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© Glen L. Gray 1
E-Commerce: The End of the E-Commerce: The End of the World as We Know It.World as We Know It.
Glen L. Gray, PhD, CPAGlen L. Gray, PhD, CPADept. of Accounting & MISDept. of Accounting & MIS
College of Business Administration & College of Business Administration & Econ.Econ.
California State University, California State University, NorthridgeNorthridge
[email protected]@csun.edu
Ohio Council IMA & Kent State Ohio Council IMA & Kent State UniversityUniversity
April 28, 2000April 28, 2000
26th Annual Professional Development Conference26th Annual Professional Development Conference
Acknowledgement: Some slides were developed with Roger Debreceny, NTU.
© Glen L. Gray 2
E-Commerce OutlineE-Commerce Outline
• E-Commerce stats & observationsE-Commerce stats & observations
• The growing complexity of e-commerceThe growing complexity of e-commerce
• The playersThe players
• The new business modelThe new business model
• Buyers’ concernsBuyers’ concerns
• Sellers’ concernsSellers’ concerns
• Logos & sealsLogos & seals
© Glen L. Gray 3
InventoryInventory
ReceivablesReceivables
PayablesPayables
Value CreationValue Creation InventoryInventory
ReceivablesReceivables
PayablesPayables
Value CreationValue Creation
Trends in technologies and firmsTrends in technologies and firms
• Significant real cost reductions in technologiesSignificant real cost reductions in technologies• Integration of value-adding functions within the firm Integration of value-adding functions within the firm • Integration of value and supply chainsIntegration of value and supply chains• Rapid growth in Rapid growth in
outsourcing/co-operation/eCommerceoutsourcing/co-operation/eCommerce
InventoryInventory
ReceivablesReceivables
PayablesPayables
Value CreationValue Creation
LogisticsLogistics LogisticsLogisticsLogisticsLogistics
Web enabled value chain integration
© Glen L. Gray 4
Electronic CommerceElectronic Commerce
• E-Commerce = unprecedented paradigm E-Commerce = unprecedented paradigm shift for the next millennium--and beyondshift for the next millennium--and beyond
• The decision for all businesses is not The decision for all businesses is not ifif but but whenwhen
• Seems to have come from nowhere overnightSeems to have come from nowhere overnight– Articles in Wall Street Journal on Amazon.com: Articles in Wall Street Journal on Amazon.com:
2 in 1996, 16 in 1997, 42 in 19982 in 1996, 16 in 1997, 42 in 199888 in first half of 199988 in first half of 1999
• FEI/Duke study of CFOs: FEI/Duke study of CFOs: – 56% will be selling by end of 2000 (8% of rev.)56% will be selling by end of 2000 (8% of rev.)– 66% will be buying by end of 200066% will be buying by end of 2000
© Glen L. Gray 5
Some Facts, Figures & Some Facts, Figures & ObservationsObservations
Forrester ResearchForrester Research
• Amazon.com [4Q 1998 to 4Q 1999]Amazon.com [4Q 1998 to 4Q 1999]• 6.2 million to 16.9 million customers (year end) (172%)6.2 million to 16.9 million customers (year end) (172%)• $253 million to $676 million in sales (167%)$253 million to $676 million in sales (167%)• $46 million to $323 million in $46 million to $323 million in net lossesnet losses (602%) (602%)• Fulfillment costs: 10% of sales to 16% of sales (60%)Fulfillment costs: 10% of sales to 16% of sales (60%)
• Yahoo is (kind of) free, yet makes a profitYahoo is (kind of) free, yet makes a profit• Profits = margin + advertising revenue + float between Profits = margin + advertising revenue + float between
customer payment and payment to vendorcustomer payment and payment to vendor
1999 2004
Retail (B2C) $20 billion $188 billionCommercial (B2B) $109 billion $2.7 trillion
© Glen L. Gray 6
Some Facts, Figures & Some Facts, Figures & ObservationsObservations
• Not everything on the Web is discounted Not everything on the Web is discounted (e.g., The GAP)(e.g., The GAP)
• Auctions = Auctions = winner’s cursewinner’s curse
• Not everything on the Web is lowest Not everything on the Web is lowest available priceavailable price– [DLS] Don’t buy airline tickets or make online [DLS] Don’t buy airline tickets or make online
hotel and rent-a-car reservationshotel and rent-a-car reservations
• Most (about 80% at Dell) people shop but Most (about 80% at Dell) people shop but do not buydo not buy
© Glen L. Gray 7
Growing Complexity of ECGrowing Complexity of EC
• Stage 1 -- brochurewareStage 1 -- brochureware• Stage 2 -- may be rip and readStage 2 -- may be rip and read• Stage 3 -- intranetStage 3 -- intranet• Stage 4 -- extranetStage 4 -- extranet
