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Doing Business in CyberspaceDoing Business in Cyberspace
Week 9: E-Business & E-Commerce
Cyrus Daftary & Todd Krieger
March 23rd, 2015
Course RoadmapCourse Roadmap
Week 1 & 2 Introduction &
Intellectual Property
Week 5Business Lifecycle
Week 71st Amendment
Week 6Trade Secrets
Week 8Privacy Issues
Week 4 Access to
Technology
START
Week 2 Copyright
Week 10Tax
Week 11Jurisdiction
Week 12Class Project
TBD
Week 9 Doing Business
Online
Week 13 Class Projects
TBD
Week 14 Class Projects
TBD
AgendaAgenda
• Administrative – Need to verify dates for Class Project and Presentations
• Understanding E-Business versus E-Commerce
• Contract Issues
• Questions & Answers
3
Themes to E-BusinessThemes to E-Business
• E-Business is happening at every company today, participation is a necessity, not an
option.
• Its not just ‘how’ you do business, it is a new business.
• Flexibility, speed of execution and leveraging data ownership will be core competencies
for future strategic decision makers.
• Value drivers at companies are changing constantly; the value must be more than just
for one business─ it must create value for the entire business network.
• Strategic partnerships are more important than ever ─ companies can not afford to go it
alone.
• E-business creates new legal risks and opportunities.
4
Opportunities that the ‘Net affords
Business
Opportunities that the ‘Net affords
Business
• Low cost has made access easier
• A computer is no longer needed
• Expanded Marketing Opportunities
• Expanded Sales Opportunities
- B2C & B2B & B2E
• Product Innovation & Support
• Bridging the brick and mortar with
power of the web.
5
Marketing OpportunitiesMarketing Opportunities
• Social Networking
• Targeted Advertising
– Can be displayed based on age, gender, location and other searches the user
has performed
– Pay-per-click advertising
– Purchase search engine keywords
– Streaming Video Ads
– Views driven through user-generated content
• Viral Marketing
• User reviews and recommendations6
• Crowd-Sourced Pricing
– Groupon, LivingSocial
• Mobile Apps
– Price comparisons and coupons
• Daily Deals and Flash Sales
• Deal Aggregators
• In-Store Pickup – order online, pick up in store
– Amazon.com - planning to implement same-day delivery
Sales OpportunitiesSales Opportunities
7
•Banner ads, etc.
•Period fees to join the community - e.g. monthly, quarterly, annually - Best used for information exchange
•Transaction fees range from 0.1 to 20% and typically are based on a percentage of cost savings. Monthly usage fee - Best used for purchase transactions
•Fees for software, data, storage services. Software as a Service (SaaS)
•Mark up on sales price of goods/services - Best used for purchase power levers/resellers
•Management reporting and data analysis of transaction information captured by the eMarket - Pricing based on complexity of analysis/report
•% of amount (shipping, service, etc) or hourly rate (consulting/implementation services)
•Hosting of eProcurement and other services
REVENUE SOURCE SAMPLE REVENUE RANGES
ADVERTISING
SUBSCRIPTION/ACCESS FEES
TRANSACTION
LICENSING
SALES REVENUE
DATA COLLECTION/MANAGEMEN
T
VALUE ADDED SERVICES
HOSTING
Sources: Forrester Research, PwC analysis
Sales Opportunities Result in RevenueSales Opportunities Result in Revenue
8
Product SupportProduct Support
9
• More Important Than Ever
– Product and service data, customer reviews easily accessible
– Social media: Companies now must monitor social media channels and respond quickly to customer concerns and complaints
• Data Collection
– Personalization of customer service
– Knowledgebases, Wikis
– Need systems and processes to handle volume of customer data
• Multi-Channel Customer Support
– Multiple methods for customer to get help
– Phone, website, social media, mobile apps
– “Agile” approach: Seamlessly transition customer between channels
Start with an E-Business DefinitionStart with an E-Business Definition
• Marketing
• Buying and selling products
and services over
the Internet
E-Commerce
“E-Commerce is what you do and e-business is what you are”
• Designing the enterprise for the E-Business age
• Creating new sources of shareholder value by:o Building customer loyaltyo Optimizing business processo Creating new products and serviceso Managing risk and complianceo Reaching new marketso Enhancing human capitalo Harnessing technologyo Achieving market leadership
E-Business
10
E-Business brings ChangeE-Business brings Change
Your Your MarketMarket
New Context
• Channels• Technology
• Environment• Business Models
New:
New Customers
New Competition• Choices
• Intimacy• Priorities
• Expectations
New:
• Value Propositions
• Capabilities• Partners
• Ideas
New:
• Baggage• Holds Barred•Pre-conceptions
No:
11
Products&
Services
Value Proposition/
Pricing Strategy
Target Community
of Businesses
Who are the target businesses (suppliers and buyers)?
