Bbed4103 Bi PDF
Bbed4103 Bi PDF
Bbed4103 Bi PDF
BBED4103
E-Commerce
Answers 338
INTRODUCTION
BBED4103 E-commerce is one of the courses offered by the Faculty of Business
and Management at Open University Malaysia (OUM). This course is worth 3
credit hours and should be covered over 15 weeks.
COURSE AUDIENCE
This is a core course for students pursuing the degree in Bachelor of Business
Administration programme.
As an open and distance learner, you should be able to learn independently and
optimise the learning modes and environment available to you. Before you begin
this course, please confirm the course material, the course requirements and how
the course is conducted.
STUDY SCHEDULE
It is a standard OUM practice that learners accumulate 40 study hours for every
credit hour. As such, for a three-credit hour course, you are expected to spend
120 study hours. Table 1 gives an estimation of how the 120 study hours could be
accumulated.
STUDY
STUDY ACTIVITIES
HOURS
Briefly go through the course content and participate in initial discussion 3
Study the module 60
Attend 3 to 5 tutorial sessions 10
Online participation 12
Revision 15
Assignment(s), Test(s) and Examination(s) 20
TOTAL STUDY HOURS 120
COURSE OUTCOMES
By the end of this course, you should be able to:
1. Explain e-commerce business models;
2. Discuss the history and development of global e-commerce;
3. Apply skills to provide information via the Internet;
4. Consolidate basic knowledge of network security risk and solutions,
encryption and payment systems;
5. Organise skills to market people and organisations on the Internet; and
6. Explore the issues and problems surrounding e-commerce such as privacy,
intellectual property rights and e-commerce fraud.
COURSE SYNOPSIS
This course is divided into 10 topics. The synopsis for each topic is presented
below:
Topic 3 focuses on the Internet and the World Wide Web. You will learn on the
origin, concepts and roles of Internet in e-commerce. This topic also touches on
World Wide Web, intranet and extranet.
Topic 10 explains the legal, ethical and social issues in e-commerce. It also
touches on privacy protection, intellectual property and e-commerce fraud.
Learning Outcomes: This section refers to what you should achieve after you
have completely covered a topic. As you go through each topic, you should
frequently refer to these learning outcomes. By doing this, you can continuously
gauge your understanding of the topic.
Copyright © Open University Malaysia (OUM)
xiv COURSE GUIDE
Activity: Like Self-Check, activities are also placed at various locations or junctures
throughout the module. Compared to Self-Check, Activity can appear in various
forms such as questions, short case studies or it may even ask you to conduct an
observation or research. Activity may also ask your opinion and evaluation on a
given scenario. When you come across an Activity, you should try to widen what
you have gathered from the module and introduce it to real situations. You should
engage yourself in higher order thinking where you might be required to analyse,
synthesise and evaluate instead of just having to recall and define.
Summary: You can find this component at the end of each topic. This component
helps you to recap the whole topic. By going through the summary, you should
be able to gauge your knowledge and retention level. Should you find points
inside the summary that you do not fully understand, it would be a good idea for
you to revisit the details from the module.
Key Terms: This component can be found at the end of each topic. You should go
through this component to remind yourself of important terms or jargons used
throughout the module. Should you find terms here that you are not able to
explain, you should look for the terms from the module.
PRIOR KNOWLEDGE
Learners of this course are required to pass BBPP1103 Principles of Management
course.
ASSESSMENT METHOD
Please refer to myINSPIRE.
REFERENCES
Schneider, G. P. (2009). Electronic commerce (8th ed.). Boston: Cengage Learning.
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Differentiate the activities between e-commerce and traditional
commerce;
2. Explain the attributes of e-commerce;
3. Explain the elements of e-commerce;
4. Discuss the advantages and disadvantages of e-commerce;
5. Identify categories of e-commerce business models;
6. Describe the success and failure of e-commerce in different eras; and
7. Identify major themes underlying the study of e-commerce.
INTRODUCTION
What is meant by electronic commerce or more commonly known as e-commerce?
Have you ever heard of this term?
We can examine any commerce transaction from either the buyer or the sellerÊs
viewpoint. Let us look at the activities involved in traditional commerce for
buyers as shown in Table 1.1.
Activities Description
Do you know that each action taken by a buyer engaging in commerce will
trigger a corresponding action by the seller? The activities involved in traditional
commerce from a sellerÊs viewpoint are as shown in Table 1.2.
Activities Description
SELF-CHECK 1.1
What are the similarities between the activities of commerce from
the viewpoints of a buyer and a seller ?
1.1.2 E-commerce
For decades, firms have used various electronic communication tools to conduct
different kinds of business transaction. Banks have used Electronic Fund
Transfers (EFT) to move customersÊ money around the world. All kinds of
businesses have used Electronic Data Interchange (EDI) to place orders and send
invoices. Retailers have used television advertising to generate telephone orders
from the general public for various types of merchandise.
Are you aware that some people use the term „e-commerce‰ for activities that
specifically uses the Internet to conduct business? In essence, e-commerce is
characterised by several attributes as shown in Figure 1.2.
ACTIVITY 1.1
Let us look at the detailed explanation for each attribute as depicted in Table 1.3.
There are eight elements of e-commerce. Each will be elaborated in Table 1.4.
Elements Description
Core Strategic The strategic decisions about the virtual storefront, customer service,
Decisions are and customer experience, the content of site are co-mingled with the
Technology-Based technological decisions. These decisions are related to the following:
(i) Selection of service providers;
(ii) Common business systems; and
(iii) Approaches to web design.
(a) Customers
The customers are always able to do the following:
(i) Gather information;
(ii) Conduct product searches;
(iii) Compare prices across multiple websites;
(iv) Order products; and
(b) Firms
For the firm, the level of access has forced businesses to
adjust both tactical responsiveness to competitive moves
and strategic responsiveness. It also reduces transaction
costs and the cost of participating in a market. To transact,
it is no longer necessary to spend time and money travelling
to the market.
Real-Time E-commerce storefronts are frequently engaged in dynamic
Competitive dialogues on the public platform on the Web. Hence, it is easier for
Responsiveness companies to duplicate their competitorsÊ success. In e-commerce
markets, prices and costs become more transparent. Price
transparency refers to the ease with which consumers can find out
the variety of prices in the market.
However, in this section, we will look into the common business processes
involved in commerce. In many cases, business processes use traditional
commerce activities very effectively, and technology cannot improve upon them.
Products that buyers prefer to touch, smell, or examine closely are difficult to sell
using electronic commerce. For example, customers might be reluctant to buy
high-fashion clothing and perishable food products as shown in Figure 1.5, such
as meat and fruits, if they cannot closely examine the products before agreeing to
purchase them.
On the other hand, some products are easier to sell on the Internet than others.
As can be seen in Figure 1.6, products such as books or CDs are good candidates
for e-commerce because customers do not need to experience the physical
characteristics of the particular item before they buy it. Since one copy of a new
book is identical to other copies, and since the customer is not concerned about
fit, freshness or other such qualities, customers are usually willing to order a title
without examining the specific copy they will receive.
Let us look at Table 1.5 which shows examples of business processes. They can be
divided as follows:
(a) Processes well-suited to e-commerce;
(b) Processes better-suited to traditional commerce; and
(c) Processes well-suited to e-commerce and traditional commerce.
E-commerce and
E-commerce Traditional Commerce
Traditional Commerce
A product that has a strong brand identity such as a Sony CD player is easier to
sell on the Web than an unbranded item, as the brandÊs reputation reduces or
increases the buyerÊs concerns about the itemÊs quality. Other items that are well-
suited to e-commerce are those that appeal to small, but geographically dispersed
groups of customers. Collectible comic books are an example of this type of
product.
In the above case, e-commerce provides a good platform for buyers to obtain
information about available models, options, reliability, prices and dealerships.
However, the variability in the condition of used cars makes the traditional
commerce component of personal inspection a key part of the transaction
negotiation. The next two sections summarise some advantages and
disadvantages of e-commerce.
SELF-CHECK 1.2
In which business process does a combination of traditional and e-
commerce strategies work best? Explain.
Advantages Description
Easily reach the target Well-planned Web advertising can get even a small firmÊs
market promotional message out to potential customers in every
country in the world. A firm can use e-commerce to reach
narrow market segments that are geographically scattered. The
Web is particularly useful in creating virtual communities,
gathering of people who share common interests on the
Internet, that become ideal target markets for specific types of
products or services.
Cost-effective A business can reduce the costs of handling sales inquiries,
providing price quote and determining product availability by
using e-commerce in its sales support and order-taking
processes. Just as e-commerce increases sales opportunities for
the seller, it increases purchasing opportunities for the buyer.
Negotiating price and delivery terms is easier in e-commerce
because the Internet can help companies efficiently obtain
competitive bid information. E-commerce increases the speed
and accuracy with which businesses can exchange information,
which reduces costs on both sides of transactions.
Great variety E-commerce provides buyers with a wider range of choices
than traditional commerce because buyers can consider many
different products and services from a wider variety of sellers.
Some buyers prefer a great deal of information in deciding on a
purchase; others prefer less. E-commerce provides buyers with
an easy way to customise the level of detail in the information
they obtain about a prospective purchase.
Fast access Instead of waiting for days for the mail to bring a catalogue or
product specification sheet, or even minutes for a fax
transmission, buyers can have instant access to detailed
information on the Web. Some products such as software, audio
clips or images can even be delivered through the Internet,
which reduces the time buyers must wait to begin enjoying
their purchases.
Disadvantages Description
Difficulty in Many firms have had trouble recruiting and retaining employees
recruiting and with the technological, design, and business process skills
retaining needed to create an effective e-commerce presence.
employees
Difficulty in Business face the difficulty of integrating existing databases and
integrating transaction-processing software designed for traditional
existing databases commerce into the software that enables e-commerce.
and software
Difficulty in terms Many businesses face cultural and legal obstacles in conducting
of cultural and e-commerce as some consumers are fearful to send their credit
legal aspects card details to online merchants that they have never met.
For the purposes of this module, we will use the term „e-business‰ to refer
primarily to the digital enabling of transactions and processes within a firm,
involving information systems under the control of the firm. For most of the part,
e-business does not include commercial transactions involving an exchange of
value across organisational boundaries.
For example, an e-commerce and e-business systems can blend together at the
business firm boundary, at the point where internal business systems link up
with suppliers for example, e-business applications turn into e-commerce
precisely when an exchange of value occurs.
ACTIVITY 1.2
1. Name one type of business process which is not listed in the topic
that you believe would be a good candidate for e-commerce.
Explain why.
2. Surf the following websites which deal with business processes in
E-commerce. Then, answer the questions.
http://www.mphonline.com (Books)
http://www.cimbclicks.com (E-banking)
http://www.airasia.com (Airline tickets reservation)
http://www.parksononline.com (Department stores)
EXERCISE 1.1
1. Define e-commerce.
2. By using your own words, explain how e-commerce is unique and
different from traditional commerce.
In the following sections, you will learn in depth, the categories of e-commerce
and m-commerce.
In this model, the seller is the business and the buyer is the consumer (public).
Products for sale can be physical objects such as books, flowers, computers,
groceries, prescription drugs, music, movies, and cars. They also can be
Sellers that use a B2C business model can maximise benefits by eliminating the
middleman. Businesses sell products directly to consumers without using
traditional retail channels. This enables some B2C companies to sell products at a
lower cost and with faster service than comparable traditional commerce.
Consumers also derive benefits from the B2C business model. They have access
to a variety of products and service without the constraints of time or distance.
Consumers easily can make comparisons between shops to find the best buy.
Many B2C websites provide consumer services such as access to product
reviews, chat rooms and other product-related information. These services often
attract and retain customers.
You will learn more on B2C businesses in Topic 2. For now, we will move on to
the second category of e-commerce: Business-to-Business (B2B).
Basic examples of B2B e-commerce sites are vendor, service, broker and info-
mediary sites. A vendor for B2B site, also called an e-procurement site, is a
product supplier that allows purchasing agents to use a network to shop, submit
request for quotes (RFQs), and purchased items. A service B2B site uses the
network to provide one or more services to businesses such as financing,
warehousing or shipping. A brokering B2B site acts as a middleman by
negotiating the contract of a purchase and a sale. An info-mediary (acronym for
information intermediary) B2B site provides specialised information about
suppliers and other businesses.
The most popular vehicle for C2C e-commerce is the online auction. An online
auction is similar to negotiating, in which a consumer auctions goods to other
consumers. If you are interested in an item, then you will bid on it. The highest
bidder at the end of the bidding period purchases the item.
With the appropriate software and Internet connection, users can copy files from
someone elseÊs hard disk to their hard disks. Although music-sharing services are
now fee based, these programmes initially stirred controversy related to musicÊs
copyright infringement. They allowed users to easily copy MP3 music files from
one computer to another.
For instance, Amazon.com recently made its site accessible by wireless mobile
devices. Currently, there are many more cell phone subscribers than there are
Internet users. When cell phones become truly Web-ready, a development
expected within the next several years, analysts predict an explosion of interest in
m-commerce.
SELF-CHECK 1.3
ACTIVITY 1.3
EXERCISE 1.2
Reinvention era began in 2007 and extends through the present day and
into the uncertain future. This period involves the extension of Internet
technologies, the discovery of new business models based on consumer-
generated content, social networking and virtual-online lives.
New „shopping bot‰ programmes would automatically search the entire web for
the best prices and delivery times. For merchants, the cost of searching for
customers would also fall, reducing the need for wasteful advertising. Prices and
even costs would be increasingly transparent to the customer, who could now
know exactly, and instantly the worldwide best cost, quality, and availability of
most products.
Prices for products and services would fall to the point where prices covered
costs of production plus a fair, „market rate‰ of return on capital, plus additional
small payments for entrepreneurial effort (that would not last long). Unfair
competitive advantages (which occur when one competitor has an advantage
that others cannot purchase) would be eliminated, as would extraordinary
returns on invested capital.
These new technologies permit marketers to practise what they have always
done which is segmenting the market into groups with different needs and price
sensitivity, targeting the segments with branding and promotional messages, and
positioning the product and pricing for each group; but with even more
precision.
In this new market space, extraordinary profits would go to first movers. Let us
look at the following to figure out who are first movers.
First movers are firms which were the first to market in a particular area
and which moved quickly to gather market share. First movers could
establish a large customer base quickly, build brand name recognition
early, build an entirely new distribution channel, and then inhibit
competitors (new entrants) by building in switching costs for their
customers through proprietary interface designs and features available
only at one site.
E-commerce was, after all, a totally new way of shopping that would have to
offer some immediate cost benefits to consumers. Doing business on the Web
was thought to be much more efficient compared to traditional commerce, or
even when compared to direct mail catalogue, the costs of customer acquisition
and retention were also supposed be so much lower, profit would inevitably
materialise out of these efficiencies.
Given that the market share and the number of visitors to the site are dynamic,
revenue became far more important in the earlier stages than earnings or profits.
Entrepreneurs and their financial backers in the Innovation period expected that
extraordinary profitability would come, but only after several years of losses.
Most, in fact, were losing money while showing revenue growth. Even
supporters of the e-commerce phenomenon began to wonder if the
dot.com companies would ever become profitable. The stock market crash
of dot.com companies led to a sobering reassessment of the prospects for
e-commerce and the methods for achieving business success.
Consumers are less price sensitive than expected; surprisingly, the websites with
the highest revenue also have the highest prices. There remains considerable
persistent price dispersion on the web, and the concept of one world, one market,
and one price has weakened as entrepreneurs discover new ways to differentiate
their products and services. For instance, prices on books and CDs vary by as
much as 50% and prices for airline tickets as much as 20%.
In many product areas, it is easier to call a trusted catalogue merchant than order on
a website. Intermediaries may have not disappeared as predicted, and few
manufactures or producers have actually developed a one-to-one sales relationship
with their ultimate customers. If anything, e-commerce has created many new
opportunities for middlemen to aggregate content, products, and services into
portals and thereby introduce themselves as the new intermediaries. Yahoo.com
and Amazon.com are two examples of this kind of new intermediaries.
Nor have the visions of many entrepreneurs and venture capitalists for
e-commerce during the Innovation period materialised exactly as predicted.
First-mover advantage appears to have succeeded only for a small group of
sites. Historically, first movers have been the long-term losers, with the early-
to-market innovators usually being displaced by established „fast follower‰
firms with the financial, marketing, legal and production assets needed to
develop mature markets, and this has proved true for e-commerce as well.
The overall costs of doing business on the Web including the costs of technology,
site design and maintenance, and warehouses for fulfilment are no lower than
the costs faced by the most efficient brick-and-mortar stores. The start-up costs
can be staggering. Attempting to achieve profitability by raising prices has often
led to large customer defections. If you want to know, from the e-commerce
merchantÊs perspective, the „e‰ in e-commerce does not stand for „easy.‰
Table 1.8 summarises the differences among the three periods of e-commerce
evolution.
The number of products and services sold on the web and the size of
average purchase order are both growing at double-digit rates. There has
been a significant broadening of online product mix compared to the earlier
years when books, computer software and hardware are the main products
sold online. The faster growing e-commerce categories include home
products, office supplies, sporting goods and apparel/accessories.
SELF-CHECK 1.4
EXERCISE 1.3
1.4.1 Technology
The development and mastery of digital computing and communications
technology is at the heart of the newly emerging global digital economy
known as e-commerce. To understand the likely future of e-commerce, you
need a basic understanding of the information technologies upon which it is
built. E-commerce is a technologically driven phenomenon that relies on a
host of information technologies as well as fundamental concepts from
computer science developed over a 50 year period.
At the core of e-commerce are the Internet and the World Wide Web (WWW).
Behind these technologies, there are a host of complementary technologies,
personal computers, local area networks, relational databases, client/server
computing and fibre optic switches, to name just a few. These technologies lie at
the heart of sophisticated business computing applications such as enterprise-
wide computing systems, supply chain management systems and customer
relationship management systems.
E-commerce relies on all these basic technologies and not just on the Internet. The
Internet, while representing a sharp break from prior corporate computing and
communications technologies, is nevertheless just the latest development in the
evolution of corporate computing and part of the continuing chain of computer-
based innovations in business.
1.4.2 Business
While the technology provides the infrastructure, it is the business applications
that provide the potential for the extraordinary returns on investment that create
the interest and excitement in e-commerce. New technologies present new ways
of organising production and business transaction. It change the strategies of
existing firms: Old strategies were made obsolete and new ones need to be
invented. New technologies are the birthing grounds for thousands of new
companies to offer new products and services.
To truly understand e-commerce, you will need to be familiar with some key
business concepts, such as the nature of electronic markets, information goods,
business models, firms and industry value chains, industry structure and
consumer behaviour in electronic markets.
1.4.3 Society
E-commerce is increasingly subject to the laws of nations and global entities. In
order to conduct successful e-commerce business, we need to understand the
pressures that global e-commerce places on contemporary society. Among the
common issues are intellectual property, individual privacy and public policy.
Since the Internet and the Web are exceptionally proficient at tracking the
identity and behaviour of individuals online, e-commerce raises difficulties for
preserving privacy, or the ability of individuals to place limits on the type and
amount of information collected about them, and to control the uses of their
personal information.
The global nature of e-commerce also poses public policy issues of equity, equal
access, content regulation, and taxation. If some societies choose to ban selected
images, selected commercial activity (i.e., online sports betting) or political
messages from their public media, then how can that society exercise content and
activity control over a global e-commerce site? What rights do nation-states and
their citizens have with respect to the Internet, the web, and e-commerce?
ACTIVITY 1.5
http://www.copyright.gov/
http://www.myipo.gov.my/
http://www.uspto.gov/trademarks/index.jsp
http://www.privacy.org/
http://www.sigcas.org/
EXERCISE 1.4
List and briefly explain the major themes underlying the study of
e-commerce.
INTRODUCTION
Do you know how hard it is for new firms to establish a profitable e-commerce
business in an entirely new market niche? Thousands of firms in the innovation
era of e-commerce discovered that they could spend other peopleÊs invested
capital much faster than they could get customers to pay for their products and
services. In most instances of failure, the business model of the firm was faulty
from the very beginning.
In contrast, successful e-commerce firms have business models that are able to
leverage the unique qualities of the web, avoid legal and social entanglements
that can harm the firm, and produce profitable business results. But what is a
business model and how can you tell if a firmÊs business model is going to
produce a profit? This topic will focus on business models that you must be
familiar with in order to understand e-commerce.
ACTIVITY 2.1
You need to be aware that there are eight key elements of a successful business
model in any area, not only in e-commerce. These elements are as shown in Table
2.1 and will be discussed further in the following sections.
Source: Adapted from Laudon, K. C., & Traver, C. G. (2009). E-commerce: Business,
technology, society (5th ed.). Boston: Addison Wesley.
ACTIVITY 2.2
Based on the key elements of a business model, which element is the most
important to be taken care of in order to develop a successful e-commerce
business model? Discuss with your coursemates.
For instance, Kozmo.com sold the same snacks, entertainment and toiletries that
other businesses did. However, Kozmo made speedy home deliveries. Although
convenience stores, restaurants and pharmacies could also offer home delivery to
their customers, Kozmo handled its competitors by bundling items from several
types of businesses and dropping them off within an hour. Therefore,
convenience and speed were KozmoÊs two main value propositions.
ACTIVITY 2.3
Although there are many different e-commerce revenue models that have been
developed, most companies rely on one, or some combination of the major
revenue models as illustrated in Figure 2.2.
ACTIVITY 2.4
Visit the two local newspaper websites shown below and answer the
following questions:
http://www.nst.com.my/
http://www.thestar.com.my/
(a) Identify the differences between their subscription fees.
(b) What type of subscription fees does each company charge to
their customers?
Now, let us look at companies which adopt the transaction fee revenue
model:
(i) CarsDirect.com, which offers customers the ability to select a specific car
(model and colour options) at a price it determines. CarsDirect.com then
finds a local dealer that has such a car and is willing to sell it for the
CarsDirect.com price;
(ii) Alternatively, Autoweb.com locate dealers in the buyer Ês area that are
willing to sell the car specified by the buyer (including make, model,
options, and colour) for small premium over the dealer Ês nominal
cost. The buyer can purchase the car from the dealer without
negotiating with a salesperson; and
(iii) Stock brokerage firms, such as E-Trade.com charges their customers a
commission for each trade executed.
