Doing Business in Cyberspace
Week 6: E-Business & E-Commerce
Cyrus Daftary & Todd Krieger
March 4th, 2013
Course Roadmap
START
Week 4
Privacy
Week 8
1st Amendment,
Blogging,
Digital
Discovery
Week 12
Class Projects
TBD
Week One
Welcome &
Introduction
Week 5
Access to
Technology,
Open Source
Week 9
Tax
Week 13
Class Projects
TBD
Week 2
Copyright and
Digital Music
Week 3
Patents &
Trademark
Week 6
E-Commerce
Week 7
Advertising &
Jurisdiction &
Int’l Issues
Week 10
Creating a .COM
company
Week 11
Class Project
TBD
Agenda
• Administrative – Need to pick dates for Class
Project and Presentations
• Understanding E-Business versus E-Commerce
• Contract Issues
• Questions & Answers
3
Themes to E-Business
• E-Business is happening at every company today, participation is a
necessity, not an option.
• Its not just ‘how’ you do business, it is a new business.
• Flexibility, speed of execution and leveraging data ownership will be
core competencies for future strategic decision makers.
• Value drivers at companies are changing constantly; the value must
be more than just for one business─ it must create value for the
entire business network.
• Strategic partnerships are more important than ever ─ companies
can not afford to go it alone.
• E-business creates new legal risks and opportunities.
4
Opportunities that the ‘Net affords Business
• Low cost has made access easier
• A computer is no longer needed
• Expanded Marketing Opportunities
• Expanded Sales Opportunities
- B2C & B2B & B2E
• Product Innovation & Support
• Bridging the brick and mortar with
power of the web.
5
Marketing Opportunities
• Social Networking
• Targeted Advertising
–
Can be displayed based on age, gender, location and other searches the user
has performed
– Pay-per-click advertising
– Purchase search engine keywords
– Streaming Video Ads
– Views driven through user-generated content
• Viral Marketing
• User reviews and recommendations
6
Sales Opportunities
• Crowd-Sourced Pricing
– Groupon, LivingSocial
• Mobile Apps
– Price comparisons and coupons
• Daily Deals and Flash Sales
• Deal Aggregators
• In-Store Pickup – order online, pick up in store
– Amazon.com - planning to implement same-day delivery
7
Sales Opportunities Result in Revenue
REVENUE SOURCE
SAMPLE REVENUE RANGES
TRANSACTION
• Transaction fees range from 0.1 to 20% and typically are based on a percentage of cost
savings. Monthly usage fee - Best used for purchase transactions
SUBSCRIPTION/ACCESS FEES
SALES REVENUE
LICENSING
DATA COLLECTION/MANAGEMENT
VALUE ADDED SERVICES
HOSTING
ADVERTISING
• Period fees to join the community - e.g. monthly, quarterly, annually - Best used for
information exchange
• Mark up on sales price of goods/services - Best used for purchase power
levers/resellers
• Fees for software, data, storage services. Software as a Service (SaaS)
• Management reporting and data analysis of transaction information captured by the
eMarket - Pricing based on complexity of analysis/report
• % of amount (shipping, service, etc) or hourly rate (consulting/implementation
services)
• Hosting of eProcurement and other services
• Banner ads, etc.
8
Sources: Forrester Research, PwC analysis
Product Support
• More Important Than Ever
–
Product and service data, customer reviews easily accessible
–
Social media: Companies now must monitor social media channels and
respond quickly to customer concerns and complaints
• Data Collection
–
Personalization of customer service
–
Knowledgebases, Wikis
–
Need systems and processes to handle volume of customer data
• Multi-Channel Customer Support
–
Multiple methods for customer to get help
–
Phone, website, social media, mobile apps
–
“Agile” approach: Seamlessly transition customer between channels
9
Start with an E-Business Definition
E-Business
• Designing the enterprise for the E-Business age
E-Commerce
• Creating new sources of shareholder value by:
o
Building customer loyalty
• Marketing
o
Optimizing business process
• Buying and selling products
o
Creating new products and services
and services over
o
Managing risk and compliance
the Internet
o
Reaching new markets
o
Enhancing human capital
o
Harnessing technology
o
Achieving market leadership
“E-Commerce is what you do and e-business is what you are”
10
E-Business brings Change
New:
• Channels
• Technology
• Environment
• Business Models
New:
• Choices
• Intimacy
• Priorities
• Expectations
New
Customers
New
Context
Your
Market
New:
• Value Propositions
• Capabilities
• Partners
• Ideas
New
Competition
No:
• Baggage
• Holds Barred
•Pre-conceptions
11
Change Requires Strategic Planning
How does the business
create value?
