Reflection essay
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6789Readings.docx282 CHAPTER 9 Social Computing
Telecommunications and Networking
CHAPTER OUTLINE LEARNING OBJECTIVES
6.1 What Is a Computer Network? 6.1 Compare and contrast the major types of networks.
6.2 Network Fundamentals 6.2 Describe the wireline communications media and transmission
technologies.
6.3 The Internet and the World Wide Web 6.3 Describe the most common methods for accessing the Internet.
6.4 Network Applications: Discovery 6.4 Explain the impact that discovery network applications have had on
6.5 Network Applications: 6.5 Explain the impact that communication network applications have Communication had on business and everyday life.
6.6 Network Applications: Collaboration 6.6 Explain the impact that collaboration network applications have
had on business and everyday life.
6.7 Network Applications: Educational 6.7 Explain the impact that educational network applications have had
on business and everyday life.
Opening Case
Can Slack Really Replace E-mail?
E-mail has presented a productivity problem for employees for some time. Over 200 billion e-mail messages are sent and received every day. Employees receive some 122 e-mails per day. Dealing with those e-mails consumes 23 percent of the average employee’s work day. In response, an increasing number of organizations are finding that limiting, or even eliminating, e-mail actually increases employee productivity.
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Slack ( www.slack.com ) may provide one answer to the prob lems with e-mail. Launched in 2013, Slack is a cloud-based team com munication and collaboration software program that helps company
employees communicate in real time. Slack allows different parts of a business to set up different channels for discussions. One channel might be for the information technology group, another for the mar keting group, and so on. Anytime someone wants to alert you about something, he or she tags your name to a message. You can follow your colleagues’ exchanges in real time, or you can return to that conversa tion later.
Slack offers many features, including chat rooms (called chan nels) organized by topic, private groups, and direct messaging. All content inside Slack is searchable, including files, comments, conver sations, and people. Channels enable team members to communi cate without the use of e-mail or texting. They are open to everyone
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Introduction 159
in the chat by invitation only. Private channels allow for private conversation between smaller subsets of an original group. Direct messages allow users to send private messages to a specific user rather than to a group of people. Slack is also developing a do-not disturb feature. People will not be interrupted by messages between, for example, the hours of 10 P.M. and 8 A.M. If someone sends a mes sage to another person during this time, that message will not appear in that colleague’s Slack account until his or her do-not-disturb hours have ended.
Another useful feature of Slack is the Slackbot, a personal soft ware assistant that helps users in several ways. Slackbots can:
· Help you complete your account profile and add new apps.
· Answer questions about Slack.
· Answer other questions, such as when a meeting is scheduled or what is for lunch in the company cafeteria.
· Add customized, automatic responses to messages.
· Monitor your e-mail inbox (most companies still use e-mail along with Slack).
Slack has partnered with IBM to develop the next iteration of Slackbot. Slackbot will utilize Watson Conversation, a software tool that helps bots interact through natural language. For example, at the New York Times, Slackbots predict for the newspaper’s editors what stories will perform best with readers on social media.
Companies use Slack in a variety of ways. For example, at the Weaver Street Market ( www.weaverstreetmarket.coop ), a North Carolina community-owned natural foods grocery, workers use Slack to find out the latest on strawberry shipments, for example. At Hendrick Automotive ( www.hendrickauto.com ), the largest privately held automotive dealership group in the United States, Slack enables employees in Canada and Turkey to stay connected to colleagues at company headquarters in Charlotte, North Carolina.
In June 2016, Slack announced that it was partnering with 12 companies to introduce “message buttons.” The idea is that key func tions from outside apps—like using Kayak to search for a flight—can be accomplished from within Slack, with the click of a button. With these message buttons, Slack is competing directly with Facebook, the mar ket leader in this technology.
Perhaps as a response to message buttons and perhaps as a re sponse to Slack’s rapid growth, in October 2016 Facebook launched its business chat product called Workplace by Facebook. Furthermore, in November 2016 Microsoft launched a rival workplace messaging ser vice called Teams.
Slack does present challenges. Consider Slack’s searchable ar chive: Most office workers worry that Slack records their every com ment and conversation. That process can create problems as workers leave a record of comments that they may regret.
Slack helps text-based communication replace face-to-face in teraction. In her book, Reclaiming Conversation: The Power of Talk in a Digital Age, Sherry Turkle cautions against the dangers of this transfor mation. She notes that research has found that empathy is lost when we emphasize connectivity over conversation.
Instead of an overflowing e-mail inbox, users can suffer from no tification overload. Also, the transition to Slack can cause problems for older employees, who might feel more comfortable with traditional communications channels such as e-mail, telephones, or talking face to face.
Although Slack was designed for organizational communication, people are using Slack to form new communities around common in terests. Slack is not as invasive as a Facebook group, where users have to go to a different website. Therefore, while using Slack at work, em ployees may be participating in community discussions that are not work-related.
Sources: Compiled from H. Taylor, “Flattered by Microsoft’s Launch of ‘Slack Killer,’” CNBC, November 15, 2016; A. Balakrishnan, “Microsoft Announces Slack Rival, Teams,” CNBC, November 2, 2016; T. Warren, “Slack Shows It’s Worried about Microsoft Teams with a Full-Page Newspaper Ad,” The Verge, November 2, 2016; R. Hackett, “IBM Watson Lends Brains to Slack’s Chatbot,” Fortune, October 26, 2016; R. Hof, “If You Can’t Beat Slack, Here’s How Your Startup Can Join It,” Forbes, August 15, 2016; A. LaFrance, “Slack, the Facebook Slayer,” The Atlantic, June 21, 2016; C. Locke, “Finally, Slack Is Living Up to Its Name,” Wired, June 9, 2016; R. Greenfield, “Slack Consultants Are Bringing
the Chat App to Corporate America,” Bloomberg.com , May 31, 2016; L. Gomes, “10 Breakthrough Technologies 2016: Slack,” MIT Technology Review, 2016;
S. Jacobs, “Email Killer,” Time, November 9, 2015; J. Novet, “Slack Launches User Groups, Hits 1.7M Daily Active Users and 470K Paid Seats,” Venture Beat, October 29, 2015; www.slack.com, accessed November 16, 2016; www.slack
.com, accessed November 15, 2016.
Questions
1. Is it possible for an organization to completely eliminate e-mail through the use of Slack? Why or why not? Support your answer.
2. Why does Slack appear to be more effective for organizational communications than e-mail?
Introduction
In addition to networks being essential in your personal lives, there are three fundamental points about network computing you need to know. First, in modern organizations computers do not work in isolation. Rather, they constantly exchange data with one another. Second, this exchange of data—facilitated by telecommunications technologies—provides companies with a number of very significant advantages. Third, this exchange can take place over any distance and over networks of any size.
Without networks, the computer on your desk would be merely another productivity- enhancement tool, just as the typewriter once was. The power of networks, however, turns
your computer into an amazingly effective tool for accessing information from thousands of sources, thereby making both you and your organization more productive. Regardless of the type of organization (profit/not-for-profit, large/small, global/local) or industry (manufactur ing, financial services, healthcare), networks in general, and the Internet in particular, have transformed—and will continue to transform—the way we do business.
Networks support new and innovative ways of doing business, from marketing to supply chain management to customer service to human resources management. In particular, the Internet and private intranets—a network located within a single organization that uses Inter net software and TCP/IP protocols—have an enormous impact on our lives, both professionally and personally.
For all organizations regardless of their size, having a telecommunications and networking system is no longer just a source of competitive advantage. Rather, it is necessary for survival.
Computer networks are essential to modern organizations for many reasons. First, net worked computer systems enable organizations to become more flexible so that they can adapt to rapidly changing business conditions. Second, networks allow companies to share hardware, computer applications, and data across the organization and among different orga nizations. Third, networks make it possible for geographically dispersed employees and work groups to share documents, ideas, and creative insights. This sharing encourages teamwork, innovation, and more efficient and effective interactions. Networks are also a critical link be tween businesses, their business partners, and their customers.
Clearly, networks are essential tools for modern businesses. But why do you need to be fa miliar with networks? The simple fact is that if you operate your own business or work in a busi ness, you cannot function without networks. You will need to communicate rapidly with your customers, business partners, suppliers, employees, and colleagues (see the chapter-opening case). Until about 1990, you would have used the postal service or the telephone system with voice or fax capabilities for business communication. Today, however, the pace of business is much faster—almost real time. To keep up with this incredibly fast pace, you will need to use computers, e-mail (see the chapter-opening case), the Internet, smartphones, and other mo bile devices. Furthermore, all of these technologies will be connected through networks to en able you to communicate, collaborate, and compete on a global scale.
Networking and the Internet are the foundations for commerce in the twenty-first century. Recall that one important objective of this book is to help you become an informed user of information systems. Knowledge of networking is an essential component of modern business literacy. In fact, as you see in IT’s About Business 6.1, a robust telecommunications infrastruc ture is essential for entire nations as well.
You begin this chapter by learning what a computer network is and by identifying the various types of networks. You then study network fundamentals, and you next turn your attention to the basics of the Internet and the World Wide Web. You conclude by examining the many network applications available to individuals and organizations—that is, what networks help you do.
What Is a Computer Network?
6.1
A computer network is a system that connects computers and other devices (e.g., printers) through communications media so that data and information can be transmitted among them. Voice and data communication networks are continually becoming faster—that is, their band width is increasing—and cheaper. Bandwidth refers to the transmission capacity of a network; it is stated in bits per second. Bandwidth ranges from narrowband (relatively low transmission capacity) to broadband (relatively high network capacity).
The telecommunications industry itself has difficulty defining the term broadband. The Federal Communications Commission’s (FCC) new rules define broadband as the transmission capacity of a communications medium (discussed later in this chapter) faster than 25 megabits per second (Mbps) for download (transmission speed for material coming to you from an Inter net server, such as a movie streamed from Netflix) and 4 Mbps for upload (transmission speed for material that you upload to an Internet server such as a Facebook post or YouTube video).
160 CHAPTER 6 Telecommunications and Networking
What Is a Computer Network? 161
IT’s About Business 6.1
The Least Connected Country on Earth
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Eritrea, a nation of six million people, is located in eastern Africa, surrounded by Sudan, Ethiopia, and Djibouti. The country has been ruled by a dictatorship since it achieved independence in 1993. Since 2009, Reporters Without Borders ( www.rsf.org ) has placed Eritrea at the bottom of its press freedom index.
Eritrea is also the world’s most isolated country when it comes to telecommunications access, according to the United Nations In ternational Telecommunication Union (ITU; www.itu.int ). Eritre ans are allowed to place international phone calls and to use the Internet. However, according to the ITU, only 1 out of 100 Eritreans have a landline, and only 7 in 100 have a cell phone. Both of these proportions are among the lowest around the globe.
