BBA - 503: e-Business

E-COMMERCE; ITS IMPORTANCE IN THE CONTEXT OF TODAY’S BUSINESS

E-commerce is “any transaction completed over a computer-mediated network that involves the transfer of ownership or rights to use goods and services,” defines the U.S. Census Bureau. Transactions aren't required to have a price and include both sales and items like free downloads. E-commerce includes transactions made on the Internet, Intranet, Extranet, World Wide Web, by email and even by fax.

Electronic commerce, or Ecommerce, which literally means business trading through the Internet, has been around the globe since mid 90s. However, until the recent few years, Ecommerce is getting more and more attention from entrepreneur and consumers, both local and international. One of the main reasons is due to the highly successful operations of some well known names on the Internet, such as eBay, Yahoo and Dell. The sales revenue these companies shown in their annual reports are without doubt, one of the biggest factors why Ecommerce is important in the commercial market nowadays.

Ecommerce proved its importance based on the fact where time is essence. In the commercial markets, time plays an important role to both the business and consumers. From the business perspective, with less time spent during each transaction, more transaction can be achieved on the same day. As for the consumer, they will save up more time during their transaction. Because of this, Ecommerce steps in and replaced the traditional commerce method where a single transaction can cost both parties a lot of valuable time. With just a few clicks in minutes, a transaction or an order can be placed and completed via the internet with ease. For instance, a banking transaction can be completed through the Internet within a few minutes compared to the traditional banking method which may take up to hours. This fact obviously proves that Ecommerce is beneficial to both business and consumer wise as payment and documentations can be completed with greater efficiency.

From the business viewpoint, Ecommerce is much more cost effective compared to traditional commerce method. This is due to the fact where through Ecommerce, the cost for the middleperson to sell their products can be saved and diverted to another aspect of their business. One example is the giant computer enterprise, Dell, which practice such a method by running most of their business through internet without involving any third parties. Aside from that, marketing for Ecommerce can achieve a better customer to cost ratio as putting an advertisement on the internet is comparably much cheaper than putting up a roadside banner or filming a television commercial. For Ecommerce, the total overheads needed to run the business is significantly much less compared to the traditional commerce method. The reason due to that is where most of the cost can be reduced in Ecommerce. For example, in running an Ecommerce business, only a head office is needed rather than a head office with a few branches to run the business. In addition to that, most of the cost for staff, maintenance, communications and office rental can be substitute by a single cost, web hosting for the Ecommerce business.

To both the consumers and business, connectivity plays an important part as it is the key factor determining the whole business. From the business point of view, Ecommerce provides better connectivity for its potential customer as their respective website can be accessed virtually from anywhere through Internet. This way, more potential customers can get in touch with the company's business and thus, eliminating the limits of geographical location. From the customer standpoint, Ecommerce is much more convenient as they can browse through a whole directories of catalogues without any hassle, compare prices between products, buying from another country and on top of that, they can do it while at home or at work, without any necessity to move a single inch from their chair. Besides that, for both consumers and business, Ecommerce proves to be more convenient as online trading has less red tape compared to traditional commerce method.

In global market sense, the appearance of Ecommerce as a pioneer has opened up various windows of opportunities for a variety of other companies and investors. For instance, due to the booming of Ecommerce, more and more resources are being directed into electronic securities, internet facilities, business plans and new technologies. In result of this phenomenon, a variety of new markets have emerged from Ecommerce itself giving a boost to the global market.

E-COMMERCE, E-BUSINESS AND TRADITIONAL SYSTEM OF COMMERCE

Some major comparisons between the traditional commerce methods and modern e-Commerce are listed below:

PARAMETERS	TRADITIONAL COMMERCE	E-COMMERCE
Cost	Cost is greater due to taxes, advertisement and employees.	Average cost is much lower than traditional type.
Market	Product market is limited because of geo-graphical constraints.	Product market is across the world because of non-physical aspects.
Advertisement	It requires product advertisement on various mediums.	Developers of the websites also makes adds on domains.
Time	It requires more time to go outside, to choose, compare and evaluate product.	It takes less time to choose and make comparison between several products.
Accessibility	Less accessible due to time or geo-graphical constraints.	Products can be accessed at any time and from almost anywhere.
Reliability	People trust it more because of physical transactions.	Due to lake of awareness this is less popular among people.
Support	Customers support centres support their customers.	No physical support centres available.
Feedback	Feedback from customers takes a lot of time.	Feedback is immediate by certain website features.
Interactivity	Fewer customers can be interacting with at a time because of less physical limitations.	Websites are especially designed for multi-users.

E-business is broader than e-commerce; including the transaction based e-commerce businesses and those who run traditionally but cater to online activities as well. An e-business can run any portion of its internal processes online, including inventory management, risk management, finance, human resources. For a business to be e-commerce and e-business, it must both sell products online and handle other company activities or additional sales offline.

E-commerce is buying and selling using an electronic medium. It is accepting credit and payments over the net, doing banking transactions using the Internet, selling commodities or information using the World Wide Web and so on.

E-Business in addition to encompassing E-commerce includes both front and back-office applications that form the engine for modern E-commerce. E-business is not just about E-commerce transactions; it's about re-defining old business models, with the aid of technology to maximize customer value. E-Business is the overall strategy and E-commerce is an extremely important facet of E-Business.

Thus e-business involves not merely setting up the company website and being able to accept credit card payments or being able to sell products or services on time. It involves fundamental re-structuring and streamlining of the business using technology by implementing enterprise resource planning (ERP) systems, supply chain management, customer relationship management, data ware housing, data marts, data mining, etc.

While many people use e-commerce and e-business interchangeably, they aren't the same, and the differences matter to businesses in today's economy. The "e" is short for "electronic" or "electronic network," and both words apply to business that utilizes electronic networks to conduct their commerce and other business activities. In the same way that all squares are rectangles, but not all rectangles are squares, all e-commerce companies are e-businesses, but not vice versa.

BENEFITS AND BARRIERS OF E-COMMERCE

Advantages of e-Commerce

E-commerce can provide the following benefits over non-electronic commerce:

▫  Reduced costs by reducing labour, reduced paper work, reduced errors in keying in data, reduce post costs. E-commerce is one of the cheapest means of doing business as it is ecommerce development that has made it possible to reduce the cost of promotion of products and services.

▫  Reduced time: Shorter lead times for payment and return on investment in advertising, faster delivery of product. E-commerce reduces delivery time and labour cost thus it has been possible to save the time of both - the vendor and the consumer.

▫  Flexibility with efficiency: The ability to handle complex situations, product ranges and customer profiles without the situation becoming unmanageable. There is no time barrier in selling the products. One can log on to the internet even at midnight and can sell the products at a single click of mouse.

▫  Improve relationships with trading partners: Improved communication between trading partners leads to enhanced long-term relationships.

▫  Lock in Customers: The closer you are to your customer and the more you work with them to change from normal business practices to best practice e-commerce the harder it is for a competitor to upset your customer relationship. The on-time alerts are meant for the convenience of the consumers and inform the consumers about new products.

▫  New Markets: The Internet has the potential to expand your business into wider geographical locations.

Disadvantages of e-Commerce

▫  Ecommerce Lacks That Personal Touch: Not that all physical retailers have a personal approach, but I do know of several retailers who value human relationship. As a result, shopping at those retail outlets is reassuring and refreshing. Clicking on "Buy Now," and piling up products in virtual shopping carts, is just not the same for me. Different people sing to different tunes.

▫  Ecommerce Delays Goods: Unless you are using a website to merely order a pizza online, ecommerce websites deliver take a lot longer to get the goods into your hands. Even with express shipping, the earliest you get goods is "tomorrow." But if you want to buy a pen because you need to write something right now, you cannot buy it off an ecommerce website. Likewise with candy that you want to eat now, a book that you want to read tonight, a birthday gift that you need this evening. An exception to this rule is in the case of digital goods, e.g. an e-book or a music file. In this case, ecommerce might actually be faster than purchasing goods from a physical store.

▫  Many Goods Cannot Be Purchased Online: Despite its many conveniences, there are goods that you cannot buy online. Most of these would be in the categories of "perishable" or "odd-sized." Think about it, you cannot order a Popsicle (also referred to as an ice pop or ice lolly) or a dining table set. Likewise, a dining table set can certainly be purchased online. In some cases, the cost of logistics is bearable. But if you have to return the furniture, you will get well-acquainted with the inconvenience of ecommerce.

▫  Ecommerce Does Not Allow You to Experience the Product before Purchase: You cannot touch the fabric of the garment you want to buy. You cannot check how the shoe feels on your feet. You cannot "test" the perfume that you want to buy. In many cases, customers want to experience the product before purchase. Ecommerce does not allow that. If you buy a music system, you cannot play it online to check if it sounds right? If you are purchasing a home-theatre system, you would much rather sit in the "experience centre" that several retail stores set up.

▫  Anyone can set up an Ecommerce Website: We live in an era where online storefront providers bring you the ability to set up an ecommerce store within minutes. But if anybody can set up a store, how do I know that the store I am purchasing from is genuine? The lowered barriers to entry might be a great attraction to the aspiring ecommerce entrepreneur. But for the buyer, reliability can be an issue. This could lead customers to restrict their online purchases to famous ecommerce websites.

▫  Security: When making an online purchase, you have to provide at least your credit card information and mailing address. In many cases, ecommerce websites are able to harvest other information about your online behaviour and preferences. This could lead to credit card fraud, or worse, identity theft.

INTERNET AND ITS RELATION TO E-BUSINESS

We are living in the age of technological advances. Development in our society began to happen post the World Wars, where in Industrial revolution started changing the face of economies. With evolution of Information Technology we first heard the Radio and later the TV that could capture pictures from the air and show it on the TV box. Then the ‘Computer’ came, which was aptly the magic box. Computers and advancement of information and communication technology heralded the arrival of ‘Internet’ or ‘World Wide Web’ technology.

What a difference the Internet has made to our lives. No other invention has had such a mass transformational power over the entire human society, enterprise, business, economy as well as the political systems, education and the world communities and nations at large. The internet is rightly called the highway that has managed to erase the borders between countries and societies and taken the human society to a different level altogether.

Take a look at our lives today. There is no aspect of our life that is not interfaced with internet in one way or the other. From an individual’s need to find a date or a suitable life partner to one’s banking, insurance and other payments as well as dining out and not to forget the online shopping, internet has managed to become the mainstream facilitator to each and every individual.