Content /Community
Process/Market Efficiency
Purchase Power
Supply Chain Integration
Cross Company Collaboration
 Aggregator
 Auction
 Exchange
How will the company capture its
share of this value?
 Transaction fees
 Licensing fees (SaaS)
 Value-added services
Who are the target businesses (suppliers
and buyers)?
 Why will they join?
 What is their relation to the market?
Competition
 What other communities will target
them?
Strategic Planning Model
Value Proposition/
Pricing Strategy
Target Community
of Businesses
12
Products
&
Services
What products and services
will the company deliver?
Content /Community
Commerce
 Direct Materials
 Commodities
 Excess Inventory
 Customized Products
Value-added Services
 Product Consulting
 IT Services
 Financial Services
 Logistics
 Risk Mitigation
 Demand Planning
Strategic Planning Should Create Value Propositions
Aggregated
Content/
Community
Process
Efficiency/
Outsourcing/ASP
 Industry best
practices
 Electronic product
searches/catalogs
 Knowledge
Management
 Electronic order
taking and
management
 Benchmarking
studies
Market
Efficiency
Purchase
Power
 Online market
 Aggregate buyers
making
into buying
mechanisms to
consortiums
match buyers and
 Volume pricing
suppliers
Supply Chain
Integration
 Disintermediation
Cross Company
Collaboration
 Collaborative
Design
 Improved visibility
across market
 Multi company
supply chains
scheduling
 Electronic bill
presentment and
payment
 Better information  Reduced lead time  Knowledge
for supplier
Management
 Reduced inventory
Auctions
negotiations
levels
Exchange
 Supplier
 Improved logistics
consolidation
 Access to broader
management
range of suppliers  Spending and
 ERP integration
and buyers
control reports
 FAQs
 Improved
information access
 Improved
information access
 Industry
collaboration
 Better spend control
 Monitoring/control
reports
 Discussion forums
 Product information
and reviews
 Electronic requisition
and approval
(workflow)
 Auto replenishment
 Newsletters
 Reduced transaction
costs
 Network effect
 Shared infrastructure
eCatalogue
Increasing Value
13
 Tax optimization
Value Propositions must Appeal not only to the
Company…but also to Potential Consumers
Buyers
Value Propositions
Benefit
Value
Benefit
Lower price & negotiation costs
Expanded supplier access
Purchase
Power
Higher profits & volume
Lower negotiation costs
Extended customer base
Lower search costs
Lower processing costs
Process
Efficiency
Lower customer acquisition cost
Lower processing costs
Reduce inventory costs
Reduce processing costs
Reduce time to market
Improved, ongoing benchmarking
Cost-effective research
Faster competitive response
Price & inventory transparency
Reduced cost of spot buying
Reduced excess inventory costs
Supply Chain
Integration
Aggregated
Content & Community
Market
Efficiency
Improved inventory management
Improved demand forecasting
High buyer switching costs
Improved, ongoing benchmarking
Cost-effective, ongoing research
Faster competitive response
Greater customer reach
Reduced cost of sales
Reduced excess inventory costs
Great coordination; faster
cycle times
Cross-Company Collaboration
Greater coordination; faster
cycle times
Sellers
Tangible benefits from clear value propositions create a critical mass of buyers
and sellers. Well-defined services help retain consumers with a superior offering and experience.
14
Creating New Markets – with Buyers and Sellers
Business Transaction Cycle
1. Attract
• Create critical mass
• Introduce sellers &
buyers
Suppliers
3. Configure
2. Inform
• Allow customers to
• Aggregate catalogs
customize the product
• Provide information about the
(e.g., RFP, enter product
product
specs)
Part #
Price
+
Buyers
Part 1
?
