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E-Commerce
Jongwoo Han
PSC300.103
Contemporary Issues in the Information Age
Introduction:Commerce in Industrial Age
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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
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Identification of Supplier
Product specifications
Sample approval & ready for production
Documentation of P.O.
Invoice & Shipping notification
Conventional Procurement Process
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Accounting department matching invoice with P.O.
Adjusting changes
Issues: Can we Consolidate Purchase & Developing Relationship
New Technology
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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
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Direct Communication bet/ Producer & Purchaser
Disintermediating Conventional Intermediaries
Consolidating Cost
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Delivering SameValue with Lower Costs
Flow Chart of Supply Chain
History of e-Com. 1: Computerization
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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
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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
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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
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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
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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
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Value: Circulation (Traffic)
Ads depend on Circulation
Subscriptions cover Production Cost
Ads cover Content Gatherings
Newspaper sells Traffic to Advertisers
Everything Virtual
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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
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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
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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
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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
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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
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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
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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
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Cycle Times: Total Time to Build a Product
Faster Production cuts Fixed Costs
e-Com. reduces Cycle Times
Key Issues in e-Commerce
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Customs & Taxation
Electronic Payment Systems
Security & Encryption
IPR Protection: Copyrights, Patents, Trademarks
Privacy &Contents
Technical Standard
Telecommunications Infrastructure
Obstacles in e-Com.
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Fear of Customer: Credit Card Info
Spoofing
Sniffing
Content Alteration
Denial
Technical Solution: Cryptography
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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
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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
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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
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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
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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
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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