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IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall8/28/2012
4-1
Chapter 4Enabling Commerce Using the Internet
Coca-Cola is using social media to connect with customers.
IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall8/28/2012
Learning Objectives
1. Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace.
2. Explain the differences between extranets and intranets and show how organizations utilize these environments.
3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications.
4. Describe how people can participate in consumer-to-consumer electronic commerce and explain the different forms of Internet marketing.
5. Describe emerging issues and trends in electronic commerce.
6. Explain different forms of electronic government.
4-2
IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall8/28/2012
Learning Objectives
1. Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace.
2. Explain the differences between extranets and intranets and show how organizations utilize these environments.
3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications.
4.Describe how people can participate in consumer-to-consumer electronic commerce and explain the different forms of Internet marketing.
5. Describe emerging issues and trends in electronic commerce.
6. Explain different forms of electronic government.
4-3
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Electronic Commerce4-4
Online exchange of goods, services, and money 2009: 3.7 percent of total retail revenue $134.9 billion in revenue
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Most Common Types of E-Commerce4-5
Business-to-consumer (B2C) A person buys a book from Amazon.com.
Business-to-business (B2B) Retailer like Eddie Bauer for procurement of inventory
Business-to-employee (B2E) Employee uses the Web to change employee benefits.
Consumer-to-consumer (C2C) One person purchases from another on eBay.
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Other Types of E-Commerce4-6
Government-to-citizen (G2C) A person filing income taxes online.
Government-to-business (G2B) Government purchases supplies using Internet-enabled
procurement system.
Government-to-government (G2G) Foreign government accessing U.S. federal regulations
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Key Capabilities of the Web4-7
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Information Dissemination4-8
Firms across the world have access to customers.
Economical medium for marketing products and services
Increased geographical reach
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Integration4-9
Integration of information via Web sites
Real-time access to personalized information
No time lag between company decisions and customers’ ability to access these
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Example: Integration4-10
Alaska Airlines customers can access their mileage program any time. Real-time link
between company database and customer
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Mass Customization4-11
Meeting particular customers’ needs on a large scale
Timbuk2.com Custom Messenger Bag
Builder Customers create a
virtual bag.
Preference-tracking helps Timbuk2 in marketing efforts.
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Interactive Communication4-12
Immediate feedback between company and customers E-mail notifications Customer service online
chat
Best Buy Geek Squad 24-hour computer
support
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Transaction Support4-13
Internet and the Web: Reduced transaction costs Enhanced operational
efficiency
Dell—automated transaction support Cost savings per sale Disintermediation
Reintermediation Reintroduction of
middlemen Example: Orbitz.com
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E-Commerce Business Strategies4-14
Differentiated, based on levels of physical/virtual presence
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Brick-and-Mortar Business Strategy4-15
Physical locations only Traditional stores, no E-Commerce Limited geographical reach
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Click-and-Mortar Business Strategy4-16
Bricks-and-clicks business strategy
Hybrid strategy
Added complexity combining two different environments
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Click-Only Business Strategy4-17
Business conducted in cyberspace—no physical location Price savings Difficulty with returns. Customers uncomfortable with
online transactions
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Example: Click-and-Mortar Company4-18
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Components of a Business Model4-19
A plan of how to achieve EC success
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Typical Revenue Models for EC4-20
Most important ingredient of business model: How will the firm earn revenue?
IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall8/28/2012
Learning Objectives
1. Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace.
2. Explain the differences between extranets and intranets and show how organizations utilize these environments.
3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications.
4.Describe how people can participate in consumer-to-consumer electronic commerce and explain the different forms of Internet marketing.
5. Describe emerging issues and trends in electronic commerce.
6. Explain different forms of electronic government.
4-21
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Business-to-Business E-Commerce
B2B involves exchanges between two or more businesses; these exchanges do not include end customers (consumers).
Supply chain—companies and processes moving product from suppliers of raw materials to suppliers of intermediate components, to final production, to the customer.
4-22
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Supply Network4-23
The farther out in the supply chain one looks, the more suppliers are involved, forming a supply network.
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Electronic Data Interchange (EDI)4-24
Used prior to the introduction of the Internet
EDI = computer–computer communication (without human intervention) following standards:
UN Economic Commission (Europe), and
American National Standards Institute .
However:
Use dedicated telecommunications networks ; therefore costly.
Web-based EDI protocols are more economical.
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Exchanging Organizational Data Using Extranets4-25
Extranet a private part of the Internet,
cordoned off from ordinary users, and
enables two or more firms to use the Internet for EDI purposes.
One of the best ways for organizations to gain a positive return on their technology-based investments
Example: Boeing’s extranet involves over 1000 authorized business partners.