Today millions of users access and use the internet for various purposes throughout the day. They use the internet for searching, browsing, writing & communication, listening, watching news, videos, publishing copying, printing, discussions, trading and selling etc. The list of activities and choices that the internet has got to offer to individuals is ever expanding. With millions of users actively looking for various products, information and services, there is a huge opportunity for the businesses to jump on to the internet bandwagon and cash in on the business opportunity that is presenting itself every minute.

Technology has helped build a platform that has enabled the businesses to cash in on the huge population and market that is now accessible over the internet and sell to them. Take the case of Online Banking, Mobile Banking, Debit| Credit Cards, ATMs as well as online trading and other business transactions, all these have grown and happened as a result of technological advancement in terms of communication, software as well as hardware technologies. From the time that one connected to Internet using a desktop, model and a telephone line to the Wi-Fi technology of today, we have graduated very fast making it possible to buy and sell at the click of a button. At another level the Business Processes as well as ERP coupled with various software and applications besides EDI, have enabled businesses to go ‘On Line’ with their business models.

Today no business, be it Business to Business or Business to Consumer, can ignore the huge ‘Online Market’ that exists on the internet. E Commerce was inevitable. Physical markets have literally been replaced with ‘Virtual Markets’. E Commerce has had far reaching impact on business organisations for it has redefined ‘Market’. E Commerce has made it possible for sellers to reach out to planet wide markets and consumers, thus changing the way business is conducted. For every prospective Management Professional, the in depth understanding of ‘Online Marketing’ and ‘E Commerce’ have become very important. Marketing managers have got to go back to the class rooms to learn the new rules of game in handling Online Marketing which is drastically and totally different from the traditional marketing, selling, distribution and advertising strategies. Understanding all about Internet, E Commerce mechanisms, technologies, learning how to market online, understanding E Customer and learning to identify, build and nurture a relationship with the E Customer become the building blocks of one’s new learning.

MOBILE COMMERCE

“M-commerce (mobile commerce) is the buying and selling of goods and services through wireless handheld devices such as cellular telephone and personal digital assistants (PDAs). Known as next-generation e-commerce, m-commerce enables users to access the Internet without needing to find a place to plug in. The emerging technology behind m-commerce, which is based on the Wireless Application Protocol (WAP), has made far greater strides in Europe, where mobile devices equipped with Web-ready micro-browsers are much more common than in the United States.”

"Mobile Commerce is the use of information technologies and communication technologies for the purpose of mobile integration of different value chains an business processes, and for the purpose of management of business relationships.“

“Mobile Commerce is the use of wireless handheld devices such as cellular phones and laptops to conduct commercial transactions online. Mobile commerce transactions continue to grow, and the term includes the purchase and sale of a wide range of goods and services, online banking, bill payment, information delivery and so on.”

“The term ‘m-commerce’ stands for mobile commerce, and it’s the browsing, buying and selling of products and services on mobile devices. In other words, it’s a complete online shopping experience, but with all the convenience of being on a cell phone or tablet.”

As content delivery over wireless devices becomes faster, more secure, and scalable, there is wide speculation that m-commerce will surpass wire-line e-commerce as the method of choice for digital commerce transactions. The industries affected by m-commerce include:

▫  Financial services, which includes mobile banking (when customers use their handheld devices to access their accounts and pay their bills) as well as brokerage services, in which stock quotes can be displayed and trading conducted from the same handheld device.

▫  Telecommunications, in which service changes, bill payment and account reviews can all be conducted from the same handheld device.

▫  Service/retail, as consumers are given the ability to place and pay for orders on-the-fly.

▫  Information services, which include the delivery of financial news, sports figures and traffic updates to a single mobile device.

IBM and other companies are experimenting with speech recognition software as a way to ensure security for m-commerce transactions.

The range of devices that are enabled for mobile commerce is growing, having expanded in recent years to include smart phones and tablet computers. The increasing adoption of electronic commerce provided a strong foundation for mobile commerce, which is on a very strong growth trajectory for years to come.

Mobile Commerce, or m-Commerce, is about the explosion of applications and services that are becoming accessible from Internet-enabled mobile devices. It involves new technologies, services and business models. It is quite different from traditional e-Commerce. Mobile phones impose very different constraints than desktop computers. But they also open the door to a slew of new applications and services. They follow you wherever you go, making it possible to look for a nearby restaurant, stay in touch with colleagues, or pay for items at a store.

As the Internet finds its way into our purses or shirt pockets, the devices we use to access it are becoming more personal too. Already today, mobile phones know the phone numbers of our friends and colleagues. They are starting to track our location. Tomorrow, they will replace our wallets and credit cards. One day, they may very well turn into intelligent assistants capable of anticipating many of our wishes and needs, such as automatically arranging for taxis to come and pick us up after business meetings or providing us with summaries of relevant news and messages left by colleagues. But, for all these changes to happen, key issues of interoperability, usability, security, and privacy still need to be addressed.

BUSINESS MODEL; KEY ELEMENTS OF A BUSINESS MODEL

A business model is a set of planned activities (sometimes referred to as business processes) designed to result in a profit in a marketplace. A business model is not always the same as a business strategy although in some cases they are very close insofar as the business model explicitly takes into account the competitive environment. The business model is at the center of the business plan. A business plan is a document that describes a firm’s business model. A business plan always takes into account the competitive environment. An e-commerce business model aims to use and leverage the unique qualities of the Internet and the World Wide Web.

Eight key elements of a Business model

If you hope to develop a successful business model in any arena, not just e-commerce, you must make sure that the model effectively addresses the eight elements listed in Table 2.1. These elements are: value proposition, revenue model, market opportunity, competitive environment, competitive advantage, market strategy, organizational development, and management team. Many writers focus on a firm’s value proposition and revenue model. While these may be the most important and most easily identifiable aspects of a company’s business model, the other elements are equally important when evaluating business models and plans, or when attempting to understand why a particular company has succeeded or failed.

 

Value Proposition

A company’s value proposition is at the very heart of its business model. A value proposition defines how a company’s product or service fulfils the needs of customers. To develop and/or analyze a firm’s value proposition, you need to understand why customers will choose to do business with the firm instead of another company and what the firm provides that other firms do not and cannot. From the consumer point of view, successful e-commerce value propositions include: personalization and customization of product offerings, reduction of product search costs, reduction of price discovery costs, and facilitation of transactions by managing product delivery.

FreshDirect, for instance, primarily is offering customers the freshest perishable food in New York, direct from the growers and manufacturers, at the lowest prices, delivered to their homes at night. Although local supermarkets can offer fresh food also, customers need to spend an hour or two shopping at those stores every week. Convenience and saved time are very important elements in FreshDirect’s value proposition to customers.

Before Amazon existed, most customers personally travelled to book retailers to place an order. In some cases, the desired book might not be available and the customer would have to wait several days or weeks, and then return to the bookstore to pick it up. Amazon makes it possible for book lovers to shop for virtually any book in print from the comfort of their home or office, 24 hours a day, and to know immediately whether a book is in stock. Amazon’s primary value propositions are unparalleled selection and convenience.

In many cases, companies develop their value proposition based on current market conditions or trends. Consumers’ increasing emphasis on fresh perishable foods—as opposed to frozen or canned goods—is a trend FreshDirect’s founders took note of, just as Starbucks’ founders saw the growing interest in and demand for coffee bars nationwide. Both companies watched the market and then developed their value proposition to meet what they perceived to be consumers’ demand for certain products and services.

Revenue Model

A firm’s revenue model describes how the firm will earn revenue, generate profits, and produce a superior return on invested capital. We use the terms revenue model and financial model interchangeably. The function of business organizations is both to generate profits and to produce returns on invested capital that exceed alternative investments. Profits alone are not sufficient to make a company “successful”. In order to be considered successful, a firm must produce returns greater than alternative investments. Firms that fail this test go out of existence.

Retailers, for example, sell a product, such as a personal computer, to a customer who pays for the computer using cash or a credit card. This produces revenue. The merchant typically charges more for the computer than it pays out in operating expenses, producing a profit. But in order to go into business, the computer merchant had to invest capital—either by borrowing or by dipping into personal savings. The profits from the business constitute the return on invested capital, and these returns must be greater than the merchant could obtain elsewhere, say, by investing in real estate or just putting the money into a savings account.

Although there are many different e-commerce revenue models that have been developed, most companies rely on one, or some combination, of the following major revenue models: the advertising model, the subscription model, the transaction fee model, the sales model, and the affiliate model.

In the advertising revenue model, a Web site that offers its users content, services, and/or products also provides a forum for advertisements and receives fees from advertisers. Those Web sites that are able to attract the greatest viewership or that have a highly specialized, differentiated viewership and are able to retain user attention (“stickiness”) are able to charge higher advertising rates. Yahoo, for instance, derives a significant amount of revenue from search engine and other forms of online advertising.

In the subscription revenue model, a Web site that offers its users content or services charges a subscription fee for access to some or all of its offerings. For instance, the online version of Consumer Reports provides access to premium content, such as detailed ratings, reviews and recommendations, only to subscribers, who have a choice of paying a $5.95 monthly subscription fee or a $26.00 annual fee. Experience with the subscription revenue model indicates that to successfully overcome the disinclination of users to pay for content on the Web, the content offered must be perceived as a high-value-added, premium offering that is not readily available elsewhere nor easily replicated. Companies successfully offering content or services online on a subscription basis include Match.com and eHarmony (dating services), Ancestry.com and Genealogy.com (genealogy research), Microsoft's Xboxlive.com (video games), Rhapsody Online (music), among others.

In the transaction fee revenue model, a company receives a fee for enabling or executing a transaction. For example, eBay provides an online auction marketplace and receives a small transaction fee from a seller if the seller is successful in selling the item. E*Trade, an online stockbroker, receives transaction fees each time it executes a stock transaction on behalf of a customer.

In the sales revenue model, companies derive revenue by selling goods, information, or services to customers. Companies such as Amazon (which sells books, music, and other products), LLBean.com, and Gap.com, all have sales revenue models.

