1. 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

2. 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

3. 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 4. 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. 1.72,398,0922001. 1.109,574,429 5. Number of Servers in Korea Date : 2001, 2, 28 Source : Network Wizards (http://stat.nic.or.kr/host.html) 6. Security:Intranet and Extranet

Extranet =Ex tended Int ranet

Platform of B2B EC

Internet Suppliers Distributors CustomersManufacturer ExtranetIntranetIntranetFirewall Firewall 7. 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

8. 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

9. Timmers e-Business Models

Missed e-Transformation

Yahoo, Comparison Shopping Verisign Fedex, UPS ANX e-BayAmazon SCM Exchanges 10. eTransformation of Traditional Business Bricks & Mortar Pure Clicks Clicks & Mortar Reengineer TraditonalWay 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 theChannel Conflict

11. Comparative Estimates:Worldwide Total eCommerce 12. 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 not2.5

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 estate2.4 18 Others2.1 19 Insurance1.2 20 Wine0.9 21 Generic 0.7 22 Brand0.7 23 Jewelry0.6 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 13. Percentage of online Purchasing Frequency

Items purchased online (Korea)

Percentage Distribution of

E-Commerce Sales

1 Hardware 30.0

2 Electronics22.2

3 Book5.7

4 Household commodities5.7

5 Travel 5.2

6 Clothing and clothing accessories3.4

7 Toy 3.1

8Software3.0

9 Cosmetics, perfume 2.5

10Food, drink 2.3

11 Music and Video1.9

12Sports and leisure goods 1.7

13 Agricultural products1.6

14Office equipments1.4

15Commission and fee1.2

16Flowers0.8

Others8.3

Items purchased online (USA) Percentage Distribution ofE-Commerce Sales 1 Hardware 37.0 2 Books13.9 3 Music and Video6.9 4 Software 6.5 5 Clothing and clothing accessories6.5 6 Office equipments5.1 7 Electronics 3.4 8 Toy, hobby goods and games 3.3 9 Commission and fee3.0 10 Drug, health aids2.2 11 Food, beer and wine2.0 12 Furniture 2.0 others8.2 [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, 1999Annual Retail Trade Survey, http://www.census.gov/eos/www/ebusiness614.htm] 14. Worldwide E Commerce Growth by Region [Source: Forrester Research,Inc] http://www.forrester.com/ER/Press/ForrFind/0,1768,0,00.html 15. Worldwide E Commerce Growth by Region [Source: Forrester Research,Inc] -http://www.forrester.com/ER/Press/ForrFind/0,1768,0,00.html 16. Worldwide eComemrce Market From B2C To B2B *2000~2003 : Forecasts ($Billion) Source: IDC 17. Comparative Estimates:Worldwide B2C eCommerce 18. Comparative Estimates of B2B (eMarketer, April 20, 2001: Note different past record) 19. B2B eCommerce by Region 20. eCommerce Penetration to Business and CustomerMarkets2004 [Source: Forrester Research,Inc] - http://www.forrester.com/ 21. 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-Procurement Strategies

E-Transformation

22. B2B EC as an Evolution of B2C EC In the early stage ofseller-centric marketplace,the architectures of B2C and B2B are basically the same. B2B EC Business CustomerBusiness CustomerBusiness SuppliersConsumer Consumer Suppliers Products Catalog Customers Order Information B2C ECSuppliers Electronic Mall 23. 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?

24. Architecture of B2B eMarketplace:Commerce One Case 25. Point-to-Point and e-Hub Point to Point(Small Numbers; Frequent)E-Hub Collaboration 26. Vertical &Horizontal e-Marketplaces 27. 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 28. EC by Industry : All other Sales : e-CommerceSales Source: Forrester Research 2003 Sales By Industries 39.3% 29. 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, onlyof exchangeswent out of business during last year

[Example]

In Chemical Industry:

Existexchanges; Aboutwill survive.

Shakeout Inevitable

Will EC be demolished?

Lesson of Automobile Industry

80%4% 30 3 30. 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

31. 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 benefitof private exchange and

procurement systems. But they will be promising

after12 months(BW, April 12, 2000)

32. 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 thespending on e-Biz this year. (April 2001)

Strategic focus on e-Bizshifts

fromBoosting RevenuetoCost Control , and

fromJoining the Market Makerstoe-Transformation .

38% 25% 20% 49% 33. 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 toSupply Chain Enableror

software plays

Be careful to partner with them

34. 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 consortiasupply chain ASP servicesoffer enough value to win widespread use

Private Exchange

• Not a new supply chain

• Attend to the companies need

• Apply to the companiesmost crucial business problems

• Between 2 3 partners

• Started mostly in 2001

35. E-Procurement Strategies

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 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% 36. Key Prospects in 2001 (AMP Research, Feb 13, 2001)

A third of companies over $ 1 Bilwill implementPrivate

Trading eXchangesby2005 ;

Consortia Trading eXchangesonshakyground this year

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

failor be acquired.

Enterprise Application Integration (EAI)top priority in 2001,

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

and data.

SCMmarket is expected to reach $7.8 Bil in 2001 with

Inventory Management, Order Fulfillment, and SC Planning .

Retailersfocus onB2B synchronization, collaboration, and

enterprise integration and optimization.

37. 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 theCollaborative Commerce

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

• More shake outexpected

80%of exchange participantsnot usedat all(InternetWeek, Feb 14, 2001)

38. 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 SystemIntegrations

39. 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 theDatabase Marketingand

Customer Relationship Management

Evolve toCollaborative Forecasting and Replenishment(CFAR)

• One of Collaborative Commerce

40. Collaborative Forecasting and Replenishment(CFAR) Wal-Mart Operational System ERP RetailLinkSales data about W-L Products Inventory Plan Planner Forecast Review andComments Manufacturing Plan Planner Warner-Lambert ( Mfr)EDI Internet WWW Data warehouse (Retailer) 41. Collect Accout Receivable:Fords Old Method Reception Copy ofPO ProcurementDepartment Warehouse Purchase Order Delivery Suppliers Accounting Dept Bill 42. Collect Account Receivable: Fords 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 A/C Dept Database Pay Suppliers 43. 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

• • SAPs mySAP.com

E-Marketplaces Integration with ERP

How to Outsource and Integrate Systems

44. 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 45. An Integrated Architecture Suppliers CustomersBusiness IntelligenceElectronic Commerce Supply Chain Management Customer Relationship Management Enterprise Resource planning Application Framework for e-business

Web Selling , e-Procurement , EC Hosting ,

Internet Billing,

Employees Web-based Sales Online Order Taking Forecast Production Plan Production Customer Service Purchase Dirstribution