Most companies that use the sales revenue model do give customers a way
to complete the payment part of the transaction by telephone or by mail.
Companies which adopt the sales revenue model are as follows:
(i) Amazon.com, which sells books, music, and other products;
(ii) DoubleClick.net, which gather information about online users and
then sells it to other companies; and
(iii) Salesforce.com, which sells sales force management services over the
web.
ACTIVITY 2.5
For each revenue model, identify a local company that relies on the
model to gain profits. Compare your answers with your course mates.
The market opportunity is usually divided into smaller market niches. The
realistic market opportunity is defined by the revenue potential in each of the
market niches where you hope to compete.
For instance, let assume that you are analysing a software training company that
creates software-learning systems for sale to corporations over the Internet. The
overall size of the software training market for all market segments is
approximately RM70 billion. Furthermore, the overall market can be broken
down into two major market segments:
(a) Instructor led training products, which comprise about 70% of the market
(RM49 billion in revenue); and
(b) Computer-based training, which accounts for 30% of the market (RM21
billion in revenue).
Within each of those major market segments, there are further market niches,
such as the Fortune 100 computer-based training market, and the small business
computer-based training market. Because the firm is a start-up firm, it cannot
compete effectively in the large business, computer-based training market (about
RM15 million).
Large brand-name training firms dominate this niche. Its real market opportunity
is to sell to the thousands of small business firms who spend about RM6 billion
on computer-based software training and who desperately need a cost-effective
training solution. This, then, is the size of the firmÊs realistic market opportunity.
Firms typically have both direct and indirect competitors. The following are the
definitions and the examples.
Direct competitors are companies that sell products and services that are
very similar and involved in the same market segment.
The existence of a large number of competitors in any one segment may be a sign
that the market is saturated and that it may be difficult to become profitable. On
the other hand, a lack of competitors could either signal an untapped market
niche ripe for the picking or a market that has already been tried without success
because there is no profit to be made. Analysis of the competitive environment
can help you decide which segment is lucrative and which is not.
ACTIVITY 2.6
Now, let us move on to asymmetry. Do you know the meaning of this term? If
you do not, refer below to equip yourself with the definition.
For instance, when Papa JohnÊs Pizza began advertising that its founder was the
former founder of Pizza Hut, the company earned instant credibility. Similarly,
when Geraldine Laybourne left her senior position at Disney to start the online
womenÊs network, Oxygen.com, her company was given better-than-average
odds of success simply because of her background and her connections, which
included several larger investors who were willing to invest significant capital to
start the company.
One rather unique competitive advantage derives from being a first mover. A
first mover advantage is a competitive market advantage for a firm that results
from being the first into a marketplace with a serviceable product or service. If
first movers develop a loyal following or a unique interface that is difficult to
imitate, they can sustain their first mover advantage for long periods.
Amazon.com is a good example. However, in the history of technology-driven
business innovation, most first movers lack the resources to sustain their
advantages and reap the largest rewards.
Are you aware that some competitive advantages are called unfair? An unfair
competitive advantage occurs when one firm develops an advantage based on a
factor that other firms cannot purchase. For instance, a brand name cannot be
purchased and is, in that sense, an „unfair‰ advantage. Brands are built upon
loyalty, trust, reliability and quality. Once obtained, they are difficult to copy or
imitate, and they permit firms to charge premium prices for their products.
In perfect markets, there are no competitive advantages because all firms have
access to all the factors of production (including information and knowledge)
equally. However, real markets are imperfect, competitive advantages do exist at
least in the short-term. Most competitive advantages are short-term, although
some are long-term. For example, the competitive advantage enjoyed by Coca-
Cola because of its brand name can be sustained for very long periods, but not
forever. CokeÊs sweet soft drink is increasingly challenged by fruit juices, and
healthy and unique flavoured drinks.
Companies are said to leverage their competitive assets when they use their
competitive advantages to achieve more advantages in surrounding markets. For
instance, Amazon.comÊs move into the online auction arena leveraged the
companyÊs huge customer database, offering customers one more way to buy
from Amazon and giving them new access to just about any item someone else
had to sell. AmazonÊs competitive advantages included the years of e-commerce
experience the company had already amassed by the time it ventured into online
auctions and plus its database of millions of customers.
ACTIVITY 2.7
http://www.airasia.com.my/
http://www.mas.com.my/
Part of Kozmo.comÊs marketing strategy, for instance, was to use partners such
as Starbucks Coffee to help attract new customers. By partnering with other
companies that could benefit from fast customer deliveries, Kozmo attempted to
extend its reach.
Companies that hope to grow and thrive need to have a plan for organisational
development that describes how the company will organise the work that needs
to be accomplished. Typically, work is divided into functional departments, such
as production, shipping, marketing, customer support, and finance. Jobs within
these functional areas are defined, and then recruitment begins for specific
job titles and responsibilities.
Typically, in the beginning, generalists who can perform multiple tasks are hired.
As the company grows, recruiting becomes more specialised. For instance, at the
outset, a business may have one marketing manager. But after two or three years
of steady growth, that one marketing position may be broken down into seven
separate new positions done by seven individuals.
For instance, eBay.comÊs founder, Pierre Omidyar, started an online auction site to
help his girlfriend trade some candy dispensers with other collectors, but within a
few months the volume of business had far exceeded what he alone could handle.
So he began hiring people with more business experience to help out in the
business. Soon the company had many employees, departments, and managers
who were responsible for overseeing the various aspects of the company.
Eventually, most companies get to the point of having several senior executives
or managers. However skilled managers, can be a source of competitive
advantage or disadvantage. The challenge is to find people who have both the
experience and the ability to apply that experience to new situations.
To be able to identify good managers for a business start-up, first consider asking
the following questions that would be helpful for you and to the manager joining
your company:
ACTIVITY 2.8
EXERCISE 2.1
1. What is a business model?
2. List eight key components of an effective business model.
3. What are the five primary revenue models used by
e-commerce firms?
2.2.1 Portal
Have you ever heard of the term „portal‰? Refer to the following to find out the
meaning of this term.
A portal (web portal) is a site that people use as a launching point to enter
the web. A portal almost always includes a web directory and search
engine, but it also includes other features that help visitors to find what
they are looking for on the web and thus make the web more useful.
Most portals include features such as shopping directories, white pages and
yellow pages lookup databases, free e-mail, chat rooms, instant messaging,
calendar, music downloads, video streaming, games and many more.
Five years ago, portals were viewed as „gateways‰ to the Internet. However,
today, the portal business model is seen as a destination site. Portals do not sell
anything directly, thus, presenting themselves as unbiased. Portals generate
revenue primarily by charging advertisers for advertisement placements,
collecting referral fees for steering customers to other sites, and charging for
premium services. AOL and MSN, in addition to being portals, are also Internet
Service Providers (ISP) that provide access to the Internet and the web.
Some web observers believe that web portal sites could be the great revenue
generating businesses of the future. Thus, adding portal features to existing sites
or converting sites to portals is seen as a wise business strategy. However, even
though there are numerous portal/search engine sites, the top five sites gather
more than 95% of the search engine traffic because of their superior brand
recognition.
The top five portal/search engine sites are Google, Yahoo!, MSN/Windows Live,
AOL, and Ask.com. Most of them were among the first to appear on the web and
therefore had first mover advantages. Being first confers advantage because
customers come to trust a reliable provider and experience switching costs if they
change to late arrivals in the market.
Yahoo!, AOL, MSN/Windows Live, and others like them are considered to be
horizontal portals because they define their market space to include all users of
the Internet. Vertical portals attempt to provide similar services as horizontal
portals, but are focused around a particular subject matter or market segment.
Although the total number of vertical portals may be much lower than the
number of portal users, if the market segment is attractive enough, advertisers
are willing to pay a premium in order to reach a targeted audience. Figure 2.5
illustrates the portal site of MSN.
ACTIVITY 2.9
2.2.2 E-tailer
Do you know what an e-tailer is? If you do not, let us look at the definition
provided.
E-tailers or online retail stores are much like the typical brick-and-mortar
storefront, except that customers only have to connect to the Internet to
check their inventory and place an order.
Many of the most successful e-tailers are firms that were already operating in the
mail order business and simply expanded their operations to the web. Other
firms began using the web to sell their products after realising that the products
they sold in their physical stores could also be sold on the web. This additional
sales outlet did not require them to build additional stores, yet provided them
with the access to customers throughout the world.
For example, Wal-Mart and Banes & Noble also opened websites to sell the same
products that they had been selling in their stores. Others have been operating
solely in the virtual world, without having a physical store. The examples are
Amazon.com, BlueNile.com, and Drugstore.com.
The e-tail revenue model is product based, with customers paying for the
purchase of a particular item. However, this sector is extremely competitive.
Since barriers to entry (the total cost of entering a new market place) into the e-
tail market are low, tens of thousands of small e-tail shops have sprung up on the
web. Becoming profitable and surviving is very difficult for e-tailers with no
prior brand name or experience.
Since 1999, hundreds, if not thousands, of e-tailers have failed and closed shop.
The e-tailersÊs challenge is in differentiating its business from other existing
stores. For example, how is a new toy e-tailer going to perform better than or
differently from eToys.com, an online toy e-tailer, which was well funded and
still could not survive?
Companies that try to reach every online consumer are likely to deplete their
resources quickly. Those that develop a niche strategy, clearly identifying their
target market and its needs, are best prepared to make profit. Keeping expenses
low, selection broad, and inventory controlled are keys to success in e-tailing,
with inventory being the most difficult to gauge.
Although there are many ways the Internet can be useful, „Information content,‰
which can be defined broadly to include all forms of intellectual property, is one
of the largest types on Internet usage. Intellectual property refers to all forms of
human expression that can be put into a tangible medium such as text, CDs, or
the web. In 2005, the US consumers spent $2 billion for online content and this
figure is expected to be over $3.6 billion in 2008.
Of course, not all online content providers charge for their information. Just look
at the online versions of many other newspapers and magazines (e.g., CNN.com,
Sportsline.com), users can access news and information at these sites without
paying a cent. These sites make money in other ways, such as through
advertising and partner promotions on the site.
The largest industries using the transaction broker model are financial
services, travel services, and job placement services. Online stock brokers such
as E-Trade.com, Ameritrade.com and Schwab.com have captured about 20% of
retail stock transactions. The online transaction brokerÊs primary value
propositions are savings of money and time.
Given the rising consumer interest in financial planning and the stock market,
the market opportunity for online transaction brokers appears to be large.
However, while millions of customers have shifted to online brokers, many have
been wary to switch from their traditional broker who provides personal advice
and a brand name. Fear of privacy invasion and the loss of control over personal
financial information also contribute to market resistance. Consequently, the
challenge for online brokers is to overcome the consumerÊs fears by emphasising
on the security and privacy measures in place.
Transaction brokers make money each time a transaction occurs. Each stock
trade, for example, nets the company a fee, based either on a flat or sliding scale
related to the size of the transaction. Attracting new customers and encouraging
them to trade frequently are the keys to generating more revenue for these
companies. Job sites generate listing fees from employers up front, rather than a
fee when a position is filled.
Competition among brokers has become more fierce in the past few years,
due to the new entrants offering ever more appealing offers to consumers to sign
on. Those who prospered initially were the first movers such as E-Trade. com,
Ameritrade.com, Schwab.com, and OptionsXpress.com.
Market creators build a digital environment where buyers and sellers can
meet, display products, search for products, and establish a price for
products.
listing fee upfront. EBay is one of the few websites that have been profitable
virtually from the beginning. Do you know why? One reason is that eBay has no
inventory or production costs; it is simply a middleman.
The market opportunity for market creators is potentially vast, but only if the
firm has financial resources and a marketing plan to attract sufficient sellers and
buyers to the marketplace. About seven million people use eBay each month and
this makes for an efficient market. There are many sellers and buyers for each
type of product and sometimes for the same product. New firms wishing to
create a market require an aggressive branding and awareness programme to
attract a sufficient critical mass of customers. Some very large web-based firms
such as Amazon.com have leveraged their large customer base and started
auctions. Many other digital auctions have sprung up in smaller, more
specialised vertical market segments such as jewellery and automobiles.
Obviously, some services cannot be provided and executed via online such as
plumbing and car repair. Arrangements can be made, however, for car repair and
for plumbing via the Internet. The examples for service providers are as follows:
(a) SugarSync.com, an online information storage and backup services;
(b) WhatsItWorthToYou.com, where consumers can have antiques and
collectibles appraised online;
(c) Netgrocer.com, which offers grocery shopping services;
(d) Financial transaction brokers which provide services such as college tuition
and pension planning; and
(e) Travel brokers which provide vacation planning services and transactions
with airlines and hotels.
The basic value proposition of service providers is that they offer consumers a
valuable, convenient, time-saving, and low-cost alternative to traditional service
providers. Research has found, for instance, that a major factor in predicting
online buying behaviour is time starvation. Time-starved people tend to be busy.
Professionals who work long hours and simply do not have the time to pick up
packages or buy groceries.
Much like retailers, who trade products for cash, service providers trade
knowledge, expertise and effort for revenue. The market opportunity for service
providers is as large as the variety of services that can be provided and
potentially is equal to the market opportunity for physical goods. We live in a
service-based economy and society. Opportunity and potential can be witnessed
with the growth of fast food restaurants, package delivery services and wireless
cellular phone services. ConsumersÊ increasing demand for convenience products
and services bodes well for current and future service providers.
However, there are challenges that must be tackled by the service providers and
they are:
(a) Diminish the consumer fears about hiring an online vendor;
(b) Build confidence and familiarity among current and potential customers;
(c) Build the name recognition; and
(d) Enticing consumers to try the service.
Community providers are sites that create a digital online environment where
people with similar interests can transact (buy and sell goods), communicate
with like-minded people, receive interest-related information and even play
out fantasies by adopting online personalities.
At About.com, visitors can share tips and buy a recommended book from
Amazon.com which gives About.com a commission on every purchase. Some of
the oldest communities on the web are Well.com, which provides a forum for
technology and Internet-related conversation and discussions since 1985, and The
Motley Fool (Fool.com), founded in 1993, which provides financial advice, news
and opinions to the investment community.
Firm qualities that are important among community providers are breadth and
depth of knowledge. Since the purpose of communities is to link consumers with
similar interests and personal situations, having managers who can relate to such
experiences is crucial. Community members frequently request guidance and
advice. Lack of experienced personnel can severely hamper the growth of a
community which needs facilitators and managers to keep discussions on course
as relevant.
ACTIVITY 2.10
http://www.cio.com/article/40298/E_Commerce_Definition_and_
Solutions
EXERCISE 2.2
Major business models utilised in the B2B e-commerce include the following:
(a) Exchange (B2B hub);
(b) E-distributor;
(c) E-procurement;
(d) B2B service provider;
For buyers, B2B hubs make it possible to gather information, check out suppliers,
collect prices, and keep up-to-date on the latest happenings all in one place.
Sellers, on the other hand, benefit from expanded access to buyers. The greater
the number of potential buyers, the lower the sales cost and the higher the
chances of making a sale. Some sites also have experienced higher average
revenue per buyer.
One of the largest vertical B2B marketplaces is Covisint, the auto parts
exchange backed by DaimlerChrysler, Ford, General Motors, Renault,
CommerceOne, and Oracle. Formed in October 2000, Covisint had logged
over $350 million in transactions, conducted 100 auctions and placed over
100 catalogues online.
2.3.2 E-distributor
Do you know the meaning of e-distributors? E-distributors are companies that
supply products and services directly to individual businesses.
Whereas B2B hubs pull together many businesses, making it possible for them to
do business with other companies, e-distributors are set up by one company
seeking to serve many customers. However, as with B2B hubs, critical mass is a
factor in e-distributors. With e-distributors, the more products and services a
company makes available on its site, the more attractive that site is to potential
customer. One-stop shopping is always preferred as one can visit numerous
items or locate a particular part or product in one single site.
2.3.3 E-procurement
What is meant by e-procurement? Refer to below to find out the meaning of the
term.
An e-procurement firm creates and sells digital market where sellers and
buyers transact for indirect inputs by earning fee for market-making
services, supply chain management and fulfilment services.
As for how B2B gain its profit, B2B service providers make the money through
the following ways:
(a) Transaction fees; or
(b) Fees based on the number of workstations using the service; or
(c) Annual licensing fees (the method used by Salesforce.com).
Scale economies occur when companies spread the cost of the system over
many users. It arises when large fixed-cost production systems (such as
factories or software systems) can be operated at full capacity with no idle
time.
2.3.5 Matchmaker
What is meant by the term ‰matchmaker„? If you answer that it means
individuals who try to bring together a couple with the aim of making them to
fall in love, then you have a wrong answer. In commerce, matchmaker has a
different meaning. Refer below to find out the meaning of the term.
For example, iShip.com helps businesses to find the cheapest shipper for their
packages. Although other companies sell expensive multicarrier shipping
software, iShip lets companies to access its website free of charge to compare the
rates from several major carriers, including Federal Express, Airborne, and the
U.S. Postal Service. Once a company has located the cheapest shipper for its
particular package, it pays iShip a fee in order to proceed with the shipment.
2.3.6 Infomediary
What is an infomediary? Refer below to find out its meaning.
The term infomediary was originally coined by Hagel and Rayport (1997)
to describe a new breed of company that would act as custodians, agents,
and brokers of customer information and marketing it to businesses on
consumersÊ behalf while protecting their privacy at the same time.
SELF-CHECK 2.1
Describe how B2B hubs are different from B2C portals.
Visit the following websites and describe the features of each website
in relation to B2B:
http://www.alibaba.com/
http://www.b2btoday.com/
http://www.b2byellowpages.com/
http://www.btobonline.com/
EXERCISE 2.3
Let us continue our discussion to find out the operational system of eBay.com
and Half.com.
Before eBay, individual consumers used garage sales, flea markets, and
thrift shops to both dispose of and acquire used merchandise. With the
introduction of online auctions, consumers no longer had to venture out
of their home or office in order to bid on items of interest, and sellers
could relinquish expensive retail space that was no longer needed in
order to reach buyers.
eBay makes money through a small commission taken from linking like-
minded buyers and sellers. eBay is one of the websites that is profitable
since it first starts to operate and has retained its record till now. Sellers
and buyers must register with eBay and agree to the siteÊs basic term of
doing business. Seller pays eBay a listing fee and a sliding percentage of
the final selling price while buyers pay nothing to eBay. Sellers can
choose from a variety of enhanced and extra cost services, including
having their auctions listed in boldface type and featured in lists of
preferred auctions.
Consumers that do not like auctions but still want to find used
merchandise can visit Half.com, another well-doing website. It enables
consumers to sell off unwanted books, movies, music, and games to other
consumers. Unlike eBay, it allows sellers to set a fixed-price for each item,
rather than putting it up for bid. In return for facilitating a transaction,
Half.com takes a 15% commission on the sale, plus a fraction of the
shipping fee it charges.
MP3.com, a music sites, makes it possible for music lovers to share files and to
download free MP3 songs. MP3.com also stores songs made available for free by
lesser-known artists and bands, who have given permission for the music to be
stored at the MP3 site. MP3 has become a heaven for bands waiting to be
discovered. MP3.com makes money through advertising and charging for some
downloads and has recently been acquired by Vivendi Universal, a major music
industry player. Another example of P2P business model is Kazaa
(www. kazaa.com) as shown in Figure 2.8.
ACTIVITY 2.11
Besides music, what other forms of information could be shared
through peer-to-peer sites?
Visit the following website and describe the features of the website in
relation to C2C:
• http://www.ebay.com,
• http://www.c2c-online.co.uk/
• http://www.c2c-guide.co.uk/
• http://www.lelong.com.my
EXERCISE 2.4
There are eight key components that comprise business models and they are:
Value proposition;
Revenue model;
Market opportunity;
Competitive environment;
Competitive advantage;
Market strategy;
Organisational development; and
Management team.
There are seven major business models utilised in the B2C area and they are:
Portal;
E-tailer;
Content provider;
Transaction broker;
Market creator;
Service provider; and
Community provider.
There are six major business models utilised in the B2B area and they are:
Exchange;
E-distributor;
E-procurement;
B2B service provider;
Matchmaker; and
Infomediary.
INTRODUCTION
What are the aspects that bring e-commerce to the forefront? The technological
aspects that move e-commerce are the Internet and World Wide Web. Without
these technologies, e-commerce would be impossible. It is very important for a
business to understand how the Internet and World Wide Web work.
Implementing key e-commerce strategies such as personalisation, customisation,
market segmentation, and price discrimination all require understanding of web
technology. This topic examines the Internet and World Wide Web of today and
tomorrow, how it evolves, how it works, and how the present and future
infrastructure of the Internet and the web enables e-commerce.
The Internet provides 1.996 billion people around the world with services such as
e-mail, newsgroups, shopping, research, instant messaging, music, videos, and
news. No one controls the Internet or its functions, nor is it owned by anybody,
yet it has provided the infrastructure for transformations in commerce, scientific
research, and culture. In recent years, the Internet has allowed commercial
enterprises to connect with one another and with customers. Today, all kinds of
business provide information about their products and services on the Internet
for the purpose of marketing and selling their products and services.
Year Description
1960s The U.S. Department of Defence became concerned about the possible
effects of nuclear attack on its computing facilities. The Defence
Department realised that the future weapons would require powerful
computers for coordination and control. The powerful computers of that
time were all large mainframe computers. Therefore, the Defence
Department began examining ways to connect these computers to each
other and also to weaponsÊ installations distributed all over the world.
The Defence Department hired many of the best communications
technology researchers to explore the task of creating a worldwide
network that could remain operational, even if parts of the network
were destroyed by enemyÊs military action or sabotage.
In 30 years, the Internet has grown to become one of the amazing technological
and social accomplishments of the last century. Millions of people now use this
complex, interconnected network of computers. These computers run thousands
of different software packages. The computers are located in almost every
country of the world. Every year, billions of dollars change hands over the
Internet in exchange for all kinds of products and services.
Let us look at the definition given for ISP before going further.
