and some other countries are not compatible with the ,I' system, in which case they can be used with a forged signature, since users are rarely re=uired to present identification. Transactions conducted with offline debit cards usually re=uire @!H days to be reflected on users account balances. *.-.* Ad7(nt()e$ (nd Di$(d7(nt()e$ .ebit and check cards, as they ha e become widespread, ha e re ealed numerous ad antages and disad antages to the consumer and retailer alike. Ad antages are as follows# A consumer who is not credit worthy and may find it difficult or impossible to obtain a credit card can more easily obtain a debit card, allowing him?her to make plastic transactions. 6se of a debit card is limited to the e&isting funds in the account to which it is linked, thereby pre enting the consumer from racking up debt as a result of its use, or being charged interest, late fees, or fees e&clusi e to credit cards. 4or most transactions, a check card can be used to a oid check writing altogether. $heck cards debit funds from the users account on the spot, thereby finali/ing the transaction at the time of purchase, and bypassing the re=uirement to pay a credit card bill at a later date, or to write an insecure check containing the account holders personal information. ;ike credit cards, debit cards are accepted by merchants with less identification and scrutiny than personal checks, thereby making transactions =uicker and less intrusi e. 6nlike personal checks, merchants generally do not belie e that a payment ia a debit card may be later dishonored. 6nlike a credit card, which charges higher fees and interest rates when a cash ad ance is obtained, a debit card may be used to obtain cash from an
AT2 or
a ,I'!based transaction at no e&tra charge, other than a foreign AT2 fee.
250
The debit card has many disad antages as opposed to cash or credit# (ome banks are now charging o er!limit fees or non!sufficient funds fees based upon pre!authori/ations, and e en attempted but refused transactions by the merchant -some of which may not e en be known by the client0. 2any merchants mistakenly belie e that amounts owed can be KtakenL from a customers account after a debit card -or number0 has been presented, without agreement as to date, payee name, and dollar and cent amount, thus causing penalty fees for o erdrafts, o er!the!limit, amounts not a ailable causing further re%ections or o erdrafts, and re%ected transactions by some banks. .ebit cards offer lower le els of security protection than credit cards. Theft of the users ,I' using skimming de ices can be accomplished much easier with a ,I' input than with a signature!based credit transaction. When a transaction is made using a credit card, the banks money is being spent, and therefore, the bank has a ested interest in claiming its money where there is fraud or a dispute. The bank may fight to oid the charges of a consumer who is dissatisfied with a purchase, or who has otherwise been treated unfairly by the merchant. <ut when a debit purchase is made, the consumer has spent his?her own money, and the bank has little if any moti ation to collect the funds. 4or certain types of purchases, such as gasoline, lodging, or car rental, the bank may place a hold on funds much greater than the actual purchase for a fi&ed period of time. 6ntil the hold is released, any other transactions presented to the account, including checks, may be dishonored, or may be paid at the e&pense of an o erdraft fee if the account lacks any additional funds to pay those items. While debit cards bearing the logo of a ma%or credit card are accepted for irtually all transactions where an e=ui alent credit card is taken, a ma%or e&ception is at car rental facilities. $ar rental agencies re=uire an actual credit card to be used, or at the ery least, will erify the creditworthiness of the renter using a debit card. These companies will deny a rental to anyone who does not fit the re=uirements, and such a credit check may actually hurt ones credit score.
NOTES
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*./ ELECTRONIC C#EC=S *./.1 E-C,ec3$ Electronic checks are designed to accommodate the many indi iduals and entities that might prefer to pay on credit or through some mechanism other than cash. Electronic checks are modelled on paper checks, e&cept that they are initiated electronically, use digital signatures for signing and endorsing, and re=uire the use of digital certificates to authenticate the payer, the payers bank, and bank account. The security?authentication aspects of digital checks are supported ia digital signatures using public!key cryptography. Ideally, electronic checks will facilitate new online ser ices by# allowing new payment flows -the payee can erify funds a ailability at the payers bank07 enhancing security at each step of the transaction through automatic alidation of the electronic signature by each party -payee and banks07 and facilitating payment integration with widely used E.I!based electronic ordering and billing processes. Electronic checks are deli ered either by direct transmission using telephone lines, or by public networks such as the Internet. Electronic check payments -deposits0 are gathered by banks and cleared through e&isting banking channels, such as automated clearing houses -A$A0 networks. E-c,ec3$' contain the same information as paper checks contain are based on the same rich legal framework as paper checks
can be linked with unlimited information and e&changed directly between parties can be used in any and all remote transactions where paper checks are used today enhance the functions and features pro ided by bank checking accounts
e&pand on the usefulness of paper checks bypro iding alue!added information *./. !ene"it$ o" Electronic C,ec3$ Electronic checks ha e the following ad antages# Electronic checks work in the same way as traditional checks, thus simplifying customer education. <y retaining the basic characteristics and fle&ibility of paper checks while enhancing the functionality, electronic checks can be easily understood and readily adopted.
252
Electronic checks are well suited for clearing micro payments7 the
con entional cryptography of electronic checks makes them easier to process than systems based on public!key cryptography -like digital cash0. The payee and the payees and payers banks can authenticate checks through the use of public! key certificates. .igital signatures can also be alidated automatically. Electronic checks can ser e corporate markets. 4irms can use electronic checks to complete payments o er the networks in a more cost!effecti e manner than present alternati es. 4urther, since the contents of a check can be attached to the trading partners remittance information, the electronic check will easily integrate with E.I applications, such as ac!counts recei able. Electronic checks create float, and the a ailability of float is an important re=uirement for commerce. The third!party accounting ser er can earn re enue by charging the buyer or seller a transaction fee or a flat rate fee, or it can act as a bank and pro ide deposit accounts and make money from the deposit account pool. Electronic check technology links public networks to the financial payments and bank clearing networks, le eraging the access of public net!works with the e&isting financial payments infrastructure. *./.& #o2 do Electronic C,ec3 2or3$> Electronic checks are another form of electronic tokens. They are designed to accommodate the many indi iduals and entities that might prefer to pay on credit or through some mechanism other than cash. <uyers must register with a third! party account ser er before they are able to write electronic checks. The account ser er also acts as a billing ser ice. The registration procedure can ary depending on the particular account ser er and may re=uire a credit card or a bank account to back the checks. 3nce registered, a buyer can then contact sellers of goods and ser ices. To complete a transaction, the buyer sends a check to the seller for a certain amount of money. These checks may be sent using e!mail or other transport methods. When deposited, the check authori/es the transfer of account balances from the account against which the check was drawn to the account to which the check was deposited. The e!check method was deliberately created to work in much the same way as a con entional paper check. An account holder will issue an electronic document that contains the name of the payer, the name of the financial
institution, the payers account
NOTES
DBA 1727
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number, the name of the payee and amount of the check. 2ost of the information is in uncoded form. ;ike a paper check, an e!check will bear the digital e=ui alent of a signature# a computed number that authenticates the check as coming from the owner of the account. And, again like a paper check, an e!check will need to be endorsed by the payee, using another electronic signature, before the check can be paid. ,roperly signed and endorsed checks can be electronically e&changed between financial institutions through electronic clearinghouses, with the institutions using these endorsed checks as tender to settle accounts. The specifics of the technology work in the following manner# 3n recei ing the check, the seller presents it to the accounting ser er for erification and payment. The accounting ser er erifies the digital signature on the check using any authentication scheme. A users digital KsignatureL is used to create one ticket!a check! which the sellers digital KendorsementL transforms into another!an order to a bank computer for fund transfer. (ubse=uent endorsers add successi e layers of information onto the tickets, precisely as a large number of banks may wind up stamping the back of a check along its %ourney through the system. *./.* ?,% do 2e u$e e-c,ec3$> E-C,ec3$ ,(7e im+ort(nt ne2 "e(ture$. T,e% o""er' the the ability to conduct bank transactions, yet are safe enough to use on Internet unlimited, but controlled, information carrying capability reduces fraud losses for all parties automatic erification of content and alidity
traditional checking features such as stop payments and easy reconciliation enhanced capabilities such as effecti e dating T,e C,ec3' Ecan be used by all account holders, large and small, e en where other electronic payment solutions are too risky, or not appropriate is the most secure payment instrument a ailable today
pro ides rapid and secure
settlement of financial obligations can be used with e&isting checking accounts ariety of hardware platforms and software
can be initiated from a applications
*./.- Com+(ri$on 2it, ot,er +(%ment in$trument$ E-C%ec" and Paper C%ec"s
NOTES
The electronic check -e!$heck0 is an all!electronic enhancement to the paper check and is based on current check law. This white paper briefly compares paper and e! checks, based on fi e categories# usage, cost, and allowance for errors, risk management, and information richness. E-c%ec"s and #e.it cards .ebit cards are used by indi iduals and to a far lesser e&tent by businesses, to make payments at the retail point!of!sale, or to obtain cash from AT2s. This white paper will briefly compare the differences between debit cards and e!checks. E-c%ec" and -utomated Clearing )ouse &-C)' (ince electronic checks are debit transactions, this white paper pro ides a high le el comparison of some of the main differences between the A$A debit system and e! checks. These differences are re iewed in fi e main categories# terminology, business practices, underlying technology, transaction authori/ation, and risk management. E-c%ec" and Secure Electronic 2ransaction &SE2' The (ET protocol specifications were defined by the credit card industry to facilitate credit card purchases o er the Internet. This white paper briefly compares the differences between (ET and e!checks. E-c%ec" and )ome Ban"ing Aome banking bill payments are con enient for consumers, and although they ha e some of the characteristics of electronic payments, there are significant differences between echecks and home banking bill payments. This white paper will briefly e&plore the differences between the two payment approaches.
255
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*.0 STORED 9ALUE CARDS AND ECAS# *.0.1 C(rd$ Sm(rt
(mart cards, also called stored alue cards, use magnetic stripe technology or integrated circuit chips to store customer!specific information, including electronic money. The cards can be used to purchase goods or ser ices, store information, control access to accounts, and perform many other functions. (mart cards offer clear benefits to both merchants and consumers. They reduce cash! handling e&penses and losses caused by fraud, e&pedite customer transactions at the checkout counter, and enhance consumer con enience and safety. In addition, many state and federal go ernments are considering stored alue cards as an efficient option for dispersing go ernment entitlements. 3ther pri ate sector institutions market stored alue products to transit riders, uni ersity students, telephone customers, ending customers, and retail customers. 3ne successful use of stored alue cards is by 'ew 9orks 2etropolitan TransportationAuthority-2TA0. The 2TAis the largest transportation agency in the 6nited (tates and, through its subsidiaries and affiliates, operates the 'ew 9ork $ity subway and public bus system, the ;ong Island Railroad and 2etro!'orth commuter rail systems, and nine tolled intrastate bridges and tunnels. These facilities ser e four million customers each workday. In )**C, the 2TA began the operation of an automated fare!collection system based on a plastic card with a magnetic stripe. The 2etro$ard is either swiped through a card reader at subway stations or dipped into a fare bo& on buses where the fare is decremented. All H,+11 2TA buses became operational in )**+. The full complement of C+G subway stations is e&pected to be operational by mid!)**G. <y )***, the 2TA anticipates more than ).@ billion electronic fare collection transactions a year on subway and bus lines. The management challenges created by smart card payment systems are formidable. Institutions such as the 2TA ha e made a considerable in estment in the stored alue card processing network, and to get a good return on in estment must identify new and inno ati e ways to achie e additional operating efficiencies and alue. *.0. Sm(rt C(rd$ (nd Electronic ;(%ment S%$tem$ The enormous potential of electronic tokens is currently stunted by the lack
of a widely accepted and
secure means of transferring money on!line. In spite of the many prototypes de eloped, we are a long way from a uni ersal payment system because
merchants and banks ha e to be signed up and a means has to be de eloped to transfer money. (uch a system moreo er must be robust and capable of handling a large number of transactions and will re=uire e&tensi e testing and usage to iron out all the bugs. In the meantime, thousands of would!be sellers of electronic commerce ser ices ha e to pay one another and are acti ely looking for payment substitutes. 3ne such substitute is the smart card. (mart cards ha e been in e&istence since the early )*81s and hold promise for secure transactions using e&isting infrastructure. (mart cards are credit and debit cards and other card products enhanced with microprocessors capable of holding more information than the traditional magnetic stripe. The chip, at its current state of de elopment, can store significantly greater amounts of data, estimated to be 81 times more than a magnetic stripe. Industry obser ers ha e predicted that, by the year @111, one!half of all payment cards issued in the world will ha e embedded microprocessors rather than the simple magnetic stripe. The smart card technology is widely used in countries such as 4rance, "ermany, Bapan, and (ingapore to pay for public phone calls, transportation? and shopper loyalty programs. The idea has taken longer to catch on in the 6nited (tates, since a highly reliable and fairly ine&pensi e telecommunications system has fa ored the use of credit and debit cards. (mart cards are basically of two types# Relationship!based smart credit cards Electronic +ur$e$. Electronic purses, which replace money, are also known as debit cards and electronic money. .@.2.1 /elations%ip-Based Smart Cards 4inancial institutions worldwide are de eloping new methods to maintain and e&pand their ser ices to meet the needs of increasingly sophisticated and technically smart customers, as well as to meet the emerging payment needs of electronic commerce. Traditional credit cards are fast e ol ing into smart cards as consumers demand payment and financial ser ices products that are user!friendly, con enient, and reliable. Arelationship! based smart card is an enhancement of e&isting card ser! ices and?or the addition of new ser ices that a financial institution deli ers to its customers ia a chip!based card or other de ice. These
new ser ices may include access to multiple financial accounts, alue! added marketing programs, or other information cardholders may want to store on their card.
NOTES
DBA 1727
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The chip!based card is but one tool that will help alter mass marketing techni=ues to address each indi iduals specific financial and personal re=uirements. Enhanced credit cards store cardholder information including name, birth date, personal shopping preferences, and actual purchase records. This information will enable merchants to accurately track consumer beha ior and de elop promotional programs designed to increase shopper loyalty. Relationship!based products are e&pected to offer consumers far greater options, including the following# "ccess to multiple accounts& such as de it& credit& investments or
stored value for e-cash& on one card or an electronic device A ariety of functions, such as cash access, bill payment, balance in=uiry, or funds transfer for selected accounts 2ultiple access options at multiple locations using multiple de ice types, such as an automated teller machine, a screen phone, a personal computer, a personal digital assistant -,.A0, or interacti e T:s $ompanies are trying to incorporate these ser ices into a personali/ed banking relationship for each customer. They can package financial and non financial ser ices with alue! added programs to enhance con enience, build loyalty and retention, and attract new customers. <anks are also attempting to customi/e ser ices on smart cards, offering a menu of ser ices similar to those that come up on AT2 screens. As with credit cards?banks may link up with health care pro iders, telephone companies, retailers, and airlines to offer fre=uent shopping and flyer programs and other ser ices. .@.2.2. Electronic Purses and #e.it Cards .espite their increasing fle&ibility, relationship!based cards are credit based and settlement occurs at the end of the billing cycle. There remains a need for a financial instrument to replace cash. To meet this need, banks, credit card companies, and e en go ernment institutions are racing to introduce Kelectronic purses,L wallet!si/ed smart cards embedded with programmable microchips that store sums of money for people to use instead of cash for e erything from buying food, to making photocopies, to paying subway fares. The electronic purse works in the following manner.
258
After the purse is loaded with money, at an AT2 or through the use of an ine&pensi e special telephone, it can be used to pay for, say, candy in a ending machine e=uipped with a card reader. The ending machine need only erify that a card is authentic and there is enough money a ailable for a chocolate bar. In one second, the alue of the purchase is deducted from the balance on the card and added to an e!cash bo& in the ending machine. The remaining balance on the card is displayed by the ending machine or can be checked at an AT2 or with a balance!reading de ice. Electronic purses would irtually eliminate fumbling for change or small bills in a busy store or rush!hour toll booth, and waiting for a credit card purchase to be appro ed. This allows customers to pay for rides and calls with a prepaid card that KremembersL each transaction. And when the balance on an electronic purse is depleted, the purse can be recharged with more money. As for the endor, the receipts can be collected periodically in personNor, more likely, by telephone and transferred to a bank account. While the technology has been a ailable for a decade, the cards ha e been relati ely e&pensi e, from J5 to J)1. Today the cards cost J), and special telephones that consumers could install at home to recharge the cards are pro%ected to cost as little as J51. A simple card reader would cost a merchant less than J@11. *.0.& Electronic or Di)it(l C($, Electronic or digital cash combines computeri/ed con enience with security and pri acy that impro e on paper cash. The ersatility of digital cash opens up a host of new markets and applications. .igital cash attempts to replace paper cash as the principal payment ehicle in online payments. Although it may be surprising to some, e en after thirty years of de elopments in electronic payment systems, cash is still the most pre alent consumer payment instrument. $ash remains the dominant form of payment for three reasons# o o o lack of consumer trust in the banking system7 inefficient clearing and settlement of non!cash transactions7 and negati e real interest rates on bank deposits.
credit and debit cards lack. 4or e&ample, cash is negotiable, meaning that it can be gi en or traded to someone else. $ash
These reasons behind the pre alent use of cash in business transactions indicate the need to re!engineer purchasing processes. In order to displace cash, electronic payment systems need to ha e some cash!like =ualities that current
NOTES
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NOTES
is legal tender, meaning that the payee is obligated to take it. $ash is a bearer instrument, meaning that possession is proof of ownership. $ash can be held and used by anyone, e en those without a bank account. 4inally, cash places no risk on the part of the acceptor7 the medium is always good. In comparison to cash, debit and credit cards ha e a number of limitations. 4irst, credit and debit cards cannot be gi en away because, technically, they are identification cards owned by the issuer and restricted to one user. $redit and debit cards are not legal tender, gi en that merchants Eha e the right to refuse to accept them. 'or are credit and debit cards bearer instruments7 their usage re=uires an account relationship and authori/ation system. (imilarly, checks re=uire either personal knowledge of the payer, or a check guarantee system. Areally no el electronic payment method needs to do more than recreate the con enience that is offered by credit and debit cards7 it needs to create a form of digital cash that has some of the proper!ties of cash. .@.3.1 Properties of Electronic Cas% o .igital cash must ha e a monetary alue7 it must be backed by cash -currency0, bank!authori/ed credit, or a bank!certified cashiers check. When digital cash created by one bank is accepted by others, reconciliation must occur without any problems. Without proper bank certification, digital cash carries the risk that when deposited, it might be returned for insufficient funds. o .igital cash must be interoperable or e&changeable as payment for other digital cash, paper cash, goods or ser ices, lines of credit, deposits in banking accounts, bank notes or obligations, electronic benefits transfers, and the like. o .igital cash must be storable and retrie able. Remote storage and retrie al -such as ia a telephone or personal communications de ice0 would allow users to e&change digital cash -withdraw from and deposit into banking accounts0 from home or office or while tra elling. o .igital cash should not be easy to copy or tamper with while it is being e&changed. It should be possible to pre ent or detect duplication and double! spending of digital cash.
260
*.0.* U$in) t,e Di)it(l Currenc%
NOTES