The country’s only telecommunications provider, Eritrea Telecommunication Services (EriTel; www.eritel.com.er ), is controlled by the government. Customers must receive approval from local authorities to own a cell phone, and it costs 200 na kfa ($13.29) to request permission. Citizens who are performing mandatory military service aren’t given permission to have a cell phone. To activate their phone, customers pay EriTel the equiva lent of $33.60. When they add minutes to their phone, that costs a minimum of $3.65 every time. Because the average Eritrean earns roughly $500 a year, this expense is prohibitive to most.
Robert Van Buskirk, a Fulbright scholar from the United States, launched Eritrea’s first informal e-mail service in the mid-1990s. He used international phone calls to send data messages between a computer at the University of Asmara—Eritrea’s capital city—and a computer in California. For a short time, he singlehandedly oper ated the entire country’s e-mail service.
As of September 2016, less than 1 percent of Eritreans are on line, according to the ITU. Access is available in just a few places. Internet connections are also almost exclusively through dial-up modem, and they are extremely slow. Eritrea was also the last African nation to establish a satellite connection to the Internet. Furthermore, the country is one of only two African coastal nations with no fiber-optic network. Only about 150 landline broadband connections exist, and only a smattering of homes have Internet access, mostly dial-up connections costing about $200 a month.
Eritreans can get public Internet access in about 100 Internet cafes throughout the country. There is often a wait to use one of
about 10 computers in each cafe. Users pay roughly $1.34 to be online for an hour, which costs about the same as seven loaves of bread. Some Internet cafés show American movies and TV shows in the evenings and charge customers to watch.
In October 2016, the government ordered Internet service providers to maintain detailed information on their customers. Other than that, there seems to be little censorship of the Internet. One likely reason is that high costs and long download times have marginalized the use of the Internet as a protest vehicle. Another possible reason is that the country is experiencing severe economic difficulties, and the government may recognize that strengthening the country’s telecommunications would help improve the econ omy. The government also wants to improve tourism. This goal would require a greatly improved telecommunications infrastruc ture as well.
Sources: Compiled from A. Harnet, “Eritrea Orders Internet Service Providers to Keep Detailed Records of Their Customers,” Eritrea
beligerance.com , October 6, 2016; B. Bruton, “It’s Bad in Eritrea, But Not That Bad,” New York Times, June 23, 2016; “Areas the Eritrean
Government Should Improve Upon,” Madote.com , February 2, 2016; “Eritrea—Telecoms, Mobile, and Broadband—Statistics and Analy ses,” budde.com.au , June 4, 2015; Y. Abselom, “Eritrea Blossoming
Beautifully at 24,” Geeska Afrika Online, May 10, 2015; “Sadly, Eritrea Remains at Tail of All World Indexes,” harnnet.org , January 12, 2015; “Eritrea Telecommunication Report 2015,” Business Monitor Interna
tional, December 24, 2014; “Eritrea: Stronger Private Sector, Qualified Workforce, International Integration Needed, Says AFDB,” Caperi.com , October 8, 2014; C. Winter and B. Haile, “The World . . . Eritrea,”
Bloomberg BusinessWeek, June 30–July 6, 2014; C. Winter, “Eritrea’s Communications Disconnect,” Bloomberg Business Week, June 26, 2014; R. Atkinson and L. Stewart, “The Economic Benefits of Infor
mation and Communications Technology,” Information Technology & Innovation Foundation, May 14, 2013.
Questions
1. Describe the impacts of a lack of telecommunications infra structure on Eritrea.
2. Besides improving the economy, what other areas of Eritre an life would be impacted by a greatly improved telecom munications infrastructure?
3. Can the government of Eritrea allow an improved telecom munications infrastructure while maintaining strict control over communications and information? Why or why not? Support your answer.
Interestingly, some FCC commissioners feel that the definition of broadband should be 100 Mbps for download. The definition of broadband remains fluid, however, and it will undoubt edly continue to change to reflect greater transmission capacities in the future.
You are likely familiar with certain types of broadband connections such as digital sub scriber line (DSL) and cable to your homes and dorms. DSL and cable fall within the range of transmission capacity mentioned here and are thus defined as broadband connections.
The various types of computer networks range from small to worldwide. They include (from smallest to largest) personal area networks (PANs), local area networks (LANs), metropolitan area networks (MANs), wide area networks (WANs), and the ultimate WAN, the Internet. PANs are short-range networks—typically a few meters—that are used for communication among de vices close to one person. They can be wired or wireless. (You will learn about wireless PANs in
Local Area Networks
Regardless of their size, networks represent a compromise among three objectives: speed, dis tance, and cost. Organizations typically must select two of the three. To cover long distances, organizations can have fast communication if they are willing to pay for it, or cheap commu nication if they are willing to accept slower speeds. A third possible combination of the three trade-offs is fast, cheap communication with distance limitations. This is the idea behind local area networks.
A local area network (LAN) connects two or more devices in a limited geographical re gion, usually within the same building, so that every device on the network can communicate with every other device. Most LANs today use Ethernet (discussed later in this chapter). Fig ure 6.1 illustrates an Ethernet LAN that consists of four computers, a server, and a printer, all of which connect through a shared cable. Every device in the LAN has a network interface card (NIC) that allows the device to physically connect to the LAN’s communications medium. This medium is typically unshielded twisted-pair wire (UTP).
Although it is not required, many LANs have a file server or network server. The server typically contains various software and data for the network. It also houses the LAN’s network operating system, which manages the server and routes and manages communications on the network.
Wide Area Networks
When businesses have to transmit and receive data beyond the confines of the LAN, they use wide area networks. The term wide area network did not even exist until local area net works appeared. Before that time, what we call a wide area network today was simply called a “network.”
A wide area network (WAN) is a network that covers a large geographical area. WANs typically connect multiple LANs. They are generally provided by common carri ers such as telephone companies and the international networks of global communi cations services providers. Examples of these providers include AT&T ( www.att.com ) in
FIGURE 6.1 Ethernet local area.
the United States, Deutsche Telekom in Germany ( www
.telekom.com ), and NTT Communications ( www.ntt.com ) in Japan.
WANs have large capacities, and they typically combine multiple channels (e.g., fiber-optic cables, microwave, and satellite). WANs also contain routers—a communications processor that routes messages from a LAN to the Internet, across several connected LANs, or across a WAN such as the Internet. The Internet is an example of a WAN.
Enterprise Networks
Organizations today have multiple LANs and may have multi ple WANs. All of these networks are interconnected to form an enterprise network. Figure 6.2 displays a model of enterprise computing. Note that the enterprise network in the figure has a backbone network. Corporate backbone networks are
FIGURE 6.2 Enterprise network.
high-speed central networks to which multiple smaller networks (such as LANs and smaller WANs) connect. The LANs are called embedded LANs because they connect to the backbone WAN.
Unfortunately, traditional networks can be rigid and lack the flexibility to keep pace with increasing business networking requirements. The reason for this problem is that the functions of traditional networks are distributed across physical routers and devices (i.e., hardware). This process means that to implement changes, each network device must be configured individu ally. In some cases, devices must be configured manually. Software-defined networks (SDN) are an emerging technology that is becoming increasingly important to help organizations manage their data flows across their enterprise networks.
With SDN, decisions controlling how network traffic flows across network devices are man aged centrally by software. The software dynamically adjusts data flows to meet business and application needs.
Think of traditional networks as the road system of a city in 1920. Data packets are the cars that travel through the city. A traffic officer (physical network devices) controls each inter section and directs traffic by recognizing the turn signals, and size and shape of the vehicles passing through the intersection. The officers can direct only the traffic at their intersection. They do not know the overall traffic volume in the city nor do they know traffic movement across the city. Therefore, it is difficult to control the city’s traffic patterns as a whole and to manage peak-hour traffic. When problems occur, the city must communicate with each indi vidual officer by radio.
Now think of SDN as the road system of a modern city. Each traffic officer is replaced by a traffic light and a set of electronic vehicle counters, which are connected to central monitoring and control software. As such, the city’s traffic can be instantly and centrally controlled. The control software can direct traffic differently at various times of the day (say, rush hours). The software monitors traffic flow and automatically changes the traffic lights to help traffic flow through the city with minimal disruption.
Before you go on. . .
1. What are the primary business reasons for using networks?
2. What are the differences between LANs and WANs?
3. Describe an enterprise network.
Network Fundamentals
6.2
In this section, you will learn the basics of how networks actually operate. You begin by study ing wireline communications media, which enable computers in a network to transmit and re ceive data. You conclude this section by looking at network protocols and types of network processing.
Today, computer networks communicate through digital signals, which are discrete pulses that are either on or off, representing a series of bits (0s and 1s). This quality allows digital sig nals to convey information in a binary form that can be interpreted by computers.
The U.S. public telephone system (called the plain old telephone system or POTS) was orig inally designed as an analog network to carry voice signals or sounds in an analog wave format. For this type of circuit to carry digital information, that information must be converted into an analog wave pattern by a dial-up modem. Dial-up modems are almost extinct in most parts of the developed world today.
Cable modems are modems that operate over coaxial cable—for example, cable TV. They offer broadband access to the Internet or corporate intranets. Cable modem speeds vary widely. Most providers offer bandwidth between 1 and 6 million bits per second (Mbps) for downloads (from the Internet to a computer) and between 128 and 768 thousand bits per second (Kbps) for uploads. Cable modem services share bandwidth among subscribers in a locality. That is, the same cable line connects to many households. Therefore, when large numbers of neighbors access the Internet at the same time, cable speeds can decrease significantly.
DSL modems operate on the same lines as voice telephones and dial-up modems. DSL mo dems always maintain a connection, so an Internet connection is immediately available.
Communications Media and Channels
Communicating data from one location to another requires some form of pathway or medium. A communications channel is such a pathway. It is comprised of two types of media: cable (twisted-pair wire, coaxial cable, or fiber-optic cable) and broadcast (microwave, satellite, ra dio, or infrared).
Wireline media or cable media use physical wires or cables to transmit data and infor mation. Twisted-pair wire and coaxial cables are made of copper, and fiber-optic cable is made of glass. The alternative is communication over broadcast media or wireless media. The key to mobile communications in today’s rapidly moving society is data transmissions over elec tromagnetic media—the “airwaves.” In this section, you will study the three wireline channels. Table 6.1 summarizes the advantages and disadvantages of each of these channels. You will become familiar with wireless media in Chapter 8.
Advantages and Disadvantages of Wireline Communications Channels
TABLE 6.1
|
Channel |
Advantages |
Disadvantages |
|
Twisted-pair wire |
Inexpensive Widely available Easy to work with |
Slow (low bandwidth) Subject to interference Easily tapped (low security) |
|
Coaxial cable |
Higher bandwidth than twisted-pair Less susceptible to electromagnetic interference |
Relatively expensive and inflexible Easily tapped (low to medium security) Somewhat difficult to work with |
|
Fiber-optic cable |
Very high bandwidth Relatively inexpensive Difficult to tap (good security) |
Difficult to work with (difficult to splice) |
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Network Fundamentals 165
Twisted-Pair Wire. The most prevalent form of communications wiring— twisted-pair wire—is used for almost all business telephone wiring. As the name suggests, it consists of strands of copper wire twisted in pairs (see Figure 6.3). Twisted-pair wire is relatively inexpensive to purchase, widely available, and easy to work with. However, it also has some significant disadvantages. Specifically, it is relatively slow for transmitting data, it is subject to interference from other electrical sources, and it can be easily tapped by unintended recipients to gain unauthorized access to data.