(a) Regional
A regional ISP usually provides access to the Internet through one or more
local telephone numbers to a specific geographic area.
(b) National
A national ISP is a large business that provides local telephone numbers in
major cities and towns nationwide. Some national ISPs also provide a toll-
free telephone number. Due to their large size, national ISPs usually offer
more services and generally have a larger technical support staff than
regional ISPs.
modem, and a regular telephone line to dial into an ISP. Dial up access
provides an easy and inexpensive way for users to connect to the Internet.
A dial-up connection, however, is a low-speed technology.
Some home and small business users opt for newer high-speed
technologies, which cost about twice as much as dial-up access, such as:
To get more information on the history of the Internet and the Internet backbone,
visit these websites:
http://www.isoc.org/internet/history/
http://www.livinginternet.com/i/ii.ht
ACTIVITY 3.1
EXERCISE 3.1
Although the Internet has evolved and changed dramatically in the last 30 years,
these six concepts are at the core of how Internet functions today and are the
foundation for Internet II, which will be discussed in the coming sections.
Prior to the development of packet switching, early computer networks used the
circuit switching (refer below).
However, these circuit switching techniques were expensive. It also wasted the
available communication capacity as the circuit would be maintained regardless of
whether any data was being sent or not. Although circuit-switching works well for
telephone calls, it does not work as well for sending data across a large Wide Area
Network (WAN) or an interconnected network like the Internet. The Internet was
designed to be resistant to failure. In a circuit-switched network, a failure in any
one of the connected circuits causes the whole connection to be interrupted and
data to be lost.
Thus, better technology was needed to overcome those problems and this resulted
in the birth of packet switching. The Internet uses packet switching to move data
between two points. In packet switched networks, messages are first broken down
into packets. In each packet, there is a digital code that indicates the following
elements:
(a) Source address (the origination point);
(b) Destination address;
(c) Sequencing information; and
(d) Error-control information.
Rather than being sent directly to the destination address, in a packet network,
the packets travel from a computer to another computer until they reach their
destination. These computers are called as routers. Look below to know the
meaning of the term ‰router„.
Packet switching makes nearly full use of almost all available communication
lines and capacity. Moreover, if some lines are disabled or too busy, the packets
can be sent on any available line that eventually leads to the destination point.
To gain better understanding on how packet switching works, visit this website:
http://www.pbs.org/opb/nerds2.0.1/geek_glossary/packet_switching_
flash.html
3.2.2 TCP / IP
The Internet uses two main protocols and they are:
(a) Transmission Control Protocol (TCP); and
(b) Internet Protocol (IP).
The Internet Protocol (IP) specifies the addressing details for each packet,
labelling each with the packetÊs origination and destination addresses.
TCP/IP is divided into four separate layers and with each layer handling a
different aspect of the communication problem. These four layers are:
The following applications are not owned by any one organisation but are
services that were developed over many years and given to all Internet users.
(a) IP address; and
(b) Domain names.
(a) IP Address
TCP handles the packetising and routing of Internet messages, while IP
provides the InternetÊs addressing scheme. Every computer connected to
the Internet must be assigned an address otherwise it cannot send or
receive TCP packets. For instance, when you sign onto the Internet using a
dial-up telephone modem, your computer is assigned with a temporary
address by your Internet Service Provider (ISP).
With all the new networks and new Internet-enabled devices requiring
unique IP addresses being attached to the Internet, a new version of the IP
protocol, called as Internet Protocol version 6 (IPv6) is being adopted. This
scheme contains 128-bit addresses. Since the IPv6 address space is much
larger, its notation system is more complex.
CD18:0000:0000:AF23:0000:FF9E:61B2:884D
To save space, the zeros can be omitted, which would reduce this
address to:
CD18:::AF23::FF9E:61B2:884D
This notation system is called as colon hexadecimal (colon hex. A).
Domain names are sets of words that are assigned to specific IP addresses.
Domain names can contain two or more word groups separated by
periods. The rightmost part of a domain name is the most general. Each
part of the domain name becomes more specific as you move to the left.
Let us take the domain name of our very own website www.business.oum.edu.my,
which contains five parts separated by periods, as an example. The following are the
features of this domain name:
(a) Beginning at the right, the word „my‰ indicates the country, Malaysia;
(b) The word „edu‰ indicates that the computer belongs to an educational
institution;
(c) The institution, Open University Malaysia, is identified by the word
„OUM‰;
(d) The word „business‰ is the name of a specific computer or group of
computers at the university; and
(e) The word „www‰ indicates that the computer is running a software that
makes it part of the World Wide Web (WWW).
We have looked at how domain name is created, now let us move on how to
initiate a webpage request using a web browser.
First of all, the user need to type the name of the protocol, followed by the
characters „//:‰ before the domain name. As we discussed earlier, the set of rules
for delivering webpage files over the Internet are in the HTTP protocol. Thus, a
user would type the following: http://www.business.oum.edu.my, to go to the
OUMÊs Faculty of Business website. The combination of the protocol name and
the domain name is called as the Uniform Resource Locator (URL).
Let us look at the definitions provided for the components in this computing model:
(a) Clients
Clients are very powerful personal computers that are connected together
in a network together with one or more server computers. These clients are
sufficiently powerful to accomplish complex tasks such as displaying rich
graphics, storing large files, and processing graphics and sound files; all on
a local desktop or hand-held device.
(b) Servers
Servers are networked computers dedicated to common functions that the
client machines on the network need, such as storing files, software
applications, utility programmes such as Web connections and printers.
(c) The processing load is balanced over many powerful smaller machines
rather than being concentrated in a single huge machine that performs
processing for everyone; and
3.2.4 Intranets
The very same Internet technologies that make it possible to operate a worldwide
public network can also be used by private and government organisations as
internal networks or more commonly known as intranets (refer below for its
definition).
Many corporations are moving away from proprietary local area networks such
as Windows 2000 and Novell, and toward a single internal intranet to handle the
firmÊs information processing and communication needs.
Intranets are often the most efficient way to distribute internal corporate
information as producing and distributing paper is usually slower and more
expensive than using Web-based communications. Companies can also use
intranets to reduce software maintenance and update costs for their employeesÊ
computer workstations. Computing staff can place software updates and patches
on the intranet, and employeesÊ workstations will be updated automatically the
next time they log on.
3.2.5 Extranets
You may wonder whether an extranet has a similar function as an intranet.
Basically, an extranet is an intranet that has been extended to include specific
entities outside the boundaries of the organisation, such as business partners,
customers, or suppliers. Although fax, telephone, e-mail, and overnight express
carriers have been the main communications tools for business for many years,
extranets can replace many of them at a lower cost.
For example, for many years, FedEx let customers to track their packages by
calling a FedEx toll-free number, and then giving the operator a tracking number.
In the early 1990s, FedEx began giving package-tracking software, as shown in
Figure 3.2, to any customer who wanted the software. Once it was installed in the
customerÊs computer, the software dialled the FedEx computer by using a
modem, queried the status of the customerÊs package, and displayed the results
on the customer Ês computer with no operator required.
To get more information on Internet technologies, you can visit the following
websites:
http://www.nsf.gov/about/history/nsf0050/pdf/internet.pdf
http://www.livinginternet.com/i/i.htm
SELF-CHECK 3.1
EXERCISE 3.2
3.2.6 Internet II
The Internet is changing as new technologies appear and new applications are
developed. As this happens, the second era of the Internet is being built by
private corporations, universities and government agencies. This new era of
Internet is referred to as Internet II.
where new technologies can be tested without impacting the current Internet.
The three primary goals of Internet II are as follows:
(a) Enable revolutionary Internet application;
(b) Ensure the rapid transfer of new network services and applications to the
broader Internet community; and
(c) Create a leading-edge high speed network capability for the national
research community.
Several new networks have been established in Internet II. Abilene and very high
performance Backbone Network Service (vBNS) are high performance backbone
with bandwidths ranging from 2.5 Gbps to 10 Gbps. In 2007, Internet II deployed a
100 Gbps East-West link. At these speeds, the ability of network to process data
begins to exceed the speed at which client computers can pull off their hard drives.
With a 100 Gbps Internet, a high-quality version of the movie „The Matrix‰ could
be sent in a few seconds rather than half a minute over the current Internet II and
two days over a typical home-broadband line. These improvements will make
possible the followings:
(a) Feature film distribution to millions of viewers;
(b) Differentiated quality of service;
(c) Guaranteed service levels; and
(d) Lower error rates.
In this section, we will learn more on Hypertext, HTML and Web Browsers
which are the some of the essential components in computing. Let us equip
ourselves with the definition of Hypertext as shown below.
For example, when you type a web address in your browser such as
http://www.oum.edu.my, your browser sends a HTTP request to oum.edu.my
server requesting the homepage of oum.edu.my.
As discussed earlier, http is the first set of letters at the start of every web
address, followed by the domain name. Together, the address is called a Uniform
Resource Locater (URL). When typed into a browser, a URL tells it exactly where
to look for the information.
The most common domain extensions currently available are as shown in Table
3.2. Countries also have domain names such as .uk, .au, .my, and .sg which
represent United Kingdom, Australia, Malaysia, and Singapore respectively. In
the near future, this list will expand to include many more types of organisations
and industries.
We have looked at the Hypertext, now let us move on to find out the meaning of
HTML.
You can see the source of HTML code for any webpage by simply clicking on the
„Page Source‰ command found in all browsers as shown in Figure 3.3.
The function of HTML is to define the structure and style of a document, including the
headings, graphic positioning, tables, and text formatting. Since its introduction, the
two major browsers, NetscapeÊs Navigator and MicrosoftÊs Internet Explorer, have
continuously added features to HTML to enable programmers to further refine their
page layouts. HTML web pages can be created through these ways:
(a) By using text editor, such as Notepad or Word pad; or
(b) By using Microsoft Word (simply save the Word document as a web page); or
(c) By using any one of several web page editors.
Copyright © Open University Malaysia (OUM)
96 TOPIC 3 INTERNET AND WORLD WIDE WEB
(a) E-mail
Electronic mail (E-mail) is the transmission of messages and files via
computer networks. E-mail was one of the original services on the Internet,
enabling scientists and researchers working on government-sponsored
projects to communicate with colleagues at other locations. Today, e-mail is
primary communications method for both personal and business use. E-mail
uses a series of protocol to enable messages containing text, images, sound,
and video clips to be transferred from one Internet user to another. Because
of its flexibility and speed, it is now the most popular form of business
communication, more popular than the phone and fax.
The programme that search engines unleash on the web to perform this
indexing function is called as a spider or crawler. Unfortunately, as the
number of web pages climbs to over two billion, more and more pages are
missed by the search engines. Google, perhaps the most complete search
engine, contains reference to only about half (one billion) of web pages.
And the engine does not always overlap, which means you may miss a
page on one engine, but pick it up on another. It is best, therefore, to use
multiple search engines rather than rely on one single search engine.
Although the major search engines are used for tracking down general
information of interest to users, they have also become a crucial tool within
e-commerce sites. Customers can more easily search for the exact item they
want with the help of a search programme; the difference is that within
websites, the search engine is limited to finding matches from that one site.
Sites without search engines are asking visitors to spends lots of time
exploring the site; something which few people are willing to do when
most sites offer a quick and easy way to find what they are looking for.
ACTIVITY 3.2
1. Discuss with your course mates on how the World Wide Web
operates.
2. What is your favourite search engine on the Internet? How
does it differ from other search engines?
However, with the advent to e-commerce on the Web, interest quickly turned
to exploiting the intelligent agent technology for commercial purposes.
Today, there are a number of different types of bots used in e-commerce on
the Web, and more are being developed every day. For instance, as
previously noted, many search engines employ web crawlers or spiders that
crawl from server to server, compiling lists of URLs that form the database
for the search engine. These web crawlers and spiders are actually bots.
(e) Chat
Like IM, chat enables users to communicate via computer in real time, that
is, simultaneously. However, unlike IM, which can only work between two
people, chat can occur between several users. For many websites,
developing a community of like-minded users has been critical for their
growth and success. Once those community members come together on a
site, chat can be a service that enables them to further bond and network,
endearing them further to the website. Chat is also used frequently in
distance learning, for class discussions and online discussions sponsored by
a company.
ACTIVITY 3.3
1. Identify the service provided in chat rooms. You can start with
Yahoo.com and lists its services.
2. Why do some vendors provide free chat rooms?
(f) Cookies
You may think that cookies are a food, similar to biscuits. However, they
are not. In computing, cookies are a tool used by websites to store
information about a user. When a visitor enters a website, the site sends a
small text file (the cookie) to the userÊs computer so that information from
the site can be loaded more quickly on future visits. The cookie can contain
any information desired by the site designers, including customer number,
pages visited, product examined, and other detailed information on the
behaviour of the customer at the site.
Below are some of the latest innovations made in the Internet and each of the
innovation will be elaborated:
Blogs;
Really Simple Syndication;
Podcasting;
Wikis; and
Internet Television.
(a) Blogs
There are so many „killer applications‰ on the Web that it is hard to pick
one super application. But blogs are arguably a super application. A blog,
(originally called as a weblog), is a personal webpage that typically contains
a series of chronological entries (newest to oldest) by its author and links to
related web pages (refer to Figure 3.7).
The blog may include a blog roll (a collection of links to other blogs) and
trackbacks (a list of entries in other blogs that refer to a post on the first
blog). Most blogs allow readers to post comments on the blog entries as
well. The act of creating a blog is often referred to as blogging. Blogs are
either hosted by a third-party site such as Blogger.com (Google),
LiveJournal, TypePad, Xanga, WordPress, Microsoft's Windows Live
Spaces or prospective blog that is hosted by the userÊs ISP.
No one knows how many of these blogs are kept up-to-date or just
yesterdayÊs news. And no one knows how many of these blogs have a
readership greater than one (the blog author). In fact, there are so many
blogs you need a blog search engine just to find them (Google or
Technorati), or you can just go to a list of the most popular l00 blogs and
dig in.
(c) Podcasting
A podcast is an audio presentation, such as radio show, audio from a
movie, or simply personal audio presentations which is stored as an audio
file and posted to the Web. Listeners download the fi1es from the Web and
play them on their p1ayers or computers. While commonly associated with
AppleÊs iPod portable music player, you can listen to Mp3 podcast files
with any Mp3 player. Podcasting has transitioned from an amateur
independent producer media in the „pirate radio" tradition, to a
professional news and talk content distribution channel.
(d) Wikis
A Wiki is a web application that allows users to easily add and edit content
on a webpage. The term Wiki derives from the "wiki wiki' (quick or fast)
shuttle buses at Honolulu Airport. Wiki software enables documents to be
written collectively and collaboratively. Most Wiki systems are open
source, server-side systems that store content in a relational database.
Since Wikis, which are another Web 2.0 killer application, by their very nature
are very open in allowing anyone to make changes to a page, most Wikis
provide a means to verify the validity of changes via a "Recent changes" page.
This enables members of the Wiki communities to monitor and review the
work of other users, correct mistakes, and hopefully deter „vandalism."
SELF-CHECK 3.2
EXERCISE 3.3
There are six important concepts that are the basis for understanding the
Internet and they are:
Packet switching;
The TCP/IP communications protocol;
Client/server computing;
Intranets;
Extranets;
Internet II.
There are some latest innovations made in the Internet and they are:
Blogs;
Really Simple Syndication;
Podcasting;
Wikis; and
Internet Television.
Bandwidths Intranets
Blogs IP address
Chat
Packet switching
Circuit switching
Podcasting
Client/server computing
Protocol
Cookies
Really simple syndication
Domain names
Routers
E-mail
Extranets Search engine
Hypertext markup language Server
Intelligent agents TCP/IP
Internet II Uniform resource locater
Internet service provider Web browser
Internet television Wikis
Instant messaging
INTRODUCTION
What is mobile commerce? Have you ever come across this term before? If you
have not, let us look at the following.
In this topic, you will be given an overview of wireless technology and the major
types of wireless telecommunications networks. You will also get to know the
applications of m-commerce in various areas and the security and ethical issues
involved in m-commerce.
(a) (b)
Figure 4.1: Computing devices
Source: http://computersight.com/hardware/which-is-most-
reliable-computer-laptop-or-desktop/
http://blog.loaz.com/timwang/laptop-notebook.php
4.1.1 Hardware
Mobile devices come in different shapes and sizes such as laptop, netbook, PDA,
and smartphone. Most of these devices have the basic function of supporting
audio, video, Internet browser, email and Internet connection. The following
devices are converging toward a small footprint that combines all the capabilities
of the devices into one package, thus, making it difficult to differentiate them in
terms of functionality:
(b) Smartphone
As shown in Figure 4.3, a Smartphone is a mobile phone with PDA-like or
PC-like functionality, including email, web browsing, address book,
calendar, calculator, digital camera, word processor, spreadsheet and
multimedia capabilities.
ACTIVITY 4.1
Access a smartphone review website. What are the criteria that play a
part in your selection of a smartphone?
4.1.2 Software
Do you know that the software for mobile devices must be customised to the
unique features of mobile devices such as small display screen, small bandwidth,
limited input capabilities and limited memory? The major software components
of a mobile device include the following:
(b) Microbrowser
Microbrowsers (also called as mobile browser, minibrowser or wireless
Internet browser) resemble standard Internet browsers on desktop
computers. Microbrowsers are used to access the Internet via mobile
devices. Similar to mobile operating systems, microbrowsers are adapted to
deal with the unique features of mobile devices which are small screen,
limited bandwidth and small memory. Examples of microbrowsers include
Internet Explorer Mobile and Opera Mobile.
Form/Release Description
802.11 (1997) Offers transfer rate of up to 2 Mbps and a signal range of up to 20 m for
indoors and 100 m for outdoors.
802.11a (1999) Offers faster transfer rate (54 Mbps) but a weaker signal range (maximum
of 30 m indoors and 120 m outdoors).
802.11b (1999) Most widely used standard, with 11 Mbps for signal ranges up to 100m
for indoors and up to 275 m for open space.
802.11g (2003) Combines the strength of both 802.11a and 802.11b in terms of transfer
rate and coverage range. It is backward compatible with the two
standards. It has become the new 802.11 standard.
802.11n (2009) A standard under development with the promised bandwidth of up to
600 Mbps using 4 MIMO streams (4 MIMO X 150 Mbps).
ACTIVITY 4.2
In September 2008, Penang Government announced a state-wide Wi-Fi
project which was expected to be ready in two years time.
Find out the latest progress of this project and whether it has been
successful or otherwise. Discuss it with your course mates.
ACTIVITY 4.3
http://www.streamyx.com.my/related_products/related_products.p
hp?id=streamyx_hotspot_faq
In 2007, four firms were given the licence to operate WiMax in Malaysia
and they are:
(a) Packet One Network P1 WiMax (in operations since August 2008);
(b) REDtone WiMax (launched in April 2009 and only available in East
Malaysia);
(c) YTL Communications Y-Max Networks (expected to start the
operations in November 2010); and
(d) Asiaspace Amax WiMax (launched in February 2010 but offline since
April 2010).
Generation Description
IG Analog-based technology from 1979 to 1992. Used exclusively for
voice.
2G Based on digital radio technology and still in use today. Includes
text messaging (SMS).
2.5G Based on cell phone protocol such as GPRS and CMDMA 2000.
Includes limited images in text messaging.
3G Started in 2001 in Japan. Supports rich media such as video.
3.5 G Expected to be seven times better than 3G with download speeds
of 14 Mbps and upload speeds of 1.8 Mbps. Includes mobile voice
telephony, video telephony and mobile TV.
4G Also called as Long Term Evolution (LTE) technology with 2.6
Ghz bandwidth and is expected better display in multimedia
content.
ACTIVITY 4.4
SELF-CHECK 4.1
You can visit the following websites to get more information on:
Let us look at banks which have applied the m-commerce concept successfully in
their operation:
(b) CIMB
CIMB Clicks Mobile Banking is the first to have Internet banking features
and capabilities, unlike other mobile banking services which use SMS to
make transactions.
ACTIVITY 4.5
http://www.cimbclicks.com.my/faq_mobilebanking.htm#1
In Malaysia, more advertisers are expected to tap into the growth of mobile
advertising, due to the huge number of mobile phone users in this country. For
example, insurance firms, restaurants and health-care companies are sending out
advertising messages through SMS and MMS to mobile phone users.
Now, let us look at the term ‰mobile portal„ and its definition.
ACTIVITY 4.6
(a) Location
Determine a position of a person or object (i.e., car).
(b) Navigation
Plot a route from one location to another.
(c) Tracking
Monitor the movement of a person or object.
(d) Mapping
Create maps of specific geographical location.
(e) Timing
Specify the precise time at an exact location.
Let us look at the example shown below to enhance our knowledge on i-commerce.
Source: http://epdm.com.cn/news/starbucks-frappuccino-flavors-i16.png
ACTIVITY 4.7
You can visit the following websites to get more information on GPS application:
http://www.geocaching.com
http://www.trimble.com/gps
The increasing use of mobile devices in workplace raises new ethical, legal and
health issues. Field service workers who work remotely could result in reduced
organisational transparency. It is also difficult to separate business and personal
work and life by using the same mobile phone for both occasions. Health issues
such as health damage from cellular radio frequency emissions and cell phone
addiction have yet to be proven but received much attention from various
parties.
You can visit the following website to get more information on M-commerce
security: http://www.cto.int/
3G is the current wireless wide area network (WWAN) technology and the
development of 4G is underway.
INTRODUCTION
Do you know that developing a successful e-commerce website requires a keen
understanding of business, technology and social issues? In many firms today,
e-commerce is just too important to be left totally to technologists and
programmers.
In order to prepare for the above task, it is vital for you to take into consideration
the following two most important management challenges in building a
successful e-commerce site:
(a) Developing clear understanding of the business objectives which requires
managers to build a plan for developing their firmÊs site; and
(b) Knowing how to choose the right technology to achieve those objectives which
requires the manager to understand some of the basic elements of e-commerce
infrastructure.
You must be aware of the main areas where you will need to make decisions
such as:
Let us look at the definitions for the following three terms shown below.
Business objectives are simply a list of capabilities you want your site
to have.