3nce the tokens are purchased, the e!cash software on the customers ,$ stores digital money undersigned by a bank. The user tan spend the digital!money of any shop accepting e!cash, without ha ing to open an account there first or! ha ing to transmit credit card numbers. As soon as the customer wants to make a payment, the software collects the necessary amount from the stored tokens. T2o t%+e$ o" tr(n$(ction$ (re +o$$i4le' 4il(ter(l (nd tril(ter(l. Typically, transactions in ol ing cash are bilateral or two!party -buyer and seller0 transactions, whereby the merchant checks the eracity of the notes digital signature by using the banks public key. If satisfied with the payment, the merchant stores the digital currency on his machine and deposits it later in the bank to redeem the face alue of the note. Transactions in ol ing financial instruments other than cash are usually trilateral or three!party -buyer, seller, and bank0 transactions, whereby the KnotesL are sent to the merchant, who immediately sends them directly to the digital bank. The bank erifies the alidity of these KnotesL and that they ha e not been spent before. The account of the merchant is credited. In this case, e ery KnoteL can be used only once. In many business situations, the bilateral transaction is not feasible because of the potential for double spending, which is e=ui alent to bouncing a check. .ouble spending becomes possible because it is ery easy to make copies of the e!cash, forcing banks and merchants to take e&tra precautions. To unco er double spending, banks must compare the note passed to it by the merchant against a database of spent notes .Bust as paper currency is identified with a uni=ue serial number, digital cash can also be protected. The ability to detect double spending has to in ol e some form of registration so that all KnotesL issued globally can be uni=uely identified. Aowe er, this method of matching notes with a central registry has problems in the on!line world. 4or most systems, which handle high olumes of micro payments, this method would simply be too e&pensi e. In addition, the problem of double spending means that banks ha e to carry added o erhead because of the constant checking and auditing logs. -fig C.G.C-a00 .ouble spending would not be a ma%or problem if the need for anonymity were rela&ed. In such situations, when the consumer is issued a bank note, it is issued to that persons uni=ue license. When he or she gi es it to some!body else, it is transferred specifically to that other persons license. Each time the money changes hands, the old owner adds a tiny bit of information to the bank note based on the bank notes
serial number and his or her license. If somebody attempts to spend money twice, the bank will
DBA 1727
NOTES
now be able to use the two bank notes to determine who the cheater is. E en if the bank notes pass through many different peoples hands, whoe er cheated will get caught, and none of the other people will e er ha e to know. The downside is that the bank can tell precisely what your buying habits are since it can check the numbers on the e!cash and the arious merchant accounts that are being credited. 2any people would feel uncomfortable letting others know this personal information.
Fi)ure *.0.*(() Detection o" dou4le $+endin)
262
*.0.- Dr(24(c3 o" Ec($,
NOTES
3ne drawback of e!cash is its inability to be easily di ided into smaller amounts. It is often necessary to get small denomination change in business transactions. A number of ariations ha e been de eloped for dealing with the KchangeL problem. 4or the bank to issue users with enough separate electronic KcoinsL of arious denominations would be cumbersome in communication and storage. (o would a method that re=uired payees to return e&tra change. To sidestep such costs, customers are issued a single number called an Kopen checkL that contains multiple denomination alues sufficient for transactions up to a prescribed limit. At payment time, the e!cash software on the clients computer would create a note of the transaction alue from the Kopen check.L *.0./ !u$ine$$ I$$ue$ (nd Electronic C($, Electronic cash fulfils two main functions# as a medium of e&change and as a store of alue. .igital money is a perfect medium of e&change. <y mo ing monetary claims =uickly and by effecting instant settlement of transactions, e!cash may help simplify the comple& interlocking credit and liabilities that characteri/e todays commerce. 4or instance, small businesses that spend months waiting for big customers to pay their bills would benefit hugely from a digital system in which instant settlement is the norm. Instant settlement of micro payments is also a tantali/ing proposition. T,e contro7er$i(l ($+ect$ of e!cash are those that relate to the other role, as a store of alue. Auman needs tend to re=uire that money take a tangible form and be widely accepted, or Klegal tenderL. In most countries, a creditor by law cannot refuse cash as settlement for a debt. With the acceptability of cash guaranteed by law, most people are willing to bank their money and settle many of their bills by checks and debits, confident that, barring a catastrophe, they can obtain legal tender -cash0 on demand. If e!cash had to be con ertible into legal tender on demand, then for e ery unit there would ha e to be a unit of cash reser ed in the real economy# or, to look at it the other way round, there would be cash in the real world for which digital pro&ies were created and made a ailable. This creates problems, because in an efficient system, if each e!cash unit represents a unit of real cash, then positi e balances of e!cash will earn no interest7 for the interest they might earn would be offset by the interest foregone on the real cash that is backing them.
The enormous currenc6 fluctuations in international finance pose another
263
DBA 1727
NOTES
problem. 3n the Internet, the buyer could be in 2e&ico and the seller in the 6nited (tates. Aow do you check!that the party in 2e&ico is gi ing a alid electronic currency that has suitable backingM E en if it were alid today, what would happen if a sudden de aluation occurs such as the one in .ecember )**C where the peso was de alued H1 percent o ernight. Who holds the liability, the buyer or the sellerM These are not technological issues but business issues that must be addressed for large!scale bilateral transactions to occur. 6nless, we ha e one central bank offering one type of electronic currency, it is ery difficult to see e! cash being ery prominent e&cept in narrow application domains. From ( 4(n3erM$ +oint o" 7ie25 e-c($, 2ould 4e ( mi.ed 4le$$in). <ecause they could not create new money ia lending in the digital world, banks would see electronic money as unproducti e. They might charge for con erting it, or take a transaction fee for issuing it, but on!line competition would surely make this a low!profit affair. In the short term, banks would probably make less from this new business than they would lose from the drift of customers away from traditional ser ices. It seems unlikely that e!cash would be allowed to reali/e its potential for bypassing the transaction costs of the foreign e&change market. If you pay yen for e!cash in 3saka and buy something from a merchant based in 'ew 9ork who cashes them for francs, a currency con ersion has taken place. That, howe er, is an acti ity toward which most go ernments feel highly defensi e7 and if e!cash started to bypass regulated foreign e&change markets by de eloping its own gray market for settlement, then go ernments might be pro oked into trying to clamp down on it. <ecause of these obstacles, e!cash in its early forms may be denominated in single currencies and e&changed at con entional market rates. 'e&t we will see the risks in ol ed while doing the transactions in ol ing e!cash. the use of *.0.0 O+er(tion(l Ri$3 (nd Electronic C($, 3perational risk associated with e!cash can be mitigated by imposing constraints, such as limits on -)0 -@0 -H0 the time o er which a gi en electronic money is alid, how much can be stored on and transferred by electronic money the number of e&changes that can take place before a money needs to be redeposit with a bank or financial institution, and
-C0 the number of such transactions that can be made during a gi en period of time.
264
These constraints introduce a whole new set of implementation issues 4or e&ample, time limits could be set beyond which the electronic money, would e&pire and become worthless. The customer would ha e to redeem or e&change the money prior to the e&piration deadline. 4or this feature to work7 electronic money would ha e to be time! stamped, and time would ha e to be synchroni/ed across the network to some degree of precision. The ob%ecti e of imposing constraints is to limit the issuers liability. A ma&imum upper limit could be imposed on the alue that could be assigned to any single transaction or that could be transferred to the same endor within a gi en period of time. (ince the users computer could be programmed to e&ecute small transactions continuously at a high rate o er the network, a strategy of reporting transactions o er a certain amount would be ineffecti e for law enforcement. Aowe er, a well!designed system could enforce a policy in ol ing both transaction si/e and alue with time. 4or e&ample, an Kanonymous coin! purseL feature might be capable of recei ing or spending no more than J511 in any twenty! four hour period. Alternati ely, the Krate ceilingL for the ne&t twenty!four hours could be made dependent on the rate of use or on the number of e&changes that could be permitted before any electronic money would ha e to be redeposit in a bank or financial institution and reissued. 4inally, e&changes could also be restricted to a class of ser ices or goods -e.g., electronic benefits could be used only for food, clothing, shelter, or educational purposes0. The e&change process should allow payment to be withheld from the seller upon the buyers instructions until the goods, or ser ices are deli ered within a specified time in the future. *.0.1 Le)(l I$$ue$ (nd Electronic C($, Electronic cash will force bankers and regulators to make tough choices that will shape the form of lawful commercial acti ity related to electronic commerce. As a result of the ery features that make it so attracti e to many, cash occupied an unstable and uncomfortable place within the e&isting ta&ation and law enforcement systems. Anonymous and irtually untraceable, cash transactions today occupy a place in a kind of underground economy. This underground economy is generally confined to relati ely small scale transactions because paper money in large =uantities is cumbersome to use and manipulate! organi/ed crime being the ob ious e&ception. As long as the transactions fare small in monetary alue, they are tolerated by the go ernment as an unfortunate but largely insignificant by product of the modern commercial .state. As transactions get larger the go ernment becomes more suspicious and enlists the aid of the banks, through the arious currency reporting laws, in reporting large disbursements of cash so that additional o ersight can be ordered.
NOTES
265
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NOTES
E-cas% on ta:ation Transaction based ta&es -e.g., sales ta&es0 account for a significant portion of state and local go ernment re enue. <ut if e!cash really is made to function the way that paper money does, payments we would ne er think of making in cash!to buy a new car, say, or as the down payment on a house!could be made in this new form of currency because there would be no problem of bulk and no risk of robbery. The threat to the go ernments re enue flow is a ery real one, and officials in go ernment are starting to take cogni/ance of this de elopment and to prepare their responses. To pre ent an underground economy, the go ernment through law may pre ent a truly anonymous and untraceable e!cash system from de eloping. Bust as powerful encryption schemes permit the design of untraceable e!cash systems, so, too, do powerful electronic record!keeping tools permit the design of traceable systems!systems in which all financial transactions are duly recorded in some database, allowing those with access to know more about an indi idual than anyone could know today. Anything that makes cash substantially easier to use in a broader range of transactions holds the potential to e&pand this underground economy to pro!portions posing e er more serious threats to the e&isting legal order. 6nder the most ambitious isions of e!cash, we would see a new form of currency that could be freely passed off from one computer to another with no record, yet incapable of being forged. A consumer could draw such e!cash electronically from his or her bank. The bank would ha e a record of that transaction, %ust as a withdrawal or check is recorded now. <ut after that, the encrypted e!cash file could be handed off without the knowledge of anyone but the par!ties to the transaction. Aowe er, as the politics and business play out, the technology is forcing legal, as issues to be reconsidered. The =uestion e!cash poses is not, K(hould the law take notice of this de elopmentML but rather, KAow can it notML <yimpacting re enue!raising capabilities, e!cash cannot escape go ernment scrutiny and regulation7 but it is going to take some serious thinking to design a regulatory scheme that balances personal pri acy, speed of e&ecution, and ease of use. Without a functioning system, what the go ernment will do remains a mystery. 2oreo er, it is not e en clear yet that the market as a whole will adopt an anonymous e!cash standard. 4or now, we are mainly watching and trying to educate oursel es about the likely path of the transition to electronic cash.
266
*.0.6 Electronic To3en$
NOTES
An electronic token is a digital analogue of arious forms of payment backed by a bank or financial institution. Electronic to"ens are of t%ree t(pes: 1. . C($, or re(l-time. Transactions are settled with the e&change of electronic currency. An e&ample of on!line currency e&change is electronic cash -e!cash0. De4it or +re+(id. 6sers pay in ad ance for the pri ilege of getting information. E&amples of prepaid payment mechanisms are stored in smart cards and electronic purses that store electronic money. Credit or +o$t-+(id. The ser er authenticates the customers and erifies with the bank that funds are ade=uate before purchase. E&amples of post! paid mechanisms are credit? debit cards and electronic checks.
&.
The following sections e&amine these methods of on!line payment. <ut we must first understand the different iewpoints that these payment instruments bring to electronic commerce. Aere are four dimensions that are useful for analy/ing the different initiati es. ). The nature of the transaction for !hich the instrument is designed, (ome! tokens are!specifically designed to handle micro payments, that is, payments for small snippets of information. 3thers are designed for more traditional products. (ome systems target specific niche transactions7 others seek more general transactions. The key is!to identify the parties in ol ed, the a erage amounts, and the purchase interaction. The means of settlement used. Tokens must be backed by cash, credit, electronic bill payments -prearranged and spontaneous0, cashiers checks, letters and lines of credit, and wire transfers, to name a few. Each option incurs trade!offs among transaction speed, risk, and cost. 2ost transaction settlement methods use $redit cards, while others use other pro&ies for alue, effecti ely creating currencies of dubious li=uidity and with interesting ta&, risk, and float implications.
@.
267
DBA 1727
NOTES
H.
"pproach to securit6& anon6mit6& and authentication. Electronic tokens ary in the protection of pri acy and confidentiality of the transactions. (ome may be more open to potentially prying eyes!or e en to the participants themsel es. Encryption can help with authentication, non reputability, and asset management. The -uestion of ris#. Who assumes what kind of risk at what timeM The tokens might suddenly become worthless and the customers might ha e the currency that nobody will accept. If the system stores alue in a smart card, consumers may be e&posed to risk as they hold static assets. Also electronic tokens might be sub%ect to discounting or arbitrage. Risk also arises if the transaction has long lag times between product deli ery and payments to merchants. This e&poses merchants to the risk that buyers dont pay!or ice ersa that the endor doesnt deli er.
C.
*.0.18 Ot,er Emer)in) Fin(nci(l In$trument$ (e eral other electronic payment systems are currently being prototyped and tested. These include debit cards, electronic benefit transfer cards, and smart cards. De4it C(rd$ (t t,e ;oint o" S(le (;OS) The fastest growing number of electronic transactions today is debit card point! of!sale transactions. (uch a transaction occurs when a customer uses a debit card to make a purchase from a merchant -supermarket, gas station, con enience store, or some other store that accepts such cards instead of using cash, check, or credit card0. The transaction works much like a credit card transaction. 4or e&ample, a customer gi es anAT2 card to the merchant for the purchase. The merchant swipes the card through a transaction terminal, which reads the information7 the customer enters his personal identification number -,I'07 and the terminal routes the transaction through theAT2 network back to the customers bank for authori/ation against the customers demand deposit account. The funds, once appro ed, are transferred from the customers bank to the merchants bank. These transactions occur within the banking system, and safety of payment is assured. The third!party processors who pro ide ser ices for merchants are also e&amined by the federal regulators for system integrity. <oth the consumer and the merchant maintain bank accounts, and the funds are transmitted inter!bank within the
payment system. Authentication is
pro ided by the use of the digital signature or ,I' numbers, %ust as it is at
268
AT2s. 4urther, ,I's are sent through the system in an encrypted form, and the ,I' pads and terminals are tamper!proof. .edicated lines are also often used for transmission, particularly by larger merchants. De4it C(rd$ Tr(n$"er (nd Electronic !ene"it$
problems. E<T is safer than cash or coupons, which can be lost or stolen. In E<T, benefits are stored
.ebit cards are being used e&tensi ely for electronic benefits transfer -E<T0. Electronic benefits transfer uses debit cards for the electronic deli ery of benefits to indi iduals who otherwise may not ha e bank accounts. In an E<T system, recipients access their benefits in the same way that consumers use debit cards to access their bank accounts electronically# the card is inserted into or swiped through a card reader and the cardholder must enter a ,I' associated with that card. The benefit recipient can then access his or her benefits to make a purchase or obtain cash. 4or e&ample, food stamp purchases are charged against the participants allotment, and other purchases or cash distributions are charged against the participants cash assistance program allotment. <enefits that can be deli ered ia E<T generally fall into three cate!gories# federally funded, but state administered benefits -such as food stamps, Aid to 4amilies with .ependent $hildren programs07 state!funded and state! administered benefits -such as general assistance, heating assistance, refugee assistance, and supplemental or emergency payments07 and benefits that are both federally funded and federally administered -such as (ocial (ecurity and :eterans benefits0. Through E<T, e&isting networks and technologies can pro ide benefit recipients with online access to their funds at pas de ices and AT2s. In an E<T process, no paper changes hands, e&cept for the receipt printed for the purchaser by the pas de ice or the AT2. Recipients can access cash through any number of establishments, including grocers, drugstores, and financial institutions, as well as AT2s. $ertain cash payments can also be facilitated by installing pas de ices in housing authority and utility company offices to accept rent and bill payments. Electronic benefits transfer has se eral ad antages o er paper based, benefit distribution systems. 4irst, E<T is less costly. $urrently, many recipients of federal and state benefits must pay significant fees -three or more dollars0 to cash their checks. E<T systems are designed to pro ide no! cost or low!cost access methods. ! (econd, E<T is more con enient than paper methods. E<T eliminates the need to carry food stamp coupons, stand in long lines to cash checks, or accept the entire benefit amount at one time. E<T programs also pro ide recipients with toll!free customer ser ice lines and multilingual support to handle =uestions or
NOTES
DBA 1727
NOTES
electronically, and can be used only when needed and in the amounts re=uired. Recipients control all ac!cess to their benefits through their cards and ,I's. They can also deacti ate lost or stolen cards immediately and re=uest a replacement card by a toll free phone call. Third, E<T is con enient for retailers. It eliminates the time!consuming task of handling food stamp coupons, making grocery checkout procedures faster and easier. <y eliminating checks and coupons, E<T reduces losses associated with theft, forgery, and fraud. 4inally, E<T is con enient for the go ernment. Its inherent audit and tracking ad antages enhance in estigations into suspicious conduct by retailers. E<T impro es benefit program management by creating an audit trail and record of benefit usage, ensuring that programs are working properly and effecti ely. Summ(r % Electronic +(%ment $%$tem' Electronic payment is an integral part of electronic commerce. <roadly de!fined, electronic payment is a financial e&change that takes place online between buyers and sellers. T%+e$ o" Electronic ;(%ment S%$tem' <anking and financial payments, Retailing payments, 3n!line electronic commerce payments Secure Electronic Tr(n$(ction (SET) +rotocol' (ET protocol meets the four security re=uirements for E$ as ((; -(ecure (ocket ;ayer0 does# authentication, encryption, integrity, and non repudiation. Securit% i$$ue$' Encryption is a techni=ue for hiding data. 2ost computer encryption systems belong in one of two categories7 there are two types of encryption methods# (ecret!key encryption, ,ublic!key encryption Di)it(l Si)n(ture' .igital signatures are used for sending authentication. This also means that the originator cannot falsely deny ha ing signed the data. In addition, a digital signature enables the computer to notari/e the message, ensuring the recipient that the message has not been forged I transit. Fire2(ll' A firewall is simply a program or hardware de ice that filters the information coming through the Internet connection into your pri ate network or computer system
270
EFT' An electronic funds transfer -also known as E4T0 is a system for transferring money from one bank to another without using paper money. Its use has become widespread with the arri al of personal computers, cheap networks, impro ed cryptography and the Internet. Credit c(rd' A credit card is a system of payment named after the small plastic card issued to users of the system. A credit card is different from a debit card in that it does not remo e money from the users account after e ery transaction. De4it c(rd' A debit card -also known as a gift card0 is a plastic card which pro ides an alternati e payment method to cash when making purchases. ,hysically the card is an I(3 G8)1 card like a credit card7 howe er, its functionality is more similar to writing a che=ue as the funds are withdrawn directly from either the cardholders bank account -often referred to as a check card0, or from the remaining balance on the card. E-c,ec3$' Electronic checks are designed to accommodate the many indi iduals and entities that might prefer to pay on credit or through some mechanism other than cash. Electronic checks are modelled on paper checks, e&cept that they are initiated electronically, use digital signatures for signing and endorsing, and re=uire the use of digital certificates to authenticate the payer, the payers bank, and bank account. Sm(rt c(rd$' (mart cards, also called stored alue cards, use magnetic stripe technology or integrated circuit chips to store customer!specific information, including electronic money. The cards can be used to purchase goods or ser ices, store information, control access to accounts, and perform many other functions. (mart cards are basically of two types# Relationship!based smart credit cards, Electronic purses. E-c($,' Electronic or digital cash combines computeri/ed con enience with security and pri acy that impro e on paper cash. .igital cash attempts to replace paper cash as the principal payment ehicle in online payments. E-to3en' An electronic token is a digital analogue of arious forms of payment backed by a bank or financial institution. Electronic tokens are of three types#
) . $ a s h o r r e a l ! t i m e . @ . . e b i t o r p r e p a i d . H . $ r e d i
t or post!paid.
NOTES
DBA 1727
NOTES
Bue$tion$ "or re7ie2 ). What is Electronic ,ayment (ystemM .iscuss the arious Electronic ,ayment (ystems. @. .iscuss about the benefits of electronic payment system. H. What is (ET protocolM What features does (ET specifyM C. .escribe security schemes against internet fraud 5. Aow do you differentiate (ecret!key cryptography and ,ublic!key cryptographyM +. Aow can you ensure and maintain pri acy, security in electronic payment. G. What is E4TM .escribe the ad antages of E4T 8. What is a credit cardM What are the pros and cons of using $redit $ards for electronic paymentM *. .escribe the ma%or steps in ol ed in an online credit card transaction. )1. ;ist the ad antages and disad antages of using credit card )). Aow do you make your credits cards information secureM )@. What is a debit cardM Aow debit card is different from credit cardM )H. .iscuss on!line and off!line debit transactions )C. ;ist the ad antages and disad antages of debit card )5. What are electronic che=uesM Aow they are different from traditional che=uesM )+. ;ist the benefits of E!check )G. $ompare E!check with other payment instruments )8. Aow electronic checks are differing from credit cardM )*. What are smart cardsM @1. $ompare and contrast smart card and traditional credit cards. @). Aow electronic purses workM @@. What are bilateral and trilateral transactionsM @H. What all are the risk factors associated with E!cashM @C. Aow e!cash effect the go ernment re enuesM @5. .iscuss the other emerging financial instruments
272
UNIT 9
NOTES
LE:AL AND ;RI9ACC ISSUES IN ECOMMERCE