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Benefits of Extranets
Information Timeliness and Accuracy Cost effective, global medium for distributing proprietary
information
Central management of documents
Technology Integration Cross-platform—Web protocols mitigate differences in platforms,
operating systems, and so on.
Low Cost–High Value Low training needs; most employees know how to use the Web. Automate business transactions
Reduce processing costs
Achieve shortened cycle times
Reduce errors
4-26
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Extranet System Architecture4-27
Internet-based application
Use of firewalls and Virtual private networks (VPN) to provide secure information transmission
Firewalls to secure proprietary information
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Extranet Applications4-28
Portals—access points for business partners.
Supplier Portals
Single buyer andmultiple suppliers
HP Supplier Portal
Customer Portals
Single supplier and multiple buyers
MyBoeingFleet
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B2B Marketplaces4-29
Operated by third-party vendors
Allow many buyers and many suppliers to interact
Some operate within a vertical market (industry-specific); for examples: steellink.com
paperindex.com
fibre2fashion.com
Some are not industry-specific Alibaba.com
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Business-to-Employee Electronic Commerce4-30
Business-to-employee (B2E) electronic commerce Internet based private network using Web
technologies Boeing Intranet serves more than 200,000 employees. More than 1 million pages
Intranet—Used to facilitate secured transmission of proprietary information within companies.
Intranets offer similar benefits as extranets.
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Intranet System Architecture4-31
Internet-based application
Use of firewalls and Virtual Private Networks (VPN) to secure information transmission
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Intranet Applications
Training Boeing’s Quality eTraining program
Personalized Intranet Pages Employee see only content that pertains to his or her job.
Real-Time Access to Information Less complicated to manage, update, distribute, and access
corporate information
Improve employee productivity Online Entry of Information Paper-base human resourced form:$20–$30 Web-based human resourced form:$2–$4
Collaboration Timely communication of business activities
4-32
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Intranet Collaboration Using Groupware
Two dimensions of categories:1. Synchronous vs.
asynchronous
2. Face-to-face vs. distributed
Electronic meeting systems (EMS)
4-33
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Lotus Notes
Award-winning groupware application
Millions of users worldwide
4-34
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Collaboration Using Videoconferencing
Desktop videoconferencing PC, Web-cam, high-speed Internet
Videoconferencing software Skype, Gizmo, Yahoo! Messenger, Windows Live Messenger
Dedicated videoconferencing Within conference rooms
Highly realistic
Expensive
4-35
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Learning Objectives4-36
1. Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace.
2. Explain the differences between extranets and intranets and show how organizations utilize these environments.
3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications.
4.Describe how people can participate in consumer-to-consumer electronic commerce and explain the different forms of Internet marketing.
5. Describe emerging issues and trends in electronic commerce.
6. Explain different forms of electronic government.
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Use of Internet Technologies4-37
Characteristics of the Internet, intranet, and extranet
B2B and B2E rely on extranet and intranet. Internet provides an opportunity for B2C
commerce.
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Stages of B2C E-Commerce4-38
Web sites range from passive to active.
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E-Tailing4-39
Selling goods and services online Click-and-mortar Walmart.com
Click only Amazon.com
Virtual company Priceline.com
Reverse pricing vs. menu-driven pricing
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E-Tailing Benefits4-40
Product benefits Unlimited number and variety of products Easier comparison shopping
Examples: AllBookstores, BizRate, or SideStep
Place benefits Anywhere, anytime Purchasing on global scale
Price benefits Higher inventory turnover rate No expenditures for physical retail space
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The Long Tail4-41
Traditional stores Focus on mainstream
needs Target the average
customer Example: Blockbuster
E-Tailers Can focus on niche
markets Example: Netflix
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E-Tailing Drawbacks4-42
Product delivery drawbacks Delay between product order and delivery
Except for products that can be downloaded
Direct product experience drawbacks Lack of sensory information
Smell, taste, feel
Lack of the social element Cannot replace going to the mall with friends
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Attracting and Retaining Online Customers4-43
Basic rule of commerce Offer valuable products/services at fair prices
Additional e-commerce rules1. The Web site should offer something unique.2. The Web site must be aesthetically pleasing.3. The Web site must be easy to use and fast.4. The Web site must motivate people to visit, stay,
and return.5. You must advertise your presence on the Web.6. You should learn from your Web site.
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E-Banking4-44
Financial institutions offer: Online banking
Management of credit card, checking, and savings accounts
Electronic bill pay Bill payment online
Online investing Growing in popularity
Extensive use of Internet for obtaining financial information
IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall8/28/2012
Learning Objectives
1. Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace.
2. Explain the differences between extranets and intranets and show how organizations utilize these environments.
3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications.
4.Describe how people can participate in consumer-to-consumer electronic commerce and explain the different forms of Internet marketing.