Coaxial Cable. Coaxial cable (Figure 6.4) consists of insulated copper wire. Compared with twisted-pair wire, it is much less susceptible to electri cal interference, and it can carry much more data. For these reasons, it is com monly used to carry high-speed data traffic as well as television signals (thus the
FIGURE 6.3 Twisted-pair wire.
© deepspacedave/iStockphoto
term cable TV). However, coaxial cable is more expensive and more difficult to work with than twisted-pair wire. It is also somewhat inflexible.
Fiber Optics. Fiber-optic cable (Figure 6.5) consists of thousands of very thin filaments of glass fibers that transmit information through pulses of light generated by lasers. The fiber- optic cable is surrounded by cladding, a coating that prevents the light from leaking out of the fiber.
Fiber-optic cables are significantly smaller and lighter than traditional cable media. They also can transmit far more data, and they provide greater security from interference and
FIGURE 6.4 Two views of coaxial cable.
FIGURE 6.5 Two views of fiber-optic cable.
tapping. Fiber-optic cable is typically used as the backbone for a network, whereas twisted- pair wire and coaxial cable connect the backbone to individual devices on the network. In 2016, FASTER, the aptly named 5,600-mile undersea fiber optic cable connecting Japan and the United States became operational. FASTER transmits data at 60 terabits per second across the Pacific Ocean.
Network Protocols
Computing devices that are connected to the network must access and share the network to transmit and receive data. These devices are often referred to as nodes of the network. They work together by adhering to a common set of rules and procedures—known as a protocol— that enable them to communicate with one another. The two major protocols are the Ethernet and Transmission Control Protocol/Internet Protocol.
Ethernet. A common LAN protocol is Ethernet. Many organizations use 100-gigabit Ether net, through which the network provides data transmission speeds of 100 gigabits (100 billion bits) per second. The 400-gigabit Ethernet is projected to be in service in 2017.
Transmission Control Protocol/Internet Protocol. The Transmission Con trol Protocol/Internet Protocol (TCP/IP) is the protocol of the Internet. TCP/IP uses a suite of protocols, the main ones being the Transmission Control Protocol (TCP) and the Internet Protocol (IP). The TCP performs three basic functions: (1) It manages the movement of data packets (see further on) between computers by establishing a connection between the com puters, (2) it sequences the transfer of packets, and (3) it acknowledges the packets that have been transmitted. The Internet Protocol (IP) is responsible for disassembling, delivering, and reassembling the data during transmission.
Before data are transmitted over the Internet, they are divided into small, fixed bundles called packets. The transmission technology that breaks up blocks of text into packets is called packet switching. Each packet carries the information that will help it reach its destination—the sender’s IP address, the intended recipient’s IP address, the number of packets in the message, and the sequence number of the particular packet within the message. Each packet travels independently across the network and can be routed through different paths in the network. When the packets reach their destination, they are reassembled into the original message.
It is important to note that packet-switching networks are reliable and fault tolerant. For example, if a path in the network is very busy or is broken, packets can be dynamically (“on the fly”) rerouted around that path. Also, if one or more packets do not get to the receiving com puter, then only those packets need to be re-sent.
Why do organizations use packet switching? The main reason is to achieve reliable end-to end message transmission over sometimes-unreliable networks that may have short-acting or long-acting problems.
The packets use the TCP/IP protocol to carry their data. TCP/IP functions in four layers (see Figure 6.6). The application layer enables client application programs to access the other layers, and it defines the protocols that applications use to exchange data. One of these appli cation protocols is the Hypertext Transfer Protocol (HTTP), which defines how messages are formulated and how they are interpreted by their receivers. (We discuss hypertext in Section 6.3.) The transport layer provides the application layer with communication and packet ser vices. This layer includes TCP and other protocols. The Internet layer is responsible for address ing, routing, and packaging data packets. The IP is one of the protocols in this layer. Finally, the network interface layer places packets on, and receives them from, the network medium, which can be any networking technology.
Two computers using TCP/IP can communicate even if they use different hardware and software. Data sent from one computer to another proceed downward through all four layers, beginning with the sending computer’s application layer and going through its network inter face layer. After the data reach the receiving computer, they travel up the layers.
FIGURE 6.6 The four layers of the TCP/IP reference model.
TCP/IP enables users to send data across sometimes-unreliable networks with the assur ance that the data will arrive in uncorrupted form. TCP/IP is very popular with business orga nizations because of its reliability and the ease with which it can support intranets and related functions.
Let’s look at an example of packet switching across the Internet. Figure 6.7 illustrates a message being sent from New York City to Los Angeles over a packet-switching network. Note that the different colored packets travel by different routes to reach their destination in Los Angeles, where they are reassembled into the complete message.
Types of Network Processing
Organizations typically use multiple computer systems across the firm. Distributed processing divides processing work among two or more computers. This process enables computers in dif ferent locations to communicate with one another through telecommunications links. A com mon type of distributed processing is client/server processing. A special type of client/server processing is peer-to-peer processing.
Client/Server Computing. Client/server computing links two or more comput ers in an arrangement in which some machines, called servers, provide computing services for user PCs, called clients. Usually, an organization performs the bulk of its processing or
FIGURE 6.7 Packet switching.
application/data storage on suitably powerful servers that can be accessed by less powerful client machines. The client requests applications, data, or processing from the server, which acts on these requests by “serving” the desired commodity.
Client/server computing leads to the ideas of “fat” clients and “thin” clients. As discussed in Technology Guide 1, fat clients have large storage and processing power and therefore can run local programs (such as Microsoft Office) if the network goes down. In contrast, thin clients may have no local storage and only limited processing power. Thus, they must depend on the network to run applications. For this reason, they are of little value when the network is not functioning.
Peer-to-Peer Processing. Peer-to-peer (P2P) processing is a type of client/server distributed processing in which each computer acts as both a client and a server. Each com puter can access (as assigned for security or integrity purposes) all files on all other computers. There are three basic types of peer-to-peer processing. The first type accesses unused CPU power among networked computers. An application of this type is SETI@home ( http:// setiathome.ssl.berkeley.edu ). These applications are from open-source projects, and they can
be downloaded at no cost.
The second form of peer-to-peer is real-time, person-to-person collaboration, such as Microsoft SharePoint Workspace ( http://office.microsoft.com/en-us/sharepoint-workspace).
This product provides P2P collaborative applications that use buddy lists to establish a connection and allow real-time collaboration within the application.
The third peer-to-peer category is advanced search and file sharing. This category is char acterized by natural language searches of millions of peer systems. It enables users to discover other users, not just data and web pages. One example of this category is BitTorrent.
BitTorrent ( www.bittorrent.com ) is an open-source, free, peer-to-peer file-sharing applica tion that simplifies the problem of sharing large files by dividing them into tiny pieces, or “tor rents.” BitTorrent addresses two of the biggest problems of file sharing: (1) downloading bogs down when many people access a file at once, and (2) some people leech, meaning they down load content but refuse to share it. BitTorrent eliminates the bottleneck by enabling all users to share little pieces of a file at the same time—a process called swarming. The program prevents leeching because users must upload a file while they download it. Thus, the more popular the content, the more efficiently it travels over a network.
Before you go on. . .
1. Compare and contrast the three wireline communications channels.
2. Describe the various technologies that enable users to send high-volume data over any network.
3. Describe the Ethernet and TCP/IP protocols.
The Internet and the World Wide Web
6.3
The Internet (“the Net”) is a global WAN that connects approximately 1 million organizational computer networks in more than 200 countries on all continents. It has become so widespread that it features in the daily routine of some 5 billion people.
The computers and organizational nodes on the Internet can be of different types and makes. They are connected to one another by data communications lines of different speeds. The primary network connections and telecommunications lines that link the nodes are re ferred to as the Internet backbone. For the Internet, the backbone is a fiber-optic network that is operated primarily by large telecommunications companies.
The Internet grew out of an experimental project of the Advanced Research Project Agency (ARPA) of the U.S. Department of Defense. The project began in 1969 as the ARPAnet. Its purpose was to test the feasibility of a WAN over which researchers, educators, military personnel, and government agencies could share data, exchange messages, and transfer files.
Today, Internet technologies are being used both within and among organizations. An in tranet is a network that uses Internet protocols so that users can take advantage of familiar applications and work habits. Intranets support discovery (easy and inexpensive browsing and search), communication, and collaboration inside an organization.
In contrast, an extranet connects parts of the intranets of different organizations. It also enables business partners to communicate securely over the Internet using virtual private net works (VPNs) (explained in Chapter 4). Extranets offer limited accessibility to the intranets of participating companies, as well as necessary interorganizational communications. They are widely used in the areas of business-to-business (B2B) electronic commerce (see Chapter 7) and supply chain management (SCM) (see Chapter 11).
No central agency manages the Internet. Instead, the costs of its operation are shared among hundreds of thousands of nodes. Thus, the cost for any one organization is small. Or ganizations must pay a small fee if they wish to register their names, and they need to install their own hardware and software to operate their internal networks. The organizations are obliged to move any data or information that enter their organizational network, regardless of the source, to their destination, at no charge to the senders. The senders, of course, pay the telephone bills for using either the backbone or regular telephone lines.
Accessing the Internet
You can access the Internet in several ways. From your place of work or your university, you can use your organization’s LAN. A campus or company backbone connects all of the various LANs and servers in the organization to the Internet. You can also log on to the Internet from your home or on the road, using either wireline or wireless connections.
Connecting through an Online Service. You can also access the Internet by opening an account with an Internet service provider. An Internet service provider (ISP) is a company that provides Internet connections for a fee. Large ISPs include Comcast ( www
.comcast.com ), AT&T ( www.att.com ), Time Warner Cable ( www.timewarnercable.com ), and Verizon ( www.verizon.com ).
ISPs connect to one another through network access points (NAPs). NAPs are exchange points for Internet traffic. They determine how traffic is routed. NAPs are key components of the Internet backbone. Figure 6.8 displays a schematic of the Internet. The white links at the top of the figure represent the Internet backbone; the white dots where the white links meet are the NAPs.
Connecting through Other Means. There have been several attempts to make access to the Internet cheaper, faster, and easier. For example, terminals known as Internet ki osks have been located in such public places as libraries and airports (and even in convenience stores in some countries) for use by people who do not have their own computers. Accessing the Internet from smartphones and tablets is common, and fiber-to-the-home (FTTH) is grow ing rapidly. FTTH involves connecting fiber-optic cable directly to individual homes. Table 6.2 summarizes the various means of connecting to the Internet. Satellite connections and Google Fiber are worth noting in more detail.