-.1 LE:ALAS;ECTS OF E- COMMERCE -.1.1 Le)(l i$$ue$ The world is used to conducting business and commerce on signed paper documents. Two millennia of commerce has been based on the written document with its alue Eauthori/ed by the signature of a duly authori/ed officer. The current legal practice has paper documents and signatures affi&ed thereon as its foundation. Electronic documents and messages, without the familiar signatures and marks, ha e changes the scene. Aowe er, trade still wants to be assured that the electronic world is safe. The E$ system must, therefore, offer at least the same le el of reliability as that which obtains in the paper world notwithstanding the significant difference between the concepts embodied in electronic messages and paper documents. It is well known that frauds do take place in the traditional paper based commercial transaction. (ignatures can be forged, paper document can be tampered with, and e en the most secure marks, impression, emblems and seals can be forging. <ut then these are known, and trade as well as the legal community knows how to deal with these problems. $ompanies set aside funds to take care of losses due to such frauds. 4or e&ample, credit!cards companies do know that a ery small percentage of transactions is fraudulent in nature. The world is comfortable with these problems, since they ha e been there for as long as we ha e been trading. The E$ world, on the other hand, e&poses us to issues, which were hitherto unknown, since they are directly the outcome of creating documents electronically, transmitting them o er world wide computer communication networks. Trading partners e&change documents electronically. They need to con ince themsel es that such documents are authentic when recei ed o er
networks, and that their authentication can be established

