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

26th Annual Professional Development Conference. E-Commerce: The End of the World as We Know It. Glen L. Gray, PhD, CPA Dept. of Accounting & MIS College of Business Administration & Econ. California State University, Northridge glen.gray@csun.edu. Ohio Council IMA & Kent State University

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

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  1. 26th Annual Professional Development Conference E-Commerce: The End of the World as We Know It. Glen L. Gray, PhD, CPA Dept. of Accounting & MIS College of Business Administration & Econ.California State University, Northridgeglen.gray@csun.edu Ohio Council IMA & Kent State University April 28, 2000 Acknowledgement: Some slides were developed with Roger Debreceny, NTU.

  2. E-Commerce Outline • E-Commerce stats & observations • The growing complexity of e-commerce • The players • The new business model • Buyers’ concerns • Sellers’ concerns • Logos & seals

  3. Receivables Receivables Receivables Value Creation Value Creation Value Creation Inventory Inventory Inventory Payables Payables Payables Trends in technologies and firms Web enabled value chain integration • Significant real cost reductions in technologies • Integration of value-adding functions within the firm • Integration of value and supply chains • Rapid growth in outsourcing/co-operation/eCommerce Logistics Logistics Logistics

  4. Electronic Commerce • E-Commerce = unprecedented paradigm shift for the next millennium--and beyond • The decision for all businesses is not if but when • Seems to have come from nowhere overnight • Articles in Wall Street Journal on Amazon.com: 2 in 1996, 16 in 1997, 42 in 199888 in first half of 1999 • FEI/Duke study of CFOs: • 56% will be selling by end of 2000 (8% of rev.) • 66% will be buying by end of 2000

  5. Some Facts, Figures & Observations Forrester Research • Amazon.com [4Q 1998 to 4Q 1999] • 6.2 million to 16.9 million customers (year end) (172%) • $253 million to $676 million in sales (167%) • $46 million to $323 million in net losses (602%) • Fulfillment costs: 10% of sales to 16% of sales (60%) • Yahoo is (kind of) free, yet makes a profit • Profits = margin + advertising revenue + float between customer payment and payment to vendor

  6. Some Facts, Figures & Observations • Not everything on the Web is discounted (e.g., The GAP) • Auctions = winner’s curse • Not everything on the Web is lowest available price • [DLS] Don’t buy airline tickets or make online hotel and rent-a-car reservations • Most (about 80% at Dell) people shop but do not buy

  7. Growing Complexity of EC • Stage 1 -- brochureware • Stage 2 -- may be rip and read • Stage 3 -- intranet • Stage 4 -- extranet

  8. Communication Links

  9. The Players • Special situation: Buyer is bigger than seller • Other players • Hardware & software EC vendors • Government regulators • Investors & creditors

  10. B2C B2B Customer Service Product Design R&D Prodn Mkting Distrib. EC and the Value Chain

  11. New Business Model • E-Commerce is commerce • Core competencies become core rigidities • Michael Dell: Assets are liabilities • Controlling burn rate • Shorter time-to-market and product life cycles • Production starts before design is finished • Mass customization

  12. New Business Model • Portals, vortals, & e-markets • Auctions • 10% of 1998 e-commerce • Expected to grow to 29% by 2002 • B2B growing 10 times faster than B2C • Averages: B2C = $45 vs. B2B = $10,000 • Reverse auctions • Bottom line: What’s cost and what’s price?

  13. New Business Model • The Net is frictionless • A competitor is a click away • Amazon.com’s 1% market share has fractured the business model of Barnes & Noble and Borders • Intel, Cisco Systems, & Oracle target = 100% online sales • GM, Ford, and DaimlerChrysler • $250 billion purchases a year • 60,000 suppliers

  14. New Business Model • From adversaries to trading partners • Disintermediation/Reintermediation/Cannibalization • Eliminate (change) the middlemen • Controlling channel conflicts • Problem for Compaq, IBM, etc. • Home Depot told suppliers to not even think about it • Small trend toward brick & mortar (e.g., Gateway)

  15. New Business Models • Significant Savings Reported by Sellers • Airlines: $8/ticket to $1/ticket • Banks: $1.07/transaction for teller, $0.52 for telephone, $0.27 for ATM, and $0.01 for Web • How? • Replace people and paper with technology • Reduce errors • Shift work to customers! • Savings for buyers? • Retail: 800 numbers may be faster? • Business-to-business: a P.O. is a P.O. • But any future for P.O.s???

  16. Buyer's Concerns • Authentication (Is this a real company?) • Digital certificates • Certificate authority • Spoofing • Credit card security • Over the Internet • Internet is open • Store and forward protocol • Encryption (SSL, SET, etc.) • At the seller's location • In general, 80% of fraud is internal

  17. Buyer's Concerns • Performance • Getting exact goods ordered • Delivered on time • After-sale returns • After-sale support • Protecting my profile • Volunteered • Cookies • Click stream • DSL & Cable modems increase your risks

  18. Seller's Concerns • Nonrepudiation • Authentication (Is this really that buyer?) • Digital signatures • Buyer's level of authorization • Boy buys Viking ship @ eBay • Where will lawsuit be filed?

  19. Seller’s Concerns • Network vulnerability • Outside attack • Inside internal controls • Communication problems • Major outages at AOL, E-Trade, eBay, Schwab and others • Buyers & Sellers: What about ISPs?

  20. Inherent Internet Risk • When you are connected to the Internet you are part of the Internet • While you are connected to the Internet people could be scanning your computer (snooping) • Based on your IP address (sniffing) • Static vs. dynamic • Run Winipcfg to see your address • Matching a person to dynamic address is hard • Matching a person to static address is easy (Whois Web site) • DSL or Cable modem is like a static address (and your neighbors form a LAN)

  21. Logos & Seals

  22. Seal Programs • Seal programs cover: • Firm existence • Specific concerns e.g. privacy • General Web trading performance • Seal programs come from established players and startups: • AICPA/CICA/ICAA • NCSA • Better Business Bureau

  23. WebTrust • A seal program from the American Institute of CPAs (AICPA) and Canadian Institute of Chartered Accountants • Now includes ICAA, ICAEW • Java based seal from Verisign • Subject to WebTrust Principles and Criteria • Conducted under attestation standards

  24. WebTrust Criteria • Designed to cover the complete operation of the Website • Covered by WebTrust SM/TM Principles and Criteria • Business practice disclosure • Transaction integrity • Information protection • Factors include • Privacy • Refunds • Security • WebTrust certification valid only for 90 days

  25. An Example - ETrade

  26. TRUSTe

  27. TRUSTe • Spinoff from CommerceNet USA research and from EFF • Largely concerned with privacy issues • Partnering with Ernst and Young and PricewaterhouseCoopers amongst others • Reasonable cost

  28. BBBOnLine

  29. BBBOnLine • Program of the (USA) Better Business Bureau • Low cost programs that are designed to test for: • Existence (Core program) • Privacy • Kid’s Privacy

  30. Discussion... Thank you! Glen L. Grayglen.gray@csun.edu

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