Why will they join? What is their relation to the
market?Competition
What other communities will target them?
What products and services will the company deliver?Content /CommunityCommerce
Direct Materials Commodities Excess Inventory Customized Products
Value-added Services Product Consulting IT Services Financial Services Logistics Risk Mitigation Demand Planning
How does the businesscreate value?Content /CommunityProcess/Market EfficiencyPurchase PowerSupply Chain IntegrationCross Company Collaboration
Aggregator Auction Exchange
How will the company capture its share of this value?
Transaction fees Licensing fees (SaaS) Value-added services
Strategic Planning Model
Change Requires Strategic PlanningChange Requires Strategic Planning
12
Strategic Planning Should Create Value Propositions Strategic Planning Should Create Value Propositions
PurchasePower
Process Efficiency/Outsourcing/ASP Supply Chain
Integration
Aggregated Content/
Community
MarketEfficiency
Aggregate buyers into buying consortiums
Volume pricing
Better information for supplier negotiations
Supplier consolidation
Spending and control reports
Electronic product searches/catalogs
Electronic order taking and management
Electronic requisition and approval (workflow)
Auto replenishment
Electronic bill presentment and payment
Improved information access
Better spend control
Reduced transaction costs
Shared infrastructure
Disintermediation
Improved visibility across market supply chains
Reduced lead time
Reduced inventory levels
Improved logistics management
ERP integration
Tax optimization
Industry best practices
Knowledge Management
Benchmarking studies
Monitoring/control reports
Discussion forums
Product information and reviews
FAQs
Industry collaboration
Newsletters
Network effect
Online market making mechanisms to match buyers and suppliers
eCatalogue
Auctions
Exchange
Access to broader range of suppliers and buyers
Improved information access
Increasing ValueIncreasing Value
Cross Company
Collaboration Collaborative
Design
Multi company scheduling
Knowledge Management
13
Tangible benefits from clear value propositions create a critical mass of buyers and sellers. Well-defined services help retain consumers with a superior offering and experience.
Value Propositions must Appeal not only to the
Company…but also to Potential Consumers
Value Propositions must Appeal not only to the
Company…but also to Potential Consumers
Lower price & negotiation costsExpanded supplier access
Lower search costsLower processing costs
Reduce inventory costsReduce processing costsReduce time to market
Improved, ongoing benchmarking
Cost-effective researchFaster competitive responsePrice & inventory transparencyReduced cost of spot buying
Reduced excess inventory costs
Buyers
Benefit
Great coordination; faster cycle times
Higher profits & volumeLower negotiation costsExtended customer base
Lower customer acquisition cost
Lower processing costsImproved inventory management
Improved demand forecastingHigh buyer switching costsImproved, ongoing
benchmarkingCost-effective, ongoing
researchFaster competitive responseGreater customer reach
Reduced cost of salesReduced excess inventory costs
Sellers
Benefit
Greater coordination; faster cycle times
PurchasePower
ProcessEfficiency
Supply ChainIntegration
AggregatedContent & Community
MarketEfficiency
Value
Value Propositions
Cross-Company Collaboration
14
Creating New Markets – with Buyers and SellersCreating New Markets – with Buyers and Sellers
Business Transaction Cycle
Product A
$A
Deal
$$
$
Part #Price
Product
Part 1 Part 2 Part 3
+ +
?