DBA 1727
NOTES
in case of dispute. Transactions may be electronic, but the key concept of admissibility of e idence and e idential alue of electronic documents, which are central to the law, remain the same. There must be a way to pro e that a message e&isted, that it was sent, was recei ed, was not changed between the sending and recei ing, and that it could not be read and interpreted by any third party intercepting or deliberately recei ing it. The security of an electronic message, legal re=uirement, thus gets directly linked to the technical methods for security of computers and networks. 4rom the legal angle, there is a further complication because the electronic message is independent of the actual medium used for storage transmission. The message can be stored on a floppy, a magnetic disk, or an optical disk. ;ikewise, it may be transmitted o er a ;ocal Area 'etwork, a Wide Area 'etwork, a pri ate :alue Added 'etwork or the Internet. The physical medium could be coa&ial cable, radio link, optical fiber or a satellite communication channel. The legal issues of E$ ha e generated tremendous interest among technologists, traders and legal e&perts. 2any of the early E.I e&periments, and e en production systems went into operation without any legal interchange agreement between trading partners, between :A's and their customers. 'o laws for E$ e&isted7 in fact they are still in the making. In India, too the Indian $ustoms E.I system -I$E(0 ,ro%ect got off the ground in )**5 without any E$?E.I law in e&istence, or e en a proper interchange agreement. E#$ interc%ange -greement It is a known fact that a certain discipline is re=uired in the conduct of commerce in the paper world. (imple acti ities such as preparation of in oices, drawing up commercial contracts, signing, despatch, receipts etc. ha e to follow certain protocols agreed to by trading partners. These may be formal or in formal. In addition, acceptable rules of conduct are also necessary to achie e the kind of discipline re=uired for smooth and effecti e trade and commerce. In the E.I world of electronic documents, this kind of discipline has been created through a set of rules that ha e de eloped in the form of interchange agreements within a number of user groups, national organi/ation, and regions. At the international le el, the 6' has adopted the 2odel Interchange Agreement for the International $ommercial 6se of Electronic .ata Interchange, which applies to the interchange of data and not to the underlying commercial contracts between the
parties. addresses
It the
need for uniformity of agreement so that there are no barriers to international trade on account of different
solutions for arious problems being adopted by countries. The 6' has recommended that the member countries should take into account the terms and pro isions of the 2odel Interchange Agreement when framing their own laws on E$. An interchange agreement may be made between trading partners. It establishes the rules they will adopt for using E.II E. transaction. It establishes the rules they will adopt for using E.I?E$ transactions. It details the indi idual roles and legal responsibilities of trading partners for transmitting, recei ing, and storing electronic messages. The signing of an interchange agreement signifies that the parties intend to be bound by it, and that they desire to operate within a legal framework. This can help reduce legal uncertainty in the electronic en ironment. 2any of the con entions and agreements relating to international trade do not anticipate the use of E.IIE$. 2any national laws, as noted abo e, also introduce uncertainty regarding the legal alidity of electronic document. There are still ery few national and international %udgments rulingL on the alidity of electronic documents, messages or signatures. ItL is precisely in this kind of a scenario where clear legal rules and principles are absent, that an interchange agreement pro ides trading partners with readily a ailable solutions the E.I? E$ relationship between them. It pro ides a strong legal framework for ensuring that electronic documents will ha e a legal binding effect, sub%ect to national laws and regulations. The issues, which were addressed by the working party, which prepared this model Interchange Agreement, are as follows# ). (election of E.I messages, standards and the methods of communication. @. Responsibilities for ensuring that the e=uipment, software and ser ices are operated and maintained effecti ely7 H. ,rocedures for making any systems changes which may impair the ability of the trading partners to communicate. . C. (ecurity procedures and ser ices7 5. The points at which E.I messages ha e legal effect7 +. The roles and contracts of any third!party ser ice pro iders7 G. ,rocedures for dealing with technical errors7 8. The need -if any0 for confidentiality7 *. ;iabilities in the e ent of any delay or failure to meet agreed E.I communications re=uirement7
)1.
The laws go erning the interchang e of E.I messages and the arrangeme nts of the parties.
) ) . 2 e t h o d s f o r r e s o l i n g a n y p o s s i b l e
disputes.
NOTES
DBA 1727
NOTES
The interchange agreement is fle&ible enough to meet the re=uirement of all business sectors in ol ed in international trade. Trading partners can feel confident that it addresses the recognised legal issues arising from commercial use of E.I in international trade, and pro ides a strong legal and practical framework for considering and recording the necessary business decisions. Legal $ssues Commerce for $nternet
Internet commerce raises legal issues through the pro ision of the following ser ices# 3nline marketing 3nline retailing ordering of products and ser ices 4inancial ser ices such as banking and trading in securities. E&change of electronic messages and documents E.I, electronic filing, remote employee access, electronic transactions. Trade and commerce o er the Internet gi e rise to se eral legal issues . (nd t,e
-.1. Co+%ri),t Internet
$opyright de eloped in the printed world to protect the economic interests of creati e writers. $opyright law protects only the e&pression of an idea and idea itself. In due course it protects the originality of artists and inno ators too. In recent times, howe er, the sub%ect matter of copyright has further e&panded. 4or e&ample, the $opyright .esigns and ,atent Act, )*88 in the 6F, allows protection of the following sub%ect matter# 3riginal literary, dramatic, musical and artistic works7 the typographical arrangement of published editions of literary, dramatic or musical works7 sound recordings7 broadcasts7 cable programs These ha e been broadly classified into two groups as Eauthor works and Emedia works by Aector ;. 2ac=ueen. The multimedia capability of websites enables all types of work to be Epublished on the Internet in the sense that copies can be distributed to users?customers. The problems, howe er, is that unlike a paper copy, this copy can be readily duplicated and distributed further by the recipient. If the material is in the public domain there are no difficulties. <ut the copyright law applies to the downloaded matter, much the same way it applies to physical copies.
276
-.1.& I$$ue$ Rel(ted to Nuri$dic(r%
NOTES
The Internet allows anyone to set up a Website anywhere in the world. Its location could, howe er, be interpreted to decide the %urisdiction of disputes especially in E$. A Website may accept orders from isitors to the site as part of an Internet store or a shopping mall. 4or e&ample, ama/on.com is a bookstore retailing books. A court law may rule that the location of the Website determines the %urisdiction for that business. This is based on accepted legal practice. Burisdiction determines which laws would be acceptable. E$ on the Internet will grow if the parties doing business know what rules will go ern what rules go ern their acti ities. -.1.* Ser7ice ;ro7ider li(4ilit% 2any I(,s pro ide users access to shared websites, 6senet news, E!mail distribution list etc. These facilities can because by their users to upload unlawful, defamatory, copyright or trademarks infringing material. 6nlawful material includes banned publications, hate propaganda, pornography and obscene material, without I(, ha ing chance to re iew it. ;iability for materials distributed in the Internet may be different for the Website operators, and the I(,s. A' I(, could be held liable for the bulletin boards, and for aiding and abetting the commission of an offence such as the distribution of photography. (imilarly, third!party liability for defamation,!web sites, etc# KThus the concerns include libel and defamation, liability for infringement of third!party rights, liability for hosting of unlawful materials. -.1.- Form(tion o" (n En"orce(4le Online Contr(ct The growth of E$ on the Internet depends to a large e&tent on the confidence of traders in forming legally enforceable contracts online. The key acti ities associated with the formation of an enforceable contract do take place on the Internet, i/. offer is communicated by the acceptor and acceptance is recei ed by the offer or from the acceptor. An offer can be communicated orally or in writing7 and in the E$ en ironment through E! mail, Eform is alid, much the same way a fa& message is. The offer or can display terms and conditions as a legal notice, on his website. :isitor to the site, who choose to proceed further, e en after reading the notice maybe constructed as accepting the conditions imposed by it. Aowe er, the timing of the acceptance offer determines when the contract is formed. In this case the E!mail of acceptance has to reach the offer or who may
say that the contract will be legal only after its receipt -in his notice placed on the Website0.
DBA 1727
NOTES
;egal issues are manifold. Whether it is E.I o er :A's, or E$ o er the Internet the primary concern of users is the e&istence, and enforceability of appropriate laws for E$. In case of dispute, electronic document must be acceptable as legal e idence in courts of law. While the problems of acceptance of and confidence in electronic transactions are there, they are not insurmountable. There is sufficient awareness in, and synergy of action among trade, legal and E$ technologycommunities to make E$ happen through appropriate de elopments in their respecti e areas. -. ET#ICAL5 SOCIAL5 AND ;OLITICAL ISSUES IN ECOMMERCE -. .1 Et,ic$5 Soci(l (nd ;olitic(l i$$ue$ .efining the rights of people to e&press their ideas and the property rights of copyright owners are %ust two of many ethical, social, and political issues raised by the rapid e olution of e!commerce. The ethical, social, and political issues raised in e!commerce, pro ide a framework for organi/ing the issues, and make recommendations for managers who are gi en the responsibility of operating e!commerce companies within commonly accepted standards of appropriateness. 6nderstanding Ethical, (ocial, And ,olitical Issues in E!$ommerce Internet and its use in e!commerce ha e raised per asi e ethical, social and political issues on a scale unprecedented for computer technology. We li e in an Kinformation society,L where power and wealth increasingly depend on information and knowledge as central assets. $ontro ersies o er information are often in fact disagreements o er power, wealth, influence, and other things thought to be aluable. ;ike other technologies such as steam, electricity, telephones, and tele ision, the Internet and ecommerce can be used to achie e social progress, and for the most part, this has occurred. Aowe er, the same technologies can be used to commit crimes, despoil the en ironment, and threaten cherished social alues. <efore automobiles, there was ery little interstate crime and ery little federal %urisdiction o er crime. ;ikewise with the Internet# <efore the Internet, there was ery little Kcyber crime.L 2any business firms and indi iduals are benefiting from the commercial de elopment of the Internet, but this de elopment also e&acts a price from indi iduals, organi/ations, and societies. These costs and benefits must be carefully considered by those seeking to make ethical and socially responsible
decisions in this
new en ironment.
The ma%or ethical, social, and political issues that ha e de eloped around e! commerce o er the past se en to eight years can be loosely categori/ed into four ma%or dimensions# in"orm(tion ri),t$5 +ro+ert% ri),t$5 )o7ern(nce5 (nd +u4lic $("et% (nd 2el"(re as shown in 4ig 5.@.)-a0. (ome of the ethical, social, and political issues raised in each of these areas include the following# In"orm(tion ri),t$' What rights to their own personal information
do indi iduals ha e in a public marketplace, or in their pri ate homes, when Internet technology make information collection so per asi e and efficientM What rights do indi iduals ha e to access information about business firms and other organi/ationsM ;ro+ert% ri),t$' Aow can traditional intellectual property rights be enforced in an internet world where perfect copies of protected works can be made and easily distributed worldwide in secondsM :o7ern(nce' (hould the Internet and e!commerce be sub%ect to public lawsM And if so, what law!making bodies ha e %urisdiction ! state, federal, and?or internationalM ;u4lic $("et% (nd 2el"(re' What efforts should be undertaken to ensure e=uitable access to the Internet and ecommerce channelsM (hould go ernments be responsible for ensuring that schools and colleges ha e access to the InternetM Is certain online content and acti ities ! such as pornography and gambling ! a threat to public safety and welfareM (hould mobile commerce be allowed from mo ing ehiclesM To illustrate, imagine that at any gi en moment society and indi iduals are more or less in an ethical e=uilibrium brought about by a delicate balancing of indi iduals, social organi/ations, and political institutions. Indi iduals know what is e&pected of them, social organi/ations such as business firms know their limits, capabilities, and roles and political institutions pro ide a supporti e framework of market regulation, banking and commercial law that pro ides sanctions against iolators. 'ow, imagine we drop into the middle of this calm setting a powerful new technology such as the Internet and e!commerce. (uddenly indi iduals, business firms, and political institutions are confronted by new possibilities of beha ior. 4or instance, indi iduals disco er that they can download perfect digital copies of music tracks, something which, under
the old technology of $.s, would ha e been impossible. This can be done, despite the fact that these music tracks still
NOTES
DBA 1727
NOTES
KbelongL as a legal matter to the owners of the copyright ! musicians and record label companies. The introduction of the Internet and e!commerce impacts indi iduals, societies, and political institutions. These impacts can be classified into four moral dimensions# property rights, information rights, go ernance, and public safety and welfare Then business firms disco er that they can make a business out of aggregating these musical tracks ! or creating a mechanism for sharing musical tracks! e en though they do not KownL them in the traditional sense. The record companies, courts, and $ongress were not prepared at first to cope with the onslaught of online digital copying. $ourts and legislati e bodies will ha e to make new laws and reach new %udgments about who owns digital copies of copyrighted works and under what conditions such works can be Kshared.L It may take years to de elop new understandings, laws, and acceptable beha ior in %ust this one area of social impact. In the meantime, as an indi idual and a manager, you will ha e to decide what you and your firm should do in legal KgreyL! areas, where there is conflict between ethical principles, but no c)ear!cutural guidelines. Aow can you make good decisions in this type of situationM <efore re iewing the four moral dimensions of e!commerce in greater depth, we will briefly re iew some basic concepts of ethical reasoning that you can use as a guide to ethical decision making, and pro ide general reasoning principles about social political issues of the Internet that you will face in the future.
4ig 5.@.)-a0
280
-. . !($ic Et,ic(l Conce+t$' Re$+on$i4ilit% Account(4ilit%5 (nd Li(4ilit% Ethics is at the heart of social and political debates about the Internet. Ethics is the study of principles that indi iduals and organi/ations can use to determine right and wrong courses of action. It is assumed in ethics that indi iduals are free moral agents who are in a position to make choices. E&tending ethics from indi iduals to business firms and e en entire societies can be difficult, but it is not impossible. As long as there is a decision! making body or indi idual -such as a <oard of .irectors or $E3 in a business firm or a go ernmental body in a society0, their decisions can be %udged against a ariety of ethical principles. If you understand some basic ethical principles, your ability to reason about larger social and political debates will be impro ed. In western culture, there are ability and liability principles that all ethical schools of thought share# responsibility, account! liability. Responsibility means that as free moral agents, indi iduals, organi/ations and societies are responsible for the actions they take. Accountability means that indi iduals, organi/ations, and societies should be held accountable to others for the conse=uences of their actions. The third principle !liability ! e&tends the concepts of responsibility and accountability to the area of law. ;iability is a feature of political systems in which a body of law is in place that permits indi iduals to reco er the damages done to them by other actors, systems, or organi/ations. .ue process is a feature of law!go erned societies and refers to a process in which laws are known and understood and there is an ability to appeal to higher authorities to ensure that the laws ha e been applied correctly. An(l%<in) Et,ic(l Dilemm($ Ethical, social, and political contro ersies usually present themsel es as dilemmas. A dilemma is a situation in which there are at least two diametrically opposed actions, each of which supports a desirable outcome. When confronted with a situation that seems to present ethical dilemmas, how can you analy/e and reason about the situationM The following is a fi e step process that should help. Identi"% (nd de$cri4e cle(rl% t,e "(ct$. 4ind out who did what to whom, and where, when, and how. In many instances, you will be surprised at the errors in the initially reported facts, and often you will find that simply getting
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the facts straight helps define the solution. It also helps to get the opposing parties in ol ed in an ethical dilemma to agree on the facts. De"ine t,e con"lict or dilemm( (nd identi"% t,e ,i),er order 7(lue in7ol7ed. Ethical, social, and political issues always reference higher alues. 3therwise, there would be no debate. The parties to a dispute all claim to be pursuing higher alues -e.g., freedom, pri acy, protection of property, and the !enterprise system0. 4or e&ample, .ouble $lick and its supporters argue that their tracking of consumer mo ements on the Web increases market efficiency and the wealth of the entire society. 3pponents argue this claimed efficiency comes at the e&pense of indi idual pri acy, and .ouble $lick should cease its or offer Web users the option of not participating in such tracking. Identi"% t,e $t(3e,older$. E ery ethical, social, and political issue has stakeholders# players in the game who ha e an interest in the outcome, who ha e its ested in the situation, and usually who ha e ocal opinions. 4ind out the identity of these groups and what they want. This will be useful later when designing a solution. Identit% t,e o+tion$ t,(t %ou c(n re($on(4l% t(3e. 9ou may find that none of the options satisfies all the interests in ol ed, but that some options do a better %ob than others. (ometimes, arri ing at a KgoodL or ethical solution may not, always be a balancing of conse=uences to stakeholders. Identi"% t,e +otenti(l con$e@uence$ o" %our o+tion$. (ome options be ethically correct, but disastrous from other points of iew. 3ther options may work in this one instance, but not in other similar instances. Always ask yourself, Kwhat if I choose this option consistently o er timeML 3nce your analysis is complete, you can refer to the following well established ethical principle to help decide the matter.
may