In the affiliate revenue model, sites that steer business to an “affiliate” receive a referral fee or percentage of the revenue from any resulting sales. For example, MyPoints makes money by connecting companies with potential customers by offering special deals to its members. When they take advantage of an offer and make a purchase, members earn “points” they can redeem for freebies, and MyPoints receives a fee. Community feedback sites such as Epinions receive much of their revenue from steering potential customers to Web sites where they make a purchase. 

Market Opportunity

The term market opportunity refers to the company’s intended marketspace (i.e., an area of actual or potential commercial value) and the overall potential financial opportunities available to the firm in that marketspace. The market opportunity is usually divided into smaller market niches. The realistic market opportunity is defined by the revenue potential in each of the market niches where you hope to compete. For instance, let’s assume you are analyzing a software training company that creates software-learning systems for sale to corporations over the Internet. The overall size of the software training market for all market segments is approximately $70 billion. The overall market can be broken down, however, into two major market segments: instructor-led training products, which comprise about 70% of the market ($49 billion in revenue), and computer-based training, which accounts for 30% ($21 billion). There are further market niches within each of those major market segments, such as the Fortune 500 computer-based training market and the small business computer-based training market. Because the firm is a start-up firm, it cannot compete effectively in the large business, computer-based training market (about $15 billion). Large brand-name training firms dominate this niche. The start-up firm’s real market opportunity is to sell to the thousands of small business firms who spend about $6 billion on computer-based software training and who desperately need a cost-effective training solution. This is the size of the firm’s realistic market opportunity.

Competitive Environment

A firm’s competitive environment refers to the other companies selling similar products and operating in the same market-space. It also refers to the presence of substitute products and potential new entrants to the market, as well as the power of customers and suppliers over your business. We discuss the firm’s environment later in the chapter. The competitive environment for a company is influenced by several factors: how many competitors are active, how large their operations are, what the market share of each competitor is, how profitable these firms are, and how they price their products.

Firms typically have both direct and indirect competitors. Direct competitors are those companies that sell products and services that are very similar and into the same market segment. For example, Priceline and Travelocity, both of whom sell discount airline tickets online, are direct competitors because both companies sell identical products—cheap tickets. Indirect competitors are companies that may be in different industries but still compete indirectly because their products can substitute for one another. For instance, automobile manufacturers and airline companies operate in different industries, but they still compete indirectly because they offer consumers alternative means of transportation. CNN.com, a news outlet, is an indirect competitor of ESPN.com not because they sell identical products, but because they both compete for consumers’ time online.

The existence of a large number of competitors in any one segment may be a sign that the market is saturated and that it may be difficult to become profitable. On the other hand, a lack of competitors could either signal an untapped market niche ripe for the picking or a market that has already been tried without success because there is no money to be made. Analysis of the competitive environment can help you decide which it is.

Competitive Advantage

Firms achieve a competitive advantage when they can produce a superior product and/or bring the product to market at a lower price than most, or all, of their competitors (Porter, 1985). Firms also compete on scope. Some firms can develop global markets, while other firms can only develop a national or regional market. Firms that can provide superior products at lowest cost on a global basis are truly advantaged.

Firms achieve competitive advantages because they have somehow been able to obtain differential access to the factors of production that are denied to their competitors—at least in the short term (Barney, 1991). Perhaps the firm has been able to obtain very favourable terms from suppliers, shippers, or sources of labour. Or perhaps the firm has more experienced, knowledgeable, and loyal employees than any competitors. Maybe the firm has a patent on a product that others cannot imitate, or access to investment capital through a network of former business colleagues or a brand name and popular image that other firms cannot duplicate. An asymmetry exists whenever one participant in a market has more resources—financial backing, knowledge, information, and/or power—than other participants. Asymmetries lead to some firms having an edge over others, permitting them to come to market with better products, faster than competitors, and sometimes at lower cost.

For instance, when Steven Jobs, CEO and founder of Apple Computer, announced iTunes, a new service offering legal, downloadable individual song tracks for 99 cents a tune that would be playable on Apple iPods or Apple desktops, the company was given better than average odds of success simply because of Apple’s prior success with innovative hardware designs, and the large stable of music labels which Apple had meticulously lined up to support its online music catalogue. Few competitors could match the combination of cheap, legal songs and powerful hardware to play them on.

One rather unique competitive advantage derives from being first mover. A first-mover advantage is a competitive market advantage for a firm that results from being the first into a marketplace with a serviceable product or service. If first movers develop a loyal following or a unique interface that is difficult to imitate, they can sustain their first-mover advantage for long periods. Amazon provides a good example. However, in the history of technology-driven business innovation, most first movers lack the complimentary resources needed to sustain their advantages, and often follower firms reap the largest rewards. Indeed, many of the success stories we discuss in this book are those of companies that were slow followers—businesses that gained knowledge from failure of pioneering firms and entered into the market late.

Companies are said to leverage their competitive assets when they use their competitive advantages to achieve more advantage in surrounding markets. For instance, Amazon’s move into the online grocery business leverages the company’s huge customer database and years of e-commerce experience.

Market Strategy

No matter how tremendous a firm’s qualities, its marketing strategy and execution are often just as important. The best business concept, or idea, will fail if it is not properly marketed to potential customers.

Everything you do to promote your company’s products and services to potential customers is known as marketing. Market strategy is the plan you put together that details exactly how you intend to enter a new market and attract new customers. Part of FreshDirect’s strategy, for instance, is to develop close supply chain partnerships with growers and manufacturers so it purchases goods at lower prices directly from the source. This helps FreshDirect lower its prices for consumers.

By partnering with suppliers that could benefit from FreshDirect’s access to consumers, FreshDirect is attempting to extend its competitive advantages. YouTube and PhotoBucket have a social network marketing strategy which encourages users to post their content on the sites for free, build personal profile pages, contact their friends, and build a community. In these cases, the customer is the marketing staff!

Organizational Development

Although many entrepreneurial ventures are started by one visionary individual, it is rare that one person alone can grow an idea into a multi-million dollar company.

In most cases, fast-growth companies—especially e-commerce businesses—need employees and a set of business procedures. In short, all firms—new ones in particular—need an organization to efficiently implement their business plans and strategies. Many e-commerce firms and many traditional firms who attempt an e-commerce strategy have failed because they lacked the organizational structures and supportive cultural values required to support new forms of commerce.

Companies that hope to grow and thrive need to have a plan for organizational development that describes how the company will organize the work that needs to be accomplished. Typically, work is divided into functional departments, such as production, shipping, marketing, customer support, and finance. Jobs within these functional areas are defined, and then recruitment begins for specific job titles and responsibilities. Typically, in the beginning, generalists who can perform multiple tasks are hired. As the company grows, recruiting becomes more specialized.

For instance, at the outset, a business may have one marketing manager. But after two or three years of steady growth, that one marketing position may be broken down into seven separate jobs done by seven individuals.

Management Team

Arguably, the single most important element of a business model is the management team responsible for making the model work. A strong management team gives a model instant credibility to outside investors, immediate market-specific knowledge, and experience in implementing business plans. A strong management team may not be able to salvage a weak business model, but the team should be able to change the model and redefine the business as it becomes necessary.

Eventually, most companies get to the point of having several senior executives or managers. How skilled managers are, however, can be a source of competitive advantage or disadvantage. The challenge is to find people who have both the experience and the ability to apply that experience to new situations.

To be able to identify good managers for a business start-up, first consider the kinds of experiences that would be helpful to a manager joining your company. What kind of technical background is desirable? What kind of supervisory experience is necessary? How many years in a particular function should be required? What job functions should be fulfilled first: marketing, production, finance, or operations? Especially in situations where financing will be needed to get a company off the ground, do prospective senior managers have experience and contacts for raising financing from outside investors?

BUSINESS TO CONSUMER MODEL; ITS TYPES

Business-to-consumer (B2C) is an Internet and electronic commerce (e-commerce) model that denotes a financial transaction or online sale between a business and consumer. B2C involves a service or product exchange from a business to a consumer, whereby merchants sell products to consumers. B2C is also known as business-to-customer (B2C).

Business-to-consumer (B2C) is business or transactions conducted directly between a company and consumers who are the end-users of its products or services.

While most companies that sell directly to consumers can be referred to as B2C companies, the term became immensely popular during the dotcom boom of the late 1990s, when it was used mainly to refer to online retailers, as well as other companies that sold products and services to consumers through the Internet.

Portal

Portals such as Yahoo, MSN/Windows Live, and AOL offer users powerful Web search tools as well as an integrated package of content and services, such as news, e-mail, instant messaging, calendars, shopping, music downloads, video streaming, and more, all in one place. Initially, portals sought to be viewed as “gateways” to the Internet. Today, however, the portal business model is to be a destination site. They are marketed as places where consumers will want to start their Web searching and hopefully stay a long time to read news, find entertainment, and meet other people.

E-Tailer

Online retail stores, often called e-tailers, come in all sizes, from giant Amazon to tiny local stores that have Web sites. E-tailers are similar to the typical bricks-and-mortar storefront, except that customers only have to connect to the Internet to check their inventory and place an order. Some e-tailers, which are referred to as “bricks-and-clicks,” are subsidiaries or divisions of existing physical stores and carry the same products. JCPenney, Barnes & Noble, Wal-Mart, and Staples are four examples of companies with complementary online stores. Others, however, operate only in the virtual world, without any ties to physical locations. Amazon, BlueNile.com, and Drugstore.com are examples of this type of e-tailer.

Content Provider

Although there are many different ways the Internet can be useful, “information content,” which can be defined broadly to include all forms of intellectual property, is one of the largest types of Internet usage. Intellectual property refers to all forms of human expression that can be put into a tangible medium such as text, CDs, or the Web (Fisher, 1999). Content providers distribute information content, such as digital video, music, photos, text, and artwork, over the Web. Content providers make money by charging a subscription fee. For instance, in the case of Real.com’s Rhapsody Unlimited service, a monthly subscription fee provides users with access to thousands of song tracks. Other content providers, such as WSJ.com (The Wall Street Journal’s online newspaper), Harvard Business Review, and many others, charge customers for content downloads in addition to or in place of a subscription fee.

Transaction Broker

Sites that process transactions for consumers normally handled in person, by phone, or by mail are transaction brokers. The largest industries using this model are financial services, travel services, and job placement services. The online transaction broker’s primary value propositions are savings of money and time. In addition, most transaction brokers provide timely information and opinions. Sites, such as ‘Monster.com’ offer job searchers a national marketplace for their talents and employers a national resource for that talent. Both employers and job seekers are attracted by the convenience and currency of information.