Buyers
Suppliers1. Attract•Create critical mass•Introduce sellers &
buyers
2. Inform•Aggregate catalogs•Provide information about the
product
3. Configure•Allow customers to
customize the product (e.g., RFP, enter product specs)
4. Transact•Set the terms of transaction
5. Process Payment•Bill•Take payment
6. Build customer relations
•Handle inquiries•Account mgmt•Data mining
7. Fulfill•Logistics
mgmt•Inventory
mgmt
15
A World of ChallengesA World of Challenges
16
A WORLD OF CHALLENGES
1. Global Competition in a Global Economy
2. Dot “Bombs”
3. Cost and Market Pressure
4. Deregulation and Consolidation
5. Customer Expectations
6. Product and Service Innovation
7. Rapid and Continual Technological Changes
8. Applying Traditional Legal Rules
E-Business Changes Business StrategiesE-Business Changes Business Strategies
17
• Society has moved to a self-serve mentality:
– Examples: Self-checkouts, online banking, airport check-in, online stock trading
• Data Mining
– Push vs. Pull Strategies
• Strategic Partnerships
• Building Communities
• Outsourcing Non-Core Functions
E-Business Changes RelationshipsE-Business Changes Relationships
• Who is my customer?• Where is my customer?• Are E-Contracts valid?• How and will I get paid?• What laws/regulations apply?• Can I protect my IP?• Are there Antitrust issues? C
usto
mer
sYour
Business
•Function v. Geography•Global Management
•Global Hiring• 24/7 R&D
•Temporary Assignments•Stock Option planning
•Uniform HR policies•Fair Compensation
•Local regulations•Expatriate policy •Local payroll tax
Em
ployees
• Security• Auctions • E-Payment
Suppliers
• E-Procurement• How do I fulfill?• Dis-intermediation
18
E-Business changes relationship with
Suppliers, Employees & Customers
E-Business changes relationship with
Suppliers, Employees & Customers
19
Relationships Create ChallengesRelationships Create Challenges
• Few widespread successful model E-Businesses exist.
• Technology-hype creates confusion – technology should only be the
enabler not the driver.
• Standards/Security/Privacy concerns
• Technology integration seems daunting.
• Uncertain business implications abound.
• Disrupters are driving new business models.
• Macro vs. Micro market targeting
20
E-business Life Cycle – Corporate Level E-business Life Cycle – Corporate Level
E-Business Leverage
Bu
sin
es
s V
alu
e
Static Information
“Brochureware”
Presence
Cross-Industrysupplier & customer
integration
Convergence
Interactive contentPersonalizationLegacy interface
Integration
• Online communities• Dynamic supply chains
Transformation
21
Hillenbrand Inc.www.hillenbrand.com/index.htm
Hillenbrand Inc.www.hillenbrand.com/index.htm
Allows viewers to access information- Shareholder Info; Corporate Governance; News Media; and Contacts(http://www.hillenbrand.com/index.htm)
Does not provide instant quotes online
Does not allow online transactions
Refers customers to Hillenbrand phone contacts
Interactive contentPersonalizationLegacy interface
Integration
• Online communities• Dynamic supply chains
Transformation
Static Information
“Brochureware”
Presence
22
McAfeewww.mcafee.com
McAfeewww.mcafee.com
– Ability to login within username and password (individual or
business)– Personalized content – with knowledge-based profile– Ability to push potential offerings based on customer buying profile– Products & Services, Virus Info, Store, Support, Downloads
Re-intermediation - a new business model
• Personalize Info• Custom Login
Integration
23
NewEggwww.newegg.com
NewEggwww.newegg.com
– Ability to get a series of quotes on computers– Competitive, personalized quotes immediately– User can then compare prices and coverage before making final
decision– Ability to purchase on-line or by phone
Re-intermediation - a new business model
• Online communities• User Reviews• Email Deals
Transformation
24
Convergence-based Strategies are Easier to
Implement in Cyberspace
Convergence-based Strategies are Easier to
Implement in Cyberspace
Flights Hotels
BookseBooks CDs
Banking Insurance Appliances?