-. .& ;ri7(c% (nd In"orm(tion Ri),t$ The Internet and the Web pro ide an ideal en ironment for in ading the personal pri acy of millions of users on a scale unprecedented in history. ,erhaps no other recent issue has raised as much widespread social and political concern as protecting the pri acy of o er )+1 million Web users in the 6nited (tates alone.
The ma%or ethical
issues related to ecommerce and pri acy includes the following# 6nder what conditions should we in ade the pri acy of othersM
What legitimates intruding into others li es through unobtrusi e sur eillance, market research, or other meansM The ma%or social issues related to e!commerce and pri acy concern the de elopment of Ke&ception of pri acyL or pri acy norms, as well as public attitudes. In what areas of should we as a society encourage people to think they are in Kpri ate territoryL as opposed to public iewM The ma%or political issues related to ecommerce and pri acy concern the de elopment of statutes that go ern the relations between record keepers and indi iduals. 2%e Concept of Privac( ,ri acy is the moral right of indi iduals to be left alone, free from sur eillance or interference from other indi iduals or organi/ations, including the state. ,ri acy is a girder supporting freedom# Without the pri acy re=uired to think, write, plan, and associate independently and without fear, social and political freedom is weakened, and perhaps destroyed. Information pri acy is a subset of pri acy. The right to information pri acy includes both the claim that certain information should not be collected at all by go ernments or business firms, and the claim of indi iduals to control o er personal of whate er information that is collected about them. Indi idual control o er personal information is at the core of the pri acy concept. .ue process also plays an important role in defining pri acy. The best statement of due process in record keeping is gi en by the 4air Information ,ractices doctrine de eloped in the early )*G1s and e&tended to the online pri acy debate in the late )**1s -described below0. Legal Protections In the 6nited (tates, $anada, and "ermany, rights to pri acy are e&plicitly granted in or can be deri ed from, founding documents such as constitutions, as well as in specific statutes. In England and the 6nited (tates, there is also protection of pri acy in the common law, a body of court decisions in ol ing torts or personal in%uries. 4or instance, in the 6nited (tates, four pri acy!related torts ha e been defined in court decisions in ol ing claims of in%ury to indi iduals caused by other pri ate parties intrusion on solitude, public disclosure of pri ate facts, publicity placing a person in a false light, and appropriation of a persons name or likeness -mostly concerning celebrities0 for a commercial purpose. In the 6nited (tates, the claim to pri acy against go ernment intrusion is protected
primarily by the 4irst Amendment guarantees of freedom of speech and association and the 4ourth#
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Amendment protections against unreasonable search and sei/ure of ones personal documents or home, and the 4ourteenthAmendments guarantee of due process. In addition to common law and the $onstitution, there are both federal laws and state laws that protect indi iduals against go ernment intrusion and in some cases define pri acy rights is!a! is pri ate organi/ations such as financial, education, and media institutions -cable tele ision and ideo rentals0 T(4le -. . .(() Feder(l ;ri7(c% L(2$
NAME :ener(l Feder(l ;ri7(c% L(2$ 4reedom of Information Act of )*++ "i es people the right to inspect information about themsel es held in go ernment files, also allows other indi iduals and organi/ations the right to re=uest disclosure of go ernment records based on the publics right to know Regulates the federal go ernments collection, use, and disclosure of data collected by federal agencies. "i es indi iduals right to inspect and correct records. DESCRI;TION
,ri acy Act of )*CG, as amended
Electronic $ommunications ,ri acy Act 2akes conduct that would infringe on the security of electronic communications illegal of )*8+ $omputer 2atching and ,ri acy Regulates computeri/ed matching of files held by different go ernment agencies 2akes conduct that would infringe on the security of computer based files illegal ;imits access to personal information maintained by state 2otor ehicle departments to these with legit mate business purposes Also gi es dri ers the option to pre ent disclosure of dri ers license information to marketers and the general public
,rotection Act of )*8H $omputer (ecurity Act of )*8G
.ri ers ,ri acy ,rotection Act of )**C
,ri acy ;aws affecting ,ri ate Institutions 4air $redit Reporting Act of )*G1 Regulates the credit in estigating and reporting industry. "i es people the right to inspect credit records if they ha e been denied credit and pro ides procedures for correcting information 4amily Educational Rights and ,ri acy Re=uires schools and colleges to gi e students and their parents access to student records and to allow Act of )*GC them to challenge and correct information limits disclosure of such records to third parties Right to 4inancial ,ri acy Act of )*G8 Regulates the financial industrys use of personal financial records establishes procedures that federal agencies mist follow to gain access to such records ,ri acy ,rotection Act of )*81 ,rohibits go ernment agents from conducting unannounced searches of press offices and files if no one in the office is suspected of committing a crime. $able $ommunications ,olicy Act of Regulates the cable industrys collection and disclosure of information concerning subscribers )*8C :ideo ,ri acy ,rotection Act of )*88 ,re ents disclosure of a persons ideo rental records without court order or consent
-.& ;ROTECTIN: INTELLECTUAL ;RO;ERTC
NOTES
Intellectual property is considered to be intangible property created by indi iduals or corporations. Information technology has made it difficult to protect intellectual property, because computeri/ed information can be so easily copied or distributed on networks. -.&.1 Intellectu(l ;ro+ert% Ri),t$ 'e&t to pri acy, the most contro ersial ethical, social, and political issue related to e!commerce is the fate of intellectual property rights. 4or instance, if you personally create an ecommerce site, it belongs entirely to you, and you ha e e&clusi e rights to use this KpropertyL in any lawful way you see fit. <ut the Internet potentially changes things. 3nce intellectual works become digital, it becomes difficult to control access, use, distribution, and copying. These are precisely the areas that intellectual property seeks to control. .igital media differ from books, periodicals, and other media in terms of ease of replication, transmission, and alteration7 difficulty in classifying a software work as a program, book, or e en music7 compactness ! making theft easy7 and difficulty in establishing uni=ueness. <efore widespread use of the Internet, copies of software, books, maga/ine articles, or films had to be stored on physical media, such as paper, computer disks, or ideo tape, creating some hurdles to distribution. The Internet technically permits millions of people to make perfect digital copies of arious works ! from music to plays, poems, and %ournal articles ! and then to distribute them nearly cost!free to hundreds of millions of Web users. The proliferation of inno ation has occurred so rapidly that few entrepreneurs ha e stopped to consider who owns the patent on a business techni=ue or method their site is using. The spirit of the Web has been so free!wheeling that many entrepreneurs ignored trademark law and registered domain names that could easily be confused with another companys registered trademarks. In short, the Internet has demonstrated the potential for destroying traditional conceptions and implementations of intellectual property law de eloped o er the last two centuries. The ma%or ethical issue related to e!commerce and intellectual property concerns how we -both as indi iduals and as business professionals0 should treat property that belongs to others. 4rom a social point of iew, the main =uestions are# Is there continued
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alue in protecting intellectual property in the Internet ageM In what ways is society better off, or worse off, for ha ing the concept of property apply to intangible ideasM 4rom a political perspecti e we need to ask how the Internet and ecommerce can be regulated or go erned to protect the institution of intellectual property while at the same time encouraging the growth of e!commerce and the Internet. -.&. T%+e$ ;rotection o" Intellectu(l ;ro+ert%
There are three main types of intellectual property protection# $opyright, ,atent and Trademark law.
The goal of intellectual property law is to balance two competing interests ! the public and the pri ate. The public interest is ser ed by the creation and distribution of in entions, works of art, music, literature, and other forms of intellectual e&pression. The pri ate interest is ser ed by rewarding people for creating these works through the creation of a time!limited monopoly granting e&clusi e use to the creator. 2aintaining this balance of interests is always challenged by the in ention of new technologies. In general, the information technologies of the last century ! from radio and tele ision to $.!R32s and the Internet ! ha e at first tended to weaken the protections afforded by intellectual property law. . 3wners of intellectual property ha e usually been successful in pressuring $ongress and the courts to strengthen the intellectual property laws to compensate for any technological threat, and e en to e&tend protection for longer periods of time and to entirely new areas of e&pression. In the case of the Internet and ecommerce technologies, once again, intellectual property rights are se erely challenged. 3.3.2.1 Cop(rig%t: 2%e Pro.lem of Perfect Copies and Encr(ption In the 6nited (tates, co+%ri),t law protects original forms of e&pression such as writings -books, periodicals, and lecture notes0, art, drawings, photographs, music, motion pictures, performances, and computer programs from being copied by others for a minimum of 51 years. $opyright does not protect ideas !%ust their e&pression in a tangible medium such as paper, cassette tape, or handwritten notes.
286
(ince the first federal $opyright Act of )G*1, the congressional intent behind copyright laws has been to encourage creati ity and authorship by ensuring that creati e people recei e the financial and other benefits of their work. 2ost industrial nations ha e their own copyright laws, and there are se eral international con entions and bilateral agreements through which nations coordinate and enforce their laws. In the mid!)*+1s, the $opyright 3ffice began registering software programs, and in )*81, $ongress passed the $omputer (oftware $opyright Act, which clearly pro ides protection for source and ob%ect code and for copies of the original sold in commerce, and sets forth the rights of the purchaser to use the software while the creator retains legal title. 4or instance, the AT2; code for a Web page ! e en though easily a ailable to e ery browser ! cannot be lawfully copied and used for a commercial purpose, say, to create a new Web site that looks identical. $opyright protection is clear!cut# It protects against copying of entire programs or their parts. .amages and relief are readily obtained for infringement. The drawback to copyright protection is that the underlying ideas behind a work are not protected, only their e&pression in a work. A competitor can iew the source code on your Web site to see how arious effects were created and then reuse those techni=ues to create a different Web site without infringing on your copyright. Loo" and 5eel K;ook and feelL copyright infringement lawsuits are precisely about the distinction between an idea and its e&pression. 4or instance, in )*88, Apple $omputer sued 2icrosoft $orporation and Aewlett!,ackard Inc. for infringing Apples copyright on the 2acintosh interface. Among other claims, Apple claimed that the defendants copied the e&pression of o erlapping windows. Apple failed to patent the idea of o er!lapping windows when it in ented this method of presenting information on a computer screen in the late )*+1s. The defendants counter claimed that the idea of o erlapping windows could only be e&pressed in a single way and, therefore, was not protect able under the KmergerL doctrine of copyright law. When ideas and their e&pression merge -;e., if there is only one way to e&press an idea0, the e&pression can!not be copyrighted, although the method of producing the e&pression might be patentable. 5air ;se #octrine $opyrights, like all rights, are not absolute. There are situations where strict copyright obser ance could be harmful to society, potentially inhibiting other
rights such as
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the right to freedom of e&pression and thought. As a result the doctrine of fair use has been created. The doctrine o" "(ir u$e permits teachers and writers. to use copyrighted materials without permission under certain circumstances. The fair use doctrine draws upon the 4irst Amendments protection of freedom of speech -and writing0. Bournalists, writers, and academics must be able to refer to, and cite from, copyrighted works in order to critici/e or e en discuss copyrighted works. ,rofessors are allowed to clip a contemporary article %ust before class, copy it, and hand it out to students as an e&ample of a topic under discussion. 3.3.2.2 Patents: Processes Business !et%ods and
A patent grants the owner an e&clusi e monopoly to the ideas behind an in ention for @1 years. The congressional intent behind patent law was to ensure that in entors of new machines, de ices, or industrial methods would recei e the full financial and other rewards of their labor and yet still makes widespread use of the in ention possible by pro iding detailed diagrams for those wishing to use the idea under license from the patents owner. ,atents are obtained from the 6nited (tates ,atent and trademark 3ffice -6(,T30, created in )8)@. 3btaining a patent is much more difficult and time!consuming than obtaining copyright protection -which is automatic with the creation of the work0. ,atents must be formally applied for, and the granting of a patent is determined by E,atent 3ffice e&aminers who follow a set of rigorous rules. 6ltimately, federal courts decide when patents are alid and when infringement occurs. ,atents are ery different from copyrights because patents protect the ideas themsel es and not merely the e&pression of ideas. There are four types of in entions for which patents are granted under patent law# m(c,ine$5 m(n-m(de +roduct$5 com+o$ition$ o" m(tter5 (nd +roce$$in) met,od$. The (upreme $ourt has determined that patents e&tend to Kanything under the sun that is made by manL as long as the other re=uirements of the ,atent Act are met. There are three things that cannot be patented# laws of nature, natural phenomena, and abstract ideas. 4or instance, a mathematical algorithm cannot be patented unless it is reali/ed in a tangible machine or process that has a KusefulL result -the mathematical algorithm e&ception0. In order to be granted a patent, the applicant must show that the in ention is new, original, no el, non ob ious, and not e ident in prior arts and practice. As
with copyrights,
the granting of patents has mo ed far beyond the original intent of $ongresss first patent statute that sought to protect industrial designs and machines. ,atent protection has been e&tended to articles of manufacture -)8C@0, plants -)*H10, surgical and medical procedures -)*510, and software -)*8)0. The ,atent 3ffice did not accept applications for software patents until a )*8) (upreme $ourt decision that held that computer programs could be a part of a patentable process. (ince that time, thousands of software patents ha e been granted. :irtually any software program can be patented as long as it is no el and not ob ious. Essentially, as technology and industrial arts progress, patents ha e been e&tended to both encourage entrepreneurs to in ent useful de ices and promote widespread dissemination of the new techni=ues through licensing and artful imitation of the published patents -the creation of de ices that pro ide the same functionality as the in ention but use different methods0 -Winston, )**80. ,atents encourage in entors to come up with uni=ue ways of achie ing the same functionality as e&isting patents. 4or instance, Ama/ons patent on one!click purchasing caused <arnesandnoble.com to in ent a simplified two!click method of purchasing. The danger of patents is that they stifle competition by raising barriers to entry into an industry. ,atents force new entrants to pay licensing fees to incumbents, and thus slow down the de elopment of technical applications of new ideas by creating lengthy licensing applications and delays. E-commerce Patents 2uch of the Internets infrastructure and software was de eloped under the auspices of publicly funded scientific and military programs in the 6nited (tates and Europe. 6nlike (amuel 4. <. 2orse, who patented the idea of 2orse $ode, and made the telegraph useful, most of the in entions that make the Internet and e!commerce possible were not patented by their in entors. The early Internet was characteri/ed by a spirit of worldwide community de elopment and sharing of ideas without consideration of personal wealth. This early Internet spirit changed in the mid!)**1s with the commercial de elopment of the World Wide Web. <usiness firms began applying for Kbusiness methodsL and software patents.
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FBusiness !et%odsG Patents In )**8, in a landmark decision that pa ed the way for Internet business methods patents, a 4ederal $ircuit $ourt of Appeals in the State Street ;an# < =>ust v. Signature Financial ,roup& Inc.Financial ,roup& Inc. case upheld the claims of (ignature 4inancial to a alid patent for a business method that allows managers to monitor and record financial information flows generated by a partner fund - a Khub and spokeL system0. In hub and spoke financial systems, mutual funds -the spokes0 pool their funds into a single portfolio to achie e greater financial le erage, di ersification, and higher returns. (ignature 4inancial had in ented and obtained a patent -K.ata ,rocessing (ystem for Aub and spoke 4inancial (er ices $onfigurationL0 on such a system in )**H. (tate (treet <ank > trust attempted to license the system from (ignature 4inancial, but when negotiations broke down, (tate (treet sought to ha e the patent declared in alid and unenforceable because business methods could not be patented. Aowe er, the 4ederal Appeals $ourt threw out the so! called business methods e&ception under which it was thought business methods could not be patented. The court concluded that business methods should be treated like any process and that (ignature 4inancial had in ented a business method that could be patented. The court ruled there was no reason to disallow business methods from patent protection, or any Kstep by step process, be it electronic or chemical or mechanical, that in ol es an algorithm in the broad sense of the term.L 3.3.2.3 2rademar"s: Online $nfringement and #ilution Trademark law is a form of intellectual property protection for trademarks ! a mark used to identify and distinguish goods and indicates their source. Trademark protections e&ist at both the federal and state le els in the 6nited (tates. The purpose of trademark law is two fold. 4irst, the trademark law protects the public in the market!place by ensuring that it gets what it pays for and wants to recei e. (econd, trademark law protects the owner ! who has spent time, money, and energy bringing the product to the marketplace ! against piracy and misappropriation. ETrademarks ha e been e&tended from single words to pictures, shapes, packaging, and colorsL. (ome things may not be trademarked# common words that are merely descripti e -KclockL0, flags of states and nations, immoral or decepti e marks, or marks belonging to others. 4ederal trademarks are obtained, first, by use in interstate commerce, and second, by registration with the 6.(. ,atent and ETrademark 3ffice -6(,T30.
ETrademarks are
granted for a period of ten years, and can be renewed indefinitely.

