Electronic Commerce

Electronic Commerce - Overview – KAIST EC Lecture September 4, 2001 Jae Kyu Lee (jklee@kgsm.kaist.ac.kr) G raduate School of Management Korea Advanced Institute of Science and Technology

Table of Contents

The Internet, Intranet and Extranet

Jargons and Business Models in EC

Statistics and Forecasts

Key Happenings in EC

B2C vs. B2B

Dilemmas in EC

EC Strategy in Slow Economy

Types of Exchanges

E-Procurement Strategies

Key Prospects in 2001

EC and MIS

1. The Internet

Hypertext and World Wide Web

Multi-media: text, voice, image and video

No Charge

Internet Service Provider (ISP)

Platform of eCommerce

Seller Buyer The Internet

History of the Internet – Worldwide [www.isc.org/ds/host-count-history.html] Host Counts Remarks 1969: 1 . ARPANET 1971: 23 . Universities 1974: 62 1982: 235 1983: 500 . TCP/IP(Transmission Control Protocol 1984: 1,000 /Internet Protocol 1986: 5,000 1987: 20,000 1989. 1. 80,000 . NSFNET .T1(1.5Mbps) 1991. 1. 376,000 . CIX founded(Commercial Internet Exchange) 1992. 1. 727,000 . WWW(World Wide Web) . T3(45Mbps) 1993. 1. 1,313,000 1994. 1. 2,217,000 . Electronic Shopping Emerged 1995. 1. 5,846,000 1996. 1. 14,352,000 . Cyberbank Emerged 1997. 1. 21,819,000 . SET Standard Announced 1998. 1. 29,670,000 . B2B EC and Exchanges 1999. 1. 43,230,000 . SCM and Private Exchanges 2000. 1. 72,398,092 2001. 1. 109,574,429

Number of Servers in Korea Date : 2001, 2, 28 Source : Network Wizards (http://stat.nic.or.kr/host.html)

Security: Intranet and Extranet

Extranet = Ex tended Int ranet

Platform of B2B EC

Internet Suppliers Distributors Customers Manufacturer Extranet Intranet Intranet Firewall Firewall

Internet Tools

Hypertext(and Hypermedia) and World Wide Web

E-Mail and File Transfer

Search

Bulletin Board

Internet Phone

Video on Demand

Common Gateway Interface and Intranet/Extranet

Java

Security

Jargons in E-Commerce

Online Advertisement and Sales

B2C and B2B EC

E-Marketplaces and Exchanges

SCM, Logistics and CFAR

CRM and Web Mining

E-Procurement and Integration with ERP

E-Hub and ASP

XML/EDI and Software Agents

E-Service: Banking, Stock Trading, Insurance, and

Travel Agency

E-Payment

E-Transformation

Timmers’ e-Business Models

Missed e-Transformation

Yahoo, Comparison Shopping Verisign Fedex, UPS ANX e-Bay Amazon SCM Exchanges

eTransformation of Traditional Business Bricks & Mortar Pure Clicks Clicks & Mortar Reengineer Traditonal Way of Doing Business

Replace Offline Inefficiency

Supplement the Traditional Channels

Online and Offline Synergy

• Online Only

Disintermediation

Channel Conflict

Traditional Business

Focus of eTransformation :

Boost Online Sales; Reduce Cost; Resolve the Channel Conflict

Comparative Estimates: Worldwide Total eCommerce

Percentage of Online Seeking and Purchasing Frequence [2000]

Items purchased online(Respondents # = 645)