7. Fulfill
• Logistics
mgmt
• Inventory
mgmt
Product
A
6. Build customer
relations
• Handle inquiries
• Account mgmt
• Data mining
+
Product
Part 2
Part 3
4. Transact
• Set the terms of transaction
A
$
$
$
D
e
a
l
$
5. Process Payment
• Bill
• Take payment
15
A World of Challenges
A WORLD OF CHALLENGES
1. Global Competition in a Global Economy
2. Dot “Bombs”
3. Cost and Market Pressure
4. Deregulation and Consolidation
5. Customer Expectations
6. Product and Service Innovation
7. Rapid and Continual Technological Changes
8. Applying Traditional Legal Rules
16
E-Business Changes Business Strategies
• Society has moved to a self-serve mentality:
–
Examples: Self-checkouts, online banking, airport check-in, online stock trading
• Data Mining
– Push vs. Pull Strategies
• Strategic Partnerships
• Building Communities
• Outsourcing Non-Core Functions
17
E-Business Changes Relationships
•
•
•
•
•
•
•
Who is my customer?
Where is my customer?
Are E-Contracts valid?
How and will I get paid?
What laws/regulations apply?
Can I protect my IP?
Are there Antitrust issues?
• Security
• Auctions
• E-Payment
•Function v. Geography
•Global Management
•Global Hiring
• 24/7 R&D
Your
Business
• E-Procurement
• How do I fulfill?
• Dis-intermediation
18
•Temporary Assignments
•Stock Option planning
•Uniform HR policies
•Fair Compensation
•Local regulations
•Expatriate policy
•Local payroll tax
E-Business changes relationship with
Suppliers, Employees & Customers
Suppliers
Employees
Customers
Ordering
Specifications
Scheduling
Payment
Delivery
Recruitment
H.R.
Design
Scheduling
Control
Communication
Advertising
Product Info.
Ordering
Scheduling
Payment
Support
E-Procurement
E-Sales
19
Relationships Create Challenges
•
Few widespread successful model E-Businesses exist.
•
Technology-hype creates confusion – technology should only be
the enabler not the driver.
•
Standards/Security/Privacy concerns
•
Technology integration seems daunting.
•
Uncertain business implications abound.
•
Disrupters are driving new business models.
•
Macro vs. Micro market targeting
20
E-business Life Cycle – Corporate Level
Convergence
Business Value
Transformation
Integration
Presence
Static
Information
“Brochureware”
Interactive content
Personalization
Legacy interface
• Online
communities
• Dynamic supply
chains
E-Business Leverage
21
Cross-Industry
supplier &
customer
integration
Hillenbrand Inc.
www.hillenbrand.com/index.htm
 Allows viewers to access information
- Shareholder Info; Corporate Governance; News Media; and Contacts
(http://www.hillenbrand.com/index.htm)
Presence
 Does not provide instant quotes online
 Does not allow online transactions
 Refers customers to Hillenbrand phone contacts
Integration
Interactive content
Personalization
Legacy interface
Transformation
• Online
communities
• Dynamic supply
chains
22
Static
Information
“Brochureware”
McAfee
www.mcafee.com
Re-intermediation - a new business model
–
–
–
–
Ability to login within username and password (individual or business)
Personalized content – with knowledge-based profile
Ability to push potential offerings based on customer buying profile
Products & Services, Virus Info, Store, Support, Downloads
Integration
• Personalize Info
• Custom Login
23
NewEgg
www.newegg.com
Re-intermediation - a new business model
–
–
–
–
Ability to get a series of quotes on computers
Competitive, personalized quotes immediately
User can then compare prices and coverage before making final decision
Ability to purchase on-line or by phone
Transformation
• Online communities
• User Reviews
• Email Deals
24
Convergence-based Strategies are Easier to
Implement in Cyberspace
©
Software
Windows
Phones
Images
Games
Flights
Hotels
Cars
Cruises
Books
eBooks
CDs
Auctions/
Gifts
Electronics
Banking
Insurance
Games
Online
Trading
Investment
Banking
Lending
Services
25
Appliances?
E-business Life Cycle Industry Transformation
Degree of change to business model
Restructuring the value chain to create “many-to-many”
relationships, new value propositions and new business
models.