CONSUMER TO CONSUMER MODEL

Consumer to Consumer (C to C) Business Model

It is a business model that facilitates an environment where customers can trade with each other.

Consumer-to-consumer e-commerce is the practice of individual consumers buying and selling goods via the Internet. The most common type of this form of transaction comes via auction sites, although online forums and classifieds also offer this type of commerce to consumers. In most cases, consumer-to-consumer e-commerce, also known as C2C e-commerce, is helped along by a third party, who officiates, the transaction to make sure goods are received and payments are made. This offers some protection for consumers partaking in C2C e-commerce, allowing them the chance to take advantage of the prices offered by motivated sellers.

C2C or Consumer-to-consumer is a business model where two individuals transact or conduct business with each other directly. Generally an intermediary/third party may be involved, but the purpose of the intermediary is only to facilitate the transaction and provide a platform for the people to connect. The intermediary would receive a fee or commission, but is not responsible for the products exchanged. C2C normally takes the form of an auction where the bidding is done online. Ebay.com and Amazon.com are the most notable sites performing such actions. C2C reduces the cost with the similar interest consumers interact directly, thus eliminating the need of a physical store. C2C can also take the form of virtual communities where people who share the same interests interact with each other and share ideas.

Auction websites, like the extremely popular eBay, have recently sprung up all over the Internet and represent the most popular form of consumer-to-consumer e-commerce. On an auction site, one consumer will post the item or items for sale and then other users will bid on the items. The user who comes up with the highest price in the allotted time for the sale will receive the item in question.

Other sites exist that are devoted to the process of consumer-to-consumer e-commerce. Online classified sites work just like the typical classified ad in a newspaper. One user puts up an ad describing the goods or services being offered and the desired price, and other users seeking those goods or services can respond.

BUSINESS TO BUSINESS MODEL; ITS TYPES

Business to business refers to business that is conducted between companies, rather than between a company and individual consumers. This is in contrast to business to consumer (B2C) and business to government (B2G).

Business to business (B2B) is a type of commerce transaction that exists between businesses, such as those involving a manufacturer and wholesaler, or a wholesaler and a retailer.

An example that illustrates the business to business concept is automobile manufacturing. Many of a vehicle's components are manufactured independently and the auto manufacturer must purchase these parts separately. For instance, the tires, batteries, electronics, hoses and door locks may be manufactured elsewhere and sold directly to the automobile manufacturer.

There are many different types of e-marketplace based on a range of business models. They can be broadly divided into categories based on the way in which they are operated.

Independent e-marketplace

An independent e-marketplace is usually a business-to-business online platform operated by a third party which is open to buyers or sellers in a particular industry. By registering on an independent e-marketplace, you can access classified ads or requests for quotations or bids in your industry sector. There will typically be some form of payment required to participate.

For example, Hitachi, IBM, LG Electronics, Matsushita Electric (Panasonic), Nortel Networks, Seagate Technology, Solectron, and Toshiba, along with technology partners Ariba and i2, announced the creation of e2open.com, an independent, global business-to-business e-marketplace for the computer, electronics and telecommunications industries. The new e-marketplace will run on technology provided by Ariba, IBM and i2.

Buyer-oriented e-marketplace

A buyer-oriented e-marketplace is normally run by a consortium of buyers in order to establish an efficient purchasing environment. If you are looking to purchase, participating in this sort of e-marketplace can help you lower your administrative costs and achieve the best price from suppliers. As a supplier you can use a buyer-oriented e-marketplace to advertise your catalogue to a pool of relevant customers who are looking to buy.

For example, TimberWeb.com, www.citeulike.org

Supplier-oriented e-marketplace

Also known as a supplier directory, this marketplace is set up and operated by a number of suppliers who are seeking to establish an efficient sales channel via the internet to a large number of buyers. They are usually searchable by the product or service being offered. Supplier directories benefit buyers by providing information about suppliers for markets and regions they may not be familiar with. Sellers can use these types of marketplace to increase their visibility to potential buyers and to get leads.

For example, in the Yellow Pages.com network alone in America, handles about 100 million business-related searches per month. The internet is ubiquitous people can access it at home, at school, wirelessly, and on their phones. The chances of having internet access when you need to look up business listings are greater than having a phone book around; this is why internet business directories can be so effective.

Vertical and horizontal e-marketplaces

A vertical e-marketplace provides online access to businesses vertically up and down every segment of a particular industry sector such as automotive, chemical, construction or textiles. Buying or selling using a vertical e-marketplace for your industry sector can increase your operating efficiency and help to decrease supply chain costs, inventories and procurement-cycle time.

A horizontal e-marketplace connects buyers and sellers across different industries or regions. You can use a horizontal e-marketplace to purchase indirect products such as office equipment or stationery.

For example, W.W. Grainger, the powerful MRO supplies group, provides a perfect example of the horizontal trading community. Their exchange, OrderZone.com, went online in May 1999, and provides a single Web portal that gives customers access to six industry-leading MRO suppliers. The service includes online ordering and invoicing and provides customers with a single point of contact for access to a wide variety of indirect products. Only one registration on this single Web site is necessary to gain access to not only Grainger.com and its MRO catalogues, but to catalogues of other leading indirect suppliers for items such as office and computer supplies, laboratory equipment, and uniforms.

CONSUMER TO BUSINESS AND BUSINESS TO GOVERNMENT MODELS

Business to Government (B to G) Business Model

B2G are the professional affairs conducted between companies and regional, municipal or federal governing bodies. Business to government typically encompasses the determination and evaluation of government agency needs, the creation and submission of proposals and the completion of the contracted work.

On the Internet, B2G is business-to-government (a variation of the term B2B or business-to-business), the concept that businesses and government agencies can use central Web sites to exchange information and do business with each other more efficiently than they usually can off the Web. B2G may also support the idea of a virtual workplace in which a business and an agency could coordinate the work on a contracted project by sharing a common site to coordinate online meetings, review plans, and manage progress. B2G may also include the rental of online applications and databases designed especially for use by government agencies.

An example of a business-to-government company is a firm that offers IT consulting services to a government agency. The government uses the B2G arrangement in order to keep its technology up to date and in working condition, while at the same time limiting expenses by not taking on full-time staff who would require benefits.

Consumer to Business (C to B) Business Model

C2B or Consumer-to-Business is a business model where the end consumers create products and services which are consumed by businesses and organizations. It is diametrically opposite to the popular concept of B2C or Business- to- Consumer where the companies make goods and services available to the end consumers.

In C2B, the companies typically pay for the product or service. However, it can assume different forms like an idea generated by an individual (like an innovative business practice) which may be used and implemented by an organization. Another possible form of C2B is where a consumer specifies a need and the various businesses compete or bid to fulfil that need.

Consumer-to-business (C2B) is a business model in which consumers (individuals) create value, and firms consume this value. For example, when a consumer writes reviews, or when a consumer gives a useful idea for new product development, then this individual is creating value to the firm, if the firm adopts the input. Another form of C2B is the electronic commerce business model, in which consumers can offer products and services to companies and the companies pay them. This business model is a complete reversal of traditional business model where companies offer goods and services to consumers (business-to-consumer = B2C). We can see this example in blogs or internet forums where the author offers a link back to an online business facilitating the purchase of some product (like a book on Amazon.com), and the author might receive affiliate revenue from a successful sale.

E-MONEY; ELECTRONIC PAYMENT SYSTEM

ELECTRONIC MONEY

Electronic money is money which exists only in banking computer systems and is not held in any physical form. In the United States, only a small fraction of the currency in circulation exists in physical form. The need for physical currency has declined as more and more citizens use electronic alternatives to physical currency.

E-money is electronic money which is exchanged electronically over a technical device such as a computer or mobile phone.

ELECTRONIC PAYMENT SYSTEMS (EPS)

The definition of an electronic payment system is a way of paying for goods or services electronically, instead of using cash or a check, in person or by mail.

▫  An example of an electronic payment system is Pay Pal.

▫  An example of an electronic payment system is the use of a credit card.

Issues of trust and acceptance play a more significant role in the e-commerce world than in traditional businesses as far as payment systems are concerned.

Traditionally, a customer sees a product, examines it, and then pays for it by cash, check, or credit card. In the e-commerce world, in most cases the customer does not actually see the concrete product at the time of transaction, and the method of payment is performed electronically.

EPS enables a customer to pay for the goods and services online by using integrated hardware and software systems. The main objectives of EPS are to increase efficiency, improve security, and enhance customer convenience and ease of use.

While customers pay for goods/services by cash, check, or credit cards in conventional businesses, online buyers may use one of the following EPS to pay for products/services purchased online:

·      Electronic funds transfer (EFT): EFT involves electronic transfer of money by financial institutions.

·      Payment cards: They contain stored financial value that can be transferred from the customer's computer to the businessman's computer.

·      Credit cards: They are the most popular method used in EPSs and are used by charging against the customer credit.

·      Smart cards: They include stored financial value and other important personal and financial information used for online payments.

·      Electronic money (e-money/e-cash): This is standard money converted into an electronic format to pay for online purchases.

·      Online payment: This can be used for monthly payment for Internet, phone bills, etc.

·      Electronic wallets (e-wallets): They are similar to smart cards as they include stored financial value for online payments.

·      Micro-payment systems: They are similar to e-wallets in that they include stored financial value for online payments; on the other hand, they are used for small payments.

·      Electronic gifts: They are one way of sending electronic currency or gift certificates from one individual to another. The receiver can spend these gifts in their favourite online stores provided they accept this type of currency.

Electronic Funds Transfer (EFT)

Electronic funds transfer is one of the oldest electronic payment systems. EFT is the groundwork of the cash-less and check-less culture where and paper bills, checks, envelopes, stamps are eliminated. EFT is used for transferring money from one bank account directly to another without any paper money changing hands. The most popular application of EFT is that instead of getting a pay-check and putting it into a bank account, the money is deposited to an account electronically.

EFT is considered to be a safe, reliable, and convenient way to conduct business. The advantages of EFT contain the following:

·      Simplified accounting

·      Improved efficiency

·      Reduced administrative costs

·      Improved security

Today, many users make payments electronically rather than in person. Hundreds of electronic payment systems have been developed to provide secure Internet transactions. Electronic payment systems are generally classified into four categories: credit card and debit cards; electronic cash; micropayment systems; and session-level protocols for secure communications.