Dichotomy Percentage of responses

1 Software 14.8

2 Books 13.4

3 Hardware 12.4

4 Music 10.6

5 Travel 7.7

6 Video 4.0

7 Magazines 3.8

8 Electronics 3.6

9 Apparel 3.5

10 Flowers 3.4

11 Banking 3.1

12 Others 3.1

13 Investments 3.0

14 Concerts 2.5

15 Do not 2.5

16 Quotes 2.3

17 Recreation 1.3

18 Autos 1.1

19 Wine 0.6

20 Generic 0.6

21 Insurance 0.6

22 Real estate 0.5

23 Jewelry 0.4

24 Brand 0.3

25 Legal 0.3

26 Metals 0.2

Items Seeked for with intent to buy(Respondents # = 645) Dichotomy Percentage of responses 1 Hardware 12.3 2 Software 11.7 3 Books 10.1 4 Music 18.9 5 Travel 8.2 6 Electronics 5.7 7 Video 4.3 8 Apparel 4.0 9 Magazines 3.9 10 Quotes 3.6 11 Banking 3.4 12 Autos 3.2 13 Investments 3.0 14 Flowers 2.7 15 Concerts 2.7 16 Recreation 2.6 17 Real estate 2.4 18 Others 2.1 19 Insurance 1.2 20 Wine 0.9 21 Generic 0.7 22 Brand 0.7 23 Jewelry 0.6 24 Legal 0.6 25 Metals 0.3 26 Do not 0.2 Source: www.gvu.gatech.edu/user_surveys/survey-1998-10/graphs/shopping/q127.htm

Percentage of online Purchasing Frequency

Items purchased online (Korea)

Percentage Distribution of

E-Commerce Sales

1 Hardware 30.0

2 Electronics 22.2

3 Book 5.7

4 Household commodities 5.7

5 Travel 5.2

6 Clothing and clothing accessories 3.4

7 Toy 3.1

8 Software 3.0

9 Cosmetics, perfume 2.5

10 Food, drink 2.3

11 Music and Video 1.9

12 Sports and leisure goods 1.7

13 Agricultural products 1.6

14 Office equipments 1.4

15 Commission and fee 1.2

16 Flowers 0.8

Others 8.3

Items purchased online (USA) Percentage Distribution of E-Commerce Sales 1 Hardware 37.0 2 Books 13.9 3 Music and Video 6.9 4 Software 6.5 5 Clothing and clothing accessories 6.5 6 Office equipments 5.1 7 Electronics 3.4 8 Toy, hobby goods and games 3.3 9 Commission and fee 3.0 10 Drug, health aids 2.2 11 Food, beer and wine 2.0 12 Furniture 2.0 others 8.2 [Source : Korea National Statistics Office , 1/4 2001 eCommerce Statistics Survey, http://www. nso .go. kr /report/data/suec0105. htm ] [ Source: U.S. Census Bureau, 1999 Annual Retail Trade Survey, http://www.census.gov/eos/www/ebusiness614.htm ]

Worldwide E Commerce Growth by Region [Source: Forrester Research,Inc] http://www.forrester.com/ER/Press/ForrFind/0,1768,0,00.html

Worldwide E Commerce Growth by Region [Source: Forrester Research,Inc] - http://www.forrester.com/ER/Press/ForrFind/0,1768,0,00.html

Worldwide eComemrce Market  From B2C To B2B *2000~2003 : Forecasts ($Billion) Source: IDC

Comparative Estimates: Worldwide B2C eCommerce

Comparative Estimates of B2B (eMarketer, April 20, 2001: Note different past record)

B2B eCommerce by Region

eCommerce Penetration to Business and Customer Markets2004 [Source: Forrester Research,Inc] - http://www.forrester.com/

Key Happenings in eCommerce

B2C e-Malls and e-Stores -> B2B Exchanges

Shakeout of E-Marketplaces

Dilemma in EC

The Survivors will Scale Up

E-Transformation

B2B EC as an Evolution of B2C EC  In the early stage of seller-centric marketplace, the architectures of B2C and B2B are basically the same. B2B EC Business Customer Business Customer Business Suppliers Consumer Consumer Supplier’s Products Catalog Customer’s Order Information B2C EC Supplier’s Electronic Mall

Difference of B2B from B2C

Confirm the Inventory Availability at Pre-Order Stage

Assurance of Delivery Time in Advance

Buyer businesses have to store the order information in their

own control

Integrate multiple e-Marketplaces

Integrate with back-end information system (e.g. ERP)

Issues

What should be the B2B architecture?