External Integration
Internal Integration
Online Order Entry
Pre- and Post-Sale Information
Stage 1 Stage 2 Stage 3 Stage 4
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Communication LinksCommunication Links
Internet
Clients (Buyers)
Web-Server (Seller) Applications
Internet
Credit cardvalidation
Digital paymentvendor
© Glen L. Gray 9
The PlayersThe Players
• Special situation: Buyer is bigger than sellerSpecial situation: Buyer is bigger than seller• Other playersOther players
– Hardware & software EC vendorsHardware & software EC vendors– Government regulatorsGovernment regulators– Investors & creditorsInvestors & creditors
Types of EC Sellers
Types of Buyers New, Web-Specific Traditional, Established
Consumers I III
Businesses II IV
© Glen L. Gray 10
EC and the Value ChainEC and the Value Chain
R&D ProductDesign
Prodn MktingDistrib.CustomerService
B2BB2BB2CB2C
© Glen L. Gray 11
New Business ModelNew Business Model
• E-Commerce E-Commerce isis commerce commerce• Core competencies become core rigiditiesCore competencies become core rigidities• Michael Dell: Assets are liabilities Michael Dell: Assets are liabilities • Controlling burn rateControlling burn rate• Shorter time-to-market and product life Shorter time-to-market and product life
cyclescycles• Production starts before design is finishedProduction starts before design is finished• Mass customizationMass customization
© Glen L. Gray 12
New Business ModelNew Business Model
• Portals, vortals, & e-marketsPortals, vortals, & e-markets
• AuctionsAuctions– 10% of 1998 e-commerce10% of 1998 e-commerce– Expected to grow to 29% by 2002Expected to grow to 29% by 2002– B2B growing 10 times faster than B2CB2B growing 10 times faster than B2C– Averages: B2C = $45 vs. B2B = $10,000Averages: B2C = $45 vs. B2B = $10,000– Reverse auctionsReverse auctions– Bottom line: What’s Bottom line: What’s costcost and what’s and what’s
priceprice??
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New Business ModelNew Business Model
• The Net is frictionlessThe Net is frictionless– A competitor is a click awayA competitor is a click away
• Amazon.com’s 1% market share has Amazon.com’s 1% market share has fractured the business model of Barnes fractured the business model of Barnes & Noble and Borders& Noble and Borders
• Intel, Cisco Systems, & Oracle target = Intel, Cisco Systems, & Oracle target = 100% online sales100% online sales
• GM, Ford, and DaimlerChryslerGM, Ford, and DaimlerChrysler– $250 billion purchases a year$250 billion purchases a year– 60,000 suppliers60,000 suppliers
© Glen L. Gray 14
New Business ModelNew Business Model
• From adversaries to trading From adversaries to trading partnerspartners
• Disintermediation/Reintermediation/Disintermediation/Reintermediation/
CannibalizationCannibalization– Eliminate (change) the middlemenEliminate (change) the middlemen
– Controlling channel conflictsControlling channel conflicts
– Problem for Compaq, IBM, etc.Problem for Compaq, IBM, etc.
– Home Depot told suppliers to not even think about Home Depot told suppliers to not even think about itit
– Small trend toward brick & mortar (e.g., Gateway)Small trend toward brick & mortar (e.g., Gateway)
© Glen L. Gray 15
New Business ModelsNew Business Models
• Significant Savings Reported by SellersSignificant Savings Reported by Sellers– Airlines: $8/ticket to $1/ticketAirlines: $8/ticket to $1/ticket– Banks: $1.07/transaction for teller, $0.52 for Banks: $1.07/transaction for teller, $0.52 for
telephone, $0.27 for ATM, and $0.01 for Webtelephone, $0.27 for ATM, and $0.01 for Web
• How?How?– Replace people and paper with technologyReplace people and paper with technology– Reduce errorsReduce errors– Shift work to customers!Shift work to customers!
• Savings for buyers?Savings for buyers?– Retail: 800 numbers may be faster?Retail: 800 numbers may be faster?– Business-to-business: a P.O. is a P.O. Business-to-business: a P.O. is a P.O.
• But any future for P.O.s???But any future for P.O.s???
© Glen L. Gray 16
Buyer's ConcernsBuyer's Concerns
• Authentication (Is this a real company?)Authentication (Is this a real company?)– Digital certificatesDigital certificates– Certificate authorityCertificate authority– SpoofingSpoofing
• Credit card securityCredit card security– Over the InternetOver the Internet
• Internet is openInternet is open• Store and forward protocolStore and forward protocol• Encryption (SSL, SET, etc.)Encryption (SSL, SET, etc.)