You will need to provide the above lists to system developers and
programmers so that they know what you as the manager expect them to
do.
A logical design includes a data flow diagram that describes the flow of
information at your e-commerce site, the processing functions that
must be performed, and the databases that will be used. The logical design
also includes a description of the security and emergency backup
procedures that will be instituted, and the controls that will be used in the
system.
SELF-CHECK 5.1
What are the differences between the logical design and physical
design?
You also have a second decision to make: Will you host or operate the site
on your firmÊs own servers or will you outsource the hosting to a web host
provider? These decisions are independent of each other, but they are
usually considered at the same time. There are some vendors who will
design, build, and host your site, while others will only either:
(i) Build; or
(ii) Host.
Pre-built Templates
Templates that merely require you to input text, graphics, and
other data. If you choose the template route, you will be limited to
the functionality already built into the templates, and you will not
be able to add to the functionality or change it. Very small mom-
and-pop firms seeking simple storefronts will use templates.
ACTIVITY 5.1
You can also choose to co-locate. Let us look below in order to find
out what is meant by co-locate.
SELF-CHECK 5.2
(d) Testing
Once the system has been built and programmed, you will have to engage in
a testing process. Depending on the size of the system, this could be fairly
difficult and lengthy. Testing is required whether the system is outsourced or
built-in house. A complex e-commerce site can have thousands of pathways
through the site, each of which must be documented and then tested.
The processes involved in e-commerce sites are never finished. They are always
in the process of being built and rebuilt. They are truly dynamic; much more so
than the payroll systems.
ACTIVITY 5.2
Most companies are not very keen to build an e-commerce site due to
high implementation and maintenance cost.
Do you agree with the above statement? Discuss with your course mates.
ACTIVITY 5.3
EXERCISE 5.1
In the remainder of this section, we will describe basic web server software
functionality and the various types of web application servers.
Unix is the original programming language of the Internet and the Web. Apache
is free and can be downloaded from many sites on the web, and comes
installed on most IBM Web servers. Literally, thousands of programmers have
worked on Apache over the years. Thus, it is extremely stable and there are
thousands of utility software programmes written for Apache that can
provide all the functionality required for a contemporary e-commerce site. In
order to use Apache, you will require staffs that are knowledgeable in the
operation of the Unix operating system or its PC variant, Linux.
Copyright © Open University Malaysia (OUM)
TOPIC 5 WIRELESS E-COMMERCE WEBSITE DEVELOPMENT 141
Microsoft Internet Information Server (IIS) is the second major web server
software available, with about 35% of the market. IIS is based on the Windows
operating system and is compatible with a wide selection of Microsoft utility and
support programmes. There are also at least 100 other smaller providers of web
server software, most of them are based on Unix or Sun Solaris operating system.
Note that the choice of web server has little effect on users on your system.
The pages they see will look the same regardless of the development
environment. There are many advantages to the Microsoft suite of development
tools; they are integrated, powerful, and easy to use. The Unix operating system,
on the other hand, is exceptionally reliable and stable. There is a worldwide open
software community that develops and tests Unix-based web server software.
Basic functionalities provided by all web servers are shown in Figure 5.2:
(f) E-mail
E-mail makes it possible to send, receive and store e-mail messages.
Let us look at the different types of tools used in the management of a web
server:
Links to URLs that have moved or been deleted are called as dead links and
these can cause error to messages for users trying to access that link.
Regularly checking that all links on a site are operational helps prevent
irritated users who may take their business elsewhere to a better-
functioning site.
E-commerce sites must intensively interact with users, who not only
request pages, but also request product, price, availability, and inventory
information. One of the most dynamic sites is eBay.com, in which the
content will be changing minute by minute. E-commerce sites are dynamic,
just like the real markets.
When the user requests a webpage, the contents for that page are then
fetched from the database. The objects are retrieved from the database
using CGI (Common Gateway Interface), ASP (Active Server Pages), JSP
(Java Server Pages) or other server-side programmes. This technique is
much more efficient than working directly in HTML code. It is much easier
to change the contents of a database than it is to change the coding of an
HTML page.
Menu costs are the costs incurred by merchants for changing product
descriptions and prices.
Dynamic page generation also permits easy online market segmentation the
ability to sell the same product to different markets. The same capability
makes it possible for nearly cost-free price discrimination, which is the
ability to sell the same product to different customers at different prices.
For instance, you might want to sell the same product to corporations and
government agencies but use different marketing themes. Based on a cookie
you placed on client files, or in response to a question on your site that asks
visitors if they are from a government agency or a corporation, you would
be able to use different marketing and promotional materials for corporate
clients and government clients. You might want to reward loyal customers
with lower prices and charge full price to first-time buyers.
Web application servers are software programmes that provide the specific
business functionality required for a website. The basic idea of
application servers is to isolate the business applications from the details
of displaying web pages to users on the front end and the details of
connecting the databases on the back-end. Application servers are a kind of
middleware software that provides the glue connecting traditional
corporate systems to the customer as well as providing all the
functionality needed to conduct e-commerce.
There are several thousand software vendors that provide application server
software. For Linux and Unix environments, many of these capabilities are
available free on the Internet from various sites. Most businesses faced with this
bewildering array of choices, choose to use integrated software tools called as
merchant server software.
Let us look at Figure 5.5 which illustrates the three functionalities of e-commerce
merchant server software.
Function Description
Online A company that wants to sell products on the web must have an online
Catalogue catalogue, which lists all of its products available on its website. Merchant
server software typically includes a database capability that will allow
construction of a customised online catalogue. The complexity and
sophistication of the catalogue will vary depending on the size of the
company and its product lines.
Let us look at the definition provided for the term "Merchant server software
package".
E-commerce server suite is easier, faster and more cost-effective that a collection of
disparate software applications. Generally, there are three types of e-commerce
suite based on price and functionality and they are:
You can visit these websites to get more information about server software:
Shopping Cart Software http//www.make-a-store.com/
Web Server Software http://www.apache.org
Application Server Software http://wwws.sun.com/software/
ACTIVITY 5.4
EXERCISE 5.2
The next section will discuss the hardware you will need to handle the demands
of the software.
To answer the following questions, you will need to understand the various
factors that affect the speed, capacity and scalability of an e-commerce site:
In the following sections, you will look at the demand and supply sides of the
hardware platform.
An Intel study found that nearly 80% of visitors to the typical e-commerce site
simply browsed requesting static web pages. Web servers can be very efficient
at serving static web pages. However, as customers request more advanced
services, such as searches of site, registration, order-taking via shopping carts,
or downloads of large multimedia audio and video files, all of which require
more processing power, performance can deteriorate rapidly.
For example, if your connection to the Web is a 150 Kbps, just like the DSL
line, the maximum number of visitors per second for 1 kilobyte files is
probably about ten. Most businesses host their sites at an ISP or other
providers that contractually is (or should be) obligated to provide enough
bandwidth for their site to meet the peak demands. However, there are no
guarantees and ISPs can blame web congestion for their own bandwidth
limitations. Check your ISPÊs bandwidth and your site performance daily.
While server bandwidth connections are less a constraint today with the wide
spread deployment of fibre optic cables, the connection to the client is
improving. This means they will be able to make far more frequent requests and
demand far richer content and experiences from your site. This demand will
translate quickly into dynamic content and the need for additional capacity.
There are three steps you can take to meet the demands for service at your site:
(a) Scale hardware vertically;
(b) Scale hardware horizontally; and
(c) Improve the processing architecture of the site.
For instance, you can change your hardware from a single processor
Pentium III, to a dual processor with two Pentium Ills or Xeon processor.
You can keep adding up to 20 processors to a machine and changing chip
speeds as well.
However, when your site grows from a single machine to perhaps ten to
twenty machines, the size of the physical facility required increases and
there is added management complexity.
Taking these steps can permit you to reduce the number of servers
required to service 10,000 concurrent users from 100 down to 20,
according to one estimate.
First of all, let us look at the elements which produce worst e-commerce sites:
(a) Make it difficult to find information about products;
(b) Complicate the process to make a purchase;
(c) Have missing pages and broken links;
(d) Have confusing navigation structures; and
(e) Have annoying graphics or sounds that you cannot turn off.
In order to create a successful e-commerce site design, which does not have the
elements mentioned earlier, the following important factors need to be taken into
consideration (refer to Figure 5.6):
(a) Functionality
Functionality pages that work, load quickly, and point the customer toward
your product offerings.
(b) Informational
Informational links that customers can easily find to discover more about
you and your products.
Let us concentrate on the tools used in e-commerce and they are divided into the
following:
(a) Tools for interactivity and active content; and
(b) Personalisation tools.
Let us look into the explanations and examples provided for each of the tools.
Widgets
Widgets, also called as gadgets or plug-ins or snippets, are small,
pre-built chunk of code that execute automatically in a HTML
webpage. They are mostly free and available for download on the
web such as Google Gadgets and Yahoo Widgets. Millions of
social network and blog pages use widgets to present users with
the content drawn for the web.
Mash-ups
Another application of Web 2.0 is mash-ups, which involve
pulling functionality and data from one programme and including
it in another. For example, the use of Google Map data and
combine it with other data. If you are running a budget
guesthouse website, you can download Google Map to your
website so visitor can get a sense of the neighbourhood. The
purpose of this application is to enhance userÊs interactivity with
your site.
The programme can then generate all the output required to make up
the return page (HTML, script code, text, etc) and send it back to the
client via the Web server. CGI programmes can be written in nearly
any programming languages as long as they conform to CGI
standards. Generally, CGI programmes are used with Unix servers.
For instance, if the user clicks on the button „Display the Contents of
My Shopping Cart‰, the server receives this request and executes a
CGI programme. The CGI programme retrieves the contents of the
shopping cart from the database and returns it to the server. The
server sends a HTML page that display the contents of the shopping
cart on the userÊs screen.
Java
Java is a programming language that allows programmers to
create interactivity and active content on the client machine,
thereby saving considerable load on the server. Java programmes
(known as Java applets) could be downloaded to the client over
the Web and executed entirely on the clientÊs computer.
JavaScript
JavaScript is a programming language invented by Netscape that
is used to control the objects on a HTML page and handle
interactions with the browser. It is most commonly used to handle
verification and validation of user input, as well as to implement
business logic.
Let us look at the definitions provided for both of the elements mentioned
above.
The customerÊs prior history can be accessed from a database when the user
returns to the site, or goes further into the site. Information gathered on
prior visits then can be used to personalise the visit and customise the
products. For instance, when a user returns to a site, you can read the
cookie in order to find the customerÊs ID, look the ID up in a database of
names, and greet the customer, such as „Hello Mary! Glad to have you
return‰.
You can visit the following websites to get more information about
hardware and various tools for e-commerce website:
SELF-CHECK 5.3
EXERCISE 5.3
1. Define scalability.
2. Describe the various scaling methods.
3. What are the eight most important factors in website design?
The factors that must be considered when building an e-commerce site are:
Hardware architecture;
Software;
Telecommunication capacity;
Website design;
Human resource; and
Customers' preference.
There are various additional tools that can improve the website performance
such as Common Gateway Interface, Active Server Pages, Java, Java Script
and ActiveX.
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe the dimensions of e-commerce security;
2. Identify the security threats in e-commerce environment;
3. Examine how technology protects the security of messages sent over
the Internet;
4. Discuss the tools used to establish secure Internet communications
channels; and
5. Assess the tools used to protect networks, servers and clients.
INTRODUCTION
Doing business on the web is riskier than doing business with local customers.
Stolen credit cards, disputed charges, off-shore shipping destinations, the power
of credit card companies to force merchants to pay for fraud, and the lack of
international laws governing global e-commerce. These problems are just some of
the security problems which e-commerce merchants must take into
consideration.
In this topic, we will examine e-commerce security issues, identify the major risks
and describe the variety of solutions currently available.
It is also less risky to steal online. The potential for anonymity on the Internet
cloaks many criminals in legitimate looking identities allowing them to place
fraudulent orders with online merchants, steal information by intercepting e-mail,
or simply to shut down e-commerce sites by using software viruses. In the end,
however, the actions of such cyber criminals are costly for businesses and
consumers, who are then subjected to higher prices and additional security
measures.
For instance, a recent survey conducted by Computer Crime and Security Survey
in 2007 on the response of 500 security practitioners in US corporations,
government agencies, financial institution, medical institutions and universities,
reported that 46% of the responding organisations experienced a computer
security incident within the last 12 months and incurred a total loss of $67
million. Insider abuse and virus are the most common attacks against computer
systems.
Not every cyber criminal is after money. In some cases, such criminals aim to just
deface, vandalise and/or disrupt a website, rather than actually steal goods or
services. The cost of such an attack includes not only the time and effort to make
repairs to the site but also damage done to the siteÊs reputation and image as well
as revenues lost as a result of the attack.
To achieve the highest degree of security possible, new technologies are available
and should be used. But these technologies by themselves do not solve the
problem. Organisational policies and procedures are required to ensure the
technologies are not subverted. Finally, industry standards and government laws
are required to enforce payment mechanisms, as well as to investigate and
prosecute violators of laws designed to protect the transfer of property in
commercial transactions.
Table 6.1 gives the definitions for each dimension of e-commerce security. It also
summarises the perspectives of customer and merchant on the different
dimensions of e-commerce security.
Source: Adapted from Laudon, K. C., & Traver, C. G. (2009). E-commerce business,
technology, society (5th ed.). Boston: Addison Wesley.
(a) Integrity
For example, if an unauthorised person intercepts and changes the contents of
an online communication, such as by redirecting a bank wire transfer into a
different account, the integrity of the message has been compromised because
the communication no longer represents what the original sender intended.
(b) Nonrepudiation
For instance, the availability of free e-mail accounts makes it easy for a
person to post comments or to send a message and perhaps later deny
doing so. Even when a customer uses a real name and an e-mail address, it
is easy for the customer to order merchandise online and then later deny
doing so. In most cases, because merchants typically do not obtain a
physical copy of a signature, the credit card issuer will side the customer
because the merchant has no legal, valid proof that the customer had
ordered the merchandise.
(c) Authenticity
How does the customer know that the Web site operator is who he claims
to be? How can the merchant be assured that the customer is really who he
says he is? Someone who claims to be someone they are not is „spoofing‰ or
misrepresenting themselves.
(d) Confidentiality
Confidentiality is sometimes confused with piracy as both are inter-related
(look at the definition provided for privacy).
(e) Privacy
E-commerce merchants have two concerns related to privacy:
(i) They must establish internal policies that govern their own use of
customer information; and
(ii) They must protect the information from illegitimate or unauthorised
use.
For example, if hackers break into an e-commerce site and gain access to
credit card or other information, this not only violates the confidentiality of
the data, but also the privacy of the individuals who supplied the
information.
(f) Availability
Customers may be wondering about the accessibility of the site while the
operator dwells over the operational aspect of the website.
Let us examine each form of security threats in detail in the following points.
Does a malware named ‰Trojan horse„ have a similar shape to the one in
famous Greek mythology? The name given for the malware does not
correspond with the physical shape of the malware, but it corresponds to
the function of the malware.
(i) Virus
A virus is a computer programme that has the ability to replicate or
make copies of itself and spread to other files. In addition to the
ability to replicate, most computer viruses deliver a „payload‰.
What is a payload? If you do not know the meaning of the term, refer
below to find out its meaning.
(ii) Worm
Macro, file-infecting virus, and script viruses are often combined with
worm. Instead of just spreading from file to file, a worm is designed
to spread from computer to computer. A worm does not necessarily
need to be activated by user or a programme in order for it to replicate
itself.
(iv) Bots
What is a Bot? Do you know the meaning of it? Lets us read on.
Malicious code such as that described above is a threat for both the
client and the server level, although servers generally engage in much
more thorough anti-virus activities than do consumers. At the server
level, malicious code can bring down an entire website, preventing
millions of people from using the site. Such incidents are infrequent.
Much more frequent malicious code attacks occur at the client level,
but the amount of damage is limited to a single machine.
(i) Adware
Adware is used to call for pop-up ads to display when user visits
certain site. For instance, adwares like ZongoSearch and PurityScan.
(iii) Spyware
Spyware is used to obtain information of the users such as the userÊs
keystrokes, copies of email and instant messages, and screenshots.
For example, SpySherif, which disguises as a spyware removal
programme but is actually a malicious spyware.
Identity theft can also provide a thief with false credentials for immigration
or other applications. One of the biggest problems with identity theft is that
very often the crimes committed by the identity theft expert are often
attributed to the victim.
(Source: http://www.identitytheftcreditfraud.com/)
The most popular phishing attempt is the spear phishing e-mail scam as
described below.
If you respond with a user name or password, or if you click links or open
attachments in a spear phishing e-mail, pop-up window, or website, you
might become a victim of identity theft and you might put your employer
or group at risk.
Source:
http://www.microsoft.com/hk/protect/yourself/phishing/spear.mspx
For instance, someone from a rich country sends an email to you asking for
your bank account number. The purpose is mentioned as to stash millions
of dollars for a short period of time and in return you will receive certain
amount of money.
Let us look at another three terms which are inter-related to the term
hacker.
Cyber criminal deals with any criminal act related to Internet, computers
and networks.
Source: http://www.crime-research.org/library/Cyber-terrorism.htm
The hacker phenomenon has diversified over time. HackersÊ activities have
also broadened beyond mere system intrusion to include theft of goods and
information, as well as vandalism and system damage. Groups of hackers
called tiger teams (will be explained later) are used by corporate security
departments to test their own security measures. By hiring hackers to break
into the system from the outside, the company can identify weaknesses in
the computer systemÊs armour.
Hackers Descriptions
White hats White hats hackers are known as „good hackers‰ because of their
role in helping organisations to locate and fix security flaws. White
hats do their work under contract, with agreement from clients that
they will not be prosecuted for their efforts to break-in.
Black hats In contrast, black hats are „bad hackers‰ who engage in the
same kinds of activities but without any pay or contract from the
targeted organisation. They have the intention of causing harm to
the organisation. They will break into websites and reveal the
confidential or proprietary information they find. These hackers
believe strongly that information should be free, so sharing
previously-secret information is part of their mission.
Grey hats Grey hats hackers are those who believe they are pursuing some greater
good by breaking in and revealing systemsÊ flaws. Grey hats discover
weaknesses in a systemsÊ security and then publish the weakness
without disrupting the site or attempting to profit from their finds.
(ii) E-commerce
The fraud in e-commerce is slightly different compared to the
traditional credit card fraud. In e-commerce, the greatest threat to
consumers is that the merchantÊs server with which the consumer is
transacting will „lose‰ the credit information or permit it to be
diverted for a criminalÊs use.
Spoofing refers to the act of hackers who attempts to hide their true
identities by misrepresenting themselves through fake e-mail addresses or
masquerading as someone else.
Links that are designed to lead to one site can be reset to send users to a
totally unrelated site, one that benefits the hacker. Although spoofing does
not directly damage files or network servers, it threatens the integrity of a
site.
Customers become dissatisfied with the improper order shipment and the
company may have huge inventory fluctuations that impact its operations.
In addition to threatening integrity, spoofing also threatens authenticity by
making it difficult to discern the true sender of a message. Clever hackers
can make it almost impossible to distinguish between a true and fake
identity or web address.
We have learned about spoofing; now let us shift our attention on spam
website as defined below.
Spam website (also known as junk website) appears on search results which
cloak its identity by using domain name similar to legitimate firm name
and redirect traffic to known-spammer redirection domains.
(g) Denial of Service (DOS) and Distributed Denial of Service (DDOS) Attacks
Let us look at the definitions of both terms in order to be able to
differentiate it clearly.
DOS attacks may cause a network to shut down, making it impossible for
users to access the site. For busy e-commerce sites such as eBay.com and
Buy.com, these attacks are costly as while the site is shut down, the siteÊs
reputation is damaged profoundly.
Now, let us focus on smurf. Smurf, which is a type of DOS attack, brings a
network down by sending out a request to many broadcast addresses with
an address that can communicate with up to 255 host computers to verify
that the address is working. When the 255 hosts on each broadcast address
reply to the verification request, the hacker spoofs the IP address reply to
the verification request, listing a particular companyÊs server as the
supposed reply address. Soon, the victim companyÊs server is quickly
overwhelmed with thousands of PING responses (refer below) that tie it
up.
DOS and DDOS attacks are threats to a systemÊs operation because they can
shut it down indefinitely. Major websites such as Yahoo! and even
Microsoft have recently experienced such attacks, making the companies
aware of their vulnerability and the need to introduce new measures to
prevent any future attacks.
(h) Sniffing
What is a sniffer? Read on to know more.
The same is true for e-commerce sites: Some of the largest disruptions to
service, destruction to sites, and diversion of customer credit data and
personal information have come from insiders who are once trusted
employees. Employees have access to privileged information, and in the
presence of sloppy internal security procedures, they are often able to roam
throughout an organisationÊs system without leaving a trace.
SELF-CHECK 6.1
List all the common and damaging forms of security threats to e-commerce
sites.
ACTIVITY 6.1
EXERCISE 6.1
6.2.1 Encryption
What is an encryption? Read the following for the definition of the term.
Encryption has been practiced since the earliest forms of writing and commercial
transaction. Ancient Egyptian and Phoenician commercial records were
encrypted using the following ciphers:
For instance, if we used the cipher „letter plus two‰ meaning replace every
letter in a word with a new letter two places forward, then the word
„HELLO‰ in plain text would be transformed into the following ciphertext:
„JGNNQ‰.
A more complicated cipher would be to break all words into two words
and spell the first word with every other letter beginning with the first
letter, and then spell the second word with all the remaining letters. In this
cipher, „HELLO‰ would be written as „HLO EL‰.
In order to decipher the above messages, there are a number of deciphering tools
and they are:
(a) Symmetric Key Encryption;
(b) Public Key Cryptography;
(c) Public Key Encryption Using Hash Function and Digital Signature;
(d) Digital Envelope; and
(e) Digital Certificate and Public Key Infrastructure (PKI).
In symmetric key encryption, both the sender and the receiver use the same key
to encrypt and decrypt the message as can be seen in Figure 6.5. You may
wonder how the sender and the receiver have the same key. They have to send
it over some communication media or exchange the key in person.
