Chapter 7 Doing Business on the Internet

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Chapter 7 Doing Business on the Internet

• Managing and Using Information Systems A
  Strategic Approach, 2nd ed.

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INTRODUCTION

• E-business occurs when buyers and sellers
  interact electronically.
• While this area is changing so rapidly that
  text-based materials are usually out of date
  before they are used, it is also a field that is
  too important to ignore.
• Chapter 7 therefore provides a basic
  understanding of the ideas used in discussions on
  current Internet activities.

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OVERVIEW OF THE INTERNET
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Some Definitions

• Internet Interconnected network of millions of
  individual computers with no central computer.
• World Wide Web Popular method for accessing
  Internet information, utilizes hypertext to link
  documents. WWW not synonymous with Internet
• Information Superhighway High-speed, global
  communications network arguably synonymous with
  the Internet. (Not invented by Al Gore)
• Intranet Internet-style information used
  exclusively within an organization, inaccessible
  by outsiders.
• Extranet A companys inter-organizational
  information unavailable to users of its intranet
  or to the wider Internet community.

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TCP/IP

• TCP/IP (Transmission Control Protocol/Internet
  Protocol) was the breakthrough technology making
  interoperability between networks possible and
  thus allowing the Internet to work
• Protocols are the specifications for the
  interface between 2 computers, and they set
  standards to define how computers communicate
  with each other to accomplish specific tasks
• IP defines a connectionless service through
  which data is delivered from computer to computer

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Figure 7.1 Comparison of Letter and TCP/IP Packet
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E-Marketplaces

• E-Marketplace special type of network that
  brings different companies together.
• Sometimes called net-markets, they are typically
  built by a consortium of businesses in a market,
  or by an e-business interested in providing the
  marketplace.
• Both vertical and horizontal e-marketplaces exist.

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Types of E-Businesses

• Pure-plays exist only in the virtual space.
• Extensions of an existing physical business that
  have transitioned to the virtual space and offer
  a similar product line.
• Extensions that have evolved into businesses
  distinct from their physical counterparts.
• Partners that exist on another business website
  such as Toys R Us on e-Bay

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EVOLUTION OF E-BUSINESS
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Electronic Data Interchange (EDI)

• Is the direct computer-to-computer transfer of
  business information between two businesses using
  a standardized format (e.g., ANSI X12)
• EDI automates the information flow (next slide)
  and facilitates management of a business process,
  such as purchasing, shipping and payment
• However, EDI never lived up to early growth
  projections due to the set-up effort required

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Electronic Funds Transfers (EFT)

• Preceded Internet but may now be by private line
  or Internet.
• Use automated clearing house (ACH) to settle
  transactions and maintain audit trail.

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Figure 7.11 Electronic funds transfer (EFT)
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Basic Internet Business Models

• B-to-B targets other businesses
• B-to-C targets consumers
• B-to-E (employee) companies provide service to
  employees of other companies.
• B-to-G companies provide services to local,
  state and national governments
• C-to-C Consumers interact with other consumers.
• Hybrid combines B-to-B B-to-C models

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Stages of Web-based Business Evolution

• Content Provider an effective means of reaching
  millions of potential customers but without using
  the Webs interactive and multimedia capabilities
• Transaction Forum focused on B2C but seen as a
  supplement to bricks and mortar
• Integrator integrate the entire chain of sales,
  order processing, etc. with legacy systems
• Catalyst for Industry Restructuring the result
  of the transforming effects of the Internet on
  traditions forms of commerce

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E-Channel Patterns

• An e-channel is a chain of electronic
  relationships between companies and
  partners/resellers
• They can lead to industry restructuring when
  there are massive changes brought about by
• e-channel compression (disintermediation next
  slide), and
• channel expansion (the adding of brokering
  functionality)

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A New Marketing Channel

• EC is a new marketing channel that provides for
  delivery of products and services from the
  business to the consumer.
• Four Ps apply Place, Promotion, Price, and
  Product

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Figure 7.4 Example of Channel Compression
Adapted from Kalakota and Robinson, E-Business
2.0, 2001
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Value-added Networks (VANS)

