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E-Commerce Jongwoo Han PSC300.103 Contemporary Issues in the Information Age Introduction:Commerce in Industrial Age Commerce as a new Relationships among people Function of Commerce: Intermediation of producer & consumer Layers of Distribution Lines - Higher cost Hurdles in information flow across layers of boundaries: Market Geographical Boundaries Conventional Procurement Process Identification of Supplier Product specifications Sample approval & ready for production Documentation of P.O. Invoice & Shipping notification Conventional Procurement Process Accounting department matching invoice with P.O. Adjusting changes Issues: Can we Consolidate Purchase & Developing Relationship New Technology Faster Computers: Gordon Moore’s Law Doubling Processing Speed Every 18 Months Robert Metcalf’s Law: Utility= (Number of users)² Software manages company World-wide Broadband Network Global Access: Internet e-Commerce: Disintermediation Direct Communication bet/ Producer & Purchaser Disintermediating Conventional Intermediaries Consolidating Cost Delivering SameValue with Lower Costs Flow Chart of Supply Chain History of e-Com. 1: Computerization Electronic Recording Machine Accounting Growing volume of Checks: 4 bil in 1943 to 8 bil in 1952 -> Physical Bank of America: 9 will do works of 50 previously Commercial use of Computer in Accounting, Payroll, Reporting, Scheduling History of e-Com. 2: Networked Electronic Data Interchange: 1970s and 1980s EDI: Standard for Compiling, Transmitting Info bet. Computers Documents: Purchase Order, Invoice, Shipping Notification, etc. History of e-Com. 3: Credit Card History of Credit Card: Exclusive membership system Bank of America in 1958 Blue, Gold, White Cards for a select group of users at Participating Merchants In 1976, VISA USA & VISA Inter’al Paying Service Fee from 1-3%, interests on loan e-Market Internet Population: 3 mil/94, 100 mil/98, 1 bil/05 e-Commerce Market in 1996: e-com will create $300 bil/02 How e-Business Makes Money: Traffic by Visitors to your Web site Value of Traffic: Ad, Commissions from affiliates, actual physical sales margins on products Stocks Value: Anticipation of a Return > Interest from Bank Initial Public Offering Listing on a Stock Market Setting Price & Quantity Value: Net Worth of Assets, Current & Future Net Income, Potential Newspaper Value: Circulation (Traffic) Ads depend on Circulation Subscriptions cover Production Cost Ads cover Content Gatherings Newspaper sells Traffic to Advertisers Everything Virtual V Office: Working Everywhere V Order Entry: No assistance V Inventory: V Service: Online Seven Days a Week & 24 Hours a Day V Delivery: Tracking System V Procurement: V Banking: e.Store Traffic generating Ad Revenue Potential to Tie that Market into Real Online Retailing Wider Market Potentials Low Cost for Creating Ads Lower Costs for Same Products by Lowering Transaction Costs Amazon.com 1 In 1995 as a Book Distributor in Internet Now Internet Department Store Market Value: 1999 $11 Billion --> Currently $22 Billion Money-losing: $124 Million Gap: Traffic reflected in Stock Market Amazon.com 2 Traffic: In Excess of 12 Million Yahoo: 65 Million users Lycos: 30 Million Market Capitalization: Amazon $22 Bil/99 Lycos: $3 Bil/99 Reinvestment by Amazon GE Cutting labor cost in Procurement by 30% 60% of staff redeployed 6-8 days more for strategic planning than Manual works, Paperwork, Pphotocopying, etc. Priceline.com: Name your own price Posted its first-ever profit by Cutting costs, ad costs, and reviving sales Second-quarter net income of $2.8 mil a turnaround form net loss of $11.7 mil year ago Computerizing information on leftover of hotel rooms, airlines seats & distributing over Internet Benefits of e-Commerce High Revenue Reduce overall Labor Costs Reduce Inventory Expense Faster Information dissemination Reduce Communication Costs Better External Info Gathering Reduce Operating Expenses Lowering Cycle Times Cycle Times: Total Time to Build a Product Faster Production cuts Fixed Costs e-Com. reduces Cycle Times Key Issues in e-Commerce Customs & Taxation Electronic Payment Systems Security & Encryption IPR Protection: Copyrights, Patents, Trademarks Privacy &Contents Technical Standard Telecommunications Infrastructure Obstacles in e-Com. Fear of Customer: Credit Card Info Spoofing Sniffing Content Alteration Denial Technical Solution: Cryptography Authentication: Verifying Tech to Ensure the Party You Send is the Only Com. Receiving It. Encryption: Making information (Card #, names, Exp. Date) not visible to others How: Numerically-made Private & Public Key Digital Signature 1 Standard Length for Hash Value: 160 Digits Algorithm Calculating a Unique Value for Document in Question Signature Algorithm: Another Numerical Value derived from Private Key Authority Storing Public & Private Keys Issuing Electronic Certificate Digital Signature 2 A produces message to B A’s computer hashes M message digest (md) A encodes md using A’s Private Key producing unique digital signature A’s random key encrypt original message & digital signature A encodes this new random key using B’s Public Key digital envelope Now we have three to be sent: Encrypted M, digital signature & envelope Digital Signature 2-1 B decodes digital envelope with B’s Private Key & gets A’s random key decrypting A’s message B is not sure of any altered M en route & of A was the definitely the sender B uses random key & A’s public key to decrypt A’s encrypted digital signature getting A’s message digest B runs the same hash function new message digest authentication Digital Signature 3 Electronic Signature in Global and National Commerce Act signed in June by Clinton Giving the same legal authority to Documents signed Online Public Keys Stored in Certification Authorities in Private Sector Digital Signature 4 80% of all Financial Docu. Being Automated Next Five Years More than 40 States officially Recognized some form of D Example of House Closing: 140 Documents needed