Online Trading
Investment Banking
ElectronicsAuctions/Gifts
©
CruisesCars
25
Games
Lending Services
Role of eBusiness
Deg
ree
of c
hang
e to
bus
ines
s m
odel
Channel Enhancement
Value ChainIntegration
Convergence
IndustryTransformation
Enterprise ConnectivityInternet technology enabled processes, systems and organizational change and getting the organization connected (B2E – Business-to-Employee).
Enhancing current channels and adding new channels to market (sell side)
Connections with trading partners & process changes across the value chain (buy side)
Restructuring the value chain to create “many-to-many” relationships, new value propositions and new business models.
Companies entering new industry sectors and competing outside of their core business areas
E-business Life Cycle -
Industry Transformation
E-business Life Cycle -
Industry Transformation
26
Amazon, DELL, Cisco, E*Trade – all have business models like this
Partnership: The Key to a Successful e-Business
Successful E-businesses have the
Right Strategic Partners
Successful E-businesses have the
Right Strategic Partners
GM and its 30,000 suppliers
Compelling Value Propositions
Enhanced service offerings
ASP/Hosting
Supplier Management
Distributors
Third-Party Services
eCommerce Platform:Shopify, Magento, CubeCart, Zen CartOperational
Support
OperationalSupport
Softwareand
Technology
Softwareand
Technology
Define the Market and Service Offerings
Define the Market and Service Offerings
Anchor Buyers and
Sellers
Anchor Buyers and
SellersEntrepreneurial/
Management Team
Entrepreneurial/ Management Team
Third Party Service Firms
Third Party Service Firms
E-Business
27
Dot BombsDot Bombs
• Very few online-based companies are truly successful…• Amazon, Google, Facebook, YouTube, eBay, PayPal and others are successful• Hybrid usage of dot com offerings and the power of the internet have been more successful.
– Target
– GAP
– FedEx
28
Dot Com BustsDot Com Busts
Dot Com Bubble (1997-2000)• Many new online businesses were founded and investors would drive stock prices to shoot up
• Caused by market confidence in new online technology and widely available venture capital
Pets.com - Formed in 1998 as an online store for pet supplies
• Multimillion dollar Super Bowl commercials and a Macy’s Thanksgiving Day Parade Balloon
• Could not compete with brick and mortar pet stores– Orders would take days to reach customers
– To keep prices competitive, undercharged for shipping costs
• $82.5 million IPO in 2000, then closed 9 months later
29
Digital DarwinismDigital Darwinism
• Rapid changes in technology have been ruining companies too slow to adapt to the changes
• Often caused by companies listening to shareholders instead of consumers and not focusing on evolving markets
DIGITAL CAMERASPolaroid – filed for bankruptcy in 2001 and 2008
Kodak – filed for bankruptcy in January 2012
STREAMING MOVIES AND MOVIES-BY-MAILHollywood Video – filed for bankruptcy in February 2010
Blockbuster – filed for bankruptcy in September 2010
EBOOKS AND ONLINE BOOK SALESBorders – filed for bankruptcy in February 2011
30
Equity Structure ConsiderationsEquity Structure Considerations
Every Dot.com is different…
Incentive Creation
Equity Ownership
70%
10%
10%
10% Founders
Management
TechnologyPartnerStrategicInvestor
31
Know What it Takes to SucceedKnow What it Takes to Succeed
• Clearly identify how your project objectives link to critical business issues before starting – understand your industry – speed to market is critical.
• There is a need for senior business champions that are committed to the project – need to create standards and strategic /tactical plans.