Companies entering new industry sectors and
competing outside of their core business areas
Value Chain
Integration
Channel Enhancement
Enterprise Connectivity
Industry
Transformation
Convergence
Connections with trading partners & process
changes across the value chain (buy side)
Enhancing current channels and adding new
channels to market (sell side)
Internet technology enabled processes, systems and
organizational change and getting the organization
Role of eBusiness
connected (B2E – Business-to-Employee).
26
Successful E-businesses have the
Right Strategic Partners
Partnership: The Key to a Successful e-Business
 GM and its 30,000
suppliers
Define the Market
and Service
Offerings
Entrepreneurial/
Management Team
Anchor Buyers
and
Sellers
 Compelling Value
Propositions
 Enhanced service
offerings
E-Business
 ASP/Hosting
 Supplier
Management
Operational
Support
Third Party Service
Firms
 Distributors
Software
and
Technology
 eCommerce Platform:
Shopify, Magento,
CubeCart, Zen Cart
 Third-Party
Services
Amazon, DELL, Cisco, E*Trade – all have business models like this
27
Dot Bombs
• Very few online-based companies are truly successful…
• Amazon, Google, Facebook, YouTube, eBay, PayPal and
others are successful
• Hybrid usage of dot com offerings and the power of the
internet
have been more successful.
– Target
– GAP
– FedEx
28
Dot Com Busts
Dot Com Bubble (1997-2000)
• Many new online businesses were founded and investors
would drive stock prices to shoot up
• Caused by market confidence in new online technology and
widely available venture capital
Pets.com - Formed in 1998 as an online store for pet supplies
• Multimillion dollar Super Bowl commercials and a Macy’s
Thanksgiving Day Parade Balloon
• Could not compete with brick and mortar pet stores
– Orders would take days to reach customers
– To keep prices competitive, undercharged for shipping costs
• $82.5 million IPO in 2000, then closed 9 months later
29
Digital Darwinism
• Rapid changes in technology have been ruining companies too slow to
adapt to the changes
• Often caused by companies listening to shareholders instead of
consumers and not focusing on evolving markets
DIGITAL CAMERAS
Polaroid
– filed for bankruptcy in 2001 and 2008
Kodak
– filed for bankruptcy in January 2012
STREAMING MOVIES AND MOVIES-BY-MAIL
Hollywood Video
– filed for bankruptcy in February 2010
Blockbuster
– filed for bankruptcy in September 2010
EBOOKS AND ONLINE BOOK SALES
Borders
– filed for bankruptcy in February 2011
30
Equity Structure Considerations
Every Dot.com is different…
Equity Ownership
Founders
10%
10%
Incentive Creation
Management
10%
70%
31
Technology
Partner
Strategic
Investor
Know What it Takes to Succeed
•
•
•
•
•
•
•
•
•
Clearly identify how your project objectives link to critical business issues before
starting – understand your industry – speed to market is critical.
There is a need for senior business champions that are committed to the project –
need to create standards and strategic /tactical plans.
A skilled team is essential – one that combines both business and IT.
E-Business must be a business – driven (not IT) initiative.
Business units must feel ownership – but central leadership, coordination and
development is important
Plan thoroughly how to integrate E-Business into your existing business system –
need to create efficiencies – may need strategic business partners.
Understand the Legal, Privacy and Security requirements that E-Business brings.
Culture and change are more complex than technology to institute – staff retention is
very difficult.
Do not treat E-Business as just a “front-end” – it changes the way you operate.
32
Things to Consider








Web presence for most businesses is essential.
The Internet offers a new realm of business opportunities.
The Internet has created a global economy – with the ability to have jobs and other
business functions outsourced abroad.
Ability to execute, to scale, captures and retains market share – no longer have to be
the first to market … must simply be better
Technology is only the enabler.
Defining the value proposition is critical and it is imperative that the proposition(s) has
strategic and economic value.
Strategic partners are essential.
The end result is cost efficiency and enhanced revenue generation.
33
Enforceable Transactions on the ‘Net
§ 6.04
“Traditional” Contract Considerations:
•
•
•
•
•
•
•
Offer, Acceptance, and Consideration
Message/Contract Authenticity
Message/Contract Integrity
Writing and Signature Requirements (SOF)
Digital Signatures
Mailbox Rule and e-mail
Shrinkwrap or Clickwrap Agreements
34
Offer, Acceptance, & Consideration
•
Many contracts are instantaneously formed online
Need to meet requirements of offer, acceptance and consideration
•
Contracts law governed by Common Law or UCC
Is software a good sold?