Who should provide the solution?

Architecture of B2B eMarketplace: Commerce One Case

Point-to-Point and e-Hub Point to Point (Small Numbers; Frequent) E-Hub Collaboration

Vertical & Horizontal e-Marketplaces

B2B EC Forecast by Industry (Forrester Research, BW, Aug 18, 1999: Billion) Industry determines the Potential Benefits 1330.8 842.7 499.0 251.1 109.3 43.1 Total 61.6 32.7 15.4 6.8 2.9 1.2 Shipping & warehousing 65.2 31.1 14.3 6.4 2.9 1.3 Paper & office supplies 169.5 110.6 62.9 32.2 15.4 7.1 Utilities 178.3 96.8 48.0 22.6 10.3 4.7 Petrochemicals 212.9 114.3 53.2 22.7 9.3 3.7 Motor Vehicles $395.3 $319.1 $229.1 $121.4 $50.4 $19.7 Computing & electronics 2003 2002 2001 2000 1999 1998 Industry

EC by Industry : All other Sales : e-Commerce Sales Source: Forrester Research 2003 Sales By Industries 39.3%

Dilemmas in EC

Level of Using Exchanges [InternetWeek, Feb 14, 2001]

of joining companies which have not used the exchanges at all

Out of 850 exchanges studied in July 2000, only of exchanges went out of business during last year

[Example]

In Chemical Industry:

Exist exchanges; About will survive.

Shakeout Inevitable

Will EC be demolished?

Lesson of Automobile Industry

80% 4% 30 3

Anatomy of B2B Black Monday (InternetWeek, April 11, 2001)

Poor performance report of key B2B Players: sales, profit, stock price

IT Spending Tightens (% of increasing e-Biz spending; Survey on 300 companies)

Jan 2001: 77%  March 2001: 48%

May reduce budget on e-MP, extranet, CRM budgets

Exchanges Floundering

Public exchanges floundering ; Shift to private exchanges

Ariba:

- Reduced revenue projection($90 Mil in 2Q, 2001; 50% of expectation);

- Layoff 700;

- Call off merger with Agile Software

(Collaboration with suppliers for product design);

- Virtually write off public e-MP, and shift to sourcing and procurement

Anatomy of B2B Black Monday (II)

Exchanges Foundering (conti.)

CommeceOne: Revenue $170 Mil; Loss $20 Mil

Stock price crashes: Web Methods, Vertical Net, Ventro

Users want solutions, not roadmaps

B2B vendors cannot tell what they have to offer

Experience the integration difficult

Solution and architecture selection critical

Long time to reap benefit of private exchange and

procurement systems. But they will be promising

after 12 months (BW, April 12, 2000)

EC Strategy in Slow Economy

Shift the e-Business Priority

[AMR Research on 100 large corporations, March 2, 2001]

: Controlling Cost

: Customer Relations

: Boosting Revenue and Market Share

of 250 IT and e-Biz executives plan to increase the spending on e-Biz this year. (April 2001)

Strategic focus on e-Biz shifts

from Boosting Revenue to Cost Control , and

from Joining the Market Makers to e-Transformation .

38% 25% 20% 49%

Dynamics in Three Types of Exchanges (InternetWeek, March 13, 2001)

Three Types of Exchanges

Independent Exchange

Industry Consortia

Private Exchanges

Independent Exchange

Spot market

Not worked well

Changing biz model to Supply Chain Enabler or

software plays

Be careful to partner with them

Dynamics in Three Types of Exchanges (II) (InternetWeek, March 13, 2001)

Industry Consortia

None are likely to grow into huge spot markets or become a font of cost-saving reverse auctions

Benefit: Created industry standards

Wait-and-see if the consortia supply chain ASP services offer enough value to win widespread use

Private Exchange

Not a new supply chain

Attend to the companies need

Apply to the companies most crucial business problems

Between 2 – 3 partners

Started mostly in 2001

Spot Purchase : Seek Minimun Prices

Non-strategic MRO(Maintenance, Repair, and Operations)

Purchase at Public Exchange

Contract Purchasing : Minimize Inventory along the

Key Supply Chains

Direct Material

of online B2B Transaction

of offline B2B Transaction

Supply Chain Management 와 Private Exchange

Desktop Purchasing: Internalized eStores,

Eliminate the Approval Process for low end items

Microsoft, Cisco, Etc.