• A skilled team is essential – one that combines both business and IT.• E-Business must be a business – driven (not IT) initiative.• Business units must feel ownership – but central leadership, coordination and
development is important• Plan thoroughly how to integrate E-Business into your existing business system – need
to create efficiencies – may need strategic business partners.• Understand the Legal, Privacy and Security requirements that E-Business brings.• Culture and change are more complex than technology to institute – staff retention is
very difficult.• Do not treat E-Business as just a “front-end” – it changes the way you operate.
32
Web presence for most businesses is essential. The Internet offers a new realm of business opportunities. The Internet has created a global economy – with the ability to have jobs and other
business functions outsourced abroad. Ability to execute, to scale, captures and retains market share – no longer have to be
the first to market … must simply be better Technology is only the enabler. Defining the value proposition is critical and it is imperative that the proposition(s) has
strategic and economic value. Strategic partners are essential. The end result is cost efficiency and enhanced revenue generation.
Things to ConsiderThings to Consider
33
Enforceable Transactions on the ‘Net§ 6.04
Enforceable Transactions on the ‘Net§ 6.04
“Traditional” Contract Considerations:
• Offer, Acceptance, and Consideration• Message/Contract Authenticity• Message/Contract Integrity• Writing and Signature Requirements (SOF)• Digital Signatures• Mailbox Rule and e-mail• Shrinkwrap or Clickwrap Agreements
34
Offer, Acceptance, & ConsiderationOffer, Acceptance, & Consideration
• Many contracts are instantaneously formed online
Need to meet requirements of offer, acceptance and consideration• Contracts law governed by Common Law or UCC
Is software a good sold?• Offer
Private e-mail message = offer
Advertisement = catalog • Revoking an Offer
Need direct communication• Acceptance
UCC acceptance may be communicated by any “medium reasonable in the circumstances.”
• Consideration
Bargained for exchange & legal value
35
Mailbox Rule & E-mail§ 6.04[B]
Mailbox Rule & E-mail§ 6.04[B]
• Recall that the moment an acceptance is posted by the offeree is the precise moment that the offer is accepted, even if revocation is in the mail.
• To date, courts have not decided whether the mailbox rule applies to e-mail. Outcome will depend on whether e-mail is deemed to be an instantaneous communication or like a traditional mail service.
• The offer should be effective upon actualreceipt.
36
Message / Contract IntegrityMessage / Contract Integrity
• Is the message/contract complete?• Has the contract been altered since it was sent?• Proving that my copy of the message has not been altered
- No eraser marks, no ink smudges, etc. stand out to alert court of fraud
- Fix with tools like Encryption Programs; use a Third Party Record Keeping; print hardcopy and sign
37
Requirements of a Signed
Writing/Statute of Frauds (UCC 2-201)
Requirements of a Signed
Writing/Statute of Frauds (UCC 2-201)
• Writing Requirements• Signature Requirements
38
Electronic SignaturesElectronic Signatures
TWO BASIC ELEMENTS:1.Intent to Sign
– Does the user realized what they are signing and intend to be bound by the agreement?
– “Click-wrap” agreements present issues
2.Authenticity
– Must ask who really sent the message
– Does that person have authority to contractually bind the company?
39
Digital SignaturesDigital Signatures
• Not the following:- digitized handwritten signature- typed name of person- secret code for a person
• Are the following?- Comprised of two keys:
- private key (sign contract with the private key)- public key (verify authenticity with public key)
40
Evolution of E-signEvolution of E-sign
•Utah was the first state authorizing electronic signatures (Utah Digital Signature Act 46-3-101).
•Requires dual key encryption and third party certification
•Other states have differing rules regarding authorized electronic signatures including authentication and scope.
41
UETA (Uniform Electronic Transactions Act)UETA (Uniform Electronic Transactions Act)
• Adopted by 47 states• Designed to harmonize varying state legislation on
electronic signatures and records• Technology neutral – treat e-signatures as paper and pen• Only applies when parties agree to conduct transactions electronically• Key of UETA (section 7): agreement will still be enforceable, even if in electronic form.
