Grenoble Ecole de Management MEDFORIST Workshop An Introduction to eCommerce

1. Grenoble Ecole de ManagementMEDFORIST WorkshopAn Introduction to eCommerce Asuman Dogac Middle East Technical University Software R&D Center Ankara, Türkiye Grenoble Ecole de Management MEDFORIST Workshop

2. A Success Story: eBay • In 1995 Pierre Omidyar decided to use the Web pages that came as a part of his USD 30-a-month Internet service • The idea was to improve upon the online classifieds for selling personal items • With a little code, he developed a simple auction mechanism that would spare the seller from having to choose among multiple interested buyers Grenoble Ecole de Management MEDFORIST Workshop

3. A Success Story: eBay • The code did the work, the space on the Web server came with his account so the whole thing cost him nothing and the service is offered for free • In 1995, he sent an announcement of his free service to the then-center of the Webdom, the National Center for Supercomputing Applications “What's New” Web page • At the end of 1995, his Web page was getting a couple of thousands hits a day Grenoble Ecole de Management MEDFORIST Workshop

4. A Success Story: eBay • His Internet Service Provider was not happy about this (his page was using a lot of CPU cycles) and raised Omidyar's monthly fee from USD 30 to USD 250 • Omidyar in return asked sellers to pay a small fee for items sold • This relied upon the honesty of the seller • The checks came in volume • In the first month he covered the 250 USD bill for his Internet Service • Afterwards the increase in revenues were exponential: In month two, USD 1000, in month three, USD 2000, in month four, USD 5000 and so on • When his ISP told him that the traffic his page was attracting was too much for its servers, he installed his own server on ISP's premises Grenoble Ecole de Management MEDFORIST Workshop

5. A Success Story: eBay • In mid 1996, Omidyar left his day time job and founded the eBay company • In the fall of 1996 eBay's revenues were USD 400,000 per month where its expenses were USD 200,000 • In 1997, the venture capital firm Benchmark invested USD 6.7 Million in eBay when eBay's valuation was put at USD 20 Million • In September 1998, after the first day of public trading, eBay's capitalization was USD 2 Billion Grenoble Ecole de Management MEDFORIST Workshop

6. A Success Story: eBay • Three months later the stock has gained more than 1300 percent value • In June 1999, the company has valued at more than USD 21 Billion • eBay, one of the most successful examples of e-commerce, has been flourishing ever since • During December 2001 quarter, revenue jumped 64% to USD 219.4 million and net income to 8% • Furthermore, eBay appears to be in a better shape operationally and it is expected to grow by 52% a year over the next five years Grenoble Ecole de Management MEDFORIST Workshop

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8. Ecommerce Hype • Electronic commerce has been the subject of a lot of hype and attention in the second half of the 90s • And although the most important part of electronic commerce is the trading among companies termed as “business-to-business” (B2B) e-commerce; it is business-to-consumer (B2C) electronic commerce which received the most public attention • First with its success stories then with failures of online companies • B2C can be defined as online shopping on the Web • Some of the B2C companies (also called dot.com) went bankrupt after the fall in the stock market prices in April 2000 • However the so called “dot.com collapse” should not be interpreted as the collapse of B2C Grenoble Ecole de Management MEDFORIST Workshop

9. Dot.coms • B2C e-commerce companies with strong technology are still alive such as amazon.com, eBay, and Expedia.com • These are the rather well-known ones but there are many other companies doing well in this business • Examples include a fish market place, FishRound which has transaction volumes of tens of millions of Dollars per month • Still others are reinventing themselves to survive • For example, Germany's No.1 comparison shopping site Guenstiger.de had 30,000 daily users but was doing badly • They began tracking what people buy, later selling this information to retailers, wholesalers and manufacturers • These offline companies use this information to help fine tune their inventories Grenoble Ecole de Management MEDFORIST Workshop

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12. Expedia.com • Expedia.com is an online travel marketplace that helps travelers research, plan and purchase travel services • Expedia site provides multiple tools for finding the lowest airfares. • For example: • “Fare Calendar” matches the airlines' lowest published fares with dates and availability, and shows users the going rates • “Flight Price Matcher” lets customers name their own fare and see if an airline will accept it • Expedia appears to be the top player in the online travel industry Grenoble Ecole de Management MEDFORIST Workshop

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14. Dot.coms • Some failed dot.coms are now selling the software they have developed for their businesses • For example, Value America wanted to be the WalMart of the Net by selling from skin cream to satellite dishes • In the end, it simply could not cope with that many suppliers • However its technology had been built to handle billions of transactions • Value America's technology infrastructure is sold to the offline distributor Merisel for USD 2,4 Million Grenoble Ecole de Management MEDFORIST Workshop