Reduce the Procurement Department and Outsource

85% 95%

Key Prospects in 2001 (AMP Research, Feb 13, 2001)

A third of companies over $ 1 Bil will implement Private

Trading eXchanges by 2005 ;

Consortia Trading eXchanges on shaky ground this year

By 2002, 40% of ASP and 60% of broader ASP market will

fail or be acquired.

Enterprise Application Integration (EAI) top priority in 2001,

to make it easier for customers to unify channels, process,

and data.

SCM market is expected to reach $7.8 Bil in 2001 with

Inventory Management, Order Fulfillment, and SC Planning .

Retailers focus on B2B synchronization, collaboration, and

enterprise integration and optimization.

Key Prospects in 2001(II)

Enterprise Commerce Management (ECM) system emerging.

Vertical business process collaboration

External content integration with inside

Product Lifecycle Management (PLT) grow rapidly:

Reduce time-to-market of new products

PLT application license revenue grow more than 50%

This means the Collaborative Commerce

Out of 850 exchanges in July 2000, only 35(4%) went out of business or merged

More shake out expected

80% of exchange participants not used at all (InternetWeek, Feb 14, 2001)

EC and MIS

EC for the Implementation of SIS

Online Sales, Customization, eProcurement, Complement Traditional Stores (K-Mart Case)

CRM and Collaborative Commerce

EC for the Implementation of BPR

Integration with ERP

Competing Solutions and System Integrations

EC and DSS, DW, DM, CFAR

Decision Support Systems(DSS)

Data Warehouse : Transaction Record History

Data Mining : Extract Usable Knowledge from the Data Warehouse

Statistics, Neural Computing, and Inductive Learning

Web Mining

Toward the Database Marketing and

Customer Relationship Management

Evolve to Collaborative Forecasting and Replenishment (CFAR)

One of Collaborative Commerce

Collaborative Forecasting and Replenishment(CFAR) Wal-Mart Operational System ERP RetailLink Sales data about W-L Products Inventory Plan Planner Forecast Review and Comments Manufacturing Plan Planner Warner-Lambert ( Mfr) EDI Internet WWW Data warehouse (Retailer)

Collect Accout Receivable: Ford’s Old Method Reception Copy of PO Procurement Department Warehouse Purchase Order Delivery Suppliers Accounting Dep’t Bill

Collect Account Receivable: Ford’s New Method

Copy of Purchase Order, Reception, and Payment Request Eliminated

Automatic Match of Documents

Reduced 75% of Personnel for A/C Receivable

Role of Intranet and Extranet

Warehouse Extranet Intranet Procurement Department 구매요청서 A/C Dep’t Database Pay Suppliers

EC and ERP

ERP(Enterprise Resource Planning)

Initial Tools: Focused on the Integrated Internal Information Management

Extended ERP: Extended to include B2B EC functions and integrate with ERP

SAP’s mySAP.com

E-Marketplace’s Integration with ERP

How to Outsource and Integrate Systems

Expansion of Solutions and Battlefields Morgan Stanley (2000) C A C B C Scalability B A C C C+ Consulting Resources C+ C+ A SCM C C+ A C+ Workflow C B A B Procurement Window B B Auctioning C B C B A Integration D C C B A Network platform C B C B B+ Content Management B SAP C Oracle A i2 C-One Fulfillment Expertise Ariba

An Integrated Architecture Suppliers Customers Business Intelligence Electronic Commerce Supply Chain Management Customer Relationship Management Enterprise Resource planning Application Framework for e-business