– At the seller's locationAt the seller's location• In general, 80% of fraud is internalIn general, 80% of fraud is internal
© Glen L. Gray 17
Buyer's ConcernsBuyer's Concerns
• PerformancePerformance– Getting exact goods orderedGetting exact goods ordered– Delivered on timeDelivered on time– After-sale returnsAfter-sale returns– After-sale supportAfter-sale support
• Protecting my profileProtecting my profile– VolunteeredVolunteered– CookiesCookies– Click streamClick stream– DSL & Cable modems increase your DSL & Cable modems increase your
risksrisks
© Glen L. Gray 18
Seller's ConcernsSeller's Concerns
• NonrepudiationNonrepudiation• Authentication (Is this really Authentication (Is this really
that buyer?)that buyer?)– Digital signaturesDigital signatures
• Buyer's level of Buyer's level of authorizationauthorization– Boy buys Viking ship @ eBayBoy buys Viking ship @ eBay
• Where will lawsuit be filed?Where will lawsuit be filed?
© Glen L. Gray 19
Seller’s ConcernsSeller’s Concerns
• Network vulnerabilityNetwork vulnerability– Outside attackOutside attack– Inside internal controlsInside internal controls
• Communication problemsCommunication problems– Major outages at AOL, Major outages at AOL,
E-Trade, eBay, Schwab E-Trade, eBay, Schwab and othersand others
• Buyers & SellersBuyers & Sellers: : What about ISPs?What about ISPs?
© Glen L. Gray 20
Inherent Internet RiskInherent Internet Risk
• When you are connected to the Internet When you are connected to the Internet you are part of the Internetyou are part of the Internet– While you are connected to the Internet people could While you are connected to the Internet people could
be scanning your computer (be scanning your computer (snooping)snooping)– Based on your IP address (Based on your IP address (sniffingsniffing))– Static vs. dynamicStatic vs. dynamic
• Run Winipcfg to see your addressRun Winipcfg to see your address
• Matching a person to dynamic address is Matching a person to dynamic address is hardhard
• Matching a person to static address is Matching a person to static address is easy (Whois Web site)easy (Whois Web site)
• DSL or Cable modem is like a static DSL or Cable modem is like a static address (and your neighbors form a LAN)address (and your neighbors form a LAN)
© Glen L. Gray 21
Logos & SealsLogos & Seals
© Glen L. Gray 22
Seal ProgramsSeal Programs
• Seal programs cover:Seal programs cover:– Firm existenceFirm existence– Specific concerns e.g. privacySpecific concerns e.g. privacy– General Web trading performanceGeneral Web trading performance
• Seal programs come from established Seal programs come from established players and startups:players and startups:– AICPA/CICA/ICAAAICPA/CICA/ICAA– NCSANCSA– Better Business BureauBetter Business Bureau
© Glen L. Gray 23
WebTrustWebTrust
• A seal program from the A seal program from the American Institute of CPAs American Institute of CPAs (AICPA) and Canadian (AICPA) and Canadian Institute of Chartered AccountantsInstitute of Chartered Accountants– Now includes ICAA, ICAEWNow includes ICAA, ICAEW
• Java based seal from VerisignJava based seal from Verisign• Subject to WebTrust Principles and Subject to WebTrust Principles and
CriteriaCriteria• Conducted under attestation Conducted under attestation
standardsstandards
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WebTrust CriteriaWebTrust Criteria
• Designed to cover the complete operation Designed to cover the complete operation of the Websiteof the Website
• Covered by Covered by WebTrustWebTrust SM/TM SM/TM Principles Principles and Criteriaand Criteria – Business practice disclosureBusiness practice disclosure– Transaction integrityTransaction integrity– Information protectionInformation protection
• Factors includeFactors include– PrivacyPrivacy– RefundsRefunds– SecuritySecurity
• WebTrust certification valid only for 90 daysWebTrust certification valid only for 90 days
© Glen L. Gray 25
An Example - ETradeAn Example - ETrade
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TRUSTeTRUSTe
© Glen L. Gray 27
TRUSTeTRUSTe
• Spinoff from CommerceNet USA Spinoff from CommerceNet USA research and from EFFresearch and from EFF
• Largely concerned with privacy Largely concerned with privacy issuesissues
• Partnering with Ernst and Young Partnering with Ernst and Young and PricewaterhouseCoopers and PricewaterhouseCoopers amongst othersamongst others
• Reasonable costReasonable cost
© Glen L. Gray 28
BBBBBBOnLineOnLine
© Glen L. Gray 29
BBBBBBOnLineOnLine
• Program of the (USA) Better Program of the (USA) Better Business BureauBusiness Bureau
• Low cost programs that are Low cost programs that are designed to test for:designed to test for:– Existence (Core program)Existence (Core program)– PrivacyPrivacy– Kid’s PrivacyKid’s Privacy