• Are independent 3rd-party companies that provide
  connection and EDI transaction services to
  customer companies
• Have allowed many-to-many relationships to become
  a reality by linking many buyers to many sellers

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FRAMEWORK OF ELECTRONIC COMMERCE
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Common Business Services Infrastructure

• The common business infrastructure for electronic
  commerce consists of four main elements
• Security
• Authentication
• Encryption
• Electronic Payments

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Authentication

• Authentication is the security process of
  verifying that a user is who he or she says they
  are.
• Passwords are the most common type of
  authentication.
• Digital signatures are now gaining popularity for
  authenticating transmitted information.

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Authentication Digital Signatures

• Digital signatures take the place of ordinary
  signatures in online transactions to prove that
  the sender of a message is who he or she claims
  to be.
• When received, the digital signature is compared
  with a known copy of the senders digital
  signature.
• Digital signatures are also sent in encrypted
  form to ensure they have not been forged.

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Encryption

• Encryption systems translate data into a secret
  code.
• Encryption systems include 4 main components
• Plaintext the unencrypted message
• An encryption algorithm that works like the
  locking mechanism to a safe
• A key that works like the safes combination
• Ciphertext is produced from the plaintext message
  by the encryption function.
• Decryption is the same process in reverse (like a
  modulation/demodulation), but it doesnt always
  use the same key or algorithm. Plaintext results
  from decryption.

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Encryption Techniques

• The two main encryption techniques now in use
• Symmetric encryption in which both sender and
  receiver use the same key.
• Asymmetric or public key encryption, which uses
  two separate keys, called public and private keys.

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Symmetric Encryption

• Symmetric or private key encryption, uses the
  same algorithm and key to both encrypt and
  decrypt a message.
• Historically, this is the most common encryption
  technique.
• Since the key must be distributed, however, it is
  vulnerable to interception. This is an important
  weakness of symmetric key encryption.
• DES uses symmetric encryption.

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Asymmetric or Public Key Encryption

• A second popular technique is asymmetric or
  public key encryption (PKE).
• PKE is called asymmetric since it uses two
  different one way keys
• a public key used to encrypt messages, and
• a private key used to decrypt them.
• PKE greatly reduces the key management problem
  since the private key is never distributed.
• PGP (pretty good privacy) is a popular form of
  PKE available as shareware.
• RSA is a reliable and commonly used PKE

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Secure servers

• Secure Sockets Layer (SSL) is a standard for
  secure interactions use on the Web. SSL, uses a
  combination of private key encryption (using a
  one-time session key) and digital signatures to
  enhance the security of transmission.
• Secure servers protect the privacy of the data
  they send and receive through encryption.

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SSL and SET Common Characteristics

• Confidentiality of information, and protection
  against hacking or other interception during
  transmission across a public network, through the
  encryption of data.
• Integrity of data (like SET, SSL has the
  capability to determine if messages have been
  altered).

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SSL and SET Common Characteristics

• Verification that the merchant has been certified
  by a trusted Certificate Authority. (While it may
  not be widely known, this capability exists today
  with SSL for the cardholder to verify that the
  merchant site is legitimate. If merchants want to
  conduct transactions in a secure environment,
  they must provide business licenses and other
  notarized proof of ownership to be certified by
  the CA.)

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SSL and SET Differences

• SET authenticates the cardholder, SSL does not.
• SET does solve the issue of identifying the
  cardholder in electronic transactions. But there
  s a real cost involved in doing that, and is it
  really the area of greatest risk? It is generally
  agreed that the greatest risk with e-commerce is
  catastrophic losses from large-scale theft of
  credit card numbers. If that occurred, it would
  more likely happen with break-ins to file
  servers, and not during the transmission of
  transactions through a secure pipe.
• SSL still remains the most widely used standard

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Firewalls

• Firewalls block intruders from entering a website
  or possibly blocking access to the outside by
  employees in a company.
• For example, an intruder (hacker) trying to
  attack a corporate website might encounter a
  firewall making it more difficult to get access
  to the servers.
• Likewise, an employee trying to get outside the
  corporate intranet might be block from doing so
  by a firewall.