.isputes o er federal trademarks in ol e establishing infringement. The test for infringement is twofold# mar"et confusion and .ad fait%. 6se of a trademark that creates confusion with e&isting trademarks, causes consumers to make market mistakes, or misrepresents the origins of goods is an infringement. In addition, the intentional misuse of words and symbols in the marketplace to e&tort re enue from legitimate trademark owners -Kbad faithL0 is proscribed. In )**5, $ongress passed the 4ederal ETrademark .ilution Act, which created a federal cause of action for dilution of famous marks. This new legislation dispenses with the test of market confusion -although that is still re=uired to claim infringement0, and e&tends protection to owners of famous trademarks against dilution5 which is defined as any beha ior that would weaken the connection between the trademark and the product. .ilution occurs through lurring -weakening the connection between the trademark and the goods0 and tarnishment -using the trademark in a way that makes the underlying products appear unsa oury or unwholesome0. -.* CC!ER LA?5 CONTRACTS AND ?ARRANTIES -.*.1 C%4er l(2 C%4er l(2 is a term used to describe the legal issues related to use of communications technology, particularly KcyberspaceL, i.e. the Internet. It is less a distinct field of law in the way that property or contract are, as it is an intersection of many legal fields, including intellectual property, pri acy, freedom of e&pression, and %urisdiction. In essence, cyber law is an attempt to apply laws designed for the physical world to human acti ity on the Internet. Nuri$diction (nd $o7erei)nt% Issues of %urisdiction and so ereignty ha e =uickly come to the fore in the era of the Internet. The Internet does not tend to make geographical and %urisdictional boundaries clear, but Internet users remain in physical %urisdictions and are sub%ect to laws independent of their presence on the Internet. As such, a single transaction may in ol e the laws of at least three %urisdictions# )0 the laws of the state?nation in which the user resides, @0 the laws of the state?nation that apply where the ser er hosting the transaction is located, and H0 the
NOTES
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laws of the state?nation which apply to the person or business with whom the transaction takes place. (o a user in one of the 6nited (tates conducting a transaction with another user in <ritain through a ser er in $anada could theoretically be sub%ect to the laws of all three countries as they relate to the transaction at hand. Another ma%or problem of cyber law lies in whether to treat the Internet as if it were physical space -and thus sub%ect to a gi en %urisdictions laws0 or to act as if the Internet is a world unto itself -and therefore free of such restraints0. Those who fa or the latter iew often feel that go ernment should lea e the Internet community to self!regulate. Bohn ,erry <arlow, for e&ample, has addressed the go ernments of the world and stated, KWhere there are real conflicts, where there are wrongs, we will identify them and address them by our means. We are forming our own (ocial $ontract. This go ernance will arise according to the conditions of our world, not yours. 3ur world is differentL -<arlow, A .eclaration of the Independence of $yberspace0. A more balanced alternati e is the .eclaration of $yber secession# KAuman beings possess a mind, which they are absolutely free to inhabit with no legal constraints. Auman ci ili/ation is de eloping its own -collecti e0 mind. All we want is to be free to inhabit it with no legal constraints. (ince you make sure we cannot harm you, you ha e no ethical right to intrude our li es. (o stop intrudingXL. 3ther scholars argue for more of a compromise between the two notions, such as ;awrence ;essigs argument that KThe problem for law is to work out how the norms of the two communities are to apply gi en that the sub%ect to whom they apply may be in both places at onceL -;essig, $ode )*10. -.*. Contr(ctin) (nd Contr(ct En"orcement in EC Any contract includes three essential elements# an offer, an acceptance and consideration. The $ontract is formed when one party accepts the offer of another party. An o""er is a commitment with certain terms made to another party such as declaration of willingness to buy or sell a product or ser ice. An (cce+t(nce is the e&pression of willingness to take an offer, including all of its stated terms. Con$ider(tion is the agreed upon e&change of something aluable, such as money, property or future ser ices. $ontracts are a key element of traditional business practice, and they are
e=ually important on the Internet. 3ffers
and acceptances can occur when parties e&change e! mail messages, engage in electronic data interchange -E.I0 or fill out forms on web pages.
292
These Internet communications can be combined with traditional methods of forming contracts, such as e&change of paper documents, fa&es and erbal agreements made o er the telephone or in person. When enforcing contracts, courts tend to iew offers and acceptances as actions that occur within a particular conte&t. If the actions are reasonable under the circumstances, courts tend to interpret those actions as offers and acceptances. 4or e&ample, courts ha e held the arious actionsNincluding mailing a check, shipping goods, shaking hands, nodding ones head, taking an item off a shelf, or opening a wrapped packageNare all, in some circumstances, legally binding acceptances of offers. +riting Contracts on t%e *e. An early decision in the )811s held that a telegraph transmission was writing. ;ater courts ha e held that tape recordings of spoken words, computer files on disks and fa&es are writings. Thus the parties to an electronic commerce contract should find it relati ely easy to satisfy the writing re=uirement. $ourts ha e been similarly generous in determining what constitutes a signature. A $i)n(ture is any symbol e&ecuted or adopted for the purpose of authenticating writing. It is reasonable to assume that a symbol or code included in an electronic file would constitute a signature. 4irms concluding international electronic commerce do not need to worry about the signed writing re=uirement in most cases. The main treaty that go erns international sales of goods, Article )) of the 6nited 'ations $on ention on $ontracts for the International (ales of "oods -$I("0, re=uires neither a writing nor a signature to create a legally binding acceptance. -.*.& ?(rr(ntie$ on t,e 2e4 Any contract for the sale of goods includes implied warranties. A seller implicitly warrants that the goods it offers for sale are fit for the purposes for which they are normally used. If the seller knows specific information about the buyers re=uirements, acceptance of an offer from the buyer may result in an additional implied warranty of fitness, which suggests that the goods are suitable for the specific uses of the buyer. (ellers could create e&plicit warranties, often unintentionally, by making general statements in brochures or other ad ertising
materials about product performance or suitability for particular tasks.
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NOTES
-.-. TAFATION AND ENCRC;TION ;OLICIES' -.-.1 Introduction on T(.(tion Electronic $ommerce -KEcommerceL0 presents uni=ue challenges to federal and state ta& authorities. Ecommerce in ol es commerce using the Internet# typically purchases and sales through computers. <ecause Ecommerce in ol es computers communicating with each other at the speed of light, transactions are both instantaneous and largely anonymous. In contrast, mail order and telephone solicitation, two traditional forms used by remote sellers, in ol e the deli ery of goods from a specific physical location to a specific location by means of a common carrier. Although states and local %urisdictions ha e wrestled with the issue of collecting ta&es from out!of!state mail order sellers and telephone solicitors for decades, the internet allows almost any small business to sell to customers in different states and countries. The concept of ta&ation in ol es %urisdiction. 4rom the <oston Tea ,arty Rebellion in which tea was ta&ed as it physically landed onAmerican shores, to sophisticated concepts in international ta&ation, a go ernments authority to ta& has always been based on territory and %urisdiction. 4or instance, the 6.(. go ernment ta&es its residents on their world!wide income because they are connected with the 6.(. through citi/enship and residency. Also, the 6.(. ta&es foreign indi iduals and businesses who are recei ing income from 6.(. sources. <ut the 6.(. cannot ta& a foreign citi/en who is not a 6.(. resident on earnings from a foreign source. With the internet, a business can mo e to so!called ta& ha en %urisdictions and conduct business outside the ta&ing %urisdiction of any country. Also, because of the speed in which transactions occur and the absence of a traditional paper trail, especially with intangible property transmitted by computer such as software, digital music or books and ser ices, it will be ery difficult, if not impossible to apply traditional notions of %urisdiction to ta& these transactions. While go ernments who rely on an income ta& to fund themsel es will ha e great difficulty ta&ing Ecommerce, states and local %urisdictions that rely on sales and property ta&es to fund their operations are in steep trouble. As discussed below, the 6.(. constitution re=uires a sufficient physical connection with the state or local %urisdiction by a company to
294
burden the business with a ta& obligation, and merely selling property, ser ices or goods to a customer who resides in a state is not sufficient ne&us. In short, it will take a $onstitutional amendment to change the commerce clause, and it e&tremelydoubtful that 6.(. citi/ens will ote to ta& themsel es on internet transactions. In fact, outside of pressure from state and local ta& authorities, there is little ground swell for internet ta&ation by politicians. According to a "allup ,oll, GHD of acti e internet users oppose an internet sales ta&, compared to )CD in fa or -(ource# (an 4rancisco $hronicle, (eptember )5, )***, page .@0. According to H+D of the respondents who use the internet, theywould be less likelyto ote for a politician who oted to ta& internet transactions. <ut brick and mortar retailers who sell their products in physical locations, contend that internet ta&es are needed to e=uali/e the ta& burden for competiti e reasons. Some o" t,e uni@ue "e(ture$ o" Ecommerce include' $omputer!to!$omputer transactions without a paper trail7 Anonymous transactions, especially if a new form of electronic cash takes hold7 ;ack of information on the location of the seller and purchaser7 Electronic deli ery of goods -books, $.s and mo ies in electronic form0 and ser ices -brokerage or accounting ser ices07 and <undling of ta&able and non!ta&able items, such as ta&able goods with ta&! e&empt ser ices.
$ongress noted that the internet was inherently susceptible to multiply and discriminatory ta&ation in ways that traditional commerce was not. $ongress was concerned that because internet
-.-. Current L(2 - A Mor(torium on Internet T(.e$ $urrently, under the Internet Ta&ation 4reedom Act -KIT4AL0, passed in )*88 there is a H!year moratorium on federal and state ta&ation imposed on internet transactions. The moratorium began on 3ctober @), )**8 and remains in effect until 3ctober @), @11). IT4As purpose is to halt the rush by states to ta& transactions occurring on the internet until $ongress has had the opportunity to study the issue and make recommendations. $ongress reali/ed that the internet needed time to grow as a iable medium for commerce, without being sub%ected to ta&ing regimes imposed by the states.
NOTES
DBA 1727
NOTES
transactions in ol ed a number of computers and routers, routing transactions throughout the country and e en throughout the world, potentially do/ens of %urisdictions could attempt to ta& a single transaction. Thus, IT4A would protect internet business from being ta&ed in complicated and une&pected ways by remote %urisdictions. Di$crimin(tor% T(.e$ A discriminatory ta& traditionally in ol ed a ta& that fa ored local commerce o er interstate commerce, but the definition under IT4A has been broadened to include the co erage of the ta&, its application or a differential ta& rate. In other words, if an ecommerce transaction is sub%ect to a ta& that is any different from a ta& imposed on similar property, goods or ser ices through other means, then the ta& is discriminatory. E&ample# If the purchase of a book o er the internet is sub%ect to a ta& that is different from purchasing a book in a bookstore, the ta& is discriminatory. The same would be true if the ta&ing authority charged a higher rate of ta& for ecommerce purchases of books. Aowe er, it is permissible to charge a lower rate on an ecommerce transaction. It other works, a ta&ing %urisdiction may discriminate in fa or of ecommerce. Ecommerce conducted by out!of!state endors do not ha e an obligation to collect sales ta&es if traditional remote sellers, such as mail!order and telephone solicitation endors do not collect sales ta&es. (ales ta& cannot be le ied on because the purchaser uses ecommerce to access the sellers computer to ac=uire property, goods or ser ice. Also, states cannot use an Kagency ne&usL theory to claim that a purchasers I(, is an in!state agent for the seller. E&ample# If a purchaser in $alifornia uses his computer to connect with a booksellers computer located in 'e ada, no state or political subdi ision may le y a sales ta&, e en if the purchaser used a $alifornia I(, to connect to the internet. E&ample# If a 'e ada!based seller hosts his website on a $alifornia computer and a $alifornia resident purchases a book, $alifornia cannot claim there is an agency ne&us to ta& the transaction. In addition, if a remote seller in one state, uses a computer in another state
for internet access or online
ser ices, there is no agency relationship between the remote seller and the company pro iding the access or online ser ices.
E&ample# A 'ew Aampshire company, with no physical presence in $alifornia, hosts its website with a $alifornia I(,, $alifornia cannot impose a sales ta& on transactions because a $alifornia I(, was in ol ed. If books, maga/ines, newspapers or forms of tangible information are not sub%ect to sales ta&, then downloads of that same information cannot be ta&ed. A ta& obligation cannot be imposed on a different entity such as a credit card company, if the endor selling the product, ser ice or property would be the entity responsible to collect sales ta& under con entional commerce. Multi+le T(.e$ 2ultiple ta&es on the same transaction or ser ice either in the same ta&ing %urisdiction or tow or more ta&ing %urisdictions are prohibited. There is an e&ception if the ta& is imposed by a state and a local subdi ision, such as $alifornias sales ta& and (an 4rancisco $ountys add!on sales ta& for it <ayArea Rapid Transit. This could occur if a state ta&ed internet access ser ices as telecommunications ser ices and then ta&ed located telephone ser ices as well. 6nless a credit is gi en to eliminate any double!ta&ation, such a ta& would iolate the prohibition against multiple ta&ation. E.ce+tion$ tr(n$(ction$. to ITFA
NOTES
:endors who knowingly conduct ecommerce in ol ing obscene or materials that are otherwise harmful to minors cannot rely on IT4Aas a defense against ta&ation. Aowe er, the endor can use IT4A as a defense if he uses credit card erification or procedures to insure he is dealing with persons o er age )G. The e&ception does not apply to internet information and search ser ices such as 9ahoo, ;ycos or Alta :ista or I(,s that host such websites or telecommunication companies that transmit information o er the internet. <undled software that includes protected ecommerce or internet applications are protected under IT4A, but only in proportion to the ecommerce or internet applications.
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DBA 1727
NOTES
3.3.3 2a:ation of Ecommerce - 2%e Significant $ssues 'e&us ! The 4oundation of (tate and ;ocal Ta&ation The Interstate $ommerce $lause of the 6.(. $onstitution pre ents the states and their political subdi isions from imposing ta&es that unduly burden interstate commerce. The key issue is whether the company that is being ta&ed as sufficient connection -ne&us0 with the ta&ing authority. E.(m+le' A company that operates in 'e ada and does not sell products in $alifornia or to $alifornia residents cannot be ta&ed by $alifornia. $on erse, both $alifornia and (an 4rancisco ha e the right to ta& a company physically located in (an 4rancisco, such as a hotel, e en though the guests might reside in another state. The problem comes when a business is not physically located in $alifornia, but sells to $alifornia residents. 6nder what circumstances may $alifornia le y a ta& on sales to $alifornia residentsM In \uill 'orth .akota, 51C 6.(. @*8, )**@, the 6.(. (upreme $ourt held that a remote seller could be re=uired to collect sales ta&es only if the seller had the re=uisite ne&us with the buyers state. \uill corporation sold office furniture products through a catalogue. Although it was not physically present in 'orth .akota and did not ha e a sales agents in the state, the 'orth .akota (upreme $ourt held that by selling its product to 'orth .akota customers, \uill established an economic presence in 'orth .akota which created ne&us for sales ta& purposes. The 6.(. (upreme $ourt held otherwise and ruled that a state could impose a re=uirement that a company collect and remit sales ta&es, the company had to ha e substantial connections -a physical presence0 with the state. 6nder the commerce clause, a mail! order company without a physical location, employees or sales agents in 'orth .akota could not be compelled to collect sales ta& on its sales to 'orth .akota customers. It is the commerce clauses concept of ne&us that prohibits most ecommerce transactions from being ta&ed. In general, the duty to collect a sales or use ta& depends on where the sale is located and whether the buyer is a consumer or a business. Three general rules apply# ). Retail sales by enders to in!state consumers are sub%ect to sales ta& on the purchase, but the endor has the obligation of collect and remit the ta& to the
ta& agency.
@.
3ut!of!state endors making consumer sales are not re=uired to collect and remit sales ta&es, unless the endor has sufficient ne&us under the commerce clause with the purchasers state to re=uire collection. If the out!of!state endor cannot be re=uired to collect the ta&, then the consumer is legally obligated to pay a self!assessed ta& directly to the ta&ing agencies on the purchase. This is usually referred to as a KuseL ta&, instead of a sales ta&, since the consumer is paying a ta& for the use of the property. As a practical matter, this is irtually impossible to enforce, hence the emphasis on re=uiring out!of!state endors to collect and remit the ta&.
H.
cannot ta& remote sellers anyway, unless they ha e sufficient ne&us with the state. This means that mail order and
The absence of ne&us in the mail order cases is profoundly greater in the Ecommerce conte&t. 'ot only do internet companies not ha e physical presence in the ta&ing %urisdiction, often then can be located outside the %urisdiction of the 6.(. altogether. E en if a transaction can be theoretically ta&ed, in reality, Ecommerce transactions occur instantaneously and without identity of the sellers or buyers location. <ecause the sales ta& is destination based, unless a state or locality can pinpoint the physical location of the seller and buyer, it is impossible to determine %urisdiction for sales ta& purposes. E.(m+le' $alifornia wants to apply a sales ta& to the sale of software to its residents. In order to $alifornia to le y the ta&, it must determine that the purchase is a $alifornia resident and that the seller has sufficient ne&us with $alifornia to be re=uired to collect and remit the sales ta&. Without ascertaining the location of the seller or buyer, $alifornia cannot determine whether the purchaser was a $alifornia resident and whether the seller had sufficient physical presence in $alifornia. Note' If the goods or property purchased are tangible, such as an actual book, $. or a shirt, then the traditional notions applicable to mail order ta&ation could be applied since it could be ascertained where the goods were shipped and where they were deli ered. +ill Ecommerce /eall( Erode t%e 2a: Base for States and Localities8 Although state and local ta& officials e&press gra e concern that the Ecommerce will decimate the ability for states and localities to le y ta&es on these transactions, this response might be o erblown. $urrently, states and localities
NOTES
DBA 1727
NOTES
telephone solicitation commerce by remote sellers is not sub%ect to ta&. 6nless the (upreme $ourt drastically alters its reading of the $onstitutionss commerce clause, or there is a constitutional amendment allowing ta&ation of remote sellers, Ecommerce merely continues the trend to a oid ta&es by engaging in remote selling without a physical presence. 2ost ser ices and intangible products are not currently sub%ect to sales ta&es anyway. In $alifornia, ser ices, such as legal, accounting, and medical costs, are not sub%ect to sales ta&es. 'either are food or medicine. Therefore, Ecommerce in ol ing intangible goods or ser ices will not cause an erosion of the ta& base. E en if a remote seller is not sub%ect to sales ta& rules, a states citi/en is supposed to self!assess a use ta& which is e=ual to the sales ta&, but the states ha e been la& in enforcing this re=uirement. The answer to Ecommerce ta&ation in particular and remote selling in general, is to re=uire a state or localitys resident to self!assess the ta& that should ha e been collected by the remote seller. There is no prohibition against the use ta&7 the problem lies in enforcement. Therefore, although Ecommerce pre ents states from forcing remote sellers from collecting and remitting sales ta&, the ultimate ta& liability is not affected since in!state consumers ha e the legal ta& liability to self!assess and pay the ta& anyway. Although Ecommerce in rapidly growing, as of )*88, it represents much less than )D of total consumer spending. Remember that business!to!business sales are sub%ect to use ta& payments by in!state businesses, and appro&imately 81D of current Ecommerce is business!to!business. To the e&tent Ecommerce is merely a substitute for other remote seller transactions, Ecommerce does not affect the ta& base since remote sales in ol ing mail order or telephone solicitation are e&empt from sales ta& under the commerce clause. There is e idence that e en if all Ecommerce was sub%ect to sales ta&es, the re enue generated to the states and localities would represent about one!tenth of one percent of all sales and use ta&es collected. Also, sales and use ta&es continue to grow, despite Ecommerce.
300
-.-.* T,e Future "or Ecommerce T(.(tion
NOTES
The $ommission on Electronic $ommerce, created by the IT4A legislation, has not been able to make any headway in the ta&ation debate, but se eral members ha e oice support for Internet ta&es, pro ided the ta& is simple to calculate for businesses. This could mean a uniform ta& rate agreed to by all the states, or technological ad ances that would allow businesses to calculate the sales ta& simply and without a large in estment in time and resources. 6nfortunately, the current state and local ta& systems, which number close to G,511 throughout the 6.(., are notoriously parochial minded when it comes to defending their %urisdiction. In Te&as alone, there are more than ),H11 separate sales ta& %urisdictions. These numbers could be significantly increased if states and local %urisdictions were allowed to ta& Ecommerce. (mall businesses would be buried in costly paperwork attempting to comply with all these rules. That is precisely why the commerce clause in the $onstitution prohibits ta&es and is an undue burden on interstate commerce. -.-.- Encr%+tion +olic%' Encryption is a techni=ue for hiding data. The encrypted data can be read only by those users for whom it is intended. 'owadays arious encryption techni=ues are a ailable. 3ne of the a ailable techni=ues commonly used for encryption is ,ublic Fey. In ,ublic Fey encryption system, R(A .ata (ecurity of Redwood $ity offers the most popular and commercially a ailable algorithm. In a ,ublic Fey encryption system each user has two keys!public key and pri ate key. The encryption and decryption algorithms are designed in a way so that only the pri ate key can decrypt data that is encrypted by the public key. And the public key can decrypt data, encrypted by the pri ate key. Therefore, one can broadcast the public key to all users. $omputer encryption is based on the science of cryptography, which has been used throughout history. <efore the digital age, the biggest users of cryptography were go ernments, particularly for military purposes.
DBA 1727
NOTES
2ost computer encryption systems belong in one of two categories. <roadly speaking, there are two types of encryption methods# (ecret!key cryptography ,ublic!key cryptography
D(t( Encr%+tion St(nd(rd (DES) A widely!adopted implementation of secret!key cryptography is .ata Encryption (tandard -.E(0. The actual software to perform .E( is readily a ailable at no cost to anyone who has access to the Internet. .E( was introduced in )*G5 by I<2, the 'ational (ecurity Agency -'(A0, and the 'ational <ureau of (tandards -'<(0 -which is now called 'I(T0. .E( has been e&tensi ely researched and studied o er the last twenty years and is definitely the most well! known and widely used cryptosystem in the world. .E( is secret!key, symmetric cryptosystem# When used for communication, both sender and recei er must know the same secret key, which is used both to encrypt and decrypt the message. .E( can also be used for single user encryption, for e&ample, to store files on a hard disk in encrypted form. In a multi!user en ironment, howe er, secure!key distribution becomes difficult7 public!key cryptography, discussed in the ne&t subsection, was de eloped to sol e this problem. .E( operates on +C!bit blocks with a 5+!bit secret key. .esigned for hardware implementation, it operation is relati ely fast and works well for large bulk documents or encryption. Instead of defining %ust one encryption algorithm, .E( defines a whole family of them. With a few e&ceptions, a different algorithm is generated for each secret key. This means that e erybody can be told about the algorithm and your message will still be secure. 9ou %ust need to tell others your secret key a number less than @5+. The number @5+ is also large enough to make it difficult to break the code using a brute force attack -trying to break the cipher by using all possible keys0. .E( has withstood the test of time. .espite the fact that its algorithm is well known, it is impossible to break the cipher without using tremendous amounts of computing power. Anew techni=ue for impro ing the security of .E( is triple encryption -Triple .E(0, that is, encrypting each message block using three different keys in succession. Triple .E(, thought to be e=ui alent to doubling the key si/e of .E(, to ))@ bits, should pre ent decryption by a third party capable of single!key e&hausti e search. 3f course, using triple!encryption takes three times as long as single! encryption .E(. If you use .E( three times on the same message with different secret
302
keys, it is irtually impossible to break it using e&isting algorithms.. 3 er the past few years se eral new, faster symmetric algorithms ha e been de eloped, but .E( remains the most fre=uently used. -.-./ Cu$tomerM$ Online 1. ;re$ent(tion The look of a site con eys a sense of personality and influences the degree to which isitors are prepared to trust the site owner. If an organisation already has a corporate identity then the site should be consistent with this. 3n!screen design and copy styles should reflect e&isting printed literature. Acompanys colours may need re!working online, to a new palette that is fast to download to the computer screen. .e eloping a brand to work online is a new task. The internet is tactile ! web pages should look, sound and mo e in ways that reinforce the companys e&isting image. . N(7i)(tion If customers walk into a new high street shop they can usually find their way around. There are con entions for laying out a shop and customers unconsciously understand and follow them. 3nline con entions are still being de eloped. Therefore, some %udgement will be needed to make first!time isits successful. The challenge is to create enticement Q to e&plore the store ! without customers getting lost. 3n the home page a sites purpose must be clear to the first!time isitor. 6se simple words to describe the sites content and make it easy for isitors to find what they are looking for by gi ing clear instructions. &. Ful"ilment "oods ha e now been selected and your customer has made it to the checkout. At this point most shopping carts are abandoned. Websites can keep customers trust by taking them through a transparent transaction process. At all times customers should know where they are in the checkout process and they should be able to find out what happens later. It must be easy to see# Aow orders Tru$t
are to be processed The companys returns policy. 3nline and offline customer support ser ices The companys security policy for
NOTES
DBA 1727
NOTES
personal information. If you ha e shops on the high street, gi e customers the option to return goods there. And remember to train your staff to handle returned online orders. *. F(mili(r N(me$ P Lo)o$ 'ames that we know and trust are familiar and friendly. If we see them on a website we trust the website more. $ustomers trust sites where they can see the familiar logos of credit card brands, ma%or software companies and web security organi/ations. If your company is trusted by these organi/ations, dont hide it. (hould your company ha e a familiar name, use it to build customer e&pectation of the sites content, the =uality of products and the le el of ser ice support. Web customers will ha e higher ser ice e&pectations than offline customers. They may e&pect ser ice deli ered in real time, with transparency and, abo e all, with consistency. -. Tec,nolo)% Too much technology can be daunting. 6se technology as a transparent aid to na igation and acti ity. Aim for graphics and functions in proportion to your customers needs. These needs will change with your customers e&perience. Are you handling isitors new to the web trade or de oteesM