Connecting through satellite. See our discussion in Section 8.1.
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FIGURE 6.8 Internet (backbone in white).
|
TABLE 6.2 |
Internet Connection Methods |
|
Service |
Description |
|
Dial-up |
Still used in the United States where broadband is not available |
|
DSL |
Broadband access through telephone companies |
|
Cable modem |
Access over your cable TV coaxial cable. Can have degraded performance if many of your neighbors are accessing the Internet at once |
|
Satellite |
Access where cable and DSL are not available |
|
Wireless |
Very convenient, and WiMAX will increase the use of broadband wireless |
|
Fiber-to-the-home (FTTH) |
Expensive and usually placed only in new housing developments |
Connecting through other means. See Google Project Loon and Facebook solar- powered drones in Section 8.1.
Google Fiber (FTTH). Google Fiber is a service that provides fiber-to-the-home. In No vember 2016, Google Fiber provided broadband Internet and cable television to approximately 453,000 customers in eight U.S. cities. As you see in IT’s About Business 6.2, Google has faced stiff competition in deploying the service, with a surprising outcome.
Addresses on the Internet. Each computer on the Internet has an assigned address, called the Internet Protocol (IP) address, that distinguishes it from all other computers. The IP address consists of sets of numbers, in four parts, separated by dots. For example, the IP ad dress of one computer might be 135.62.128.91. You can access a website by typing this number in the address bar of your browser.
Currently, there are two IP addressing schemes. The first scheme, IPv4, is the most widely used. IP addresses using IPv4 consist of 32 bits, meaning that there are 232 possibilities for IP addresses, or 4,294,967,295 distinct addresses. Note that the IP address in the preceding para graph (135.62.128.91) is an IPv4 address. At the time that IPv4 was developed, there were not as many computers that needed addresses as there are today. Therefore, a new IP addressing scheme has been developed, IPv6, because we have run out of available IPv4 addresses.
IP addresses using IPv6 consist of 128 bits, meaning that there are 2128 possibilities for dis tinct IP addresses, which is an unimaginably large number. IPv6, which is replacing IPv4, will accommodate the rapidly increasing number of devices that need IP addresses, such as smart- phones and devices that constitute the Internet of Things (see Section 8.4).
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IT’s About Business 6.2
The Rise and Fall of Google Fiber
MIS
Cable distribution giants such as Verizon ( www.verizon.com ), Time Warner Cable ( www.timewarnercable.com ), and Comcast ( www.comcast.com ) enjoy healthy profit margins on their Internet services. None of these companies, however, appears to have had plans to extend fiber-to-the-home services to additional geographi cal areas. Rather, their business goal was to sign up more people in their existing service areas. They have adopted this strategy because focusing on existing service areas adds the most revenue without increasing the companies’ capital costs. Essentially, there are no compelling business incentives for the established cable companies to expand their service offerings. This policy is unfortunate because most Americans have no choice but to do business with their local cable company. To compound this problem, few outside companies have the money to compete with the existing, cash-heavy telecom munications companies that control existing cable networks.
In direct competition with cable Internet providers, Google began installing and operating ultrafast fiber-optic cable service, known as Google Fiber ( http://fiber.google.com ), in U.S. cities. Goo gle Fiber was first deployed to homes in Kansas City (Kansas and Mis souri). By May 2016, Google Fiber was operating in eight U.S. cities.
Google Fiber competitors responded. In February 2016, AT&T announced that its GigaPower service ( www.att.com/internet/ gigapower.html ) was available to residents in Kansas City. Just like Google Fiber, GigaPower offered download speeds of 1 gigabit per second (1 Gbps) and cost $70 per month. For $120 per month, AT&T offered 1 Gbps Internet service along with a free television package. AT&T also began offering GigaPower in Austin, Texas, an other Google Fiber city. Interestingly, customers had to pay $29 per month more to opt out of AT&T’s Internet Preferences program, or AT&T would have tracked everything they did and then sold that information to third-party providers.
Another cable company joined the competition. Just months after Charlotte, North Carolina, was announced as a potential city for Google Fiber, Time Warner Cable announced that the cable company was increasing download speeds up to 300 megabits per second at no charge.
In early 2016, Louisville, Kentucky’s Metro Council voted to permit Google (or any other Internet Service Provider) to set up its equipment on utility poles owned by third parties, including AT&T. In response, AT&T, Charter Communications, and Frontier Commu nications launched a lawsuit against the city. The cable providers argued that they should not have to piggyback Google’s equipment on poles that they own and maintain. Using existing poles would
be the fastest, easiest, and cheapest way to launch Google Fiber in Louisville.
Google could bury its fiber optic cables. That process would address the issues in the lawsuit and build a service more resilient to bad weather and natural disasters. However, the process would be much more expensive and time-consuming. In November 2016, the lawsuit had not yet been settled or come to trial.
In a startling turn of events in August 2016, Google placed its Google Fiber project on hold. First, it seemed that Google thought that laying fiber was too expensive to be a viable business model. Second, Google was involved in legal battles with large Internet service providers over access to their telephone poles. Most im portantly, very fast Wi-Fi transmitters can be mounted on the tops of tall buildings to beam Internet access directly to users far more cheaply than laying fiber optic cable.
In June 2016, Google announced that it would buy Webpass ( www.webpass.net ), which provides gigabit residential Internet access through wireless technology. In November 2016, it appeared that the next two cities scheduled for Google Fiber—San Jose, Cal ifornia, and Portland, Oregon—would instead receive gigabit Inter net wirelessly.
Sources: Compiled from C. Forrest, “Why Google Fiber Failed: 5 Reasons,” TechRepublic, December 20, 2016; S. Fiegerman, “Google Puts the Brakes on Fiber and Plans for Layoffs,” CNN Money, October 26, 2016; J. Brodkin, “Google Fiber Division Cuts Staff by 9%, ‘Pauses’ Fiber Plans in 11 Cities,” Ars Technica, October 25, 2016; D. Wakabayashi, “Google Curbs Expansion of Fiber Optic Network, Cutting Jobs,” New York Times, October 25, 2016;
J. Brodkin, “Charter, Like AT&T, Sues Louisville to Stall Google Fiber,” Ars Technica, October 5, 2016; M. Reilly, “Google Fiber Stalls as the Industry Gears Up for Ultrafast Wireless,” MIT Technology Review, August 15, 2016;
D. Morris, “Frontier Lines Up Against Google Fiber in AT&T Fight over Utility Pole Access,” Fortune, July 2, 2016; T.C. Sottek, “Comcast Is Afraid of Google Fiber,” The Verge, March 17, 2016; D. Patterson, “Google and AT&T: Fighting Fiber with Fiber,” TechRepublic, March 4, 2016; C. Forest, “AT&T Goes to War with Google Fiber in Louisville: Why Ma Bell Could Win and What It Could Mean,” TechRepublic, March 1, 2016; A. Burlacu, “Google Fiber Wins Another Round in Battle with Time Warner Cable and AT&T,” Tech Times, February 18, 2016; http://fiber.google.com , accessed November 15, 2016.
Questions
1. Describe the competitive reactions of the cable companies to Google Fiber.
2. When the cable companies matched Google Fiber’s cost and speed at no extra charge, do you think they had a public re lations problem? Why or why not? Support your answer.
3. Discuss how this case illustrates the difficulty in keeping up with rapid advances in information technology.
IP addresses must be unique so that computers on the Internet know where to find one an other. The Internet Corporation for Assigned Names and Numbers (ICANN) ( www.icann.org ) co ordinates these unique addresses throughout the world. Without that coordination, we would not have one global Internet.
Because the numeric IP addresses are difficult to remember, most computers have names as well. ICANN accredits certain companies called registrars to register these names, which are derived from a system called the domain name system (DNS). Domain names consist of multi ple parts, separated by dots, that are read from right to left. For example, consider the domain
name business.auburn.edu . The rightmost part (or zone) of an Internet name is its top-level domain (TLD). The letters edu in business.auburn.edu indicate that this is an educational site. The following are popular U.S. TLDs:
com commercial sites
edu educational sites
mil military government sites
gov civilian government sites
org organizations
To conclude our domain name example, auburn is the name of the organization (Auburn University), and business is the name of the particular machine (server) within the organization to which the message is being sent.
A TLD is the domain at the highest level in the hierarchical Domain Name System of the Internet. The top-level domain names are located in the root zone (rightmost zone) of the name. Management of most TLDs is delegated to responsible organizations by ICANN. ICANN operates the Internet Assigned Numbers Authority (IANA), which is in charge of maintaining the DNS root zone. Today, IANA distinguishes the following groups of TLDs:
· Country-code top-level domains (ccTLD): Two-letter domains established for countries or territories. For example, de stands for Germany, it for Italy, and ru for Russia.
· Internationalized country code top-level domains (IDN ccTLD): These are ccTLDs in non- Latin character sets (e.g., Arabic or Chinese).
· Generic top-level domains (gTLD): Top-level domains with three or more characters. gTLDs initially consisted of .gov, .edu, .com, .mil, .org, and .net. In late 2000, ICANN introduced
.aero, .biz, .coop, .info, .museum, .name, and .pro.
The U.S. National Telecommunications & Information Administration (NTIA), a part of the U.S. Commerce Department, announced that it would turn over control of the Internet Domain Name System to the California-based nonprofit, Internet Corporation for Assigned Names and Numbers on October 1, 2016. Until September 30, 2016, ICANN was contracted by the Department of Com merce to administer the Internet Assigned Numbers Authority (IANA) under oversight of the NTIA. IANA manages changes to the top-level domains of the DNS, which is maintained by Verisign.
After October 1, 2016, ICANN will be doing its work on behalf of an international “multi stakeholder community” composed predominantly of technology companies. The U.S. govern ment states that if the U.S. does not turn these functions over to ICANN, such a move could lend weight to arguments from nations such as China and Russia that Internet governance should be nationalized or turned over to the United Nations.
The Future of the Internet
Researchers assert that if Internet bandwidth is not improved rapidly, then within a few years the Internet will be able to function only at a much-reduced speed. The Internet is sometimes too slow for data-intensive applications such as full-motion video files (movies) and large med ical files (X-rays). The Internet is also unreliable and is not secure. As a result, Internet2 has been developed by many U.S. universities collaborating with industry and government. Internet2 develops and deploys advanced network applications such as remote medical diagnosis, digi tal libraries, distance education, online simulation, and virtual laboratories. It is designed to be fast, always on, everywhere, natural, intelligent, easy, and trusted. Note that Internet2 is not a separate physical network from the Internet. For more details, see www.internet2.edu .
The World Wide Web
Many people equate the Internet with the World Wide Web. However, they are not the same thing. The Internet functions as a transport mechanism, whereas the World Wide Web is an
application that uses those transport functions. Other applications, such as e-mail, also run on the Internet.