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Electronic Payments

• Includes credit cards, electronic checks, EFT,
  smart cards, and e-cash.
• Common types of e-payments systems are
• Virtual terminals (online equivalent to credit
  card swipe machine)
• Transaction processors (www.itransact.com)
• Internet checking services (www.redicheck.com)
• Electronic funds transfer
• Digital Cash (www.digicash.com)

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Figure 7.10 Internet checking
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Figure 7.12 Digital cash
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Directory and Search Engines

• Directory services industrial strength
  databases that keep track of who and what
  (servers, databases) is where on the Internet.
• Search engines keeps track of information
  (files) on the world wide web (WWW) by allowing a
  user to enter key words that the engine then uses
  to index collected documents for easy review.
• Commercial Servers a suite of software
  components designed to create and manage Web
  storefronts.
• Personalization is the selective delivery of
  content and services to customers and prospective
  customers.

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Messaging and Information Distribution
Infrastructure

• Second building block of supporting framework for
  e-commerce. Used for moving messages over the
  Internet.
• E-mail (including listserv)
• Instant Messaging
• Pt-to-pt file transfers (FTP)
• Groupware (Lotus Notes, CU-SeeMe, NetMeeting)

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Multimedia Content

• Includes standards for various multimedia file
  types. Examples of materials transported in this
  way include
• Video
• Audio
• Text/Electronic documents
• Graphics Photos
• Realtime/Non-realtime applications
  (prioritization)

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Internet Infrastructure

• Includes data communications circuits over which
  information travels. Includes
• Packet-switched networking (telephony is
  circuit-switched)
• Packets contain overhead information including
  addressing
• They are also routed, like mail
• All of this flows across Internet backbones
• Newer Internet access technologies include
  wireless access, cable access and DSL.

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Public Policy

• Public policy issues include
• universal access,
• privacy,
• information pricing,
• information access.
• Privacy issues include what information is
  private and/or who should have the right to
  use/sell information about Internet users
• Requesting personal information on visiting a web
  site
• Creating customer profiles
• Leaving electronic footprints when visiting a web
  site

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Technical Standards

• Standardization is the second supporting pillar
  for e-Commerce. Standards are critical for
  electronic interaction.
• Secure Electronic Transaction (SET) for secure
  payments of online credit card transactions is
  one of the most heavily promoted standards
• Other application standards include file transfer
  protocol (FTP), hypertext transfer protocol
  (HTTP), simple network management protocol
  (SNMP), post office protocol (POP), and
  multimedia internet mail extensions (MIME)

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Internet Governance

• IOS Internet Society is main governing body
• IAB Internet Architecture Board defines
  standards
• IETF Internet Engineering Task Force issues
  standards via RFCs
• ICANN Internet Corporation for Assigned Names
  and Numbers controls the IP addressing policies.
• Most funding is from non-profits.

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FOOD FOR THOUGHT 1 E-LEARNING
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E-Learning

• E-learning is using the Internet to enable
  learning and is providing a major challenge to
  class-based traditional forms of teaching.
• In addition, the market for education is growing
  as businesses now want their employees to be
  continuous learners.
• If learning can be embedded within business
  processes executed by workers, then organizations
  can make major changes in their business strategy
  and their organization strategy.

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Figure 7.14 Types of E-Learning
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Potential for E-learning

• E-learning is a relatively new concept enabled by
  the Internet.
• It is allowing many organizations to rethink how
  they disseminate knowledge, information and
  training in the workplace.
• This new form of teaching will also likely
  represent a major challenge to traditional
  schools and universities.

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FOOD FOR THOUGHT II IS THERE REALLY A NEW
ECONOMY?
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Michael Porters Argument

• The new economy is nothing other than the old
  economy that has access to new technology
• By focusing on e-Business as a separate entity
  and failing to integrate the Internet into their
  proven strategies, well-established businesses
  are unable to leverage the Internets
  capabilities
• Most companies can compete successfully only when
  they use the Internet to complement traditional
  ways of competing

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END OF CHAPTER 7