Symmetric key encryption was used extensively throughout World War II and
is still part of the Internet encryption. The Germans added a new wrinkle in the
1940s with the invention of the Enigma machine (see Figure 6.6). The Allies
(anti-German coalition) captured several Enigma machines, examined their
operation, understood the role of time in changing the codes, and eventually
were able to routinely decipher the GermanÊs military and diplomatic messages.
How did the enigma machine operate? The Enigma machine would generate, in
an everyday-basis, a new secret cipher that used both substitution and
transposition ciphers based on the settings made by a mechanical device. As
long as all Enigma machines around the world were set to the same settings,
they could communicate securely, and every day the codes would change,
hindering code-breakers from breaking the codes in a timely-fashion.
The brute force algorithm consists in checking, at all positions in the text
between 0 and n-m, whether an occurrence of the pattern starts there or not.
Then, after each attempt, it shifts the pattern by exactly one position to the
right.
For this reason, modern digital encryption systems use keys with 56,128,
256, or 512 binary digits. With encryption keys of 512 digits, there are 2512
possibilities to check out. It is estimated that all the computers in the world
would need to work for ten years before stumbling upon the answer.
The most widely used symmetric key encryption on the Internet today is
the Data Encryption Standard (DES), which uses a 56-bit encryption key,
developed by the National Security Agency (NSA) and IBM in the 1950s.
To cope with much faster computers, it has been improved recently to
Triple DES, which essentially encrypts the message three times each with
separate key. There are many other symmetric key systems with keys up to
2048 bits. Like all symmetric key systems, DES requires the sender and the
receiver to exchange and share the same key, and requires a different set of
keys for each set of transactions.
(c) Public Key Encryption Using Hash Function and Digital Signature
In public key encryption as shown in Figure 6.8, some elements of security
are missing. Although we can be quite sure the message was not
understood or read by a third party (message confidentiality), there is no
guarantee the sender really is the sender that is, there is no authentication
of the sender. This means the sender could deny ever sending the message
(repudiation). And there is no assurance the message was not altered
somehow in transmit.
For example, the message „Buy Sisco @ $25‰ could have been accidentally
or intentionally altered to read „Sell Sisco @ &25‰. This suggests a potential
lack of integrity in the system.
Figure 6.8: Public key encryption using hash function and digital signature
Source: http://www.microsoft.com/mspress/books/sampchap/6429.aspx
The results of applying the hash function are sent by the sender to
the recipient. Upon receipt, the recipient applies the hash function to
the received message and checks to verify the same result is
produced. If so, the message has not been altered. The sender then
encrypts both the original message using the recipientÊs public key,
producing a single block of ciphertext.
The recipient of this signed ciphertext first uses the senderÊs public key to
authenticate the message. Once authenticated, the recipient uses his or her
private key to obtain the hash result and original message. As a final step,
the recipient applies the same hash function to the original text and
compares the result with the result sent by the sender. If the results are the
same, the recipient now knows the message has not been changed during
transmission. The message has integrity.
In the physical world, if someone asks who you are and you show a social
security number, they may well ask to see your identification cardÊs picture
or a second form of certifiable or acceptable identification. If they really
doubt who you are, they may ask references to other authorities and
actually interview those authorities. Similarly in the digital world, we need
a way to know who people and institutions really are.
There are two methods to solve this problem of digital identity and they
are:
Therefore, there are three limitations in using the encryption and they are:
Let us now further our discussion on the security channels listed above.
(a) Secure Sockets Layer (SSL)
The most common form of securing channels is through the secure sockets
layer (SSL) of TCP/IP. When you receive a message from a server on the web
that you will be communicating through a secure channel, this means that you
will be using SSL to establish a secure negotiated session (refer below).
For instance, your credit card number that you entered into a form would be
encrypted. Through a series of handshakes and communications, the browser
and the server establish one anotherÊs identity by exchanging digital
certificates, decide on the strongest shared form of encryption and then
proceed to communicate using an agreed-upon session key.
A session key is a unique symmetric encryption key chosen just for this
single secure session. The key can be used only once.
While the SSL protocol provides secure transactions between merchant and
consumer, it only guarantees server side authentication as client
authentication is optional. In addition, SSL cannot provide irrefutability
that consumers can order goods or download information products, and
then claim the transaction which never occurred. Other protocols for
protecting financial transactions such as Secure Electronic Transaction
Protocol ( SET) have emerged that require all parties of a transaction to use
digital certificates.
However, you need to bear in mind that not all browsers and not all
websites support S-HTTP. You know you are dealing with a supporting
site when the URL starts with „SHTTP‰. The use of this as part of an anchor
tag indicates that the target server is S-HTTP capable. A message which
uses S-HTTP maybe:
(i) Signed;
(ii) Authenticated;
(iii) Encrypted; and
(iv) In any combination of the mentioned ways.
As shown in Figure 6.10, a remote user can dial into a local Internet Service
Provider (ISP), and PPTP makes the connection from the ISP to the
corporate network as if the user had dialled into the corporate network
directly. The process of connecting one protocol (PPTP) through another
Internet Protocol (IP) is called as tunneling because PPTP creates a private
connection by adding an invisible wrapper around a message to hide its
content. As the message travels through the Internet between the ISP and
the corporate network, it is shielded from prying eyes by PPTPÊs encrypted
wrapper.
Firewalls and proxy servers are intended to build a wall around your network,
and the attached servers and clients, just like physical world firewalls which
protect you from fires for a limited period of time. Firewalls and proxy servers
share some similar functions, but they are quite different as explained below:
(a) Firewalls
Firewalls are software applications that act as filters between a companyÊs
private network and the Internet as illustrated in Figure 6.11.
How does a dual home systems of proxy servers work? Let us look at
Figure 6.12 which shows the processes involved in the system.
It is not enough, however, to simply install the software once. Since new
viruses are being developed daily, routine updates are needed in order to
prevent new threats from being loaded.
SELF-CHECK 6.2
1. How do anti-virus programmes detect and identify a virus?
2. What are the tools used to protect networks, servers and clients?
EXERCISE 6.2
1. What is encryption?
2. Give four different forms of encryption technology currently
in use.
3. Explain these two tools which are used to establish secure
Internet communication channels:
(a) SSL (Secure Sockets Layer)
(b) S-HTTP (Secure Hypertext Transfer Protocol)
You can visit the following websites to get more information on technology
solutions for e-commerce security:
(a) Encryption:
http://tools.devshed.com/c/a/How-To/What-Is-Encryption-
Technology/
You will obviously want to start with the information assets that you
determined to be the highest priority in your risk assessment.
Below are the questions that might guide in developing the security policy:
(i) Who generates and controls this information in the firm?
(ii) What existing security policies are in place to protect the information?
(iii) What enhancements can you recommend to improve security of these
most valuable assets?
(iv) What level of risk are you willing to accept for each of these assets?
(v) Are you willing, for instance, to lose customer credit data once every
ten years?
(vi) Or will you pursue a hundred-year hurricane strategy by building a
security edifice for credit card data that can withstand the once in a
hundred-year disaster?
You will need to estimate how much it will cost to achieve this level of
acceptable risk. Remember, total and complete security may require
extraordinary financial resources.
To implement your plan, you will need a security organisational unit and a
security officer.
Tiger teams are often used by large corporate sites to evaluate the strength
of existing security procedures.
Before we move further, what is a tiger team? Does the team have any similar
characteristic to the real black striped orange-reddish coloured animal?
A tiger team is a group whose sole job activity is attempting to break into a
site and stopping just short of actually making any unauthorised changes
to the site. Many small firms have sprung up in the last five years to
provide these services to large corporate sites.
ACTIVITY 6.2
Imagine you are the owner of an e-commerce website. What are some
of the signs that your site has been hacked?
EXERCISE 6.3
Visit the following websites for more information on organisations that promote
computer security:
The seven most common and most damaging forms of security threat to
e-commerce sites include: malicious code, hacking and cyber-vandalism,
credit card fraud/theft, spoofing, denial of service attacks and sniffing.
In addition to encryption, there are several other tools that are used to secure
Internet channels of communication, including: SSL, S-HTTP, and VPN.
The technology itself is not the key issue in managing the risk of e-commerce,
public laws and active enforcement of cyber crime statues are also required to
both raise the costs of illegal behaviour on the Internet and guard against
corporate abuse of information.
INTRODUCTION
An important function of e-commerce sites is the handling of payments over the
Internet. Most e-commerce involves the exchange of some form of money for goods or
services. Today, three basic ways to pay for online purchases are through credit cards,
PayPal and debit cards which collectively account for more than 90 percent of all
online payments in the US. A small but growing percentage of consumer payments
are made by electronic transfer. The most popular consumer electronic transfers are
automated payments of auto loans, insurance payments and mortgage payments
made from consumersÊ checking accounts.
In this topic, we will discuss on six payments technologies and they are:
(a) Payment cards (i.e., credit card, debit card);
(b) Digital cash;
(c) Digital wallets;
(d) Online stored-value payment systems (i.e., PayPal, smart cards);
(e) Digital accumulating balance systems; and
(f) Digital checking systems.
Each of the payment technologies has their own unique properties, costs,
advantages and disadvantages. Some methods are already popular and widely
accepted, while others are just beginning to be accepted and thus, have an unclear
future. All of these electronic payment methods can work well for B2C e-commerce
sites. In the United States, credit card payment is the primary form of online
payment system, accounted for about 60% of online transactions in 2008.
Finally, this topic ends with a discussion on the payment system for B2B e-commerce
sites as well as the electronic billing and presentment systems.
Let us look at the detailed explanation provided for each payment card:
Credit cards are widely accepted by merchants around the world and
provide assurances for both the consumer and the merchant. A consumer is
protected by an automatic 30-day period in which he or she can dispute an
online credit card purchase. Paying for online purchases with a credit card
is just as easy as in a brick-and-mortar store.
Merchants that already accept credit cards in an offline store can accept
them immediately for online payment because they already have a
merchant credit card account. Online purchases require an extra degree of
security not required in offline purchases, because a card holder is not
present and cannot provide proof of identity as easily as he or she can
when standing at the cash register.
Advantages Description
Fraud protection For merchants, payment cards provide fraud protection. When
a merchant accepts payments cards for online payment or for
orders placed over the telephone, the merchant can verify and
authorise purchases using a payment card processing network.
Worldwide Payment cards can be used anywhere in the world, and the
acceptance currency conversion, if needed, is handled by the card issuer.
Easier form of In online transactions, when a consumer reaches the electronic
payment checkout, he or she enters the payment card number as well as
the shipping and billing information in the appropriate fields
to complete the transactions.
No installation The consumer does not need any special hardware or software
to complete the transactions.
Built-in security Payment cards provide built-in security for merchants because
merchants have a higher assurance that they will be paid
through the companies that issue payment cards than through
the sometimes slow-direct invoicing process.
Disadvantages Description
Transaction and Payment card service companies charge merchants per-
monthly processing transaction fees and monthly processing fees (about 1% - 4%).
fees These fees can add up, but merchants view them as a cost of
doing business. Any merchant who does not accept payment
cards for purchases, risks losing a significant portion of sales to
other merchants who do accept payment cards.
High prices of goods The consumer pays no direct transaction-based fees for using
and services payment cards, but the prices of goods and services are slightly
higher than they would be in an environment free of payment
cards.
Annual fee Most consumers also pay an annual fee for credit cards and
charge cards. This annual fee is much less common on debit
cards.
Payment card processing has been made easier over the past two decades
because Visa and MasterCard, along with MasterCardÊs European affiliate,
MasterCard Europe (formerly known as Europay), have implemented a single
standard for the handling of payment card transactions called as the EMV
standard (EMV is derived from the names of the companies: Europay,
MasterCard and Visa).
All of these entities must work together for customer charges to be credited to
merchant accounts (and vice versa when a customer receives a payment card
credit for returned goods).
Payment card transactions follow these general steps once the merchant receives
a consumerÊs payment card information, which is usually sent using SSL:
(a) The merchant authenticates the payment card to ensure it is valid and not
stolen;
(b) The merchant checks with the payment card issuer to ensure that credit or
funds are available and puts a hold on the credit line or the funds needed
to cover the charge; and
(c) Settlement occurs, usually a few days after the purchase, which means that
funds travel between banks through the automated clearinghouse system
(refer below) into the merchantÊs account.
Source:
http://www.computerworld.com/s/article/59309/Automated_Clearing_
House
Systems using Visa or MasterCard are the most visible examples of the
open loop systems. Many banks issue both cards. Unlike American Express
or Discover, neither Visa nor MasterCard issues cards directly to
customers. MembersÊ banks are responsible for establishing customer credit
limits.
A merchant bank (or acquiring bank) is a bank that does business with
sellers (both traditional commerce and e-commerce) who want to accept
payments cards.
The bank will assess the level of the risk in the business based on the
following criteria:
The merchant bank wants to have confidence that the merchant has a
good prospect of staying in business and wants to minimise its risk.
An online merchant that appears disorganised is attractive to a
merchant bank than a well-organised online merchant.
To get more information on payment cards, you can visit these websites:
ACTIVITY 7.1
EXERCISE 7.1
A significant difference between digital cash and credit cards is that digital cash
can be readily exchanged for physical cash on demand. Since digital cash is
issued by private entities, there is a need for common standards among all digital
cash issuers so that one issuerÊs digital cash can be accepted by another issuer.
This need has not been met yet due to the following reasons:
As mentioned earlier, banks that issue credit cards make money by charging
merchants a processing fee on each transaction. This fee ranges from one percent
to four percent of the value of the transaction. Often, banks impose a minimum
fee of 20 cents or more per transaction. Many banks charge electronic commerce
sites more than similar brick-and-mortar stores of up to $1 more per credit card
transaction. The cost of an online transaction can be 50 percent higher than the
cost to process the same transaction for a brick-and mortar retailer.
Internet payments for items costing from a few cents to approximately a dollar
are called as micropayments. Micropayments champions see many applications
for such small transactions, such as paying five cents for an article reprint or 35
cents for a complicated literature search.
However, micropayments have not been implemented very well on the web yet.
The payments that are between $1 and $10 do not have a generally accepted
name; some industry observers use the term micropayment to describe any
payment of less than $10. However, in this module, the term small payments will
be used to include all payments of less than $10.
All electronic payment schemes have issues that must be resolved satisfactorily
to allay consumersÊ fears and give them confidence in the technology. Concerns
about electronic payment methods include:
(a) Privacy and security;
(b) Independence;
(c) Portability; and
(d) Convenience.
Privacy and security questions are probably the most important issues that have
to be addressed with any payment system to be used by consumers. Consumers
want to know whether transactions are vulnerable and whether the electronic
currency can be copied, reused or forged.
Digital cash brings with it some unique security problems. Digital cash have the
following two important characteristics; which is commonly found in physical
currency:
(b) Anonymous
Digital cash ought to be anonymous, just as hard currency is. That is,
security procedures should be in place to guarantee that the entire digital
cash transaction occurs only between two parties and that the recipient
knows that the electronic currency being received is not counterfeit or
being used in two different transactions. Ideally, consumers should be able
to use digital cash without revealing their identities as this prevents sellers
from collecting information about individual or group spending habits.
Online stores have many of the same payment collection inefficiencies as their
brick-and-mortar cousins. Most online customers use credit cards to pay for their
purchases. Online auction customers also use conventional payment methods,
including cheques and money orders. Digital cash systems, though less popular
than other payment methods, provide advantages and disadvantages that are
unique to digital cash as shown in Table 7.3.
Advantages Description
Efficiency Digital cash transactions are more efficient; which fosters more
businesses and lowers the prices for consumers.
Less costly Transferring digital cash on the Internet costs less than processing credit
card transactions. Conventional money exchange systems are expensive as
it requires banks, bank branches, clerks, automated teller machines, and an
electronic transaction system to manage, transfer and dispense cash.
Digital cash transfers occur on the Internet and through existing computer
systems. Thus, the additional costs that users of digital cash must incur are
nearly zero. Because the Internet spans the globe, the distance that an
electronic transaction must travel does not affect cost. When considering
moving physical cash and cheques, distance and cost are proportional. The
greater the distance of the currency, the more it costs to move it.
Authorisation Digital cash does not require that one party obtain an authorisation,
as is required with credit card transactions.
Preferred Most of the worldÊs populations do not have credit cards. Many adults
choice by cannot obtain credit cards due to minimum income requirements or past
most debt problems. Children and teenagers (eager purchasers who represent a
significant percentage of online buyers) are ineligible, simply because they
are too young. For all of these people, digital cash provides the solution to
paying for online purchases.
Independent Digital cash is independent; it is unrelated to any network or storage
device. That is, digital cash is really not free-floating currency, if its
existence depends on a particular proprietary storage mechanism
that is specially designed to hold one type of digital cash. Digital
cash able to pass transparently across international borders and be
converted automatically to the recipient countryÊs currency.
Portability Digital cash i s freely transferable between any two parties. Credit
and debit cards do not possess this property of portability or
transferability between every combination of two parties. In a credit
card transaction, the credit card payment recipient must already have
a merchant account established with a bank; a condition that is not
required with digital cash.
Convenience Digital cash d o es n o t require any special hardware or software;
making it convenient for people to use it.
We have looked at the advantages of digital cash, now let us concentrate on the
disadvantages of digital cash as portrayed in Table 7.4.
Disadvantages Description
Audit trail Digital cash is just like real cash as it cannot be easily traced.
Not widely Digital cash has been successful in some parts of the world, but it has
accepted not yet become a global commercial success. Making digital cash a
popular alternative payment system requires wide acceptance.
Multiple A solution need to be figured out to the problem of multiple digital
standards cash standards. Customers do not want to carry a dozen different
brands of digital cash to be able to purchase goods from a majority of
the merchants that accept digital cash.
The customer can store the digital cash in a digital wallet (will be described in the
coming section) on his or her computer, or on a stored-value card (also will be
described later in this topic). In addition, the consumer can authorise the issuer to
make payments to third parties from the digital cash account. Since cash does not
work well for online transactions, digital cash fills an important need in countries
which conduct B2C e-commerce.
You can visit the following websites to get a clear view on digital cash:
SELF-CHECK 7.1
EXERCISE 7.2
Thus, digital wallet (also called as electronic wallet or e-wallet) is created to solve
the above mentioned problem and to provide a secure storage place for credit
card data and digital cash. Serving a function similar to a physical wallet, digital
wallet holds credit card numbers, digital cash, owner identification, and owner
contact information (this information is provided at an electronic commerce siteÊs
checkout counter). Some digital wallets contain an address book as well.
Digital wallets make shopping more efficient. When consumers select items to
purchase, they can then click on their digital wallet to order the items quickly. In
the future, digital wallets could serve well their owners by tracking purchases
and maintaining receipts for those purchases. Maintaining records of a
consumerÊs purchasing habits is something that online giants such as
Amazon.com have mastered, but an enhanced digital wallet could reverse that
process and use a web robot to suggest where the consumer might find a lower
price on an item that he or she purchases regularly.
Let us look at the two categories that digital wallets fall into based on where they
are stored:
Many of the early digital wallets were client-side wallets that required
users to download the wallet software. This need to download software
onto every computer used to be a main disadvantage of client-side wallets.
Another disadvantage of client-side wallets is that they are not portable.
What does a digital wallet store? Digital wallets store shipping and billing
information, including a consumerÊs first and last names, street address, city,
state, country, and ZIP or postal code. Most digital wallets also can hold many
credit card names and numbers, affording the consumer a choice of credit cards
at the online checkout. Some digital wallets also hold digital cash from various
providers, such as eCash.
Digital wallets can save shoppersÊ time. When shoppers have filled their shopping
carts, they proceed to the electronic checkout counter to confirm their choices. At the
checkout counter, they are confronted with a form (or series of forms) in which they
must enter their name, address, credit card number, and other personal information.
All these information would be easily filled in by using the digital wallet.
However, there are some companies who are brave enough to venture in this
area and finally succeeded in making an impact:
You can visit the following websites to get a clearer view on digital wallets:
ACTIVITY 7.2
Do you think that a digital wallet can save shoppers time? State your
reasons.
EXERCISE 7.3
Let us look at the explanations provided for the following stored value cards in
the coming sections:
(a) PayPal;
(b) Magnetic strip cards; and
(c) Smart cards.
7.4.1 PayPal
How does PayPal operate in terms of the online stored value payment system? It
helps to make and receive payments for individuals and businesses with email
accounts. PayPal, which is available in many countries around the world, builds
on the existing financial infrastructure of the countries in which it operates. A
PayPal account is established by a user by specifying a credit, debit, or checking
account that want to be charged or paid during online transactions.
Most magnetic strip cards hold value that can be recharged by inserting them
into the appropriate machines, inserting currency into the machine, and
withdrawing the card; the cardÊs strip stores the increased cash value. Magnetic
strip cards are passive; they cannot send or receive information and increment or
decrement the value of cash stored on the card. The processing must be done on
a device into which the card is inserted.
There are many differences between a magnetic strip card and a smart card:
(a) A smart card can store larger amounts of information and includes a
processor chip on the card.
(b) Although both magnetic strip cards and smart cards can store digital cash,
a smart card is better suited for Internet payment transactions because it
has some processing capability.
(c) Credit, debit, and charge cards currently store limited information on a
magnetic strip. A smart card can store about 100 times the amount of
information that a magnetic strip plastic card can store.
Smart cards (refer to Figure 7.5) are safer than conventional credit cards
because the information stored on a smart card is encrypted. For example,
conventional credit cards show your account number on the face of the card and
your signature on the back. The card number and a forged signature are all that a
thief needs to purchase items and change them against your card.
However, with a smart card, credit theft is much more difficult because the key
to unlock the encrypted information is a PIN. There is no visible number on the
card that a thief can identify, nor is there a physical signature on the card that a
thief can see and use as an example for signature forgery.
Smart cards have been in use for more than a decade. Popular in Europe and
parts of Asia. Smart cards, so far have not been successful in the United States. In
Europe and Japan, smart cards are being used for telephone calls at public
phones and for television programmes delivered by cable to peopleÊs homes. The
cards are very popular in Hong Kong too; where many retail counters and
restaurant cash registers sport smart card readers. Hong KongÊs transportation
network, including subways, buses, railways, trams and ferries joined together
and created a smart card called the Octopus that lets the commuters to use one
card for all of their public transportation needs.