15. To summarize… • B2C revenues are expected to grow from USD 65 billion in 2001 (about 1.5 % of all retail revenue) to USD 269 billion by 2005 (about 8% of total retail sales) • Both the number of online customers and the volume of online trading are increasing by about 50 % per year Grenoble Ecole de Management MEDFORIST Workshop

16. Some Innovative Ecommerce Examples Grenoble Ecole de Management MEDFORIST Workshop

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18. Priceline • Priceline is one of the most inventive “business model” for e-commerce • Priceline.com has pioneered a unique new type of e-commerce known as a “demand collection system” that enables consumers to use the Internet to save money on a wide range of products and services while enabling sellers to generate incremental revenue • Using a simple consumer proposition “Name Your Own Price”, it collects consumer demand (in the form of individual customer offers guaranteed by a credit card) for a particular product or service at a price set by the customer and • communicate that demand directly to participating sellers or to their private databases Grenoble Ecole de Management MEDFORIST Workshop

19. Priceline • Consumers agree to hold their offers open for a specified period of time to enable priceline.com to fulfill their offers from inventory provided by participating sellers • Once fulfilled, offers cannot be canceled • By requiring consumers to be flexible with respect to brands, sellers and/or product features, it enables sellers to generate incremental revenue without disrupting their existing distribution channels or retail pricing structures • Priceline is struggling to survive the dot.com market collapse Grenoble Ecole de Management MEDFORIST Workshop

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21. Akamai • Akamai's sofware constantly monitors the entire Internet, locating potential congestions and devising faster routes for information to travel • Frequently used portions of a client's Web site, or large files that would be difficult to send to users quickly, are stored on Akamai's 8000 servers in over 50 countries around the globe • In 2000, its revenue was nearly USD 90 million • In 2002 during the second quarter revenue has risen to USD 36.3 million; however Akamai is not making profits yet • Who could have thought there is business in watching Internet traffic! Grenoble Ecole de Management MEDFORIST Workshop

22. Google • Google is the Web's most successful search engine • Some search engines merely count how many times a search term appears on a given Web page to determine where to rank a particular page • Google's engine on the other hand uses outside criteria to validate that a search result is likely to be relevant • As a relevancy criterion, outside links to the page as well as other factors like link structure, heading and text of nearby pages are considered • Currently, Google's revenues are from advertisement and licencing • For example, Yahoo! replaced its search engine with Google Grenoble Ecole de Management MEDFORIST Workshop

23. B2B Ecommerce • Despite the economic slowdown and the market shakeout, this branch of e-commerce still continues to thrive • According to a recent report from eMarketer, a New York-based e-business research firm, worldwide B2B revenues will reach USD 820 billion in 2002, a 74% increase over the previous year's total revenues • Other analysts seem to be more optimistic • Research firm IDC for example, projects B2B revenues of USD 917 billion in 2002 • The Gartner Group predicts B2B potential of the year 2002 at USD 1.929 trillion and • Forrester is the most optimistic: it predicts that the B2B sector will earn USD 2.061 trillion by the end of the year 2002 Grenoble Ecole de Management MEDFORIST Workshop

24. Covisint Covisint is an industry sponsored e-marketplace with members such as DaimlerChrysler AG, Ford Motor Company, General Motors, Nissan, Renault, Peugeot and Siemens Automotive It became operational in 2000, and by the end of July 2001, it had managed more than USD 129 billion in transactions; It had qualified 1700 supplier companies at the site, generated more than USD 37.6 billion in auction revenues Covisint has been an outstanding success story in B2B commerce In the November 26, 2001 issue of InfoWorld, Covisint is ranked number 5 in the list of top 100 companies who are recognized for their creative use of enterprise technologies to make their businesses more efficient and develop new streams of revenue Grenoble Ecole de Management MEDFORIST Workshop

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26. GE Global eXchange Services • GE Global eXchange Services is the world's largest B2B internet supply chain network that links more than 100,000 trading partners in 58 countries around the world • In 2002, the network's 1 billion annual transactions account for USD 1 trillion in goods and services • GXS customers include Eastman Kodak, DaimlerChrysler, Target, J. C. Penney, Inc., Sara Lee and 3M • GXS provides three portfolios of e-commerce products and services: • GE Integration Solutions (EAI) - provides software that permits any business application to send and receive business information to other business applications in a secure and reliable manner • GE Interchange Solutions (EDI and XML) - automates paper, fax, telephone and email transactions to improve quality and efficiency in a supply chain • GE Marketplace Solutions (exchanges) - provides the business applications and technology infrastructure to enable the development, integration and service of B2B electronic marketplaces Grenoble Ecole de Management MEDFORIST Workshop