The World Wide Web (The Web, WWW, or W3) is a system of universally accepted stan dards for storing, retrieving, formatting, and displaying information through a client/server architecture. The web handles all types of digital information, including text, hypermedia, graphics, and sound. It uses graphical user interfaces (GUIs) (explained in Technology Guide 2), so it is very easy to navigate.
Hypertext is the underlying concept defining the structure of the World Wide Web. Hy pertext is the text displayed on a computer display or other electronic device with references, called hyperlinks, to other text that the reader can immediately access, or where text can be revealed progressively at additional levels of details. A hyperlink is a connection from a hyper text file or document to another location or file, typically activated by clicking on a highlighted word or image on the screen, or by touching the screen.
Organizations that wish to offer information through the web must establish a home page, which is a text and graphical screen display that usually welcomes the user and provides basic information on the organization that has established the page. In most cases, the home page will lead users to other pages. All the pages of a particular company or individual are collec tively known as a website. Most web pages provide a way to contact the organization or the individual. The person in charge of an organization’s website is its webmaster. (Note: webmas ter is a gender-neutral title.)
To access a website, the user must specify a uniform resource locator (URL), which points to the address of a specific resource on the web. For example, the URL for Microsoft is http://www.microsoft.com. Recall that HTTP stands for hypertext transport protocol. The remain ing letters in this URL— www.microsoft.com —indicate the domain name that identifies the web server that stores the website.
Users access the web primarily through software applications called “browsers.” Brows ers provide a graphical front end that enables users to point and click their way across the web, a process called surfing. Web browsers became a means of universal access because they deliver the same interface on any operating system on which they run. As of November 2016, Google Chrome was the leading browser, with 49 percent of users worldwide. Microsoft Edge’s share fell to 37 percent of users worldwide.
Before you go on. . .
1. Describe the various ways that you can connect to the Internet.
2. Identify each part of an Internet address.
3. Describe the difference between the Internet and the World Wide Web.
4. What are the functions of browsers?
Network Applications: Discovery
6.4
Now that you have a working knowledge of what networks are and how you can access them, the key question is: How do businesses use networks to improve their operations? In the next four sections of this chapter, we explore four network applications: discovery, communication, collaboration, and education. These applications, however, are merely a sampling of the many network applications currently available to users. Even if these applications formed an exhaus tive list today, they would not do so tomorrow when something new will be developed. Fur thermore, placing network applications in categories is difficult because there will always be borderline cases. For example, telecommuting combines communication and collaboration.
The Internet enables users to access, or discover information, located in databases all over the world. By browsing and searching data sources on the web, users can apply the Internet’s
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Network Applications: Discovery 173
discovery capability to areas ranging from education to government services to entertainment to commerce. Although having access to all this information is a great benefit, it is critically im portant to realize that there is no quality assurance for information on the web. The web is truly democratic in that anyone can post information to it. Therefore, the fundamental rule about information on the web is “User beware!”
Think about discovery in 1960. How did you find information? You probably had to go to the library to check out a physical book. Contrast that process with how you would discover that information today. In fact, the overall trends in discovery have been:
· In the past, you had to go to the information (the library). Today, the information comes to you through the Internet.
· In the past, only one person at a time could have the information (the book he or she checked out of the library). Today, the information is available to multiple, concurrent users.
· In the past, you may not have been able to access the information you needed (e.g., if the book was already checked out). Today, the information is available to all, simultaneously.
· In the past, you may have had to have your book translated if it were written in a different language. Today, automatic translation software tools are improving very rapidly.
The web’s major strength—the vast stores of information it contains—also presents a ma jor challenge. The amount of information on the web can be overwhelming, and it doubles approximately each year. As a result, navigating through the web and gaining access to neces sary information are becoming more and more difficult. To accomplish these tasks, people are increasingly using search engines, directories, and portals.
Search Engines and Metasearch Engines
A search engine is a computer program that searches for specific information by keywords and then reports the results. A search engine maintains an index of billions of web pages. It uses that index to find pages that match a set of user-specified keywords. Such indexes are created and updated by webcrawlers, which are computer programs that browse the web and create a copy of all visited pages. Search engines then index these pages to provide fast searches.
In mid-2016, four search engines accounted for almost all searches in the United States. They are, in order, Google ( www.google.com ), Bing ( www.bing.com ), Yahoo! ( www.yahoo.com ), and Ask ( www.ask.com ). The leading search engine in China is Baidu ( www.baidu.com ), which claimed approximately three-fourths of the Chinese market in mid-2016.
For an even more thorough search, you can use a metasearch engine. Metasearch en gines search several engines at once and then integrate the findings to answer users’ queries. Examples are Surf-wax ( www.surfwax.com ), Metacrawler ( www.metacrawler.com ), Mamma ( www.mamma.com ), KartOO ( www.kartoo.com ), and Dogpile ( www.dogpile.com ).
Publication of Material in Foreign Languages
The World Bank ( www.worldbank.org ) estimates that 80 percent of online content is available in only 1 of 10 languages: English, Chinese, Spanish, Japanese, Arabic, Portuguese, German, French, Russian, and Korean. Roughly 3 billion people speak one of these as their first lan guage. However, more than half of all online content is written in English, which is understood by only 21 percent of the world’s population. Consider India, whose citizens speak roughly 425 languages and dialects. Industry analysts estimate that less than 0.1 percent of all web content is composed in Hindi, the first language of approximately 260 million people.
Not only is there a huge amount of information on the Internet, but it is also written in many different languages. How, then, do you access this information? The answer is that you use an automatic translation of web pages. Such translation is available to and from all major languages, and its quality is improving over time.
Companies invest resources to make their websites accessible in multiple languages as a result of the global nature of the business environment. That is, multilingual websites are now a competitive necessity. When companies are disseminating information around the world, getting that information correct is essential. It is not enough for companies to translate web content. They must also localize that content and be sensitive to the needs of the people in local markets.
At 20 cents and more per word, translation services are expensive. Companies support ing 10 languages can spend $200,000 annually to localize information and another $50,000 to maintain the websites. Translation budgets for major multinational companies can run to mil lions of dollars.
Some major translation products are Microsoft’s Translator app (http://www.microsoft translator.com) and Google ( https://translate.google.com ) (see Figure 6.9), as well as products and services available at Trados ( www.translationzone.com ) and Systran S.A. ( www.systransoft
.com ).
In September 2016, Google announced its new translation service, which is based on deep learning (see Technology Guide 4). In a competition that compared the new translation system with human translators, the system came very close to matching the fluency of humans for some languages, such as translating between English and Spanish and between English and French. Google is expanding the system to multiple languages.
In December 2016, Microsoft launched its Translator app. With spoken conversation, the app can accommodate a group of up to 100 speakers and nine languages: Arabic, Mandarin Chinese, Spanish, English, French, German, Russian, Portuguese, and Italian.
Portals
Most organizations and their managers encounter information overload. Information is scat tered across numerous documents, e-mail messages, and databases at different locations and systems. Finding relevant and accurate information is often time-consuming and may require users to access multiple systems.
One solution to this problem is to use portals. A portal is a web-based, personalized gate way to information and knowledge that provides relevant information from different IT sys tems and the Internet using advanced search and indexing techniques. After reading the next section, you will be able to distinguish among four types of portals: commercial, affinity, corpo rate, and industrywide. The four types of portals are differentiated by the audiences they serve. A commercial (public) portal is the most popular type of portal on the Internet. It is intended for broad and diverse audiences, and it offers routine content, some of it in real time (e.g., a stock ticker). Examples are Lycos ( www.lycos.com ) and Microsoft Network ( www
.msn.com ).
FIGURE 6.9 Google Translate. (Google and the Google logo are registered trademarks of Google Inc., used with permission.)
Google and the Google logo are registered trademarks of Google Inc., used with permission
In contrast, an affinity portal offers a single point of entry to an entire community of af filiated interests, such as a hobby group or a political party. Your university most likely has an affinity portal for its alumni. Figure 6.10 displays the affinity portal for the University of West Georgia. Other examples of affinity portals are www.techweb.com and www.zdnet.com .
As the name suggests, a corporate portal offers a personalized, single point of access through a web browser to critical business information located inside and outside an organiza tion. These portals are also known as enterprise portals, information portals, and enterprise in formation portals. Besides making it easier to find needed information, corporate portals offer customers and employees self-service opportunities.
Whereas corporate portals are associated with a single company, an industrywide por tal serves entire industries. An example is TruckNet ( www.truck.net ), a portal for the trucking industry and the trucking community, including professional drivers, owner/operators, and trucking companies.
Before you go on. . .
1. Differentiate between search engines and metasearch engines.
2. What are some reasons why publication of material in a number of languages is so important?
3. Describe the various reasons that portals are useful to us.
Network Applications: Communication
6.5
The second major category of network applications is communication. There are many types of communication technologies, including e-mail, call centers, chat rooms, and voice. Further more, we discuss an interesting application of communication: telecommuting. Note: You will read about other types of communication, blogging, and microblogging in Chapter 9.
FIGURE 6.10 University of West Georgia affinity portal. (Courtesy of the University of West Georgia.)
Courtesy of the University of West Georgia.
Electronic Mail
Network Applications: Communication 177
Electronic mail (e-mail) is the largest-volume application running over the Internet. Studies have found that almost all companies conduct business transactions through e-mail, and the vast majority confirm that e-mail is tied to their means of generating revenue. On the other hand, the amount of e-mail that managers receive has become overwhelming. In fact, too much e-mail can lead to a loss of productivity. (See this chapter’s opening case.)
Web-Based Call Centers
Effective personalized customer contact is becoming an important aspect of web-based cus tomer support. Such service is provided through web-based call centers, also known as cus tomer care centers. For example, if you need to contact a software vendor for technical support, you will usually be communicating with the vendor’s web-based call center, using e-mail, a telephone conversation, or a simultaneous voice and web session. Web-based call centers are sometimes located in foreign countries such as India. Such offshoring is an important issue for the U.S. companies. (We discuss offshoring in Chapter 13.)
Significantly, some of the U.S. companies are moving their call center operations back to the United States, for several reasons. First, they believe they have less control of their oper ations when the centers are located overseas. They must depend on the vendor company to uphold their standards, such as quality of service. A second difficulty is language differences, which can create serious communication problems. Third, companies that manage sensitive information risk breaching customer confidentiality and security. Finally, the call center repre sentatives typically work with many companies. As a result, they may not deliver the same level of customer services that each company requires.
Electronic Chat Rooms
Electronic chat refers to an arrangement in which participants exchange conversational mes sages in real time in a chat room. Chat programs allow you to send messages to people who are connected to the same channel of communication at the same time as you are. Anyone can join in the conversation. Messages are displayed on your screen as they arrive.
There are two major types of chat programs. The first type is web based, which allows you to send messages to Internet users by using a web browser and visiting a web chat site (e.g., http://messenger.yahoo.com ). The second type is e-mail based (text only). It is called Internet Relay Chat (IRC). A business can use IRC to interact with customers, provide online experts for answers to questions, and so on.