Visa recently introduced its smart card, the smart Visa Card. In late 2002, retailer
Target introduced its Target Visa smart card, one of the first promotions of the
new smart Visa Card, for use in TargetÊs website. The Target Visa includes digital
wallet and automated login information for the Target.com website, but it also
functions as a normal Visa Card at other merchants. American Express has also
released its smart card called Blue.
Let us take a look at the detailed explanation given for the smart card called
Mondex.
Mondex is a smart card that holds and dispenses digital cash (refer to Figure
7.6). As it gains acceptance on the Internet and the general marketplace, the
Mondex smart card allows other applications to reside on its microchip.
Introduced in 1990, the card is now part of the MasterCard International.
MondexÊs Hong Kong pilot programme took place in 1996 and was the main
force behind the general acceptance of smart cards in Hong Kong. The Mondex
card gave people in Hong Kong, who traditionally used cash, a new and
appealing way to make payments on the Internet and in the physical world.
However, in the United States and Canada, Mondex smart cards are less
successful because consumers already have payment methods that work for
them, such as credit card, debit cards and paper cheques.
Mondex smart cards can accept digital cash directly from a userÊs bank
account. Cardholders can spend their digital cash with any merchant who
has a Mondex card reader. Two cardholders can even transfer cash
between their cards over a telephone line. A single Mondex card can work
in both worlds: the online world of the Internet and the offline world of
ordinary merchant stores. The Mondex card is less susceptible than credit
cards to threats of theft as the card provides anonymous digital cash.
Mondex digital cash also supports micropayments as small as three cents.
Disadvantages Descriptions
Not able to carry huge The card carries real cash in digital form, and the risk of
amount of money theft of the card may deter users from loading it with a
huge amount of money.
Not able to defer the Mondex does not allow the deferred payment you can
payment obtain with a credit card. You can defer paying your charge
or credit card bill for almost a month without incurring any
interest charges.
Not provided with Transactions completed using a Mondex card do not
receipt provide receipts.
A Mondex transaction (from buyer to seller) has several steps that ensure the
transferred cash safely reaches the correct destination:
(a) The consumer inserts the Mondex card into a reader. The merchant and the
consumer are both validated to ensure that both of them are authorised to
make transactions.
(b) The merchantÊs terminal requests payment while simultaneously transmits
the merchantÊs digital signature.
(c) The consumerÊs card checks the merchantÊs digital signature. If the
signature is valid, then the transaction amount is deducted from the
consumerÂs card.
(d) The merchantÊs terminal checks the consumerÊs digital signature for
authenticity. If the consumerÊs signature is validated, the merchantÊs
terminal acknowledges the consumer Ês signature by again sending the
merchantÊs signature back to the consumer Ês card.
(e) Once the digital cash is deducted from the consumerÊs card, the same
amount is transferred into the merchantÊs digital cash account.
Waiting until after the transaction amount is deducted from the cardholderÊs
card ensures that digital cash is neither created nor lost. Serialising the deduction
and crediting events before signifying a complete transaction eliminates the
creation or loss of cash if the system malfunctions in the middle of the process.
SELF-CHECK 7.2
What are the differences between magnetic strip cards, smart cards
and Mondex? Which among these is the most secure?
EXERCISE 7.4
Some of the simpler systems are used to electronically pay individuals and to
settle accounts at online auction sites. More sophisticated systems are used by the
Treasury Department to transfer billions of dollars electronically. Two commonly
used digital checking payment systems in the US are PayByCheck and eBillme.
Let us learn more on one of the most widely used digital checking payments
systems, eCheck.
This is how eCheck comes into existence. ECheck requires users to obtain a
hardware-based „electronic chequebook‰ from traditional banks. The
hardware could be a PCMCIA card, a standard PC card, or a specialised
smart card reader external to the consumerÊs computer.
Upon receipt, the merchant authenticates the digital signatures of both the
sender and the issuing bank using their respective public keys and
deposits the cheque at its bank. A higher level certificate authority, such as
the Federal Reserve Bank, certifies the issuing bankÊs public key. EChecks
can also contain invoice, remittance and other information.
Visit the following websites to get more ideas on how digital accumulating
balance payment systems and digital checking payment systems work:
http://www.paybycheck.com/demo.html
http://www.ebillme.com/about/
ACTIVITY 7.3
SELF-CHECK 7.3
EXERCISE 7.5
What does EBPP stand for? Refer below to find the answer.
Electronic billing presentment and payment (EBPP) systems are new forms
of online payment systems for monthly bills. EBPP services allow
consumers to view bills electronically and pay them through electronic
funds transfer from bank or credit card accounts.
More and more companies are choosing to issue statements and bills
electronically, rather than mailing out paper versions. But even those businesses
that do mail paper bills are increasingly offering online bill payment as an option
to customers, allowing them to immediately transfer funds from a bank account
to pay a bill somewhere else.
Although more than 90% of all EBPP takes place in B2C relationships, such
payment systems are rapidly spreading to B2B commerce. The challenges
involved in requesting and receiving electronic payment from customers are
essentially the same for both consumers and businesses, except that business
transactions generally involve larger amounts.
One major reason for the surge in EBPP usage is that companies are starting to
realise how much money they can save through online billing. Not only there is
saving in postage and processing, but also payments can be received more
quickly, thereby improving the cash flow. Ferris Research estimates that
companies can save anywhere from 10 cents to $1.50 per invoice by sending it
using EBPP.
Growth in Internet usage, however, is the key driver, pushing many companies
to explore online billing and payments. The more the online users are, the larger
the market for EBPP is.
The bill payment process involves the customers, the bank and potentially a
third party processor. Customers can e-mail an e-cheque drawn on their
bank account, and the funds will be transferred via e-mail to the vendorÊs
bank account (this is similar to the e-checking systems). In the competition
for market dominance for the consumer in EBPP market, some institutions
are clearly gaining advantage. Utility companies, web portals and
traditional banks already have parts of the infrastructure required to build
powerful EBPP systems. The strong web portals players are AOLÊs Billing
and Yahoo! Bill Pay.
Visit the following websites to get more ideas on how EBPP payment
system works:
http://www.tmonline.com.my
http://bills.yahoo.com/reg.html
SELF-CHECK 7.4
EXERCISE 7.6
Online stores can accept a variety of forms of payments. Credit cards, debit
cards, and charge cards (payment cards) are the most popular forms of
payment on the Internet. They are ubiquitous, convenient and easy to use.
Digital cash, one form of online payment, is very useful for making
micropayments because the cost of processing payment cards for small
transactions is greater than the profit on such transactions.
Digital wallet eliminates the need for consumers to re-enter payment card
and shipping information at a siteÊs electronic checkout counter. One problem
of digital wallets is the lack of an internationally accepted standard.
Stored-value cards, including smart cards and magnetic strip cards, are
physical devices that hold information, including cash value, for the
cardholder.
While magnetic strip cards can contain only cash value, smart cards contain
data on an embedded microchip and are intended to replace the collection of
plastic cards people now carry, including identity card (IC), driverÂs license,
and insurance card. Unlike digital cash or payment cards, smart cards require
merchants to install new hardware that can read the smart cards.
Digital checking payment systems on the other hand, are extensions to the
existing checking and banking infrastructure.
Electronic billing presentment and payment (EBPP) systems are a new form
of online payment systems for monthly bills. EBPP services allow consumers
to view bills electronically and pay them through electronic funds transfer
from bank or credit card accounts.
INTRODUCTION
What is the key objective of e-commerce marketing? You can seek the answer for
this key question by reading the following explanation. The key objective of
Internet marketing is to use the web as well as traditional channels to develop a
positive, long-term relationship with customers (who may be online or offline).
Therefore create a competitive advantage for the firm by allowing it to charge a
higher price for products or services than its competitors.
In this topic, you will learn the basic marketing concepts and evaluates e-commerce
marketing programmes. You will also learn about consumer behaviour on the web,
brands, unique features of electronic markets and special technologies that support the
new kinds of branding activities.
Feature set is the bundle of capabilities and services offered by the product
or service.
Let us say, for example, that the core product is a washing machine.
Marketers must identify the features of the washer that differentiate it from
other existing washing machines.
SELF-CHECK 8.1
What are the differences between the core product, the actual product
and the augmented product?
has been crucial in the success and failure of many companies, as described
throughout this module.
Nike sneakers that make you run like an athlete, high-specification Volvo car that
makes you feel safe on dark rainy nights, luxurious shirts from Polo that make
you appear as if you were on the way to a country club all these are examples of
products with extraordinary brand names for which consumers pay premium
prices.
How much is a brand worth? Brands which differ in their power and value in the
marketplace is called as brand equity.
A brand equity is a set of five categories of brand assets and liabilities linked
to a brand, its name and symbol that add to or subtract from the value
provided by a product or service to a firm or to that firmÊs customers or both.
According to InterbrandÊs 2009 WorldÊs Most Valuable Brands survey, the top
five brands and their estimated equity value are as follows:
(a) Coca-Cola ($68.7 billion);
(b) IBM ($60.2 billion);
(c) Microsoft ($56.6 billion);
(d) General Electric ($47.7 billion); and
(e) Nokia ($34 billion).
ACTIVITY 8.1
By segmenting the markets, firms can differentiate their products to more closely
fit the needs of customers in each segment. Rather than charge one price for the
same product, firms can maximise revenues by creating several different
variations on the same product and charging different prices in each market
segment.
ACTIVITY 8.2
(c) Information-carrier
Confronted with many different drinks, the choice of Coke can be made
quickly without much thought and with the assurance that you will have
the drinking experience that you expect based on prior information of the
product.
The ability of brands to become corporate asset and to attain brand equity
is based on future anticipated premiums paid by consumers. This also
provides an incentive for firms to build products that serve the customer
needs well, compared to other products. Therefore, although brands create
micro-monopolies, increase market costs, and led to above-average returns
on investment or „monopoly rents‰, they also introduce market efficiencies
for the customer.
For business firms, brands are a major source of revenue and are
obviously rational. Brands lower customer acquisition costs and increase
customer retention costs. The stronger the brand reputation, the easier it is
to attract new customers.
Let us look at the definitions given for the previously mentioned terms.
You can visit these websites to get more ideas on basic marketing concepts:
Internet marketing centre: http:// www.marketingtips.com
Internet marketing tips: http://www.clickz.com
Branding strategy: www.allaboutbranding.com
SELF-CHECK 8.2
List some of the major advantages of having a strong brand. How does
a strong brand positively influence consumer purchasing?
EXERCISE 8.1
ACTIVITY 8.3
Table 8.2 lists the data elements contained in a web transaction log and how these
elements can be used in marketing.
Pages and objects requested and Used to understand what this specific consumer
visited („Get‰ statements): was interested in finding (the click stream). Can
GET/images/traininglibararya be used later to send „personalised‰ messages,
rt.gif „customised products,‰ or simply return e-mail
regarding related products.
Response of site server: Used to monitor for broken links, pages not
200 (usually „HTTP/1.1.‰ returned.
„HTTP/1.1‰ 304 is a code to
send users to a different source for
the page or object).
Size of pages sent (bytes of Used to understand capacity demands on servers
information): 1996. and communications links.
Name of page or site from which Used to understand how consumers come to a
the consumer came to this site: site and once there, their patterns of behaviour.
http://www.azimuthinteractive.c
om/ office97text.htm
Name and version of the browser Useful for understanding target browsers,
used: Mozilla/4.0 compatible; ensuring your site is compatible with browsers
MSIE 4.01 („Mozilla‰ is a being used.
Netscape standard. MSIE is
Microsoft Internet Explorer).
WebTrends is a leading log file analysis tool. Transaction log data becomes even
more useful when combined with two other visitor-generated data trails:
ACTIVITY 8.4
For a website that has a million visitors per month, on average, a visitor makes 15
page requests per visit, there will be 15 million entries in the log each month.
These transaction logs, coupled with data from the registration forms and
shopping cart database, represent a treasure trove of marketing information for
both individual sites and the online industry as a whole. Nearly all the new
Internet marketing capabilities are based on these data-gathering tools.
For instance, here are just a few of the interesting marketing questions that can be
answered by examining a websiteÊs transaction logs, registration forms and
shopping cart database:
(a) What are the major patterns of interest and purchase for groups and
individuals?
(b) After the homepage, where do most users go first, and then second and
third?
(c) What are the interests of specific individuals?
(d) How can we make it easier for people to use our site?
(e) How can we change the design of the site to encourage visitors to purchase
our high-margin products?
(f) Where are visitors coming from (and how can we optimise our presence on
these referral sites)?
(g) How can we personalise our messages, offerings and products to
individual users?
ACTIVITY 8.5
Let us look the detailed explanation provided for both of these data collection
techniques:
(a) Cookies
If you are wondering what is meant by the term ‰cookie„, refer to the
following for a clearer explanation.
A cookie is a small text file that websites place on the hard disk of visitorsÊ
client computers every time they visit, and during the visit as specific
pages are visited. Cookies allow a website to store data on a userÊs machine
and then later retrieve it.
(iii) A true or false statement indicating whether the cookie is secure (if
False, the cookies does not require a secure protocol);
(iv) A 10-digital number indicating the time the cookie expires (date and
time expressed in the Unix programming language);
(v) The name of the cookie; and
(vi) An associated value such as an user ID number.
Do you know what a web bug is? Are they similar in nature to the common
bugs found in our house? No, they are not as explained below.
Web bugs are tiny (1 pixel) graphic files embedded in e-mail messages and
on websites. Web bugs are used to automatically transmit information
about the user and the page being viewed to a monitoring server.
Web bugs are often clear or white-coloured, so they are not visible to the
recipient. You may be able to determine if a webpage is using web bugs by
using the „View Source‰ option of your browser and examining the „IMG‰
(image) tags on the page. Web bugs are typically 1 pixel in size and contain
the URL of a server that differs from the one that served the page itself.
To get more information on cookies and web bugs, visit these websites:
http://www.cookiecentral.com/
http://w2.eff.org/Privacy/Marketing/web_bug.html
These techniques are more powerful and far more precise and fine-grained than
the gross levels of demographic and market segmentation techniques used in
mass marketing media or by telemarketing.
(a) Databases
The first step in interpreting huge transaction streams is to store the
information systematically. A database is a software application that stores
records and attributes. For example, a telephone book is a physical
Let us look at the definitions given for these three important terms:
The data originate in many core operational areas of the firm, such
as:
(i) Website transaction logs;
(ii) Shopping carts;
(iii) Point-of-sale terminals (product scanners) in stores;
(iv) Warehouse inventory levels;
The purpose of a data warehouse is to gather all the firmÊs transaction and
customer data into one logical repository where it can be analysed and
modelled by managers without disrupting or taxing the firmÊs primary
transaction systems and databases. Data warehouses grow quickly into
storage repositories containing terabytes of data (trillions of bytes) on
consumer behaviour at a firmÊs stores and websites.
With a data warehouse, firms can answer questions such as:
(i) What products are the most profitable by region and city?
(ii) What regional marketing campaigns are working?
(iii) How effective is store promotion of the firmÊs website?
According to a Data Warehousing InstituteÊs survey of more than 1,600
companies, most found major benefits in the successful implementation of a
data warehouse, such as better segmentation and increased revenues
because business managers had a more complete awareness of customers
through data that could be accessed quickly.
Data mining is a set of different analytical techniques that look for patterns
in the data of a database or data warehouse, or seek to model the behaviour
of customers. Website data can be „mined‰ to develop visitors and
customersÊ profiles.
SELF-CHECK 8.3
Let us look at the two approaches mentioned in the rule-based data mining:
products purchased) and material viewed at the site are analysed data
stored in a customerÊs profile table in order to segment the marketplace into
well-defined groups.
For instance, female customers who purchased items worth more than
RM50 in an average visit and who viewed travel articles might be shown a
vacation travel advertisement. The rules are specified by marketing
managers as a set of filters based on their expert opinions, as well as trial
and error, and are applied to aggregate groups of visitors or market
segments. There can be thousands of different types of visitors, and hence,
thousands of marketing decisions or filters that marketers have to make.
Here, rather than have expert marketers make decisions based on their own
„rules of thumb,‰ experience, and corporate needs (a need to move old
inventory, for instance), site visitors collaboratively classify themselves
based on common selections. The idea is that people classify themselves
into „affinity groups‰ characterised by common interests.
A query to the database can isolate the individuals who purchased the
same products. Later, based on purchases by other members of the affinity
group, the system can recommend purchases based on what other people in
the group have bought recently.
For example, visitors who all purchased books on amateur flying could
pitch a video that illustrates small plane flying techniques. And then later, if
it was discovered that several members of this „amateur flying interest
group‰ were purchasing books on, say, parachuting, then all members
of the group would be pitched like those who were purchasing. This pitch
would be made regardless of the demographic background of the
individuals.
There are many drawbacks to all these techniques, not least of which is that
there may be millions of rules; many of them nonsensical, and many others
of short-term duration. Hence, the rules need extensive validation and
culling. Also, there can be millions of affinity groups and other patterns in
the data that are temporal or meaningless.
Specialised advertisement servers are used to store and send to users the
appropriate banner advertisements. All these systems rely on cookies, web bugs,
and massive back-end user profile databases to pitch banner advertisements to
users and record the results, including sales. This process allows feedback from
the market to be entered into the database.
Nuffnang has been widely featured on mainstream newspapers like The Star,
Malaysia and The Sunday Times, Singapore, amongst other media. Nuffnang
advertisements are seen on 100,000 blogs by three million people daily.
CRM systems also supply the analytical software required to analyse and
use customer information. Customers come to the firms not just over the web but
also through these mediums:
(a) Telephone call centres;
(b) Customer service representatives;
(c) Sales representatives;
(d) Automated voice response systems;
(e) Automated Teller Machines (ATMs) and kiosks;
(f) In-store point-of-sale terminals; and
(g) Mobile devices or m-commerce
In the past, firms generally did not maintain a single repository of customer
information, but instead were organised along product lines; with each product
line maintaining a customer list (and often not sharing it with others in the same
firm). In general, firms did not know who their customers were, how profitable
they were or how they responded to marketing campaigns.
For instance, a bank customer might see a television advertisement for a low-cost
auto loan that included a toll-free-number to call. However, if the customer came
to the bankÊs website instead, rather than calling the toll-free-number, marketers
would have no idea how effective the television campaign was because the
customer contact data will go into a single system.
CRMs, like the advertising network described above, are part of the firmsÊ
evolution towards a customer-centric and marketing-segment-based business,
and away from a product-line-centred business. Also, like advertising networks,
CRMs are essentially a database technology with extraordinary capabilities for
addressing the needs of each customer as a unique person. Customer profiles can
contain the following information:
(a) A map of the customerÊs relationship with the institution;
(b) Product and usage summary data;
(c) Demographic and psychographic data;
(d) Profitability measures;
(e) Contact history summarising the customerÊs contact with the institution
across most delivery; and
(f) Marketing and sales information containing programmes received by
the customer and the customer Ês responses.
Companies like Celcom and Maxis use these profiles from the CRM system for
the following reasons:
(a) To do personal communication such as greeting customers with their name
every time they call;
(b) Retaining customers by awarding rewards such as free SMS or airtime; and
(c) Sending personalised advertisements through SMS based on the package
subscribed by customers.
With these profiles, CRMs can be used for the following aspects:
(a) To sell additional products and services;
(b) Develop new products;
(c) Increase product utilisation;
(d) Marketing costs;
(e) Identify and retain profitable customers;
(f) Optimise services delivery costs;
(g) Retain high-lifetime value customers;
(h) Enable personal communications;
(i) Improve customer loyalty; and
(j) Increase product profitability.
SELF-CHECK 8.4
EXERCISE 8.2
You can visit these websites to get more information on the technologies that
support online marketing:
Data warehouse - www.dwinfocenter.org
Data mining - www.data-mine.com
CRM systems - www.crm-daily.com
Let us look at the market entry strategies for the following firms as illustrated in
Figure 8.5:
(a) New firms; and
(b) Existing firms.
In the e-commerce I era, the typical entry strategy was pure clicks/first mover
advantage strategy (refer below).
To prevent new competitors from entering the market, growing audience size
very rapidly became the most important corporate goal rather than profits
and revenue. Firms following this strategy typically spent the majority of
their marketing budget on building brand (site) awareness by purchasing
high visibility advertising in traditional mass media such as television, radio,
newspapers, and magazine.
If the first mover gathered most of the customers in a particular category (pets,
wine, gardening supplies, and so forth), the belief was that new entrants would
not be able to enter because customers would not be willing to pay the switching
costs. Customers would be „locked in‰ to the first moverÊs interface. Moreover,
the strength of the brand would inhibit switching even though competitors were
just a click away.
Even though first movers are innovative, but they are usually lack of:
(a) Financial depth;
(b) Marketing and sales resources;
(c) Loyal customers;
(d) Strong brands; and
(e) Production or fulfilment facilities needed to meet the customer demands
once the product succeeds.
Traditional firms face some similar choices but they have significant
amounts of cash flow and capital to fund their e-commerce ventures over a
long period of time. For example, Barnes & Noble, the worldÊs largest book
retailer, formed Barnesandnoble.com, which is a fast follower site, when
faced with the success of upstart Amazon.com. The website was established
as an independent firm, a web pure play, although obviously making use of
the Barnes & Noble brand name.
Another possibility for new firms is to pursue a mixed clicks and bricks strategy
in which online marketing is closely integrated with offline physical stores.
However, very few new firms can afford the „bricks‰ part of this strategy.
Therefore, firms following this entrance strategy often ally themselves with
established firms that have already developed brand names, production and
distribution facilities and the financial resources needed to launch a successful
Internet business.
The most common strategy for existing firms is to extend their businesses and
brands by using the mixed „clicks and bricks‰ brand extender strategy. These
„brand extension‰ strategies saw the web as an extension of their existing order
processing and fulfilment, marketing, and branding efforts.
Each of the market entry strategies discussed above has seen its share of
successes and failures. While the ultimate choice of strategy depends on a firmÊs
existing brands, management strengths, operational strengths and capital
resources, todayÊs most firms are opting for a mixed „clicks and bricks‰ strategy
in the hope that it will enable them to reach profitability more quickly.