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28. World Wide Retail Exchange • In March 2000, seventeen international retailers founded the World Wide Retail Exchange to enable participating retailers and suppliers to simplify, rationalize, and automate supply chain processes • WWRE runs auctions for individual members as well as indirect-collaborative auctions in which members combine their orders for economies of scale • The exchange is expected to link members with more than 100,000 consumer-goods suppliers, partners and distributors; making it one of the largest e-marketplaces on the Web • In 2002, with a membership consisting of 62 retail industry leaders from around the world, WWRE has a revenue of over USD 845 billion Grenoble Ecole de Management MEDFORIST Workshop

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30. RubberNetwork.com • The leading tire manufacturers launched their own exchange in April 2000, operated by a new company, called RubberNetwork.com • The initiative RubberNetwork was launched by some of the leading world tire manufacturers including Goodyear, Sumitomo, Bridgestone, Firestone, Pirelli, Michelin, Cooper and Continental, which together account for approximately 80% of the world’s tire output • RubberNetwork.com provides procurement and supply chain services as well as trading services including auctions and reverse auctions where suppliers bid prices lower • In 2002, the RubberNetwork includes nine of the largest companies in the tire and rubber industry • These companies represent more than 63% of total purchases within the tire and rubber industry, which, including raw materials, equipment, machinery, goods and services, are estimated to be in excess of USD 50 billion a year Grenoble Ecole de Management MEDFORIST Workshop

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32. CPGmarket.com • CPGmarket.com is the leading marketplace for the European consumer packaged goods industry • Created by Nestle, Danone, Henkel and SAPmarkets in March 2000, CPGmarket.com delivers value-added services to both buyers and suppliers: • by facilitating and accelerating the purchasing transactions between the manufacturers and suppliers of the CPG industry, • reducing the procurement and administrative costs, and • optimising production and inventory cycles through state-of-the-art supply chain processes Grenoble Ecole de Management MEDFORIST Workshop

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34. Tradezone • A version of e-market model is Third-party marketplaces where founding member, usually a financial institution, acts as an aggregator by offering supply-chain and procurement services to smaller enterprises that can not afford to start their own e-marketplaces • Example: Tradezone Grenoble Ecole de Management MEDFORIST Workshop

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36. Introduction to EDI • One of early attempts to do business electronically is the Electronic Data Interchange protocol (EDI) which runs over private networks • EDI is developed by United Nations Electronic Data Interchange for Administration, Commerce and Transport (UN/EDIFACT) working group about twenty five years ago • This was before the invention of the Internet • An electronic data interchange standard, like EDI, basically defines the syntax and the semantics of messages exchanged Grenoble Ecole de Management MEDFORIST Workshop

37. Introduction to EDI • “Syntax” refers to the message layout and “semantics” to the valid data types and consistent vocabulary (data type values) used in messages • Each message is either a message with • the intent of action (like “new purchase order”), or • an acknowledgment message indicating the successful transmission of a message (“received purchase order”), or • an error message indicating an error situation (“reject purchase order”) • The interpretation of the intent of action has to be standardized too, in order to guarantee correct behavior from trading partners Grenoble Ecole de Management MEDFORIST Workshop

38. Introduction to EDI • While traditional EDI has demonstrated the feasibility and efficiencies possible when using electronic business transactions, it has proved to be expensive not only due to the high network infrastructure setup/running costs but also the high cost of integration especially for small and medium enterprises (SMEs). • Ideally, companies of all sizes should be able to conduct electronic business in a completely ad hoc fashion, without prior agreement of any kind • But this vision has not been realized with EDI; only large companies are able to afford to implement it, and most of the EDI-enabled businesses are centered around a dominant enterprise that imposes proprietary integration approaches on its trading partners Grenoble Ecole de Management MEDFORIST Workshop

39. Internet and XML • On the other hand, during the last decade, two major developments opened up new avenues for electronic commerce: • the adoption of the Internet as communication medium, and • the wide-spread acceptance of XML as the data exchange format Grenoble Ecole de Management MEDFORIST Workshop