'ewcomers need signposts and easy na igation. 3ld hands need =uick routes to e ery part of the site.
9ounger isitors and technically aware customers may be more tolerant of higher technical demands. 2ake sure that technology supports your sales process and does not obscure it# Automatically recognise returning customers Aelp to complete forms correctly .esign forms to work with software programs that automatically add user details to the form -.-.0 Ste+$ to ;l(n Succe$$"ul E-Commerce Re$+ond F($t If the plan is to respond to customer wishes, then the most successful plan will be the one that responds fastest. This means that e ery component of the plan should be built
304
with the intention of pro ing a principle. Ask yourself if your customers want thisM If they do, then a more robust ersion can be built. If they dont, then you can redirect your time and resources and use the knowledge gained to good effect elsewhere. Te$t ;l(n out Cour
comple& ser ices. $omple&ity often arises from integrating tried and tested stand! alone ser ices.
In the online marketplace e erything is a test until its pro en by the customer. (uccessful testing follows a simple rule# Te$t one T,in) (t ( Time 3nly test changes that can be measured directly. If a test includes more than one change, its almost always impossible to measure the effect of each one. Test to learn from the customer and to impro e one step at a time. C,(llen)e A$$um+tion$ Intern(l
Remo e internal processing costs to make dramatic impro ements to profit margins. Analyse each sales process to clarify what it is that staff spend time doing. In particular, look for processes in which information is transferred. Aow many steps can be eliminated by outsourcing tasks to your customers and suppliersM Who is best placed to make the original information entryM $an that information be shared to a oid reentering the same informationM What information could customers, suppliers and distributors find for themsel es, computer to computerM With the time sa ed, what could your staff do to add more alue for customersM 5ocus on Benefits Customer7 Supplier H #istri.utor
Whats in it for customers, suppliers and distributorsM Aa e you asked what theyd likeM The webs ery good at research. Are you offering them a new way to use an e&isting ser ice or a completely new ser iceM Is it faster, cheaper, more con enient or %ust new and onlineM What new information do they getM .ecide what you can reliably offer each group now and plan a phased introduction of more
NOTES
305
DBA 1727
NOTES
:i7e :ood Re($on$ to U$e Online Ser7ice$ 'ot all customers will automatically mo e to an online ser ice simply because its there. E=ually, in a ser ices early stages it may not make good sense to risk o erwhelming a new online channel by =uickly mo ing large numbers of customers o er to the new ser ice. If you prefer customers to use an online channel, find ways to# Inform them that it is there -they may not know this0 Tell them how to change o er Incenti ise the swap to make it worthwhile Introduce the new ser ice as a special pri ilege beta test programme C(lcul(te t,e T,ree Set$ o" Co$t$ :ery few organisations ha e all the resources in!house to start offering online ser ices. There are three sets of costs that should be calculated# 1. Current com+(n% co$t$ t,(t 2ill 4e (ltered 4% t,e online c,(n)e$ . both internal and e&ternal costs
Co$t to im+lement t,e c,(n)e$ interim support may be needed training for staff whose tasks change
&.
Ne2 co$t ($$um+tion$5 +o$t c,(n)e long!term cost!sa ings long!term outsourcing arrangements ongoing online de elopment plans
#el+ St("" Ad(+t to Online ?or3in) An online ser ice will affect your staff and the work that they do. If your organisation is typical, there will be a progressi e transfer from processing tasks towards customer ser ice. (ome may find this work more fulfilling7 others will not en%oy the increased interaction with customers. 6nless a companys online ser ices are entirely online, staff who is to fulfil new ser ice roles will re=uire assistance to de elop new skills. They will almost certainly re=uire some training in how to make the most of the new technology for the benefit of their customers.
Summ(r%
NOTES
Internet commerce raises le)(l i$$ue$ through the pro ision of the following ser ices#
Online m(r3etin) 3nline retailing ordering of products and ser ices 4inancial ser ices such as banking and trading in securities. E&change of electronic messages and documents E.I, electronic filing, remote employee access, electronic transactions. Trade and commerce o er the Internet gi e rise to se eral legal issues The growth of E$ on the Internet depends to a large e&tent on the confidence of traders in forming legally enforceable contracts online. The key acti ities associated with the formation of an enforceable contract do take place on the Internet, i/. offer is communicated by the acceptor and acceptance is recei ed by the offer or from the acceptor. The ethical, social, and political issues raised in e!commerce, pro ide a framework for organi/ing the issues, and make recommendations for managers who are gi en the responsibility of operating e!commerce companies within commonly accepted standards of appropriateness. T,e Conce+t o" ;ri7(c%' ,ri acy is the moral right of indi iduals to be left alone, free from sur eillance or interference from other indi iduals or organi/ations, including the state. ,ri acy is a girder supporting freedom# Without the pri acy re=uired to think, write, plan, and associate independently and without fear, social and political freedom is weakened, and perhaps destroyed. Intellectual property is considered to be intangible property created by indi iduals or corporations. Information technology has made it difficult to protect intellectual property, because computeri/ed information can be so easily copied or distributed on networks.
307
DBA 1727
NOTES
There are three main types of intellectual property protection# $opyright, ,atent and Trademark law.
$yber law is a term used to describe the legal issues related to use of communications technology, particularly KcyberspaceL, i.e. the Internet. It is less a distinct field of law in the way that property or contract are, as it is an intersection of many legal fields, including intellectual property, pri acy, freedom of e&pression, and %urisdiction. In essence, cyber law is an attempt to apply laws designed for the physical world to human acti ity on the Internet.
$ontracting and $ontract Enforcement in E$# Any contract includes three essential elements# an offer, an acceptance and consideration. The $ontract is formed when one party accepts the offer of another party.
The outdated and o erly comple& mechanisms used by thousands of %urisdictions to ta& traditional transactions is clear that a fundamental restructuring of our current sales ta& laws is needed to simply ta& collection, to decrease the burden of compliance on business and to deal with the increasingly integrated economy of Ecommerce.
Bue$tion$ "or re7ie2 ). @. H. C. 5. +. G. 8. *. )1. )). )@. )H. )C. ;ist the ma%or legal issues of E$ .iscuss the E.I Interchange agreement .efine ethics .iscuss the ethical, social and political issues in E$ What are the basic ethical concepts .efine pri acy .efine Intellectual property .escribe the three main types of intellectual property protection What is contractingM Aow is it enforced in E$ .iscuss ta&ation in E$ .escribe the significant issues of ta&ation in E$ .efine encryption policy .efine .E( .iscuss the steps to plan successful E$
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E-COMMERCE TECHNOLOGY AND MANAGEMENT