A secure electronic financial transaction has to meet the following four requirements:

1)   Ensure that communications are private;

2)   Verify that the communications have not been changed in transmission;

3)   Ensure that the client and server are who each claims to be; and

4)   Ensure that the data to be transferred was, in fact, generated by the signed author.

TYPES OF ELECTRONIC PAYMENT SYSTEMS

The definition of an electronic payment system is a way of paying for goods or services electronically, instead of using cash or a check, in person or by mail.

▫  An example of an electronic payment system is Pay Pal.

▫  An example of an electronic payment system is the use of a credit card.

Issues of trust and acceptance play a more significant role in the e-commerce world than in traditional businesses as far as payment systems are concerned.

Traditionally, a customer sees a product, examines it, and then pays for it by cash, check, or credit card. In the e-commerce world, in most cases the customer does not actually see the concrete product at the time of transaction, and the method of payment is performed electronically.

EPS enables a customer to pay for the goods and services online by using integrated hardware and software systems. The main objectives of EPS are to increase efficiency, improve security, and enhance customer convenience and ease of use.

1.    Credit card payment is the most common type of payment method, which account for 80 percent of online payments in the US and 50 percent of online purchases outside the US. To use the digital credit card payment systems on web, it has been extended the functionality and security to validate authentic owner of the card. Verified by visa is introduced by Visa.

2.    Digital wallets are quicker, efficient and easy way to pay online. Unlike credit card, payers need not to enter credit card information every time of purchase, instead payers can pay by one or two mouse click. Amazon’s 1-Click Shopping is one of the best-fitted examples. Digital Wallets offer the storing of the buyers personal information and fills this in at checkout making it un-necessary for the buyer to have to manually input this each time they want to make a purchase.

3.    Micro payment is designed to purchase less than US$ 10. In other words, Micro payment is designed for payments under $10 that are generally too small for credit card payments. Accumulated balance digital payment systems enable the user to make micropayments as well as purchases and the debit balance it stored for future payment through credit card or phone bill. Accumulated balance digital payment systems are used to make micropayment and purchases on the web. The shoppers receive invoice through their convenient utility bills such as telephone bill, electricity bill, internet bill etc. For example, Payment One charges its customers to their monthly telephone bill. Digital accumulating balance payment systems are more like utility bills. This system allows users to make multiple purchases, which will be totalled up and billed for at the end of a time period.

This is ideal for micro-transactions heavy websites, where numerous cheap items are purchased frequently. The micro-payment system uses a technology similar to the digital wallet, where the customer transfers some money into the online stored value system and uses it to pay for digital products.

Many vendors are involved in micro-payment systems, as it can be used for transactions by

▫  Banks

▫  Internet Service Providers (ISPs)

▫  Telecommunications

▫  Content providers

▫  Premium search engines

4.    Stored value payment systems enable the user to make instant payments based on a stored digital balance like PayPal. Stored value payment system is instant online payment and the maximum amount of purchase depends on the value stored in a digital account. The digital account relies on the amount stored in customers’ bank, checking, credit card account etc. It’s kind of online debit account; E-Account offers a prepaid debit account for online purchases.

5.    Smart card is another type of stored value system used for micropayment. It’s kind of an electronic purse with stored digital money with necessary information. To pay online by smart card, a digital card reader (a device that read the information in smart card) is necessary to attach with shoppers computer. American Express’s Blue smart card is one of the good examples.

6.    Digital cash or electronic cash or e-cash is used for micropayment or larger purchases. Digital cash represents the electronic form of currency which is not same as conventional currency in the market. Users use specific software for trading and transacting this electronic currency with other e-cash user or retailer through Internet. ECoin.net is an example of a digital cash service.

7.    Web-based peer-to-peer payment system us becoming very popular and its growing. The vendors or individual who does not have any facility to accept payment through credit card payment or any other convenient method, they can use this peer-to-peer to accept payment. For example, millions of eBay buyers and sellers are using PayPal to pay and receive payment.

8.    Digital checking enables the user to extend the functionality of their existing checking accounts for online shopping and they are processed much faster than the conventional checking systems. Digital checking payment systems extend traditional checking system so they can be used for online payment. It is less expensive than credit card and much faster than traditional paper based checking. For example, Western Union Money Zap and e-Check.

9.    Electronic billing presentment and payment systems are used to pay routine monthly bills through electronic fund transfer from bank account and credit card account. Transaction occurs online. Electronic billing presentment and payment systems are used for the payment of recurring bills. They offer viewing of the account transactions and reminders of due dates as well as payment options through existing credit card accounts or bank transfers.

STORED-VALUE CARD; SMART CARDS

Stored Value Cards

A stored value card is like a universal gift card. It is issued in a given amount of money, and it is not associated with any individual name or person. Instead, this card can be used at any time in order to make a purchase; it is like cash. With a prepaid card, the individual holding the card physically deposits money into an account. The person's name is on the card and the magnetic strip on the card accesses the account in this same person's name. A stored value card is totally independent from any bank account, giving it unique benefits and risks.

Today, there are Electronic Benefits Transfer (EBT) cards, gift cards, payroll cards and even “teen” cards (usually purchased by a parent on behalf of a teenager).

Stored-value cards can either be single purpose (closed loop) or multipurpose (open loop). Single-purpose cards, such as store and EBT cards, are good only at a specific retailer or group of retailers — hence the phrase “closed loop.” In a closed-loop transaction, a nonbank service provider issues cards on behalf of its customer. When consumers use these cards to purchase goods, the service provider authorizes the transaction against a proprietary database and debits the “prefunded” account for the amount of the transaction. In essence, the transaction stays on the store’s books.

FIs typically offer the multipurpose variety of stored-value cards, including gift cards, teen cards and payroll cards. These types of cards are issued with card association branding, such as Visa®, MasterCard® and Discover®. Therefore, they are accepted anywhere the association brand is accepted, making them “open loop”.

Benefits to Financial Institutions

From a financial institution’s (FI) perspective, offering stored-value cards helps attract new customers and provide an alternative acquisition tool for those that do not qualify for traditional credit or debit card products. In addition, it enables FIs to create a new stream of incremental and recurring revenue from usage and interchange fees generated from transactions.

Advantages of using a stored-value card

Use in "Credit Card Only" Scenarios: For an individual without a credit card, it can be very challenging to complete certain purchases. For example, credit cards are required to book plane tickets and hotel rooms and to make other reservations. Some retailers have even begun to operate on a "plastic only" basis. If you find yourself in one of these scenarios, having a stored value card can save you from failure to make a payment. The card has a magnetic strip and a credit card number. Either can be used to make your purchase.

Control Costs and Expenses: You may find a situation where you need to control your costs and expenses with a firmer hand than usual. For example, you may be travelling or giving a credit card to your children or employees. In this type of situation, having control over just how much can be spent is important. You can purchase a stored value card in nearly any grocery store or convenience store today. Once you do, you no longer have to worry about carrying cash, overcharging on your credit card or giving into unnecessary expenses. Your card will work only until you have spent all of the stored value.

Disadvantages of using a stored-value card

High Fees: The card you purchase costs money. For example, a `200 stored value card may cost `220. The additional `20 goes to pay for the physical card, the packaging, and the fees associated with the card's usage. Ultimately, if you compare using a stored value card to using cash on each purchase, you will find you spend more money by using the stored value card. For example, if you want to give your child a gift, you may think `100 is appropriate. You could give him or her `100 in cash, or you could provide a `90 stored value card.

"Like Cash": Since the card is not associated with any individual name or account, it is like cash. You can spend it anywhere cards are accepted without unique charges and fees. However, on the flip side, if you lose the card, you cannot retain its value. The card is not associated with you or your bank account. Any person who picks up the card can use it for a purchase. The cashier accepting the card will not even ask for identification. You cannot call the card issuer to have the card replaced. You have simply lost the money.

Smart Cards

A smart card, typically a type of chip card, is a plastic card that contains an embedded computer chip–either a memory or microprocessor type–that stores and transacts data. This data is usually associated with either value, information, or both and is stored and processed within the card's chip. The card data is transacted via a reader that is part of a computing system. Systems that are enhanced with smart cards are in use today throughout several key applications, including healthcare, banking, entertainment, and transportation. All applications can benefit from the added features and security that smart cards provide. Markets that have been traditionally served by other machine readable card technologies, such as barcode and magnetic stripe, are converting to smart cards as the calculated return on investment is revisited by each card issuer year after year.

Applications of Smart Cards

First introduced in Europe nearly three decades ago, smart cards debuted as a stored value tool for payphones to reduce theft. People found new ways to use smart cards and other chip-based cards as they advanced, including charge cards for credit purchases and for record keeping in place of paper.

In the U.S., consumers have been using chip cards for everything from visiting libraries to buying groceries to attending movies, firmly integrating them into our everyday lives. Several U.S. states have chip card programs in progress for government applications ranging from the Department of Motor Vehicles to Electronic Benefit Transfers (EBTs). Many industries have implemented the power of smart cards in their products, such as the GSM digital cellular phones as well as TV-satellite decoders.

Smart cards improve the convenience and security of any transaction. They provide tamper-proof storage of user and account identity. Smart card systems have proven to be more reliable than other machine-readable cards, like magnetic stripe and barcode, with many studies showing card read life and reader life improvements demonstrating much lower cost of system maintenance. Smart cards also provide vital components of system security for the exchange of data throughout virtually any type of network. They protect against a full range of security threats, from careless storage of user passwords to sophisticated system hacks. The costs to manage password resets for an organization or enterprise are very high, thus making smart cards a cost-effective solution in these environments. Multifunction cards can also be used to manage network system access and store value and other data. Worldwide, people are now using smart cards for a wide variety of daily tasks.

ONLINE BANKING; ITS ADVANTAGES AND DISADVANTAGES

Origin of Online Banking

The advent of the Internet and the popularity of personal computers presented both an opportunity and a challenge for the banking industry. For years, financial institutions have used powerful computer networks to automate millions of daily transactions; today, often the only paper record is the customer's receipt at the point of sale. Now that its customers are connected to the Internet via personal computers, banks envision similar economic advantages by adapting those same internal electronic processes to home use. A Bank views online banking, as a powerful "value added" tool, to attract and retain new customers while helping to eliminate costly paper handling and teller interactions in an increasingly competitive banking environment.