•
Offer
Private e-mail message = offer
Advertisement = catalog
•
Revoking an Offer
Need direct communication
•
Acceptance
UCC acceptance may be communicated by any “medium reasonable in the
circumstances.”
•
Consideration
Bargained for exchange & legal value
35
Mailbox Rule & E-mail
§ 6.04[B]
• Recall that the moment an acceptance is posted by the offeree
is the precise moment that the offer is accepted, even if
revocation is in the mail.
• To date, courts have not decided whether the mailbox rule
applies to e-mail. Outcome will depend on whether e-mail is
deemed to be an instantaneous communication or like a
traditional mail service.
• The offer should be effective upon actual
receipt.
36
Message / Contract Integrity
• Is the message/contract complete?
• Has the contract been altered since it was sent?
• Proving that my copy of the message has not been altered
- No eraser marks, no ink smudges, etc. stand out to
alert court of fraud
- Fix with tools like Encryption Programs; use a Third Party Record
Keeping; print hardcopy and sign
37
Requirements of a Signed
Writing/Statute of Frauds
• Writing Requirements
• Signature Requirements
38
(UCC 2-201)
Electronic Signatures
TWO BASIC ELEMENTS:
1.Intent to Sign
– Does the user realized what they are signing and
intend to be bound by the agreement?
– “Click-wrap” agreements present issues
2.Authenticity
– Must ask who really sent the message
– Does that person have authority to contractually
bind the company?
39
Digital Signatures
• Not the following:
- digitized handwritten signature
- typed name of person
- secret code for a person
• Are the following?
- Comprised of two keys:
- private key (sign contract with the private key)
- public key (verify authenticity with public key)
40
Evolution of E-sign
•Utah was the first state authorizing electronic
signatures (Utah Digital Signature Act 46-3-101).
•Requires dual key encryption and third party
certification
•Other states have differing rules regarding
authorized electronic signatures including
authentication and scope.
41
UETA (Uniform Electronic Transactions Act)
• Adopted by 47 states
• Designed to harmonize varying state legislation on
electronic signatures and records
• Technology neutral – treat e-signatures as paper
and pen
• Only applies when parties agree to conduct
transactions electronically
• Key of UETA (section 7): agreement will still be
enforceable, even if in electronic form.
• Excludes wills, trusts and some other legal documents
42
UCITA
(Uniform Computer Information Transactions Act)
• Adopted by 1.5 states (VA and MD)
• Unlikely to be adopted by any other states
• Amends UCC article 2 to cover computer information transactions
• Create, modify, transfer…computer information
• Information includes, data, text, images, sounds, programs… (excludes
music)
• Focuses on license rather than sale.
• Validates electronic contracts & signatures, shrinkwrap and clickwrap
licenses and licenses that can not be reviewed until after payment –
opportunity to review the terms manifests assent.
• Limited self help.
• Not consumer friendly and very controversial.
43
Electronic Signature Act (E-Sign)
• Provides a national framework to facilitate interstate
electronic commerce and pre-empts state writing
requirements
• Lack of adoption of UETA spurred congress to pass E-Sign.
• E-Sign does not cover the same depth as UETA.
• Reinforces acceptability of doing business online
• The consumer still has the option of doing business on paper.
• Still leaves leeway for states regarding types of electronic
signatures (technology neutral) and digital certificate
authorities
• Provides the impetus for online financial transactions
• Banks
• Mutual Funds
44
European Union Electronic Signature Directive
• Similar objective and approach to U.S. E-sign law
• Technology neutral
• Actual approach may vary by member states
• Differs from U.S. E-sign:
• Electronic signatures are admissible into evidence
• Defines certification authorities and requirements to
become one
• Addresses privacy
45
Concluding Remarks
•
•
•
•
E-Business is happening in every company TODAY
Legal Departments should be involved at the earliest, strategic
levels of B-Business planning.
Flexibility, speed of execution and leveraging data ownership will
be core competencies for future strategic decision makers.
E-Business creates new legal risks and opportunities (ie. online
contracts, buyers, sellers, etc.).
46
Questions & Answers
?
?
?
? ?
47