Amazon and eBay and other large e-commerce companies with affiliate
programmes typically administer such programmes themselves. Smaller
e-commerce firms who wish to use affiliate marketing often decide to join
an affiliate network (sometimes called an affiliate broker, which acts as an
intermediary).
The key benefit of affiliate marketing is the fact that it typically operates on
a „pay for performance‰ basis. Affiliates provide qualified sales leads in
return for pre-agreed upon compensation. Another advantage, however, is
the existence of an established user base that a marketer can tap into
through an affiliate immediately. For affiliates, the appeal is a steady
income potentially large that can result from such relationships.
The process of viral marketing can also involve users who do not know
each other. When a consumer decides to make a major purchase, such as a
new mountain bike, getting advice and opinions from people who own
such bikes is usually the first step. And with the Internet, it is fairly easy to
find and read reviews of various bike models written by knowledgeable
consumers.
Given the growth of this phenomenon which is over 50% a year in the past
few years and the novelty, blog marketing will likely show substantial
gains over the next several years. In 2009, blog advertising revenue is
estimated to be about $530 million, growing to about $746 million by 2012,
although this does not take into account the impact of recession (eMarketer,
2008f).
Do you know what a brand leveraging is? If you do not, refer below to seek
the correct definition of the term.
For instance, while Tab was the first to discover a huge market for diet cola drinks,
Coca-Cola ultimately succeeded in dominating the market by leveraging the Coke
brand to a new product called as Diet Coke.
In the online world, some researchers predicted that offline brands would not be
able to make the transition to the web because customers would soon learn who
was offering the products at the cheapest prices and brand premiums would
disappear (price transparency).
However, this has not occurred as can be seen in the following industries:
SELF-CHECK 8.5
Identify the market entry strategies.
EXERCISE 8.3
You can visit the following websites to get more information on online
marketing techniques:
Permission marketing http://www.marketingterms.com/dictionary/
permission_marketing/
Affiliate marketing www.affiliatemarketing.co.uk
Viral marketing
www.marketingterms.com/dictionary/viral_marketing
In addition to the two different approaches to market research, there are two
types of data to be studied:
Online focus groups typically run for one hour and have participants log
into chat room, where opinions and ideas can be expressed within a group.
The advantage of focus groups is that many views and opinions can be
learned in a short period of time. However, extroverted individuals can
overshadow timid participants so that only a few opinions are heard. This
concern is less of an online issue because participants cannot see each other
and feel more confident expressing themselves through typing.
Copyright © Open University Malaysia (OUM)
TOPIC 8 E-COMMERCE MARKETING CONCEPTS 279
(c) Observation
Observation involves simply watching consumers as they make a purchase,
or while they engage in some activity that is being studied. Online
customer tracking is the Internet equivalent to observation. It involves of
simply observing rather than interacting with consumers as they navigate a
website and consider various purchase options. Using cookies and other
session monitoring tools, website marketers can easily collect data on
consumer preferences, dislikes and challenges in order to improve future
experiences at the site.
Effective marketing begins with solid research which helps to define and target
the most lucrative market segments with a marketing message that encourages
customers to buy. However, research is not a one-time event, at least in
successful companies. Ongoing research assists in improving and refining
products, services, brand image, and marketing messages to continually improve
the sales results.
SELF-CHECK 8.6
EXERCISE 8.4
Visit the following websites for more information on some popular secondary
research tools:
Source for international articles: www.factiva.com
Free global database of sources: www.corporateinformation.com
Market research report: www.marketresearch.com
„Competitive markets‰ are the one with a lot of substitute products, easy
entry, low differentiation among suppliers, and strong bargaining power of
customers and suppliers. It has been emphasised that product branding is
important in making products truly unique and differentiable in the minds of
consumers.
The main technologies that support online marketing: web transaction logs,
transaction logs, cookies, web bugs, database, data-warehouse, data-mining,
advertising networks and CRM systems.
9 Marketing
Communications
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the major forms of e-commerce marketing communications;
2. Describe online advertising methods used on the web;
3. Explain direct e-mail marketing, online catalogues and social
marketing for advertising purpose; and
4. Discuss how a website is used as a marketing communications
tool.
INTRODUCTION
Have you come across any advertisement online? What makes you to buy a
product or service advertised in the advertisement?
In this topic, you will learn on brands as a set of expectations that consumers
have about products offered. It elaborates on marketing activities that companies
engage in order to create those expectations. This topic will focus on
understanding online marketing communications all the methods that online
firms use to communicate to the consumer and create strong brand expectations.
(a) Branding
One purpose of marketing communications is to develop and strengthen a
firmÊs brands by informing consumers about the differentiating features of
the firmÊs products and services.
(b) Sales
In addition, marketing communications are used to promote sales directly
by encouraging the consumer to buy the products.
(b) Promotional sales communications almost always suggest that the consumer
„buy now‰, and they make offers to encourage immediate purchase.
EXERCISE 9.1
Let us look at Table 9.1 which summarises on the other reasons of why online
advertising is growing rapidly.
Reason Description
Cost Online advertisements are sometimes cheaper than those in
other media. In addition, advertisements can be updated at any
time with minimal cost.
Richness of format Web advertisements can effectively use the convergence of text,
audio, graphics and animation. In addition, games,
entertainment and promotions can easily be combined in
online advertisements.
Timeliness Internet advertisements can be fresh and up-dated regularly.
Participation The web is a participatory tool. Many people can communicate
with each other in the context of an online community.
Location-basis Using wireless technology, web advertising can be location
based; Internet advertisements can be sent to consumers
wherever they are in a specific location.
Packaged goods (which buyers typically purchase based on brand rather than
research) are expected to have smaller shares of online advertising until
significant broadband and alternative advertisement platforms are widespread
enough to allow rich media advertising.
Let us look at the explanation provided for each form of online advertisement.
The IABÊs original guidelines listed specifications for three types of buttons
(a button is essentially a permanent banner advertisement) and four types
of banner advertisements:
(i) Full;
(ii) Half;
(iii) Vertical; and
(iv) Micro bar.
In February 2001, the IAB added specifications for a variety of new types of
advertisements:
(i) Skyscrapers is a tall, narrow banner advertisement almost three times
the height of the traditional vertical banner advertisement;
(ii) Rectangles of various sizes; and
(iii) A square pop-up which opens in a separate window.
Pop-up advertisements (refer to Figure 9.2) are those banners and buttons
that appear on the screen without user calling for them. One type of it is
the pop-under advertisement that opens underneath a userÊs active
browser window and does not appear until the user closes the active
window. The advertisement remains visible until the user takes action to
close it. Pop-ups can appear prior to display of the consumerÊs target page,
during, or after the display on leaving.
Since the web is such a busy place, people have to find ways to cope with
over-stimulation. One means of coping is known as sensory input filtering.
This means that people learn to filter out the vast majority of the messages
coming at them. Internet users quickly learn at some level to recognise
banner advertisements or anything that looks like a banner advertisement
and to filter out most of the advertisements that are not exceptionally
relevant.
A good interstitial will also have a „skip through‰ or „stop‰ option for
users who have no interest in the message. One disadvantage of interstitials
is that users may not understand that the advertisement they see on their
screen while they are waiting for a page to load is using „dead time‰;
meaning the advertisement is not taking any extra time period. Instead,
they may think the interstitial is slowing the arrival of the page they have
requested and thus, become annoyed.
SELF-CHECK 9.1
many search engines, but 95% of total searches are concentrated on the top
20 sites, with Google, Yahoo! and MSN being the top three search engines.
(d) Sponsorships
You may wonder what is meant by the term „sponsorship‰. Let us look
below to find out its meaning.
Such relationships are often called as tenancy deals because they allow a
firm to become a „tenant‰ on another site without charge. In 2008, referrals
generated about $2.1 million revenue in the US.
Several types of affiliate relationships are common. In some cases, the firms
share a single corporate parent or investor group that is seeking to optimise
the performance of all its sites by creating links among its „children‰ sites.
In other cases, two sites may sell complementary products and the firms
may strike an affiliate relationship to make it easier for their customers to
find the products they are looking for.
Thus, Amazon and Toys"R"Us struck an affiliate deal. The Toys"R"Us logo
and front-end ordering machinery is available as a button on the Amazon
site. Toys"R"Us accepts and fulfils orders for toys, and performs all the
back-end purchasing and warehousing. While, Amazon receives a
commission on sales. Both firms gain the benefits from their relationship,
as do their customers.
ACTIVITY 9.1
ACTIVITY 9.2
The primary cost of e-mail marketing is for the purchase of the list of names to
which the e-mail will be sent. Usually, sending the e-mail is virtually cost-free.
Due to the cost-savings possibility, the short time to market, and high response
rates, companies are expected to increasingly use e-mail to communicate directly
with consumers. The downside of this growth is that e-mail response rates are
expected to decline as competition for consumer attention becomes fiercer, and as
users become annoyed by their bulging in-boxes e-mail. Users can employ
software filter programmes to eliminate those unwanted e-mail messages.
ACTIVITY 9.3
While simple catalogues are technically, hard-coded HTML pages and graphics
displaying wares, most sites with more than 15-20 products generate catalogue
pages from a product and price database that can be easily changed. Simply by
clicking on an order button at the site, customers can make a purchase
instantaneously. For more detail information, refer to online catalogues from
Amazon.com and ParksonOnline.com.
ACTIVITY 9.4
Online catalogues are more dynamic than print catalogues. Do you
agree with this statement? Discuss.
Even though search engine sites have audience which is twice the size of
social networking site, it is expected that the audience size will equal
between the two types of site in the next five years. Therefore, advertisers
should not underestimate the potential of social networking sites as an
effective marketing communication tool.
The limitations of game advertising are the game content which tend to be
attractive to younger generation by additional aspects such as violence, mayhem,
and war-like scenarios, or sexual content. The advertisers do not want to be
linked to such aspects which commonly appear in games.
Several research studies have shown that the most effective online
advertisements were those that used consistent imagery with campaigns running
in other media at the same time. Offline mass media such as television and radio
have nearly 100% market penetration into the 140 million households in the
United States. More than 35 million adults read newspapers everyday. It would
be foolish not to use these more popular media to drive traffic to the online world
of commerce.
In the early days of e-commerce, the Internet audience was quite different from
the general population, and perhaps was best reached by using online marketing
alone. This is no longer true as the Internet population becomes much more like
the general population. Many online ventures have used offline marketing
techniques to drive traffic to their websites, to increase awareness and to
build brand equity.
In 2000, Unilever took its database of customer addresses, which had been
collected online, and mailed a paper magazine filled with cooking and cleaning
tips to that list. Although an electronic magazine would have been less costly,
ACTIVITY 9.5
EXERCISE 9.2
You can visit the following websites to get more information on:
(a) Online advertising:
https://www.google.com/adsense
https://adwords.google.com
(b) Example of an interstitial advertisement:
http://marketingsolutions.com/interstitial.htm
(c) Tips for improving a siteÊs listing:
http://www.searchenginewatch.com
Ideally, a domain name should be short, memorable, not easily confused with
others, and difficult to misspell. If possible, the name should also reflect the
nature of the companyÊs business. Companies that choose a name unrelated to
their business must be willing to spend extra time, effort, and money to establish
the name as brand. Dot.com domain names are still considered the most
preferable, especially in the United States.
Today, however, it may be difficult to find a domain name that satisfies all of the
above criteria. Many of the „good‰ dot.com domain names have already been
taken.
There are hundreds of search engines in the world, most of which do not charge
for inclusion or placement. Also, given that 42% of shoppers find a vendor
entering the name of a product into a search engine, optimising the firmÊs
ranking in search engines becomes an important element in a website marketing
campaign.
Search engines produce lists of „hits‰, sometimes hundreds of them. Refer below
to find out the meaning of hit.
Websites appearing at the top of these lists, especially on the first page, are more
likely to be visited than those further down the list because they are assumed to
be more relevant to the searcher. Consumers may never become aware of sites
that are listed later in a search engine report. Only 7% of consumers look any
further than the first three pages of results.
So, how to make your websites to appear in the first few pages rather than at the
last few pages? The following steps will help you in your quest to make sure
your websites gain the prominence of the search engine:
The assumption is the more links there are to a site, the more useful the site
must be. How can a firm increase links to its site? Placing advertising is one
way: banner advertisements, buttons, interstitials, and superstitials are all
links to a firmÊs site. Entering into affiliate relationships with other sites is
another method.
A recent survey by CyberAtlas Research found that over half of the firms
polled work on search engine optimisation monthly. Many commercial
sites rely on ranking specialists who, for a fee, will create metatags and
descriptions that will push a siteÊs ranking toward the top. Some specialists
even guarantee a top position, although how near the top is the key
question. Being in the top 100 is not as valuable as being in the top 10, or
even top 25.
These seven basic design features, that were necessary from a business point of
view, help to attract and retain the customers:
(a) Make it as an informative site;
(b) Employ simple navigation (ease of use);
(c) Use redundant navigation;
(d) Make it easy for customers to purchase;
(e) Feature multi-browser functionality;
(f) Apply simple graphics; and
(g) Use legible text.
Researchers have also found a number of other design factors that marketing
managers should be aware of:
(f) Responsiveness
Responsiveness to consumer inquiries through automated customer
response systems has been found to affect return visits and purchases.
No matter how successful the offline and online marketing campaign is, a
website that fails to deliver information and customer convenience spells
disaster. Attention given to site design features will also help to ensure success.
ACTIVITY 9.6
In your own words, list and describe some website design features
that give an impact on online purchasing.
EXERCISE 9.3
INTRODUCTION
Do you know that all commerce involves a number of legal, ethical, and
regulatory issues? Copyright, trademark and patent infringement, freedom of
thought and speech, theft of property and fraud are not new issues in the world
of commerce. However, e-commerce adds to the scale of these issues. It also
raises a number of questions about what constitutes illegal behaviour versus
unethical, intrusive or undesirable behaviour.
This topic examines some of the legal and ethical issues arising from e-commerce
and various legal and technical remedies and safeguards. This topic also examines
some social impacts of e-commerce and finally, assesses the future of e-commerce.
Laws are strict legal rules governing the acts of all citizens within their
jurisdictions. If a person breaks the law, they have done something illegal and
can be held liable for punishment by the legal system.
A company allows its employees to use the web for limited personal use.
Unknown to the employees, the employer not only monitors the
employeesÊ messages, but also examines the content. If the monitors find
objectionable content, should the company be allowed to fire the offending
employees?
Whether the above actions are considered unethical (or even illegal)
depends on the regulatory and value systems of the country in which they occur.
What is unethical in one culture may be perfectly acceptable in another. Many
Western countries, for example, have a much higher concern for individuals and
their rights for privacy than do some Asian countries. In Asia, more emphasis is
placed on the benefits to society rather than on the rights of individuals.
ACTIVITY 10.1
Now, let us look at the legal and ethical issues related to e-commerce which will
be discussed in the coming sections:
(a) Privacy
Internet users in many countries rate privacy as their first or second top
concern.
You can visit these websites to get more ideas on ethical issues in e-commerce:
ACTIVITY 10.2
EXERCISE 10.1
10.3 PRIVACY
Privacy has long been a legal, ethical, and social issue in many countries. What
do you understand about privacy and why is it important to protect your
privacy? As you may aware, privacy means different things to different people.
The definition of privacy can be interpreted quite broadly. Let us look at the
definition provided below for privacy.
Privacy is the right to be left alone and the right to be free of unreasonable
personal intrusions.
However, the following widely-used two rules will show you why it is difficult
to determine and enforce privacy regulations in certain situations:
(a) The right of privacy is not absolute. Privacy must be balanced against the
needs of society; and
(b) The publicÊs right to know is superior to the individualÊs right of privacy.
Let us move on to look at the issues involved in online privacy; the influence of
e-commerce on privacy:
(a) Information collection;
(b) Privacy protection; and
(c) Technological solutions to privacy invasion.
The inherent power in systems that can access vast amounts of data can be used
for the good of society. For example, by matching records with the aid of a
computer, it is possible to eliminate or reduce the following crimes:
(a) Fraud;
(b) Government mismanagement;
(c) Tax evasion;
(d) Welfare cheats; and
(e) Employment of illegal immigrants.
However, you must ask yourself of what price must every individual pay in
terms of loss of privacy so that the government can better apprehend these types
of crimes.
Let us focus on the two most common ways of gathering information on the
Internet:
There are few restraints on the ways in which the site can use this
information. The site might use it to improve customer service or its own
business. Or, the site could just as easily sell the information to another
company, which could use it in an inappropriate or intrusive manner.
(b) Cookies
Another way that a website can gather information about an individual is by
using cookies (refer below). Cookies enable sites to keep track of the usersÊ
identity, without having to constantly ask the users to identify themselves.
In many countries, the debate continues about the rights of the individual versus
the rights of society. Some feel that the Internet Service Providers (ISP) should be
the regulators; others feel that self-regulation is the best alternative. However,
some empirical data suggest that self-regulation does not work.
Research found that most of the commercial websites have poor privacy
protection and very few sites provided end users with the following privacy
protections:
(a) Details about the siteÊs information-gathering and dissemination policies;
(b) Choice over how their personal information is used;
(c) Control over their personal information;
(d) Verification and oversight of claims made by the site; and
(e) Resource for resolving user complaints.
The creation of private and public policies that enable consumers to control the
collection and use of information that is gathered in the course of market
transaction is also in the developmental stage.
Table 10.2 describes some ways in which technology can be used to protect
privacy.
EXERCISE 10.2
1. Define privacy.
2. What are cookies and what do they have to do with online
privacy
3. How is the „opt-in‰ model of informed consent different from
„opt-out?‰
Let us look at the detailed explanation for each type of intellectual property in
the coming sections.
10.4.1 Copyrights
So, what is a copyright? Do you know the answer?
In general, the owner has an exclusive right to export the copyrighted work to
another country. Copyright does not protect ideas as it only protects their
expression in a tangible medium such as paper, cassette tape, or handwritten
notes.
In Malaysia, the Copyright Act 1987 confers the exclusive right to the owner of a
copyright for a specific period. The Copyright (Amendment) Act 1997 which
amended the Copyright Act 1987 came into force on 1999 to make unauthorised
transmission of copyright works over the Internet as a copyright infringement
(refer below).
(Source: http://www.copynot.com/)
If this measure becomes law, the implication is that virtually any digital
device such as computer, laptop, MP3 player, digital camera and so on must
include government-approved copy protection that makes it impossible to
reproduce copyrighted material.
(Source: http://www.barcodesinc.com/articles/cryptography2.htm)
10.4.2 Trademarks
Do you know what is meant by the term „trademarks‰? Refer below in order to
find out the meaning of the term.
Trademarks are symbols (like logos and brand names) that distinguish
goods and services in the marketplace. If someone deliberately uses your
registered trade mark, without your knowledge or consent, they may be
guilty of the crime of counterfeiting (forgery).
(Source: http://www.copynot.com/)
The rapid growth and commercialisation of the Internet have provided unusual
opportunities for existing firms with distinctive and famous trademarks to
extend their brands to the Internet.
These same developments have provided malicious individuals and firms the
opportunity to:
(a) Take advantage of Internet domains built upon famous trademarks; and
(b) Confuse consumers by lessening the value of famous or distinctive
trademarks (including your name or a movie starÊs name).
The conflict between legitimate trademark owners and malicious firms was
allowed to grow because Network Solution Incorporation (NSI), which is the
InternetÊs sole agency for domain name registration, for many years, had a policy
of „first come, first served.‰ This meant anyone could register any domain name
that had not already been registered, regardless of the trademark status of the
domain name.
The ACPA creates civil liabilities for anyone who attempts in bad faith to profit
from an existing famous or distinctive trademark by registering an Internet
domain name that is identical or confusingly similar to that particular trademark.
The ACPA does not establish criminal sanctions but proscribes the
following acts:
(a) Using „bad faith‰ domain names to extort money from the owners of
the (cybersquatting); or
(b) Using the existing trademarkÊs domain name to divert web traffic to
the bad faith domain (cyberpiracy) that could create the following:
(i) Harm the good-will represented by the trademark;
(ii) Create market confusion; and
(iii) Tarnish or disparage the trademark.
(c) Using of a domain name that consists of the name of a living person,
or a name confusingly similar to an existing personÊs name without
the personÊs consent, if the registrant is registering the name with the
intent to profit by selling the domain name to that person.
To get more information on the domain name dispute resolution, visit this website:
www.rcakl.org.my (Kuala Lumpur National Centre for Arbitration)
Trademark abuse can take in the following two ways on the web:
(a) Cybersquatting
Cybersquatting refers to the practice of registering domain names in order
to sell them later at a higher price. The Consumer Protection Act of 1999 is
aimed at cybersquatters who register Internet domain names of famous
companies or people and hold them hostage for ransom or payments from
the person or company. Companies such as Christian Dior, Nike, Deutsche
Bank, and even Microsoft had to fight or pay to get the domain name that
corresponds to their companyÊs name.
(b) Cyberpiracy
Cyberpiracy involves the same behaviour as cybersquatting, but with the
intent of diverting traffic from the legitimate site to an infringing site.
SELF-CHECK 10.1
10.4.3 Patents
What is a patent? Read on in order to seek the meaning of the term.
A patent is a document that grants the holder with the exclusive rights on
an invention for a fixed number of years.
The Patents Act 1983, which came into force on the 1st of October 1986, provides
of a system for registration of patents and utility innovations in Malaysia. A
patent is valid for 20 years from the date of application.
Thousands of IT-related patents have been granted over the years. Examples of
European Union (EU) patents given to:
(a) Open Market Corp are Internet Server Access Control and Monitoring
(patent 5708780), Network Sales Systems (patent 5715314), and Digital
Active Advertising (patent 5724424).
(b) Juno Online Services received an interactive advertising patent (patent
5809242).
(c) IBM has many patents including a system for ordering from electronic
catalogues (patent 5870717) and a system for using intelligent agents to
perform online commerce (patent 5926798).
In order to be granted a patent, the applicant must show that the invention is
new, original, novel, non-obvious, and not evident in prior art and practice.