Online banking isn't out to change your money habits. Instead, it uses today's computer technology to give you the option of bypassing the time-consuming, paper-based aspects of traditional banking in order to manage your finances more quickly and efficiently.

Online banking is a term for the process by which a customer may perform banking transactions electronically without visiting a brick-and-mortar institution. Online banking uses the Internet as the delivery channel by which to conduct banking activity, for example, transferring funds, paying bills, viewing checking and savings account balances, paying mortgages, and purchasing financial instruments and certificates of deposit. An Online banking customer accesses his or her accounts from a browser— software that runs Internet banking programs resident on the bank’s World Wide Web server, not on the user’s PC. NetBanker defines a “true Internet bank” as one that provides account balances and some transactional capabilities to retail customers over the World Wide Web. Internet banks are also known as virtual, cyber, net, interactive, or web banks.

Advantages of Online Banking

▫  Convenience: Unlike your corner bank, online banking sites never close; they're available 24 hours a day, seven days a week and they're only a mouse click away.

▫  Ubiquity: If you're out of state or even out of the country when a money problem arises, you can log on instantly to your online bank and take care of business, 24/7.

▫  Transaction speed: Online bank sites generally execute and confirm transactions at or quicker than ATM processing speeds.

▫  Efficiency: You can access and manage all of your bank accounts, including IRAs, CDs, even securities, from one secure site.

▫  Effectiveness: Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs to help you manage all of your assets more effectively. Most are also compatible with money managing programs such as Quicken and Microsoft Money.

Disadvantages of Online Banking

▫  Start-up may take time: In order to register for your bank's online program, you will probably have to provide ID and sign a form at a bank branch. If you and your spouse wish to view and manage your assets together online, one of you may have to sign a durable power of attorney before the bank will display all of your holdings together.

▫  Learning curve: Banking sites can be difficult to navigate at first. Plan to invest some time and/or read the tutorials in order to become comfortable in your virtual lobby.

▫  Bank site changes: Even the largest banks periodically upgrade their online programs, adding new features in unfamiliar places. In some cases, you may have to re-enter account information.

▫  The trust thing: For many people, the biggest hurdle to online banking is learning to trust it. Did my transaction go through? Did I push the transfer button once or twice? Best bet: always print the transaction receipt and keep it with your bank records until it shows up on your personal site and/or your bank statement.

E-CRM AND THE GOALS OF E-CRM BUSINESS FRAMEWORK

The emergence of electronic business has changed many aspects of current business and has created new firms with new business models. Organizations, now, start to re-evaluate their fundamental relations: Relation between firms and their suppliers, customers, government and also their competitors.

In the digital world, many firms are facing challenges with growing and complex demands of customers that need immediate and high-level services through multiple channels. To face these challenges, many firms, choose electronic customer relationship management. This emerging concept, gives organizations the ability to gain, integrate and disseminate data and information through their corporate websites

A Conceptual Framework for E-CRM

Today, although CRM is on top of firms priorities, there are many unclear points about its definition and role. In order to fully understand these ambiguities, we should view CRM from a strategic and systematic approach, and recognize the components of customer value. A conceptual framework with a strategic approach for e-CRM covers definitions and functions of every part and also includes adaptation of the model to different firms which helps to use e-CRM as a managerial strategic approach.

In this framework, similar to porter value chain, we have two types of activities: Primary and Supportive ones with the difference of being customer centric and CRM related. As the company runs its primary activities of Customer Acquisition, Retention and Expansion, it needs some supportive activities such as channel integration and information management. Information management activities deal with customer database including 3 types of information: information of the customer, information for the customer and information by the customer. An important point in the framework is the initial phase which is Strategy Formation that should be considered before any CRM implementation.

Components of this framework are shown on the next page:

1.    Strategy formation

Before speaking about CRM technological issues, managers should consider CRM in the context of their overall business strategies.

This task needs a two dimensional emphasis:

1)   On business strategy

2)   On customer strategy of the firm.

The more these two dimensions are interrelated with each other, the more successful CRM strategy would be. Through developing and reviewing business strategies, organizations identify their key capabilities and the way they could transfer them as value to their customers.

2.    Multiple channel integration activity

One of key and strategic components for moving toward e-CRM, is to develop a consolidated and relationship-based strategy for existing channels (old ones) and web-based technologies (new and modern ones), that is designed to enhance the relationships with customers (not only reducing costs). So, it can be mentioned that e-CRM is multiple channels which are get consolidated. If the goal of channels strategy is only cost reduction, undesirable effects will appear.

3.    Information management activity

This process includes customer data collection from all touch points and omission of redundancies and using them to create an up-to-date and complete profile of customers in order to enhance quality of interaction between firms and customers.

4.    Customer Acquisition

From a strategic point of view, all the primary activities for attracting customers like advertising strategies and marketing efforts are for new customer acquisition and creating an image of firm brand name. Now, if these activities are run through web, firms should do different sort of tasks to recognize customer interests. Site visitor tracking and click stream data bases are some of activities which help to recognize customer interests and then to offer better products or services to them.

5.    Customer Retention

Even by ignoring the fact that the cost of a new customer acquisition is 5 times of retention of an old one, yet retention and expansion is more important due to lack of sufficient information about new customers. The goal of customer retention is to leverage customer acquisition investments. Because customer acquisition is normally more expensive than retention, it makes sense to find ways and mechanisms to extend the duration of the relationship between firm and customer.

6.    Customer Expansion

In CRM, businesses invest their money on those customers which will bring the most value for the firm. Customer expansion with focus on retention of the most value adding customers needs precise strategies to do.

7.    Performance measurement and evaluation activity

In order to evaluate the performance, some criteria would be determined through e-CRM system design stage. These criteria depend on different goals of serving customers and should be aligned with overall operational business criteria. Here the focus is on two elements of performance: customer satisfaction and operational performance. In traditional models, customers’ satisfaction is examined through survey and complaint system. Today, web technologies enable e-CRM to get feedback from customers, immediately after interaction and in minimum time; even feedback could be a part of interaction process. It is hoped that, customer satisfaction lead to customer loyalty which is another criterion for measurement of performance.

ENTERPRISE RESOURCE PLANNING (ERP); BENEFITS

ERP is an industry acronym for Enterprise Resource Planning. Broadly speaking, ERP refers to automation and integration of a company's core business to help them focus on effectiveness & simplified success.

ERP can be defined as a system that helps organizations manage their financials, supply chain, manufacturing, operations, reporting, and human resources. Most ERP systems can be deployed on-premises or in the cloud, to improve and automate the core parts of your business.

With the right enterprise resource planning software, all your business processes come together for easy collaboration and rapid decision-making to enhance your team’s overall productivity. Leverage integrated systems for:

▫  Financial management: Gain control over your assets, cash flow, and accounting.

▫  Supply chain and operations management: Streamline your purchasing, manufacturing, inventory, and sales order processing.

▫  Customer relationship management: Improve customer service, and increase cross-sell and up-sell opportunities.

▫  Project management: Get what you need to deliver work on time and on budget with better billing and project monitoring.

▫  Human resources management: Get help attracting and retaining good employees with tools to help hire, manage, and pay your team.

▫  Business intelligence: Make smart decisions with easy-to-use reporting, analysis, and business intelligence tools.

An ERP System automates and integrates core business processes such as taking customer orders, scheduling operations, and keeping inventory records and financial data. ERP systems can drive huge improvements in the effectiveness of any organisation by:

▬  assisting you in defining your business processes and ensuring they are complied with throughout the supply chain;

▬  protecting your critical business data through well-defined roles and security access

▬  enabling you to plan your work load based on existing orders and forecasts

▬  providing you with the tools to give a high level of service to your customers

▬  translating your data into decision making information

Benefits of ERP for Business

▫  Integration across all business processes - To realize the full benefits of an ERP system it should be fully integrated into all aspects of your business from the customer facing front end, through planning and scheduling, to the production and distribution of the products you make.

▫  Automation enhances productivity - By automating aspects of business processes, ERP makes them more efficient, less prone to error, and faster. It also frees up people from mundane tasks such as balancing data.

▫  Increase overall performance - By integrating disparate business processes, ERP ensures coherence and avoids duplication, discontinuity, and people working at cross purposes, in different parts of the organisation. The cumulative positive effect when business processes integrate well is overall superior performance by the organisation.

▫  Quality Reports and Performance Analysis - Analysis on ERP will enable you to produce financial and boardroom quality reports, as well as to conduct analysis on the performance of your organisation.

▫  Integrates across the entire supply chain - A best of breed ERP system should extend beyond your organisation and integrate with both your supplier and customer systems to ensure full visibility and efficiency across your supply chain.

SECURITY ISSUES OF E-COMMERCE

The Internet and e-Commerce are becoming a more and more popular sources for people to carry out their shopping. The e-Commerce refers to the exchange of goods and services over the Internet. This shopping covers everything from groceries to large electronic goods and even cars. The rapid evolution of computing and communication technologies and their standardizations have made the boom in e-Commerce possible. Along with these there is also substantial growth in the areas of credit card fraud and identity theft, by the very nature of it the internet is a worldwide public network with thousands of millions of users. Amongst these thousands of millions of users there is a percentage of those that are described as crackers or hackers, it is these people that carry out the credit card fraud and identity theft, there are numerous ways in which they do this and many of these methods are facilitated with poor security on e-Commerce web servers and in users computers.

Information security is the protection against security threats that are defined as a circumstance, condition, or event with the potential to cause economic hardship to data or network resources in the form of destruction, disclosure, and modification of data, denial of service, fraud, waste, and or abuse. Security has become one of the most important issues that must be resolved first to ensure success of e-Commerce. The first step toward reducing the risk of e-Commerce security threats is to identify the vulnerable areas where security threats can happen.

The main vulnerable areas for an e-Commerce are hardware security, software security, and environment security.

Hardware security includes any devices used in running the e-Commerce website like network devices and servers. Protecting the network with a properly configured firewall device that is only allowing ports needed for accessing the e-Commerce website is an essential part of network security.

Software security includes any software used in running the e-Commerce website such as the operating system, web server software and database software. The operating system should be configured for security through the process of operating system hardening. Software should be contently being kept updated as patches are routinely released to fix holes in security.