5. Describe emerging issues and trends in electronic commerce.
6. Explain different forms of electronic government.
4-45
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C2C E-Commerce4-46
C2C commerce has always been present. Bartering, auctions, tendering
Seventeen percent of American adults have sold online.
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E-Auctions4-47
Forward auction Sellers post goods or services for sale.
Buyers bid on these items.
Highest bid wins.
Reverse auction Buyers post a request for quote (RFQ).
Seller proposes a bid.
Lowest seller bid wins.
This is frequently in B2B e-commerce.
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E-Auction Fraud4-48
E-auctions marred with more fraud than any other Internet activity. E-auctions represent 45 percent of all Internet fraud-
related complaints. Average loss: $724
Types of e-Auction fraud: Bid luring Reproductions Bid shielding Shipping fraud Payment failure Nonshipment
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Types of Internet Marketing
Search Marketing For Google or other search engines; search optimization
Display Ads Static and interactive banners; videos
E-mail Marketing Replacing direct mail; low cost
Social Media Facebook, Twitter
Mobile Marketing Audi built a game for the iPhone
Pricing Models – e.g., pay-per-click
4-49
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Search Marketing4-50
Search marketing will continue to have the largest share of interactive marketing spend.
VanBoskirk (2009)
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Search Advertising4-51
Search advertising Also called sponsored
search
Pay to ensure a spot on top of search results page
Example: Google AdWords
Bid for being listed in sponsored search results
Placement depends on relevance
Pay-per-click
Can get costly
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Search Engine Optimization4-52
Position within search results based on complex formula
Tips: Have other pages link to
one’s site Keep updating content Include key words
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Pricing Model
Impression-based This is based on the number of times the page containing an ad
is viewed.
Performance-based This is more direct, such as pay-per-click.
Metrics— click-through rate
conversion rate
Click fraud—manually or automatically inflating the click-through rate.
4-53
IS Today (Valacich & Schneider) 5/e Copyright © 2012 Pearson Education, Inc. Published as Prentice Hall8/28/2012
Learning Objectives
1. Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace.
2. Explain the differences between extranets and intranets and show how organizations utilize these environments.
3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications.
4.Describe how people can participate in consumer-to-consumer electronic commerce and explain the different forms of Internet marketing.
5. Describe emerging issues and trends in electronic commerce.
6. Explain different forms of electronic government.
4-54
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C2B EC
Relatively new phenomenon
Consumers sell to businesses
Stock photo sites such as www.shutterstock.com
Crowdsourcing
Blurry line between C2B and B2B
4-55
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M-Commerce4-56
Electronic transactions using wireless mobile devices Mobile networks Wireless Switched public network
Smart phones High-speed data transfer “Always-on” connectivity
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M-Commerce Applications4-57
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Location-Based M-Commerce4-58
Highly personalized mobile services
Based on location GPS functionality
Bluetooth e911 Federal mandate Correct routing of emergency calls GPS specifies location within 50 meters
Phone locator Location of family members’ cell phones Alerting system when child leaves a
certain area
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Location-Based Services4-59
Next big thing: cell phone social networking
Example: Facebook Gowalla
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Key Drivers of M-Commerce4-60
Growth of consumer interest in adoption of the Internet and e-commerce
Real-time transfer of data over 3G and 4G cellular networks “Always-on” connectivity
M-commerce market in the United States grew from $396 million to $1.2 billion from 2008 to 2009.
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Mobile Entertainment4-61
Slingbox Acts as a personal media server
“Placeshifts” television content to any Internet-enabled device
Television signal received at the user’s house
Relayed over the Internet to be accessed from anywhere
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Securing Payments in the Digital World4-62
Eleven million consumers became victims of identity theft.
Security concerns lead shoppers to frequently abandon their shopping carts.
More than 1/2 of shopping carts are abandoned.
Need for secure forms of online payment
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Credit and Debit Cards4-63
Customer Verification Value (CVV2) Three-digit code on the back of a card
Added to combat fraud in online purchases
Not included in the magnetic strip information
Code used for authorization by bank
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Conducting Safe Transactions Online4-64
1. Use a secure browser with the latest encryption capabilities.
2. Check the site’s privacy policy.
3. Read and understand refund and shipping policies.
4. Keep personal information private.
5. Give payment information only to those you know and trust.
6. Keep records of online transaction.
7. Review your monthly credit card and bank statements.
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Payment Services4-65
Online transactions without sharing private information with actual seller
Payment service keeps information secure. PayPal (owned by eBay)
Can send and receive money if you have an e-mail account.
Google Checkout Linked with Google search Users can see if merchants offer this option.