40. The Internet • Today, the public Internet and corporate Intranets have become the ubiquitous communication infrastructures • The Internet is the world's largest public network and it is the global backbone • The ubiquitous use of Internet is made possible by the World Wide Web, which is called shortly the Web • In this respectWeb has been the “killer application” for the Internet • Almost all the computers have Web browsers installed and remote sites are accessed through these browsers • World Wide Web Consortium produces Web standards Grenoble Ecole de Management MEDFORIST Workshop

41. The Web • The Web uses the client/server model where browsers are the clients connecting to Web servers through TCP/IP (Transmission Control Protocol/Internet Protocol) • The first generation Web applications were mostly read-only and static: the client and the server exchanged HTML documents through HTTP protocol • HTTP is a stateless Remote Procedure Call that: • establishes a client/server connection, • transmits and receives parameters including a returned file, and • breaks the client/server connection Grenoble Ecole de Management MEDFORIST Workshop

42. HTML • HTML is a simple markup language to describe a document • A plain ASCII text file is augmented with “tags” and describe the structure of a document, provide font and graphics information, and define hyperlinks to other Web pages and Internet resources • The browser executes the HTML commands to properly display text and images, it also navigates from one page to another using the embedded hypertext links • HTML documents live in Web servers and later it has become possible to include audio, video, and Java programs in HTML documents • Web browsers access Web resources residing on Web servers through Unified Resource Locators (URL) • The URL protocol provides a consistent universal naming scheme to identify all Web resources, e.g., http://www.srdc.metu.edu.tr/ Grenoble Ecole de Management MEDFORIST Workshop

43. Interactive Web • Web has a client/server architecture, where a browser runs on the client such as Netscape or Microsoft Explorer and a Web server like Apache server runs on the server machine • In the early days of the Web, there was processing neither on the client nor on the server • A user accessed only static documents which are the pages that exist on the Web server and are simply delivered to the Web browser • However in 1995 W3C published HTML 2.0 which included forms that made it possible to use Web interactively • A Web form, is an HTML page with one or more data entry fields and a mandatory “Submit” button Grenoble Ecole de Management MEDFORIST Workshop

44. Interactive Web • When the “submit” button is clicked, the form's data contents are send to a Web server • The server invokes the program or resource named in the URL and passes the method request and its parameters to the back-end program using a protocol called the Common Gateway Interface (CGI) • The back-end program executes the request and returns the results in HTML format to the Web server using the CGI protocol • The Web server returns the result to the client • Pages that are computed in this manner at the time they are requested are called dynamic pages, in contrast to the static pages that exist and are simply delivered to Web browsers Grenoble Ecole de Management MEDFORIST Workshop

45. Application Servers • CGI protocol is not very efficient because the server creates a new process for each page request to execute a program at the Web server's site • Since this solution does not scale well with a large number of requests, specialized programs called Application Servers have been developed • An application server has pre-forked threads or processes and thus avoids the start up cost of creating a new process for each request • Application servers have evolved into middle tier packages providing other useful functionalities such as ensuring transactional semantics and session management • The well-known examples of Web application servers include WebSphere from IBM and WebLogic from BEA Grenoble Ecole de Management MEDFORIST Workshop

46. Evolution of Web Interaction Grenoble Ecole de Management MEDFORIST Workshop

47. Traditional Web Application • Browsing of linked documents • Manually initiated transactions & purchases • Downloading files • All initiated manually via a Web browser Grenoble Ecole de Management MEDFORIST Workshop

48. Web-Browser Side Processing • The processing on the client side basically involves validating user input, and interactivity with the server • Some of the well-known browser-side processing technologies are as follows: • Scripts: A script is a program that may accompany an HTML document • The program executes on the client's machine when the document is downloaded, or at a later time when a link is activated • It increases the interactivity provided by HTML • As an example, scripts can be used to check whether the user input data is within predefined range of values • The most popular scripting languages are Java Script and VBScript Grenoble Ecole de Management MEDFORIST Workshop

49. Web-Browser Side Processing • Applets are programs that require a Web browser to run • The <Applet> tag is embedded in a Web page and identifies the applet to be run • When the page is accessed by a user, the applet is automatically downloaded from the server and runs on the client machine • Java applets can not access client machine resources Grenoble Ecole de Management MEDFORIST Workshop

50. Web Server-side Processing • Web server-side processing is used in generating customized responses for the user by accessing databases • There are several technologies for server-side processing: • The Java Servlet API allows Web developers to extend the functionality of a Web server by writing small Java programs called Servlet that interact with the Web server through a well-defined API • A servlet contains the business logic and the code to transform data to HTML or XML • Java Server Pages are another platform-independent alternative for generating dynamic content on the server side Grenoble Ecole de Management MEDFORIST Workshop