Environment security is the area around the hardware running the e-Commerce website and includes human resources. Secure physical access to network and server devices by using fences, locks, or other methods. Network, server, and software access credentials should be highly complex and well guarded. Once a staff member has left the company or moved to a different position, remove all access privileges for that person that is no longer needed.

E-Commerce has the ability to provide secure shopping transactions coupled with instant verification and validation of credit card transactions. E-Commerce is not about the technology itself, it is about doing business leveraging the technology. A technological innovation is followed by frequent incorporation of ethical standards into law. New forms of E-Commerce that enables new business practices have many advantages but also bring numerous risks.  Let’s discuss about the ethical, legal and societal issues related to e-business.

ETHICAL ISSUES

In general, many ethical and global issues of Information Technology apply to e-business. Let’s list some of the ethical issues initiated with the growing field of e-commerce.

Web tracking: E-businesses draw information on how visitors use a site through log files. Analysis of log file means turning log data into application service or installing software that can pluck relevant information from files in-house. Companies track individual’s movement through tracking software and cookie analysis. Programs such as cookies raise a batch of privacy concerns. The tracking history is stored on your PC’s hard disk, and any time you revisit a website, the computer knows it. Many smart end users install programs such as Cookie cutters, Spam Butcher, etc which can provide users some control over the cookies. The battle between computer end users and web trackers is always going on with a range of application programs.  For example, software such as Privacy Guardian, My Privacy, etc can protect user’s online privacy by erasing browser’s cache, surfing history and cookies.  To detect and remove spyware specially designed programs like Ad-Aware are present. A data miner application, SahAgent collects and combines Internet browsing history of users and sends it to servers.

Privacy: Most Electronic Payment Systems knows the identity of the buyer. So it is necessary to protect the identity of a buyer who uses Electronic Payment System. A privacy issue related to the employees of company is tracking. Monitoring systems are installed in many companies to monitor e-mail and other web activities in order to identify employees who extensively use business hours for non-business activities. The e-commerce activities performed by a buyer can be tracked by organizations. For example, reserving railway tickets for their personal journey purpose can be tracked. Many employees don’t want to be under the monitoring system even while at work.   As far as brokers and some of the company employees are concerned, E-Commerce puts them in danger zone and results in elimination from their jobs.  The manner in which employees are treated may raise ethical issues, such as how to handle displacement and whether to offer retraining programs.

Disintermediation and Re-intermediation: Intermediation is one of the most important and interesting e-commerce issue related to loss of jobs. The services provided by intermediaries are

(i)            Matching and providing information.

(ii)          Value added services such as consulting.

The first type of service (matching and providing information) can be fully automated, and this service is likely to be in e-marketplaces and portals that provide free services. The value added service requires expertise and this can only be partially automated.  The phenomenon by which Intermediaries, who provide mainly, matching and providing information, services are eliminated is called Disintermediation. The brokers who provide value added services or who manage electronic intermediation (also known as info-mediation), are not only surviving but may actually prosper, this phenomenon is called Re-intermediation. The traditional sales channel will be negatively affected by disintermediation. The services required to support or complement e-commerce are provided by the web as new opportunities for re-intermediation. The factors that should be considered here are the enormous number of participants, extensive information processing, delicate negotiations, etc. They need a computer mediator to be more predictable.

LEGAL ISSUES

Internet fraud and its sophistication have grown even faster than the Internet itself. There is a chance of a crime over the internet when buyers and sellers do not know each other and cannot even see each other. During the first few years of e-commerce, the public witnessed many frauds committed over the internet. Let’s discuss the legal issues specific to e-commerce.

Fraud on the Internet: E-commerce fraud popped out with the rapid increase in popularity of websites. It is a hot issue for both cyber and click-and-mortar merchants. The swindlers are active mainly in the area of stocks. The small investors are lured by the promise of false profits by the stock promoters. Auctions are also conductive to fraud, by both sellers and buyers. The availability of e-mails and pop up ads has paved the way for financial criminals to have access to many people. Other areas of potential fraud include phantom business opportunities and bogus investments.

Copyright: The copyright laws protect Intellectual property in its various forms, and cannot be used freely.  It is very difficult to protect Intellectual property in E-Commerce. For example, if you buy software you have the right to use it and not the right to distribute it. The distribution rights are with the copyright holder. Also, copying contents from the website also violates copy right laws.

Domain Names: The competition over domain names is another legal issue. Internet addresses are known as domain names and they appear in levels. A top level name is qburst.com or microsoft.com. A second level name will be qburst.com/blog. Top level domain names are assigned by a central non-profit organization which also checks for conflicts or possible infringement of trademarks. Problems arise when several companies having similar names competing over the same domain name.  The problem of domain names was alleviated somewhat in 2001 after several upper level names were added to com.

Another issue to look out for is Cyber-squatting, which refers to the practice of registering domain names with the desire of selling it at higher prices.

Security features such as authentication, non-repudiation and escrow services can protect the sellers in e-commerce.

One needs to be careful while doing e-commerce activities. The need to educate the public about the ethical and legal issues related to e-commerce is highly important from a buyer as well as seller perspective.

Ecommerce allows for items which may not be sold by outlets to be found online without having to go from shop to shop, things such as distance also come into this as some things may only be found in certain locations and thus by looking on the internet for websites which sell these stuff you don’t have to travel to the destination to get what you are looking for.

SOCIETAL ISSUES

Elimination of Distance: Ecommerce has allowed companies to become more profitable because they don’t have to wait for customers to come through the door to receive service, therefore putting their products or services online, people could find this and buy the product or service from them, things such as distance again apply in this.

Availability: Items can be brought online on ecommerce as it allows products to be brought online at anytime during the day or night as they don’t have times to work by. This also allows for problems such as postage and items to be tracked when they are being sent to a customer.

Cost-Saving: Ecommerce allows for special offers because it gives different companies the chance to undercut each other and to potentially make a lot of money because they don’t have the overheads which a normal company has, such as hiring loads of staff to assist a customer to buy extra things such as printing material or advertising banners to hang up outside a store. Also ecommerce entities don’t need to buy or rent a shop, thus cutting the cost right down because of this.

Phishing: Because ecommerce websites have become popular many different websites are now mimicked as to get people to falsely enter their details, websites are often phished and thus spring up exact replicates of the original such as ASDA (ASDA Stores Ltd. is a British supermarket chain) being mimicked and people enter their personal bank details. If this happens then a potential customer may think it was ASDA who did this and therefore, if the customer is not knowledgeable about security issues it may give ASDA or a different company a bad name thus defaming a company and the original company may lose future customers because of this issue.

Information Disclosure: Because different people use ecommerce information is normally sold onto third-parties such as customer address and phone number and other companies may try and force a person to by a shop or item.

Hacking: Depending upon the authentication methods of the website, the website may be subjected to ‘hacking’ techniques for example if a authentication technique such as session authorisation is on, then a attacker may change his/her session value and thus impersonate different user on the website and dependent upon the website, he/she may be in legal trouble.

Health Issues: Ecommerce is so quick now that people don’t want to be going out of their houses and because of this, problems with things such as health may arise and thus people need to grasp that they sometimes benefit from shopping around.

Ecommerce allows people to become ecommerce shops or users and thus allows for things to be sent by you to other users without having to buy from manufacturers, it also helps because you may just have junk in your house and to auction it off on a website may make you a bit of cash which may come in use or you didn’t think you could make.

CYBER LAW; NEED FOR CYBER LAW

Cyber Law is the law governing cyber space. Cyber space is a very wide term and includes computers, networks, software, data storage devices (such as hard disks, USB disks etc), the Internet, websites, emails and even electronic devices such as cell phones, ATM machines etc.

We are in computer Era. The use of computers, software's and digital information is inevitable in today's day to day life. Present generation is accustomed to computers. The transactions and businesses nowadays started to deal through cyber arena. It has wide scope and its space increases drastically day by day. At the same time needless to say that it has also brought in some negative effects and disadvantages too.

The computer crime or an e-crime can be simply defined as a crime where a computer is the target of a crime or it is the means adopted to commit a crime. While some of the crimes may be new, the others are simply different ways to commit conventional crimes such as frauds, theft, blackmailing, forgery, and embezzlement using the online medium often involving the use of internet. What accelerate the growth of such crimes are typical characteristics of cyber space inter alia (Latin for "among other things") anonymity, speed, access, dependency, borderless space.

Important cyber crimes are virus attacks, salami attacks, e-mail bombing, DOS attacks, internet hacking or information offences increase day by day.

Law encompasses the rules of conduct:

1.    that have been approved by the government, and

2.    which are in force over a certain territory, and

3.    which must be obeyed by all persons on that territory

 Violation of these rules could lead to government action such as imprisonment or fine or an order to pay compensation.

Cyber law encompasses laws relating to:

1.    Cyber Crimes

2.    Electronic and Digital Signatures

3.    Intellectual Property

4.    Data Protection and Privacy

Cyber crimes are unlawful acts where the computer is used either as a tool or a target or both. The enormous growth in electronic commerce (e-commerce) and online share trading has led to a phenomenal spurt in incidents of cyber crime.

Intellectual property is refers to creations of the human mind e.g. a story, a song, a painting, a design etc. The facets of intellectual property that relate to cyber space are covered by cyber law. These include:

▫  copyright law in relation to computer software, computer source code, websites, cell phone content etc,

▫  software and source code licences

▫  trademark law with relation to domain names, meta tags, mirroring, framing, linking etc.

▫  semiconductor law which relates to the protection of semiconductor integrated circuits design and layouts,

▫  patent law in relation to computer hardware and software.

Need for Cyber law

In today's highly digitalized world, almost everyone is affected by cyber law. For example:

▫  Almost all transactions in shares are in demat form.

▫  Almost all companies extensively depend upon their computer networks and keep their valuable data in electronic form.

▫  Government forms including income tax returns, company law forms etc. are now filled in electronic form.

▫  Consumers are increasingly using credit cards for shopping.

▫  Most people are using email, cell phones and SMS messages for communication.

▫  Even in "non-cyber crime" cases, important evidence is found in computers / cell phones e.g. in cases of divorce, murder, kidnapping, tax evasion, organized crime, terrorist operations, counterfeit currency etc.

▫  Cyber crime cases such as online banking frauds, online share trading fraud, source code theft, credit card fraud, tax evasion, virus attacks, cyber sabotage, phishing attacks, email hijacking, denial of service, hacking, pornography etc are becoming common.