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Legal Issues in EC—Taxation4-66
The Internet Tax Freedom Act (1998) Internet Tax Nondiscrimination Act (2004) Internet sales treated as mail-order sales No sales taxes paid in states where the company
has no presence
Arguments for and against Ecommerce Taxation:
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Legal Issues in EC—Digital Rights Management4-67
Technological solution that allows publishers to control their digital media
Entertainment industry: DRM allows copyright holders to minimize sales losses by preventing unauthorized duplication.
Critics: publishers are arbitrary on how they enforce DRM, and infringe on existing consumer rights.
Digital watermark: an electronic version of physical watermarks placed on paper currency to prevent counterfeiting.
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Learning Objectives
1. Describe electronic commerce, how it has evolved, and the strategies that companies are adopting to compete in cyberspace.
2. Explain the differences between extranets and intranets and show how organizations utilize these environments.
3. Describe the stages of business-to-consumer electronic commerce and understand the keys to successful electronic commerce applications.
4.Describe how people can participate in consumer-to-consumer electronic commerce and explain the different forms of Internet marketing.
5. Describe emerging issues and trends in electronic commerce.
6. Explain different forms of electronic government.
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E-Government4-69
Providing information about public services To citizens To organizations To other governmental
agencies
1998—Government Paperwork Elimination Act
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Government-to-Citizens4-70
Interactions between the government and its constituents IRS—e-filing
Grants.gov
e-voting initiatives
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Government-to-Business4-71
Relationships between businesses and the government E-procurement Forward auctions
Businesses buy surplus government equipment
AuctionRP.com
Online application for export licenses
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Government-to-Government4-72
Interactions between countries Regulations.gov
Export.gov
Interactions between different levels of government
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End of Chapter Content
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Managing in the Digital World: Businesses Get Social
4-74
Social media are no longer just being used by private individuals.
Businesses are racing to establish and promote themselves within social media networks.
It is costly in time and money.
Nevertheless, many large companies see the value of social media.
This is often handled through the marketing department.
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WHEN THINGS GO WRONG
Apple Versus Adobe
Apple has been a champion of popularizing the mobile Web (iPhone, iPod, iPad).
But Apple products cannot display Adobe Flash content due to proprietary reasons.
Flash is used by many of Apple’s competitors. Flash is used in YouTube and many advertisements.
Apple cites security and performance concerns. Steve Jobs criticized Flash and encouraged its abandonment in open
standards.
Adobe announced: It will discontinue providing Flash substitutes for Apple platforms.
It is distributing free Google Android-powered phones to employees.
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POWERFUL PARTNERSHIPS
YouTube’s Steve Chen and Chad Hurley4-76
Former PayPal employees
Went online in 2005 30 million videos a day 9.1 million users Sold to Google for
$1.76 billion Hurley studied design
at U. Pennsylvania Chen studied
computer science at U. Illinois
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ETHICAL DILEMMA
Monitoring Productive Employees4-77
“You have zero privacy; get over it” (Scott McNeely, CEO of Sun Microsystems)
Use of company provided Internet connection can be legally monitored
American Management Association survey (2007): 66% of employers monitor employee’s Internet use.
65% use software to block access to certain Web sites.
45% monitor key strokes.
43% review and retain employee e-mails.
73% use automatic e-mail monitoring technology.
84% of the companies disclose the practices to the employees.
30% fired employees for Internet misuse.
28% fired employees for e-mail abuse.
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NET STATS
Who Is Subsidizing Web Content?
Top Internet advertisers by category
Top 5 advertisers (2009) 1. Scottrade: $30 million
2. Sprint Wireless: $21 million
3. TD Ameritrade $18 million
4. Scottrade Stock Brokerage: $17 million
5. Seroquel XR: $10 million
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COMING ATTRACTIONS
Smart Phones of the Future4-79
Microsoft patent—Smart Interface System for Mobile Communications Devices Turn a smart phone into a full-blown computer by plugging
into a docking station.
Apple’s approach Integrate more functions into the iPhone
Front-facing video camera
User recording and editing of high-definition videos
Increased customizability Touch screens, faster Bluetooth, GPS, more memory, faster
data transmission, complex applications, artificial intelligence
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Human-Powered Search Engines: ChaCha
4-80
Free search service for mobile phones Guides read, then answer questions Guides must apply and be trained Technology “learns” from guides’ answers ChaCha has answered over 500 million questions
since its launch. 10 million users per month ChaCha introduced a new Facebook app in February
2010.
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INDUSTRY ANALYSIS
Retailing4-81
Systems have improved brick-and-mortar experience. Computerized Point of Sale (POS) Bar code scanners Inventory control
Emerging RFID (Radio frequency identification) technology
“Smart” shelves “Smart” dressing rooms
Pay by fingerprint (via fingerprint scanners) Pay by mobile phone
Near Field Communication (NFC)
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