E-Commerce: The End of the World as We Know It.

© 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.eduOhio Council IMA & Kent State Ohio Council IMA & Kent State

UniversityUniversityApril 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

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InventoryInventory

ReceivablesReceivables

PayablesPayables

Value CreationValue Creation InventoryInventory


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


PayablesPayables

Value CreationValue Creation

LogisticsLogistics LogisticsLogisticsLogisticsLogistics

Web enabled value chain integration

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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

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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 billion

Commercial (B2B) $109 billion $2.7 trillion

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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 do Most (about 80% at Dell) people shop but do

not buynot buy

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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

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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

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EC and the Value ChainEC and the Value Chain

R&D ProductDesign Prodn MktingDistrib.Customer

Service

B2BB2BB2CB2C

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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

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• 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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• 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

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• 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???

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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

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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?

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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?

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Inherent Internet RiskInherent Internet Risk• When you are connected to the Internet you When you are connected to the Internet you

are part of the Internet are part of the Internet– While you are connected to the Internet people could be While you are connected to the Internet people could be

scanning your computer (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 easy Matching a person to static address is easy

(Whois Web site)(Whois Web site)• DSL or Cable modem is like a static address DSL or Cable modem is like a static address

(and your neighbors form a LAN)(and your neighbors form a LAN)

© 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 of Designed to cover the complete operation of

the Websitethe Website• Covered by Covered by WebTrustWebTrust SM/TM SM/TM Principles and Principles and

CriteriaCriteria – 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

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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

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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

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Discussion...Discussion...

Thank you!Thank you!

Glen L. GrayGlen L. [email protected]@csun.edu

E-Commerce: The End of the World as We Know It.

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