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