As with copyrights, the granting of patents has moved far beyond the original
intent of CongressÊs first patent statute that sought to protect industrial design
and machines. Patent protection has been extended to articles of manufacture
(1842), plants (1930), surgical and medical procedure (1950) and software (1981).
Certain patents granted in the United States deviate from established practices in
Europe as exemplified by the following two patent-related cases:
Fan and hate websites are part of the InternetÊs self-publishing phenomena that
include blogging. Fan sites may interfere with intellectual property. For example,
some people get advanced copies of new movies or TV programmes and create
sites that compete with the formal sites of the movie or TV producer. Although
the producers can get a court order to close such sites, new sites can appear the
following day. Although the intention of the fans may be good, they may cause
damage to the creators of the intellectual property.
Hate websites can cause problems for corporations as well. Many hate sites are
directed against large corporations (e.g., Microsoft and Nike). Associated with hate
sites is the idea of cyberbashing which is the registration of a domain name that
criticises an organisation or person. As long as the sites contain only legitimate gripes
that are not libellous, defaming, or threatening, they are allowed to operate.
You can visit the following websites to get more ideas on:
Intellectual property right : www.cybercrime.gov/ip.htm
Information on domain names: http://www.verisign.com
Example of cyberbashing: http://www.chasebanksucks.com
EXERCISE 10.3
For example, take the question, „How much access should children have to
websites, newsgroups, and chat rooms containing ÂinappropriateÊ or ÂoffensiveÊ
materials and who should control this access?‰
This is one of the most hotly-debated issues between the advocates of censorship
and the proponents of free speech:
(a) The proponents of free speech contend that there should be no government
restrictions on Internet content and that parents should be responsible for
monitoring and controlling their childrenÊs adventure on the web; and
(b) The advocates of censorship feel that government legislation is required to
protect children from offensive material.
In addition to concern for children, there are also concerns on hate sites,
defamation of character, and other offensive material. In a landmark case in 2002,
AustraliaÊs highest court gave a businessman the right to sue in Australia for
defamation over an article published in the United States and posted on the
Internet. This reasoning basically equates the Internet to any other published
material. The publisher, Dow Jones & Co., said that it will defend those sued in a
jurisdiction (Australia) that is far removed from the country in which the article
was prepared (the United States).
The advocates from the censorship also believe that it is the responsibility of ISPs
to control the content of the data and information that flow across their networks
and computers. The difficulty is that ISPs have no easy way of monitoring the
content or determining the age of the person viewing the content. The only way
to control offensive content is to block it from children and adults alike such as
controlling spam or the act of spamming (refer below).
At some of the largest ISPs, spam now comprises 25 to 50 percent of all e-mail
and results in profound impacts such as:
(a) Impairing an already-limited bandwidth;
(b) Slowing down the Internet in general; and
(c) Shutting down ISPs completely.
The Electronic Mailbox Protection Act requires those sending spam to identify it
as advertising, to indicate the name of the sender prominently, and to include
valid routing information. Recipients may waive the right to receive such
information. Also, ISPs are required to offer spam-blocking software, and
recipients of the spam have the right to request termination of future spam from
the same sender and to bring civil action if necessary.
Some of these e-commerce legal issues will be discussed in detail in the following
sections.
In fall 2000, the Electronic Signatures in Global and National Commerce Act was
approved. This federal law gives contracts signed online the same legal status as
a contract signed with pen on paper. Similar laws have been enacted in several
European and Asian countries.
The ease and risk of online wagering is evidenced by many recent cases of
individuals losing their life savings without understanding the implications of
what they are doing in their home sitting before their computer.
Online casinos have all of the inherent dangers of physical gambling houses,
with the added risk of accessibility by minors or individuals of diminished
capacity who may financially injure themselves without the constraints
otherwise found in a physical environment. As is the case with most issues in
cyberspace, self-regulation may be the best policy.
The impact of this legislation is to make ISPs as „somewhat‰ liable for illegal
currency movements and for reportable transactions requiring documentation by
the carriers.
ACTIVITY 10.3
EXERCISE 10.4
1. What is spamming?
2. Describe the Electronic Mailbox Protection Act.
In most cases, stock promoters spread false positive rumours about the
prospects of the companies they touted. In other cases, the information
provided might have been true, but the promoters did not disclose that
they were paid to talk up the companies. Stock promoters specifically target
small investors who are lured by the promise of fast profit. Cases like this,
as well as ones involving non-registered securities, are likely to increase
because of the popularity of the Internet.
In 2000, about nine out of 10 of all Internet hosts were located in highly-
developed countries, where only less than a fifth of the worldÊs population
resides. In 2001, the city of New York, for example, had more Internet hosts than
the whole continent of Africa.
The gap exists both within and between countries. The U.S. federal and state
governments are attempting to close this gap within the country by encouraging
training and supporting education and infrastructure. The gap among countries,
however, may be widening rather than narrowing.
Many government and international organisations are trying to close the digital
divide. The government of Malaysia implemented a project called „A National
Strategic Framework for Bridging the Digital Divide‰, under the Eight Malaysian
Plan in order to narrow the gaps of digital divide. This project was parked under
the United Nations Development Programme and was completed in December
2008.
Apart from digital divide, many other societal issues can be related to e-commerce.
The following three aspects generally derived a positive impact from e-commerce:
(a) Education
E-commerce has had major impact on education and learning. Virtual
universities are helping to reduce the digital divide. Companies can use the
Internet to retrain employees much more easily, enabling them to defer
retirement if they so choose. Home-bound individuals can get degrees from
good institutions, and many vocational professions can be learned from
home.
Even if communication radiation does cause health problems, the damage could
be insignificant due to the small amount of time most people spend on wireless
shopping and other wireless activities. However, given the concern of some
about this issue, protective devices may soon be available that will solve this
problem.
SELF-CHECK 10.2
Describe how e-commerce can improve education.
EXERCISE 10.5
Answers
TOPIC 1: INTRODUCTION TO E-COMMERCE
Exercise 1.1
1. E-commerce can be formally defined as technology-mediated exchanges between
parties (individuals, organisations, or both) as well as the electronically based intra
or inter-organisational activities that facilitate exchanges.
2. The following attributes make an e-commerce business unique and different from a
traditional commerce: core strategic decisions are technology-based, a real-time
competitive responsiveness, the store is always open, a technology-based customer
interface, the customer controls the interaction, online firms have an increased
knowledge of customer behaviour, and players benefit from non-traditional
evaluation metrics and an emergent valuation model would apply.
Exercise 1.2
1. A B2C business model allows sellers to maximise benefits by eliminating the
middleman. With disintermediation, businesses sell products directly to
consumers without using traditional retail channels. This enables some B2C
companies to sell products at a lower cost and with faster service than
comparable bricks-and-mortar businesses.
Exercise 1.3
1. Considered a success:
E-commerce has been a technological success, with the digital
infrastructure created during the period solid enough to sustain
significant growth in e-commerce during the next decade.
E-commerce has been a mixed business success, with significant
revenue growth and customer usage, but low profit margins.
Considered a failure:
E-commerce has not fulfilled economistÊs visions for perfect friction-free
commerce.
E-commerce has not fulfilled the visions of entrepreneurs and venture
capitalists for first mover advantage, low customer acquisition and
retention costs, and low costs of doing business.
2. Factors that will define e-commerce over the next five years:
E-commerce technology will continue to propagate through all
commercial activity, with overall revenues from e-commerce, the
number of products and services sold over the web, and the amount of
web traffic rising.
E-commerce prices will rise to cover the real costs of doing business on
the web
E-commerce margins and profits will rise to levels more typical of all
retailers.
Traditional well endowed and experienced companies will play
growing and more dominant role
The number of successful pure online companies will continue to
decline and most successful e-commerce firms will adopt a mixed „click
and bricks‰ strategy.
Exercise 1.4
E-commerce involves three broad interrelated themes:
Technology including Internet and WWW and a host of complementary
technologies personal computers, client server computing, packet-switched
communication, protocol and relational databases.
Business the potential for extraordinary returns on investment that create
the interest and excitement in e-commerce.
Society the primary societal issues are intellectual property, individual
privacy and public policy.
Exercise 2.1
1. A business model is a set of planned activities (business processes)
designed to result in profit in the marketplace.
2. The eight key components are: value proposition, revenue model, market
opportunity, competitive environment, competitive advantage, market
strategy, organisational development, and management team.
3. Five primary revenue models:
Advertising revenue model;
Subscription revenue model;
Transaction fee revenue model;
Sales revenue model; and
Affiliate revenue model.
Exercise 2.2
1. A Portal or Web Portal is a site that people use as a launching point to enter
the Web. A portal almost always includes a Web directory and search
engine. Some examples of portal sites: Yahoo!, MSN, AOL, Google, and
Netscape.
2. Service providers offer services online. Some charge a fee, while other
generates revenue from other sources, such as advertising and by collecting
personal information that is useful in direct marketing. Community
providers are sites that create a digital online environment where people
with similar interests can transact (buy and sell goods), communicate with
like-minded people, receive interest-related information, and even play out
fantasies by adopting online personalities.
Exercise 2.3
1. B2B hub, E-distribution, B2B Service Provider, Matchmaker and
Infomediary.
2. An application service provider (ASP) is a company that sells access to
Internet-based software applications to other companies.
Exercise 2.4
P2P ventures link users, enabling them to share files and computer resources
without a common server. E.g. kazaa.com
Exercise 3.1
1. The Internet is an interconnected network of thousands of networks and
millions of computers linking business, educational institutions,
government agencies, and individuals together.
2. ISP is a business that has a permanent Internet connection and offers
temporary connections to individuals and companies free or for a fee.
Exercise 3.2
1. Packet switching is a method of slicing digital messages into parcels called
„packets,‰ sending the packets along different communication paths as they
become available, and then reassembling the packets once they arrive at
their destination.
2. Internet addresses, known as IP address, are 32-bit numbers that appear as a
series of four separate numbers marked off by periods. Domain names are
sets of words that are assigned to specific IP addresses.
3. An intranet is a TCP/IP network located within a single organisation for
purposes of communications and information processing. An extranet is an
intranet that has been extended to include specific entities outside the
boundaries of the organisation, such as business partners, customers, or
suppliers.
Exercise 3.3
1. A search engine identifies web pages that appear to match keyword, also
called queries, typed by the user and provides a list of the best matches. A
query can be a question, series of words, or a single word for the search
engine to look for. Intelligent agents or software robots (bots for short) are
software programs that gather and/or filter information on a specific topic,
and then provide a list of results for the user.
2. Cookies are a tool used by websites to store information about a user. When
a visitor enters a website, the site sends a small text file (the cookie) to the
userÊs computer so that information from the site can be loaded more
quickly on future visits.
Exercise 5.1
1. The systems development life cycle (SDLC) is a methodology for
understanding the business objectives of any system and designing an
appropriate solution.
2. The steps involved in creating an e-commerce web site:
Identify the specific business objectives for the site and then develop a
list of functionalities and information requirements.
Develop a system design specification (both logical and physical
design).
Build the site, either by in-house personnel or by outsourcing all or part
of the responsibility to outside contractors.
Test the system (unit testing, system testing and acceptance testing)
Implement and maintain the site.
Exercise 5.2
1. Early websites use single-tier system architecture and consisted of a single-
server computer that delivered static web pages to users making requests
through their browsers. Multi-tiered systems architecture, utilises a variety
of specialised web servers, as well as links to pre-existing „back-end‰ or
„legacy‰ corporate databases.
2. Basic functionality web servers should provide:
Processing of HTTP request receive and respond to client requests for
HTML pages.
Security services (Secure Socket Layer) verify username and password.
File Transfer Protocol permit transfer of very large files from server to
server.
Exercise 5.3
1. Scalability refers to the ability of a site to increase in size as demand
warrants.
2. The three scaling methods are:
Scale hardware vertically upgrading the servers from a single
processor to multiple processors.
Scale hardware horizontally adding multiple single-processor servers
to your site and balancing the load among the servers.
Improve the process architecture of the site a combination of vertical
and horizontal scaling, combined with artful design decisions.
3. The eight most important factors impacting website design:
Functionality ages that work, load quickly, and point the customer
toward your product offerings.
Informational links that customers can easily find to discover more
about you and your products.
Ease of use simple fool-proof navigation.
Redundant navigation alternative navigation to the same content.
Ease of purchase one or two clicks to purchase.
Multi browser functionality site works with the most popular
browsers.
Simple graphics avoid distracting, obnoxious graphics and sounds
that the user cannot control.
Legible text avoid backgrounds that distort text or make it illegible.
Exercise 6.1
1. The six key dimensions to e-commerce security:
Integrity
Nonrepudiation
Authenticity
Confidentiality
Privacy
Availability
2. Malicious Code viruses, worms, Trojan horses and „bad applets‰ are a
threat to a systemÊs integrity and continued operation, often changing how
a system functions or altering documents created on the system
Exercise 6.2
1. Encryption is the process of transforming plain text or data into ciphertext
that cannot be read by anyone other than sender and the receiver
2. Four different forms of encryption technology currently in use are:
Symmetric key encryption
Public key cryptography
Digital envelope
Digital certificates and public key infrastructure
3. (a) SSL (Secure Sockets Layer) The SSL protocol provides data
encryption, server authentication, client authentication, and message
integrity for TCP/IP connections.
(b) S-HTTP (Secure Hypertext Transfer Protocol) secures only Web
protocols and cannot be used to secure non-HTTP messages.
Exercise 6.3
1. The key steps in developing a security plan are:
Perform a risk assessment
Develop a security policy
Create an implementation plan
Create a security team
Perform periodic security audits
2. Biometric devices are used along with digital signatures to verify physical
attributes associated with an individual, such as a fingerprint or retina scan.
A company could require that an individual undergo a fingerprint scan
before being allowed access to a website, or before being allowed to pay for
merchandise with a credit card. Biometric devices make it even more
difficult for hackers to break into sites or facilities, significantly reducing
the opportunity for spoofing.
Exercise 7.1
1. A debit card removes the amount of the sale from the cardholderÊs bank
account and transfers it to the sellerÊs bank account. When the cardholders
use a debit card at Automatic Teller Machines or in stores to make
purchases, money is immediately withdrawn from their account. A card
holder cannot withdraw more money than he has in the account.
2. A credit card has a spending limit based on the userÊs credit history; a user
can pay off the entire credit card balance or pay a minimum amount each
billing period. Credit cards issuers charge interest on any unpaid balance.
Credit cards are widely accepted by merchants around the world and
provide assurances for both the consumer and the merchant.
Exercise 7.2
1. Digital cash is one form of online payment, especially useful for making
micro payments.
2. Digital cash is independent, unrelated to any network or storage device.
Portable and freely transferable between any two parties. More efficient
than other methods, costs less than processing credit card transactions, and
usable for international transactions.
Exercise 7.3
1. A server-side digital wallet stores a customerÊs information on a remote
server belonging to a particular merchant or wallet publisher. A client-side
digital wallet stores a consumerÊs information on his or her own computer.
2. The disadvantages of server side digital wallet a security breach could
reveal thousands of usersÊ personal information. The disadvantage of
client-side wallets is that they are not portable a client-side wallet is not
available when a purchase is made from a computer other that the
computer on which the wallet resides.
Exercise 7.4
1. A smart card is a stored-value card that is a plastic card with an embedded
microchip that can store information. Credit cards currently store limited
information on a magnetic strip. A smart card can store about 100 times the
amount of information that a magnetic strip plastic card can store. A smart
card can hold private user data such as financial facts, encryption keys,
account information, credit card numbers, health insurance information,
medical records and so on. Smart cards are safer than conventional credit
cards because the information stored on a smart card is encrypted.
2. Mondex is a smart card that holds and dispenses electronic cash. The
Mondex smart card will allow other applications to reside on its microchip.
Mondex smart cards can accept digital cash directly from a userÊs bank
account. The advantages of Mondex smart card is cardholders can spend
their electronic cash with any merchant who has a Mondex card reader and
two cardholders can even transfer cash between their cards over a telephone
line, another advantage of Mondex is that the cardholder always has the
correct change for vending machines of various types. Mondex electronic
cash supports micropayments as small as 3 cents.
The disadvantages of Mondex: The card carries real cash in digital form, and
the risk of theft of the card may deter users from loading it with a lot of
money. Mondex does not allow the deferred payment you can obtain with a
credit card you can defer paying your charge or credit card bill for almost a
month without incurring any interest charges. Mondex cards dispense their
cash immediately. Transactions completed using a Mondex card do not
provide receipts.
Exercise 7.5
1. Digital accumulating balance payment systems allow users to make micro-
payments and purchases on the Web, accumulating a debit balance for
which they are billed at the end of the month. Like a utility or phone bill,
consumers are expected to pay the entire balance at the end of the month
using a checking or credit card account.
2. Digital checking payment systems have many advantages: (1) they do not
require consumers to reveal account information to other individuals when
settling an auction, (2) they do not require consumers to continually send
sensitive financial information over the web, (3) they are less expensive than
credit cards for merchants, and (4) they are much faster than paper-based
traditional checking.
Exercise 7.6
1. Systems that replace the functionality traditionally provided by banks.
Existing banking systems extending to the B2B marketplace.
2. Biller-direct systems which were originally created by large utilities to
facilitate routine payment of utility bills, but which are increasingly
being used by other billers.
Consolidators which attempt to aggregate all bills for consumers in one
place and ideally permit one-stop bill payment.
Portals which are similar to consolidators, but which also typically
offer a variety of other financial management services as well.
Exercise 8.1
1. The core product is the core benefit the customer receives from the product.
Let us say, for example, that the core product is a washing machine. The
actual product is the set of characteristics designed to deliver the productÊs
core benefits. The augmented product is a product with additional benefits
to customers beyond the core benefits embodied in the actual product.
2. A brand strategy is a set of plans for differentiating a product from its
competitor, and communicating these differences effectively to the
marketplace.
Exercise 8.2
1. Web transaction logs, transaction logs, cookies, web bugs, databases, data
warehouse and data mining, advertising networks, CRM systems.
2. A database is a software application that stores records and attributes. A
data warehouse is a database that collects a firmÊs transactional and
customer data in a single location for offline analysis by marketers and site
managers. While data mining is a set of different analytical techniques that
look for patterns in the data of a database or data warehouse, or seek to
model the behaviour of customers. Web site data can be „mined‰ to
develop profiles of visitors and customers.
Exercise 8.3
1. „Clicks and bricks‰ strategy online marketing is closely integrated with
offline physical stores. The Web as an extension of their existing order
processing and fulfilment, marketing and branding efforts.
2. Permission marketing, affiliate marketing, viral marketing and leveraging
marketing.
Exercise 8.4
1. Two types: primary research and secondary research. Primary research
involves gathering first-hand information using techniques such as surveys,
personal interviews, and focus groups. Secondary research relies on
existing, published information as the basis for analysing the market.
Exercise 9.1
1. The distinction between the branding and sales purposes of marketing
communications is branding communications differ from promotional
communications. Promotional sales communications almost always suggest
that the consumer „buy now,‰ and they make offers to encourage an
immediate purchase. Branding communications rarely encourage
consumers to buy now, but instead focus on extolling the differentiable
benefits of consuming the product or service.
2. Interstitials are usually inserted within a single site, and displayed as the
user moves from one page to the next. The interstitial typically moves
automatically to the page the user requested after allowing enough time for
the ad to be read. Superstitials are pre-loaded into a browserÊs cache and do
not play until fully loaded. When the file is finished downloading, it waits
until the user clicks to another page before popping up in a separate
window.
3. E-mail marketing messages are sent to an „opt in‰ audience of Internet
users who have expressed at one time or another an interest in receiving
messages from the advertiser. E-mail messages may be combined with brief
audio or video clips promoting a product and with on-screen links that
users can click on to make a purchase.
Exercise 9.2
1. A functional Web site that customers can find is one of the strongest online
communications tools. The integral parts of a coordinated marketing
communications strategy: appropriate domain name, search engine
optimisation and Web site functionality.
2. Companies should choose a domain name that is short, memorable, hard to
confuse or misspell, and indicative of a firmÊs business functions and that
preferably uses dot.com as its top level domain.
Exercise 10.1
1. Laws are strict legal rules governing the acts of all citizens within their
jurisdictions. If a person breaks the law, they have done something illegal
and can be held liable for punishment by the legal system. Ethics is a branch
of philosophy that deals with what is considered to be right and wrong.
2. Privacy.
Intellectual property rights.
Free speech versus censorship.
Consumer and merchant protection against fraud.
Exercise 10.2
1. Privacy is the right to be left alone and the right to be free of unreasonable
personal intrusions.
2. A cookie is a small piece of data that is passed back and forth between a
Web site and an end userÊs browser as the user navigates the site. Cookies
enable sites to keep track of users without having to constantly ask the users
to identify themselves.
3. The opt-in model requires an affirmative action by the consumer to allow
collection and use of information. In the opt-out model, the default is to
collect information unless the consumer takes an affirmative action to
prevent the collection of data by checking a box, or by filling out a form.
Exercise 10.3
1. Copyrights, trademarks/domain names and patents.
2. Digital watermarks are unique identifiers that are imbedded in the digital
content. Although they do not prevent an individual from making illegal
copies, they do make it possible to identify pirated works.
3. A patent is a document that grants the holder exclusive rights on an
invention for a fixed number of years. Patents serve to protect tangible
technological inventions, especially in traditional industrial areas.
Exercise 10.4
1. Spamming refers to the practice of indiscriminately broadcasting messages
over the Internet (e.g., junk mail and pop-up screens).
2. The primary thrust of this law is that commercial speech is subject to
government regulation, and secondly, that spamming, which can cause
significant harm, expense, and annoyance, should be controlled.
Exercise 10.5
1. Online auction fraud and Internet stock fraud.
2. A gap between those who have and those who do not have the ability to
use the technology.
3. The use of an e-911 system; collaborative commerce (for collaboration
among national and international law enforcement units); e-procurement
(of unique equipment to fight crime); e-government efforts at coordinating,
information sharing, and expediting legal work and cases; intelligent
homes, office, and public buildings; and e-training of law enforcement
officers.
OR
Thank you.