Voice Communication
The plain old telephone service (POTS) has been largely replaced by Internet telephony. With Internet telephony, also known as Voice-over-Internet Protocol or VoIP, phone calls are treated as just another kind of data. That is, your analog voice signals are digitized, sectioned into packets, and then sent over the Internet.
Consider Skype ( www.skype.com ), which provides several VoIP services for free: voice and video calls to users who also have Skype, instant messaging, short message service, voice mail, one-to-one and group chats, and conference calls. Skype offers full-screen, high-definition video calling; Skype Access (to access Wi-Fi hotspots); call transfer to a Skype contact on either a mobile or a landline phone; improved quality of calls; and ease of use. It also provides addi tional functions for which users must pay. For example, SkypeOut allows you to make calls to landline phones and mobile phones. SkypeIn provides a number that your friends can call from any phone, and you pick up the call in Skype.
Unified Communications
In the past, organizational networks for wired and wireless data, voice communications, and videoconferencing operated independently, and the IT department managed each network separately. This arrangement increased costs and reduced productivity.
Unified communications (UC) simplifies and integrates all forms of communications—voice, voice mail, fax, chat, e-mail, instant messaging, short message service, presence (location) ser vices, and videoconferencing—on a common hardware and software platform. Presence services enable users to know where their intended recipients are and if they are available, in real time.
UC unifies all forms of human and computer communications into a common user expe rience. For example, UC allows an individual to receive a voice mail message and then read it in his or her e-mail inbox. In another example, UC enables users to seamlessly collaborate with another person on a project, regardless of where the user is located. One user could quickly locate the other user by accessing an interactive directory, determining whether that user is available, engaging in a text messaging session, and then escalating the session to a voice call or even a video call, all in real time.
Telecommuting
Knowledge workers are being called the distributed workforce, or “digital nomads.” This group of highly prized workers is now able to work anywhere and any time, a process called tele commuting. Distributed workers are those who have no permanent office at their companies, preferring to work at home offices, in airport lounges, or client conference rooms, or on a high school stadium bleacher. The growth of the distributed workforce is driven by globalization, extremely long commutes to work, ubiquitous broadband communications links (wireline and wireless), and powerful computing devices.
HRM
Telecommuting offers a number of potential advantages for employees, employers, and society. For employees, the benefits include reduced stress and improved family life. Telecom muting also offers employment opportunities for housebound people such as single parents and persons with disabilities. Benefits for employers include increased productivity, the ability to retain skilled employees, and the ability to attract employees who do not live within commuting distance. However, telecommuting also has some potential disadvantages. For employees,
HRM
the major disadvantages are increased feelings of isolation, possible loss of fringe benefits, lower pay (in some cases), no workplace visibility, the potential for slower promotions, and lack of socialization. In a 2013 study, researchers at Stanford University found that telecommuting employees are 50 percent less likely to receive a promotion than onsite workers. The research ers concluded that a lack of “face time” with bosses caused careers to stall.
Telecommuting employees also often have difficulties “training” their families to under stand that they are at work even though they are physically at home. Families have to under stand that they should not disturb the telecommuter for anything that they would not have disturbed him or her about in a “real” office. The major disadvantages to employers are diffi culties in supervising work and potential data security problems.
Yahoo! CEO Marissa Mayer banned telecommuting in her company in February 2013. Best Buy and HP followed suit that same year. Despite being banned at these three large companies, telecommuting continues to grow.
Before you go on. . .
1. Discuss the advantages and disadvantages of electronic mail.
2. Why are many companies bringing their call centers back to the United States?
3. Describe Voice-over-Internet Protocol.
4. What are the advantages and disadvantages of telecommuting to you as an individual?
178 CHAPTER 6 Telecommunications and Networking
Network Applications: Collaboration 179
Network Applications: Collaboration
6.6
The third major category of network applications is collaboration. Collaboration refers to ef forts by two or more entities—that is, individuals, teams, groups, or organizations—who work together to accomplish certain tasks. The term workgroup refers specifically to two or more individuals who act together to perform a task.
Workflow is the movement of information as it progresses through the sequence of steps that make up an organization’s work procedures. Workflow management makes it possible to pass documents, information, and tasks from one participant to another in a way that is gov erned by the organization’s rules or procedures. Workflow systems are tools for automating business processes.
If group members are working in different locations, they constitute a virtual group (team). Virtual groups conduct virtual meetings—that is, they “meet” electronically. Virtual collabora tion (or e-collaboration) refers to the use of digital technologies that enable organizations or individuals who are geographically dispersed to collaboratively plan, design, develop, manage, and research products, services, and innovative applications. Organizational employees fre quently collaborate virtually with one another. Some organizations collaborate virtually with customers, suppliers, and other business partners to become more productive and competitive. Collaboration can be synchronous, meaning that all team members meet at the same time.
Teams may also collaborate asynchronously when team members cannot meet at the same time. Virtual teams, whose members are located throughout the world, typically must collab orate asynchronously.
Although a variety of software products are available to support all types of collaboration, many organizations feel that they have too many software tools being used in collaborative ef forts. These firms want a single place to know what was shared, who shared it with whom, and when. Firms also want smarter collaboration tools that are capable of anticipating workers’ needs. Collaborative software products include Google Drive ( http://drive.google.com ), Microsoft SharePoint Workspace ( http://sharepoint.com ), Jive ( www.jivesoftware.com ), IBM Verse ( http:// www-03.ibm.com/software/products/en/ibm-verse ), Microsoft’s Delve for Office 365, Glip ( https:// glip.com ), Slack (www.slack,com) (see this chapter’s opening case), and HipChat ( www.hipchat
.com ), as well as many others. In general, these products provide online collaboration capabili ties, workgroup e-mail, distributed databases, electronic text editing, document management, workflow capabilities, instant virtual meetings, application sharing, instant messaging, con sensus building, voting, ranking, and various application development tools.
Two of these tools use analytics for more effective collaboration. IBM’s Verse combines e-mail, social media, calendars, and file-sharing with analytics in one software package de signed to overhaul e-mail and increase productivity for organizations. Microsoft’s Delve for Of fice 365 uses analytics to display information that is most relevant for each user.
Consider multinational banking and financial services company BNY Mellon ( www.bnymellon
.com ). The bank uses a proprietary, in-house-developed enterprise social networking tool, called MySource Social, to share ideas and expertise. The social network is integrated with BNY Mellon’s communication and collaboration tools, such as e-mail, calendar, and instant messaging systems. MySource Social is an intranet site within which users can explore business partner groups fea turing blogs and information from executives; special-interest groups; and ad hoc groups, such as those created for project teams. More than 90 percent of the 55,000 BNY Mellon employees worldwide have accessed the site in some way, and some 40 percent are hands-on participants.
Collaboration is so important that companies are using information technology to enable the process as much as possible. IT’s About Business 6.3 shows how Raytheon uses CAVEs to maximize collaboration.
Crowdsourcing
One type of collaboration is crowdsourcing, in which an organization outsources a task to an undefined, generally large group of people in the form of an open call. Crowdsourcing provides
180 CHAPTER 6 Telecommunications and Networking
Network Applications: Collaboration 181
IT’s About Business 6.3
The Collaboration Environment at Raytheon
MIS POM
The Raytheon Company ( www.raytheon.com ) is a U.S. defense contractor that manufactures weapons and military and commer cial electronics. Raytheon’s design and development process was high-tech in that it involved computer-aided design (CAD). But it was still low-tech when it came to collaboration. Raytheon en gineers would sit together and look at each other’s laptops in an extremely time-consuming process. Now, Raytheon engineers de signing missiles work with the company’s manufacturing and IT departments, as well as partners and suppliers, using stereoscopic 3-D (S3D) and augmented reality technologies.
Raytheon engineers produce CAD product drawings, which become 3-D models. In a manner that could be from Star Trek, the models are displayed on S3D screens called Cave Automatic Virtual Environments, or CAVE. A CAVE is a series of 72 ultrahigh-definition 3-D television sets, stacked eight feet high and arranged side by side, stretching over 320 degrees.
There are also portable versions of CAVEs that can be used off site. Regardless of the physical form, engineers wear 3-D eyewear and enter the CAVE, becoming immersed in a virtual reality world. They and others around the globe can share in seeing products such as missiles in a three-dimensional environment, such as sim ulated combat.
The CAVE allows technical blueprints to come to life, so en gineers can not only see an object, but can touch it and handle it as well. CAVE users can make quick changes to technical specifi cations. Potential Raytheon customers, such as military person nel, can walk into a CAVE and adjust equipment according to their needs. CAVE translates the abstract into the real, using what Ray theon calls “the common language of visualization.”
The CAVE technology has changed the way that Raytheon works with clients. Instead of giving a presentation to clients, Raytheon engineers sit with them in a CAVE videoconference and they explore the 3-D models together. The technology allows Ray theon designers to show clients their work in progress on the CAVE screens as easily as if they were being displayed on a boardroom table.
One benefit of CAVEs is that it is far more economical to de sign virtual missile prototypes than it is to create physical proto types. Another plus is that CAVEs accelerate the design process and launch the products faster. If engineers suspect that something is wrong with the wiring inside a missile prototype, for example, they can examine the 3-D model inside a CAVE and make adjustments fast, such as moving wires farther away from a part that gets very hot. That would be expensive and slow to do with a physical missile prototype.
CAVEs have increased the level of teamwork both inside Raytheon and with business partners and suppliers. Interest ingly, CAVEs have energized client demonstrations. Raytheon can put customers right in the field, using CAVEs to simulate a combat environment, including a desert, mountains, or ocean, for the ultimate in product demonstration. This helps customers focus on what they’re interested in. It can also help Raytheon
with a classic “upsell” move—showing customers how one product can serve needs they didn’t even know they had. As an example, the company used S3D to simulate a battleship at sea to demonstrate a ship-based missile for a client. The cus tomer was so impressed with that missile’s capabilities that it ordered a land-based missile with similar functions. The land- based missile was not on the customer’s shopping list before the presentation.
Raytheon also takes its CAVEs on the road, encouraging mid dle school students to get involved in STEM (science, technology, engineering, mathematics). The S3D technology isn’t just good for product prototypes, either. Raytheon used it to create and test a missile factory in Huntsville, Alabama. The factory itself produces missiles with state-of-the-art robotics and computer-controlled features.
CAVEs do present some obstacles. Converting Raytheon’s conventional 2-D images to 3-D images involves time and effort. It’s also not possible to entirely escape the physical world, as the com pany must invest in the space and TV screens needed to construct the large CAVEs.
The benefits of S3D are many. The technology has allowed Raytheon to avoid potential design and mock-up mistakes, sav ing considerable amounts of time and money. It’s shaved count less hours off the time to engineer and manufacture products. It’s cut down on the amount of travel for Raytheon engineers to visit suppliers. It’s enabled Raytheon to analyze and finish designs faster. And it’s helped identify possible mechanical defects that might have gone undetected until the product was on the pro duction line.