• Excludes wills, trusts and some other legal documents
42
UCITA (Uniform Computer Information Transactions Act)
UCITA (Uniform Computer Information Transactions Act)
• Adopted by 1.5 states (VA and MD) • Unlikely to be adopted by any other states• Amends UCC article 2 to cover computer information transactions
• Create, modify, transfer…computer information
• Information includes, data, text, images, sounds, programs… (excludes music)
• Focuses on license rather than sale.• Validates electronic contracts & signatures, shrinkwrap and clickwrap
licenses and licenses that can not be reviewed until after payment – opportunity to review the terms manifests assent.
• Limited self help.• Not consumer friendly and very controversial.
43
Electronic Signature Act (E-Sign)Electronic Signature Act (E-Sign)
•Provides a national framework to facilitate interstate electronic commerce and pre-empts state writing requirements
•Lack of adoption of UETA spurred congress to pass E-Sign.
•E-Sign does not cover the same depth as UETA.•Reinforces acceptability of doing business online
•The consumer still has the option of doing business on paper.•Still leaves leeway for states regarding types of electronic
signatures (technology neutral) and digital certificate authorities
•Provides the impetus for online financial transactions
•Banks
•Mutual Funds
44
European Union Electronic Signature DirectiveEuropean Union Electronic Signature Directive
•Similar objective and approach to U.S. E-sign law•Technology neutral•Actual approach may vary by member states•Differs from U.S. E-sign:
• Electronic signatures are admissible into evidence
• Defines certification authorities and requirements to become one
• Addresses privacy
45
Beastie Boys vs Monster Energy Beastie Boys vs Monster Energy
Facts:•DJ Z-Trip created an authorized Beastie Box remix (Megamix) for free distribution to promote Beastie’s “Hot Sauce Committee Part II” album•Monster Energy filmed Z-Trip and other participants during “Ruckus in the Rockies 2012” event•Monster created ~4 minute event recap video to promote brand using the Megamix soundtrack, released on FB, Youtube & its own homepage
46
What did Z-Trip Approve?What did Z-Trip Approve?
Monster’s Marketing Director Phillips’ question: Hey Zach,Please have a look at the video from this past weekend and let me know if you approve. (I think we’ll remove the logo[]s at the end since they’re redundant and the rest will get cleaned up just a little bit more.)Thanks again for an amazing weekend!! Once you approve, we’ll post on youtube and notify our 16M fans on fb
47
Z-Trip’s ReplyZ-Trip’s Reply
Dope!Maybe at the end when you put up the info about my Beasties mix, you could post below it “Download the mix for free at http://ztrip.bandcamp.com” That way people can pause it and go get it if they want… Also maybe a properlink on the description they can click thru once it’s posted proper?Dope though… Love the can at the end. […]Z
48
Lost in TranslationLost in Translation
What did Phillips’ intend to ask for?What did Zach mean in his response?What were the limits of the license the Beasties gave Zach for the Megamix?Was the $2.7 million in damages justified?
Was the infringement willful? “Monster’s four-minute web video, disseminated via YouTube, Facebook, and other websites, was a modern, relatively novel form of product advertisement.”
49
Court’s Conclusion:Court’s Conclusion:
• E-mail was “too enigmatic and elliptical to constitute the ‘clear [and] unambiguous’ acceptance necessary for contract formation.”
• Even if it was a contract: “…it would have taken “an heroic effort of explication” and “flout[ed] common sense” to interpret the contract to include a license to use the Beastie Boys’ music in the video”
50
Concluding RemarksConcluding Remarks
• E-Business is happening in every company TODAY• Legal Departments should be involved at the earliest, strategic
levels of B-Business planning.• Flexibility, speed of execution and leveraging data ownership will
be core competencies for future strategic decision makers.• E-Business creates new legal risks and opportunities (ie. online
contracts, buyers, sellers, etc.).
51
Questions & AnswersQuestions & Answers
?????????? 52
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