ANNA UNIVERSITY CHENNAI

9ou ad ertise your products or

E-COMMERCE TECHNOLOGY AND MANAGEMENT

ANNA UNIVERSITY CHENNAI

ANNA UNIVERSITY CHENNAI

E-COMMERCE TECHNOLOGY AND MANAGEMENT

ANNA UNIVERSITY CHENNAI

T,e t,ree c(te)orie$ o" E Commerce 1.1.- T%+e$ o" e-commerce

ANNA UNIVERSITY CHENNAI

B2B - Business to Business

E-COMMERCE TECHNOLOGY AND MANAGEMENT

ANNA UNIVERSITY CHENNAI

E-COMMERCE TECHNOLOGY AND MANAGEMENT

1.1.0 E- Commerce in Action

ANNA UNIVERSITY CHENNAI

ANNA UNIVERSITY CHENNAI

E-COMMERCE TECHNOLOGY AND MANAGEMENT

E-COMMERCE TECHNOLOGY AND MANAGEMENT

can pro ide web design and consultation.

resources already in place in corporations to

E-COMMERCE TECHNOLOGY AND MANAGEMENT

ANNA UNIVERSITY CHENNAI

entered at the point of receipt.

E-COMMERCE TECHNOLOGY AND MANAGEMENT

humans to do the searching. It

E-COMMERCE TECHNOLOGY AND MANAGEMENT

manipulation will definitely dominate. Tool de elopers

transfer of messages through store!and!forward methods.

E-COMMERCE TECHNOLOGY AND MANAGEMENT

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E-COMMERCE TECHNOLOGY AND MANAGEMENT

E!$ommerce pro ides buyers with a wider range of choices than

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E-COMMERCE TECHNOLOGY AND MANAGEMENT

standpoint of firms? businesses

and consumers, ha ing communications costs.

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E-COMMERCE TECHNOLOGY AND MANAGEMENT

E-COMMERCE TECHNOLOGY AND MANAGEMENT

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know ledge work ers,

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E-COMMERCE TECHNOLOGY AND MANAGEMENT

1.3.1.2 Benefits to Consumers Electronic commerce enables customers to shop or do other

for e&ample, can reach patients in rural areas.

ess seller -sometimes they do not trust e en known ones0, paperless

E-COMMERCE TECHNOLOGY AND MANAGEMENT

E-COMMERCE TECHNOLOGY AND MANAGEMENT

=uantities of data. ;arger databases, in turn, yield impro ed predictions.

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that era. 9ou note these similarities and

E-COMMERCE TECHNOLOGY AND MANAGEMENT

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1.*.- ;ro"it(4le A++lic(tion$

E-COMMERCE TECHNOLOGY AND MANAGEMENT

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E-COMMERCE TECHNOLOGY AND MANAGEMENT

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