Raytheon’s S3D technology is providing competitive advan tages to the defense contractor. Raytheon is in position to receive large contracts for helping to develop Israel’s missile defense system. Much of the development work will be performed in the CAVE.
What’s next for Raytheon’s S3D? It’s working on the next gen eration of the technology, for which CAVE users won’t have to don eyewear. The firm is evaluating the virtual-reality headsets from Oculus Rift ( www.oculus.com ).
Sources: Compiled from B. Opall-Rome, “Boeing, Raytheon Assured Half of Surging U.S. Support for Israeli Missile Defense,” Defense News, August 11, 2016; J. Meister, “Raytheon Animators Create Simulated Defense Situa tions,” PDDNet, September 2, 2015; D. Adams, “Now Showing at Raytheon: Missiles in 3-D,” Boston Globe, November 10, 2014; A. Shaheed, “Missile Makers Use Virtual ‘CAVE’ to Test Weapons,” Fox News, June 26, 2014; A. Barrie, “Next-Gen Missile Killers Created in a Virtual ‘Batcave’,” Fox News, April 11, 2014; S. O’Neill, “Raytheon Uses Augmented Reality to Speed Missile Design,” InformationWeek, April 2, 2014; J. Underwood, “Futuristic Raytheon Alabama Factory Makes Missile with Robots,” madeinalabama
.com , June 18, 2013; www.raytheon.com, accessed September 18, 2016.
Questions
1. Describe the use of information technologies in Raytheon’s CAVEs.
2. What are potential disadvantages of using CAVEs in the product design process?
· Crowdsourcing help desks: IT help desks are a necessary service on college cam puses because students depend on their computers and Internet access to complete their schoolwork and attend class online. At Indiana University at Bloomington, new IT help desks use crowdsourcing to alleviate the cost and pressure of having to answer so many calls. Students and professors post their IT problems on an online forum, where other stu dents and amateur IT experts answer them.
MIS
· Recruitment: Champlain College in Vermont developed a Champlain For Reel program, inviting students to share through YouTube videos recounting their experiences at the school and the ways they benefited from their time there. The YouTube channel serves to recruit prospective students and even updates alumni on campus and community events.
· Scitable ( www.nature.com/scitable ) combines social networking and academic collabora tion. Through crowdsourcing, students, professors, and scientists discuss problems, find solutions, and swap resources and journals. Scitable is a free site that lets each individual user turn to crowdsourcing for answers even while helping others.
· Procter & Gamble (P&G) uses InnoCentive ( www.innocentive.com ), in which company re searchers post their problems. P&G offers cash rewards to problem solvers.
· SAP’s Idea Place ( https://ideas.sap.com ) generates ideas for not-yet-developed software im provements and innovation. Any person can view the content in the Idea Place. The Idea Place is organized into numerous sessions, or categories, under which the ideas are or ganized. Once you have posted your idea, other users can vote on it and add comments. Status updates on your idea allow you to follow it as it progresses through the Idea Place. Every idea is reviewed by a team of experts made up of engineers, product managers, and community managers who evaluate the potential for implementation. The ideas with the most votes will receive a higher level of attention from SAP.
Although crowdsourcing has numerous success stories, there are many questions and con cerns about this system, including the following:
· Should the crowd be limited to experts? If so, then how would a company go about imple menting this policy?
· How accurate is the content created by the nonexperts in the crowd? How is accuracy maintained?
· How is crowd-created content being updated? How can companies be certain the content is relevant?
· The crowd may submit too many ideas, with most of them being worthless. In this sce nario, evaluating all of these ideas can be prohibitively expensive. For example, during the BP oil spill in 2010, crowds submitted more than 20,000 suggestions on how to stem the flow of oil. The problem was very technical, so there were many poor suggestions. Never theless, despite the fact that BP was under severe time constraints, the company had to evaluate all of the ideas.
· Content contributors may violate copyrights, either intentionally or unintentionally.
· The quality of content (and therefore subsequent decisions) depends on the composition of the crowd. The best decisions may come if the crowd is made up of people with diverse opinions and ideas. In many cases, however, companies do not know the makeup of the crowd in advance.
Teleconferencing and Video Conferencing
Teleconferencing is the use of electronic communication technology that enables two or more people at different locations to hold a conference. There are several types of teleconferencing. The oldest and simplest is a telephone conference call, with which several people talk to one another from multiple locations. The biggest disadvantage of conference calls is that they do not allow the participants to communicate face to face nor can they see graphs, charts, and pictures at other locations.
To overcome these shortcomings, organizations are increasingly turning to video telecon ferencing, or videoconferencing. In a videoconference, participants in one location can see participants, documents, and presentations at other locations. The latest version of videocon ferencing, called telepresence, enables participants to seamlessly share data, voice, pictures, graphics, and animation by electronic means. Conferees can also transmit data along with voice and video, which allows them to work together on documents and to exchange com puter files.
Telepresence systems range from on-premise, high-end systems to cloud-based systems. (We discuss on-premise computing and cloud computing in Technology Guide 3). On-premise, high-end systems are expensive and require dedicated rooms with large high-definition screens to show people sitting around conference tables (see Figure 6.11). These systems have advanced audio capabilities that let everyone talk at once without canceling out any voices. These systems also require technical staff to operate and maintain. Examples of high-end sys tems include Cisco’s TelePresence system ( www.cisco.com ) and Polycom’s RealPresence Im mersive system ( www.polycom.com ).
Interestingly, in 2006, Cisco’s telepresence system cost approximately $340,000 per in stallation, but in September 2016 the company offered its system for approximately $34,000. This steep decline in pricing is a good example of Moore’s Law in action. (See Technology Guide 1.)
However, having dedicated rooms where telepresence meetings take place is not partic ularly useful when so many employees work remotely. As a result, companies such as Fuze ( www.fuze.com ) and BlueJeans Nework ( www.bluejeans.com ) offer telepresence systems that utilize cloud computing. The cloud delivery model means that Fuze and BlueJeans provide sys tems that are cheaper, more flexible, and require fewer in-house technical staff to operate and maintain. Fuze and BlueJeans can also deliver their telepresence systems to any device, includ ing smartphones, tablets, and laptop and desktop computers.
Monthly telepresence subscription fees for Fuze and BlueJeans cost $10 to $15 per user per month. In response, Cisco is now offering cloud-based telepresence systems at monthly rates of $25 per user and high-end, conference room telepresence systems at monthly rates of
$5,100 per user.
FIGURE 6.11 Telepresence system.
HO Marketwire Photos/NewsCom
182 CHAPTER 6 Telecommunications and Networking
Network Applications: Educational 183
Before you go on. . .
1. Describe virtual collaboration and why it is important to you.
2. Define crowdsourcing and provide two examples of crowdsourcing not mentioned in this section.
3. Identify the business conditions that have made videoconferencing more important.
Network Applications: Educational
6.7
The fourth major category of network applications consists of education applications. In this section, we discuss e-learning, distance learning, and virtual universities.
E-Learning and Distance Learning
E-learning and distance learning are not the same thing, but they do overlap. E-learning re fers to learning supported by the web. It can take place inside classrooms as a support to con ventional teaching, such as when students work on the web during class. It also can take place in virtual classrooms, in which all coursework is completed online and classes do not meet face to face. In these cases, e-learning is a part of distance learning. Distance learning (DL) refers to any learning situation in which teachers and students do not meet face to face.
Today, the web provides a multimedia interactive environment for self-study. Web- enabled systems make knowledge accessible to those who need it, when they need it, any time, anywhere. For this reason, e-learning and DL can be useful for both formal education and corporate training.
There are many benefits of e-learning. For example, online materials can deliver very cur rent content that is of high quality (created by content experts) and consistent (presented the same way every time). It also gives students the flexibility to learn at any place, at any time, and at their own pace. In corporate training centers that use e-learning, learning time generally is shorter, which means that more people can be trained within a given time frame. This system reduces training costs and eliminates the expense of renting facility space.
Despite these benefits, e-learning has some drawbacks. For one, students must be com puter literate. Also, they may miss the face-to-face interaction with instructors and fellow stu dents. Accurately assessing students’ work can also be problematic because instructors really do not know who completed the assignments.
E-learning does not usually replace the classroom setting. Rather, it enhances it by taking advantage of new content and delivery technologies. Advanced e-learning support environ ments, such as Blackboard ( www.blackboard.com ), add value to traditional learning in higher education.
A new form of distance learning has recently appeared, called massive open online courses or MOOCs. MOOCs are a tool for democratizing higher education. Several factors have contrib uted to the growth of MOOCs, including improved technology and the rapidly increasing costs of traditional universities. MOOCs are highly automated, complete with computer-graded as signments and exams.
MOOCs have not yet proved that they can effectively teach the thousands of students who enroll in them. They also do not provide revenues for universities. Furthermore, MOOCs can register a mixture of high school students, retirees, faculty, enrolled students, and working professionals. Designing a course that adequately meets the needs of such a diverse student population is difficult. Finally, although initial registrations for a MOOC might exceed 100,000 students, completion rates in any one MOOC tend to be less than 10 percent of that.
Hundreds of thousands of students around the world who lack access to universities are using MOOCs to acquire sophisticated skills and high-paying jobs without having to pay tuition or obtain a college degree. IT’s About Business 6.4 takes a closer look at MOOCs in India.
IT’s About Business 6.4
Massive Open Online Courses in India
MIS
There are 3.2 million students attending India’s 35,000 universities. Professors are in such short supply that there aren’t enough to teach everyone in person. Some rural universities cannot even pro vide essential courses. In many universities, first-year courses are taught by instructors with just a bachelor’s degree. Furthermore, a degree from most of India’s post-secondary institutions does not mean a great deal to international employers. India’s best hope to address this problem is a greater role for online education.
Today, many fields, particularly ones in technical areas, are embracing online education for career advancement. Indian stu dents account for about 8 percent of global enrollment in Coursera ( www.coursera.org ) and 12 percent in edX ( www.edx.org ), the top suppliers of massive open online courses, or MOOCs. Enroll ment is the highest among students from the United States, which also produces the most popular MOOCs. Coursera’s most popular course in India teaches students how to develop mobile Android applications, courtesy of the University of Maryland. After that course, come Python programming courses from the University of Michigan and Rice University, followed by a Stanford University class on machine learning.
When MOOCs became popular in 2012, they were expected to be revolutionary, but the reality is different in the United States and Europe. Instead of replacing traditional undergraduate programs, MOOCs in developed countries are most popular among people keen to study specific subjects.
Among college students and recent graduates in India, online courses from the United States and Europe are immensely popular. They see studying certain technical subjects as a means of advanc ing in their careers. They are also often willing to pay $20 to $250 for a certificate demonstrating they passed a final exam.