▫  Digital signatures and e-contracts are fast replacing conventional methods of transacting business.

Legal Problems:

The Nature and Dimensions of the Information technology leads to peculiar legal problems. The problem deserve special treatment, because of the environment in which they creep up and the nature of the machinery used in the environment and the means employed for recording the information in question is typical. In all the other cases the documents are stored and transmitted through the use of visible and tangible letters, figures and marks however here the information which is stored and transmitted electronically has no visible shape or tangible form, this peculiarity of the technology gives rise to a deferent kind of  legal problems. Therefore to overcome this legal problem the Information Technology Act, 2000 came into force in India on 17th of October 2000. The Act applies to all over India. Sometimes it applies to outside India also by any person irrespective of his nationality, if such act involves a computer, computer system or network located in India.

Major Offences

Section 43 of the Act, which covers unauthorized access, downloading, introduction of virus, denial of access and internet time theft committed by any person. It prescribes punishment by way of damages not exceeding Rs. 1 crore to the affected party.

Chapter XI of the IT Act discusses the cyber crimes and offences inter alia (Latin for "among other things"), tampering with computer source documents (Sec. 65), Hacking (Sec.66), Publishing of obscene information (Sec.67), Unauthorized access to protected system (Sec.70), Breach of confidentiality (Sec.72), Publishing false digital signature certificate (Sec.73).

The Meaning of Computer: As per Information Technology Act "computer" means any electronic, magnetic, optical or other high-speed data processing device or system which performs logical, arithmetic and memory functions by manipulations of electronic, magnetic or optical impulses, and includes all input, output, processing, storage, computer software, or communication facilities which are connected or related to the computer in a computer system or computer network.

TWO CATEGORIES OF CYBER CRIMES

1.    The Computer as a Target: Using a computer to attack other computers, e. g. Hacking, Virus/Worm attacks, DOS attack etc.

2.    Using the computer as a weapon: Using a computer to commit real world crimes, e.g. Cyber Terrorism, IPR violations, Credit card frauds, EFT frauds, etc.

MODES OF CYBER CRIMES

▫  Unauthorized access & Hacking: Access means gaining entry into, instructing or communicating with the logical, arithmetical, or memory function resources of a computer, computer system or computer network.  Unauthorized access means any kind of access without the permission of either the rightful owner or the person in charge of a computer, computer system or computer network. Every act committed towards breaking into a computer and/or network is hacking. Hackers write or use ready-made computer programs to attack the target computer. They possess the desire to destruct and they get the kick out of such destruction. Some hackers hack for personal monetary gains, such as to steal the credit card information, transfer money from various bank accounts to their own account etc.

Web hijacking is also a crime which means taking control of others website.

▫  Virus and Worm attack: A program that has capability to infect other programs and replicate itself and spread into other programs is called virus. Programs that multiply like viruses but spread from computer to computer are called as worms.

▫  E-mail & IRC related crimes:

▬  Email spoofing: An email shown to have sent from once source in fact has been sent frm a deferent source is called spoofing.

▬  Email Spamming: Sending email to thousands and thousands of users - similar to a chain letter is called email spamming.

▬  Sending malicious codes through email: E-mails are used to send viruses, Trojans etc through emails as an attachment or by sending a link of website which on visiting downloads malicious code.

▬  Email bombing: When abusive identical messages are sent repeatedly to a particular address then it is termed as E-mail "bombing".

▬  Sending threatening emails

▬  Defamatory emails

▬  Email frauds

▫  Trojan Attack: Trojan attack means by representing as a useful link or a helper it causes harm to your programme. Trojans come in two parts, a Client part and a Server part. When the victim (unknowingly) runs the server on its machine, the attacker will then use the Client to connect to the Server and start using the trojan.

▫  Denial of Service attacks: Flooding a computer resource with more requests than it can handle. This causes the resource to crash thereby denying access of service to authorized users. Attempts to "flood" a network, thereby preventing legitimate network traffic, attempts to disrupt connections between two machines, thereby preventing access to a service, attempts to prevent a particular individual from accessing a service and attempts to disrupt service to a specific system or person are examples of Denial Service Attacks.

FIREWALL AND PERSONAL FIREWALL;

A firewall is a software program or piece of hardware that helps screen out hackers, viruses, and worms that try to reach your computer over the Internet.

A firewall is a system designed to prevent unauthorized access to or from a private network. Firewalls can be implemented in both hardware and software, or a combination of both. Firewalls are frequently used to prevent unauthorized Internet users from accessing private networks connected to the Internet, especially intranets. All messages entering or leaving the intranet pass through the firewall, which examines each message and blocks those that do not meet the specified security criteria.

PERSONAL FIREWALL

A personal firewall is the software installed in a user's computer that offers protection against unwanted intrusion and attacks coming from the Internet.

A personal firewall (sometimes called a desktop firewall) is a software application used to protect a single Internet-connected computer from intruders. Personal firewall protection is especially useful for users with "always-on" connections such as DSL* (Digital Subscriber Line) or cable modem. Such connections use a static IP address that makes them especially vulnerable to potential hackers. Often compared to anti-virus applications, personal firewalls work in the background at the device (link layer) level to protect the integrity of the system from malicious computer code by controlling Internet connections to and from a user's computer, filtering inbound and outbound traffic, and alerting the user to attempted intrusions.

It is an application which controls network traffic to and from a computer, permitting or denying communications based on a security policy. Typically it works as an application layer firewall.

A personal firewall differs from a conventional firewall in terms of scale. A personal firewall will usually protect only the computer on which it is installed, as compared to a conventional firewall which is normally installed on a designated interface between two or more networks, such as a router or proxy server. Hence, personal firewalls allow a security policy to be defined for individual computers, whereas a conventional firewall controls the policy between the networks that it connects.

The per-computer scope of personal firewalls is useful to protect machines that are moved across different networks. For example, a laptop computer may be used on a trusted intranet at a workplace where minimal protection is needed as a conventional firewall is already in place, and services that require open ports such as file and printer sharing are useful. The same laptop could be used at public Wi-Fi hotspots, where strict security is required to protect from malicious activity. Most personal firewalls will prompt the user when a new network is connected for the first time to decide the level of trust, and can set individual security policies for each network.

*DSL-It is a technology for bringing high-bandwidth information to homes and small businesses over ordinary copper telephone lines.

Features of a Personal Firewall

Common personal firewall features:

▫  Protects the user from unwanted incoming connection attempts

▫  Allows the user to control which programs can and cannot access the local network and/or Internet and provide the user with information about an application that makes a connection attempt

▫  Block or alert the user about outgoing connection attempts

▫  Hide the computer from port scans by not responding to unsolicited network traffic

▫  Monitor applications that are listening for incoming connections

▫  Monitor and regulate all incoming and outgoing Internet users

▫  Prevent unwanted network traffic from locally installed applications

Provide information about the destination server with which an application is attempting to communicate

Common Firewall Techniques

Firewalls are used to protect both home and corporate networks. A typical firewall program or hardware device filters all information coming through the Internet to your network or computer system. There are several types of firewall techniques that will prevent potentially harmful information from getting through:

§  Packet Filter

Looks at each packet entering or leaving the network and accepts or rejects it based on user-defined rules. Packet filtering is fairly effective and transparent to users, but it is difficult to configure. In addition, it is susceptible to IP spoofing.

§  Application Gateway

It applies security mechanisms to specific applications such as FTP (File Transfer Protocol) and Telnet servers. This is very effective but can impose performance degradation.

§  Circuit-level Gateway

It applies security mechanisms when a TCP or UDP connection is established. Once the connection has been made, packets can flow between the hosts without further checking.

§  Proxy Server

It intercepts all messages entering and leaving the network. The proxy server effectively hides the true network addresses.

In practice, many firewalls use two or more of these techniques in concert. A firewall is considered a first line of defence in protecting private information. For greater security, data can be encrypted.

PUBLIC KEY INFRASTRUCTURE; CONCEPT OF PUBLIC AND PRIVATE KEYS

Public Key Infrastructure (PKI) refers to the technical mechanisms, procedures and policies that collectively provide a framework for addressing the previously illustrated fundamentals of security-authentication, confidentiality, integrity, non-repudiation and access control.

PKI enables people and businesses to utilise a number of secure Internet applications. For example, secure and legally binding emails and Internet based transactions, and services delivery can all be achieved through the use of PKI.

PKI utilises two core elements; Public Key Cryptography and Certification Authorities.

Encryption and Decryption

The benefits of PKI are delivered through the use of Public Key Cryptography. A core aspect of Public Key Cryptography is the encryption and decryption of digital data.

Encryption is the conversion of data into seemingly random, incomprehensible data. Its meaningless form ensures that it remains unintelligible to everyone for whom it is not intended, even if the intended have access to the encrypted data.

The only way to transform the data back into intelligible form is to reverse the encryption (known as decryption). Public Key Cryptography encryption and decryption is performed with Public and Private Keys.

Public Key and Private Keys

The Public key and Private key-pair comprises of two uniquely related cryptographic keys (basically long random numbers). Below is an example of a Public Key:

3048 0241 00C9 18FA CF8D EB2D EFD5 FD37 89B9 E069 EA97 FC20 5E35 F577 EE31 C4FB C6E4 4811 7D86 BC8F BAFA 362F 922B F01B 2F40 C744 2654 C0DD 2881 D673 CA2B 4003 C266 E2CD CB02 0301 0001

The Public Key is what its name suggests - Public. It is made available to everyone via a publicly accessible repository or directory. On the other hand, the Private Key must remain confidential to its respective owner.

Because the key pair is mathematically related, whatever is encrypted with a Public Key may only be decrypted by its corresponding Private Key and vice versa.

For example, if Bob wants to send sensitive data to Alice, and wants to be sure that only Alice may be able to read it, he will encrypt the data with Alice's Public Key. Only Alice has access to her corresponding Private Key and as a result is the only person with the capability of decrypting the encrypted data back into its original form.

As only Alice has access to her Private Key, it is possible that only Alice can decrypt the encrypted data. Even if someone else gains access to the encrypted data, it will remain confidential as they should not have access to Alice's Private Key.

Public Key Cryptography can therefore achieve Confidentiality. However another important aspect of Public Key Cryptography is its ability to create a Digital Signature.