Consider one Indian student who took his country’s most difficult college placement test, the Indian Institutes of Technol ogy (IIT) Joint Entrance Exam. Fewer than 3 percent of the more than 300,000 people who took the test were offered a place at one of the elite Indian Institutes of Technology. This student’s score, which placed him in the top 1 percent of exam-takers, gained him entrance to IIT Delhi ( www.iitd.ac.in ). But he didn’t place high enough to qualify for the institute’s most competitive degree pro gram, computer science. As a result, he was advised to take civil engineering instead.
He took civil engineering courses, but he didn’t want to be a civil engineer, so he took several management courses as well. As a result, when he graduated, he landed a job at Wipro ( www.wipro
.com ), a top Indian high-tech firm. He then enrolled in three data science MOOCs from Coursera, all offered by Johns Hopkins profes sors. By completing certificates from the courses, he gained the at tention of Dunnhumby ( www.dunnhumby.com ), one of England’s biggest customer-analytics companies. He was hired by them as a senior analyst, located in Delhi.
Companies such as Google, Wipro, Infosys, Infineon, and Mic rosoft have hired Indian engineers who completed online courses. Thousands of Indian engineers count prestigious U.S. institutions such as Stanford, MIT, and Carnegie Mellon among their credentials,
based entirely on their having completed MOOCs taught by profes sors at those universities.
Wanting to prove that India can offer its own advanced online courses that could compete with those from the United States, in 2014 the Ministry of Human Resources Development announced intentions to launch its own MOOC service, called Swayam. As of June 2015, Swayam had rolled out only three courses. By way of comparison, Coursera and edX each offers more than 500 courses.
Significantly, Indian professors have noted several limitations in MOOCs. They maintain that the technology is the easy part. The greater challenge is to free up time in their schedules so that India’s best professors can create worthwhile MOOCs. Another problem is institutions’ hesitation to grant academic credit for online learning.
Indian professors have also found that it is difficult to assess the level of their students’ grasp of the material. The MOOC neces sitates that professors develop assignments and exams that can be marked by machine, which biases the material to be more superfi cial than would be the case in a traditional classroom. The profes sors have determined that people taking a MOOC mostly gain an “awareness” of a topic rather than acquiring in-depth knowledge.
The All India Council for Technical Education is working to re vise its regulations so that students could take up to 15 percent of their credits online. One guideline would permit remote colleges to use a hybrid approach, in which online education enhances live lectures. That model has been incorporated into the 2015–2016 ac ademic year, with 50 Indian institutes partnering with IIT Bombay to offer hybrid MOOCs in three subjects: Introduction to Computer Programming, Thermodynamics, and Quantum Mechanics and Quantum Computation.
MOOCs continue to gain in importance in India. In 2016, there were 1.3 million people in India taking Coursera classes.
Sources: Compiled from A. Lequerica, “MOOCWatch May 2016: MOOCs Rapidly Expanding in India,” Class Central, May 31, 2016; “Bengaluru Tops the Chart of Online Learning in India: Coursera,” The Indian Express, May 2, 2016; P. Newton, “How MOOCs Are Impacting India’s Business Education,” IntelligenceHQ, August 12, 2015; G. Anders, “India Loves MOOCs,” MIT Tech nology Review, July 27, 2015; “SWAYAM—MOOC Initiative by India,” EduWire, June 7, 2015; “Can MOOCs Improve India’s Higher Education?” discover
.isif.asia, May 26, 2015; F. Nisha and V. Senthil, “MOOCs: Changing Trend Towards Open Distance Learning with Special Reference to India,” Journal of Library & Information Technology, March 2015; P. Bharti, “Indian HRD Ministry Launches a MOOC Platform—SWAYAM,” EdTechReview, October 16, 2014; D. Shah, “India Announces Official MOOC Platform ‘Swayam’,”Class Central, August 26, 2014; A. Vishnoi, “MOOCs Platform: PM Narendra Modi’s Gift to Nation on I-Day,” India Today, August 12, 2014; C. Fox, “Higher, Open Education for India,” OpenSource.com , August 29, 2013; M. Nair, “MOOCs Click with Indians,” The Times of India, August 18, 2013.
Questions
1. Discuss possible quality control issues with MOOCs in India. For each issue, explain how you would solve the problem.
2. Discuss the possible impacts of MOOCs on traditional higher education in India.
3. Would you be willing to enroll in a MOOC as a full-time stu dent at your university? Why or why not?
4. Would you be willing to enroll in a MOOC after you graduate? Why or why not?
Virtual Universities
Virtual universities are online universities in which students take classes on the Internet either at home or in an offsite location. A large number of existing universities offer online educa tion of some form. Some universities, such as the University of Phoenix ( www.phoenix.edu ), California Virtual Campus ( www.cvc.edu ), and the University of Maryland ( www.umuc.edu ), offer thousands of courses and dozens of degrees to students worldwide, all of them online. Other universities offer limited online courses and degrees, but they employ innovative teaching methods and multimedia support in the traditional classroom.
Before you go on. . .
1. Describe the differences between e-learning and distance learning.
2. What are virtual universities? Would you be willing to attend a virtual university? Why or why not?
What’s in IT for me?
ACCT For the Accounting Major
Accounting personnel use corporate intranets and portals to con solidate transaction data from legacy systems to provide an over all view of internal projects. This view contains the current costs charged to each project, the number of hours spent on each proj ect by individual employees, and an analysis of how actual costs compare with projected costs. Finally, accounting personnel use Internet access to government and professional websites to stay informed on legal and other changes affecting their profession.
FIN For the Finance Major
Corporate intranets and portals can provide a model to evaluate the risks of a project or an investment. Financial analysts use two types of data in the model: historical transaction data from corpo rate databases through the intranet and industry data obtained through the Internet. Financial services firms can also use the web for marketing and to provide services.
MKT For the Marketing Major
Marketing managers use corporate intranets and portals to coor dinate the activities of the sales force. Sales personnel access cor porate portals through the intranet to discover updates on pricing, promotion, rebates, customer information, and information about competitors. Sales staff can also download and customize pre sentations for their customers. The Internet, particularly the web, opens a completely new marketing channel for many industries. Just how advertising, purchasing, and information dispensation should occur appears to vary from industry to industry, product to product, and service to service.
POM For the Production/Operations Management Major
Companies are using intranets and portals to speed prod uct development by providing the development team with
three-dimensional models and animation. All team mem bers can access the models for faster exploration of ideas and enhanced feedback. Corporate portals, accessed through intranets, enable managers to carefully supervise their inven tories as well as real-time production on assembly lines. Ex tranets are also proving valuable as communication formats for joint research and design efforts among companies. The Inter net is also a great source of cutting-edge information for POM managers.
HRM For the Human Resources Management Major
Human resources personnel use portals and intranets to publish corporate policy manuals, job postings, company telephone di rectories, and training classes. Many companies deliver online training obtained from the Internet to employees through their intranets. Human resources departments use intranets to offer employees healthcare, savings, and benefit plans, as well as the opportunity to take competency tests online. The Internet sup ports worldwide recruiting efforts; it can also be the communi cations platform for supporting geographically dispersed work teams.
MIS For the MIS Major
As important as the networking technology infrastructure is, it is invisible to users (unless something goes wrong). The MIS function is responsible for keeping all organizational networks up and running all the time. MIS personnel, therefore, provide all users with an “eye to the world” and the ability to compute, communicate, and collaborate any time, anywhere. For exam ple, organizations have access to experts at remote locations without having to duplicate that expertise in multiple areas of the firm. Virtual teaming allows experts physically located in different cities to work on projects as though they were in the same office.
Summary
1. Compare and contrast the two major types of networks.
The two major types of networks are local area networks (LANs) and wide area networks (WANs). LANs encompass a limited geographical area and are usually composed of one communications medium. In contrast, WANs encompass a broad geographical area and are usually composed of multiple communications media.
2. Describe the wireline communications media and channels.
Twisted-pair wire, the most prevalent form of communications wiring, consists of strands of copper wire twisted in pairs. It is relatively inex pensive to purchase, widely available, and easy to work with. However, it is relatively slow for transmitting data, it is subject to interference from other electrical sources, and it can be easily tapped by unin tended recipients.
Coaxial cable consists of insulated copper wire. It is much less susceptible to electrical interference than is twisted-pair wire and it can carry much more data. However, coaxial cable is more expensive and more difficult to work with than twisted-pair wire. It is also some what inflexible.
Fiber-optic cables consist of thousands of very thin filaments of glass fibers that transmit information by way of pulses of light gener ated by lasers. Fiber-optic cables are significantly smaller and lighter than traditional cable media. They can also transmit far more data, and they provide greater security from interference and tapping. Fib er-optic cable is often used as the backbone for a network, whereas twisted-pair wire and coaxial cable connect the backbone to individual devices on the network.
3. Describe the most common methods for accessing the In ternet.
Common methods for connecting to the Internet include dial-up, DSL, cable modem, satellite, wireless, and fiber to the home.
4. Explain the impact that discovery network applications have had on business and everyday life.
Discovery involves browsing and information retrieval, and provides users the ability to view information in databases, download it, and process it. Discovery tools include search engines, directories, and por tals. Discovery tools enable business users to efficiently find needed information.
5. Explain the impact that communication network applica tions have had on business and everyday life.
Networks provide fast, inexpensive communications, through e-mail, call centers, chat rooms, voice communications, and blogs. Communications tools provide business users with a seamless in terface among team members, colleagues, business partners, and customers.
Telecommuting is the process whereby knowledge workers are able to work anywhere and any time. Telecommuting provides flexibil ity for employees, with many benefits and some drawbacks.
6. Explain the impact that collaboration network applications have had on business and everyday life.
Collaboration refers to mutual efforts by two or more entities (individ uals, groups, or companies) that work together to accomplish tasks. Collaboration is enabled by workflow systems. Collaboration tools en able business users to collaborate with colleagues, business partners, and customers.
7. Explain the impact that educational network applications have had on business and everyday life.
E-learning refers to learning supported by the web. Distance learning refers to any learning situation in which teachers and students do not meet face to face. E-learning provides tools for business users to facili tate their lifelong learning aspirations.
Virtual universities are online universities in which students take classes on the Internet at home or an offsite location. Virtual universi ties make it possible for students to obtain degrees while working full
time, thus increasing their value to their firms.
Chapter Glossary
affinity portal A website that offers a single point of entry to an entire community of affili ated interests.
analog signals Continuous waves that trans mit information by altering the amplitude and frequency of the waves.
backbone networks High-speed central net works to which multiple smaller networks (e.g., LANs and smaller WANs) connect.
bandwidth The transmission capacity of a network, stated in bits per second.
broadband The transmission capacity of a communications medium faster than 25 Mbps.
broadcast media (also called wireless me dia) Communications channels that use elec tromagnetic media (the “airwaves”) to transmit data.
browsers Software applications through which users primarily access the web.
cable media (also called wireline media) Com munications channels that use physical wires or cables to transmit data and information.
chat room A virtual meeting place in which groups of regulars come to talk among them selves electronically.
clients Computers, such as users’ personal computers, that use any of the services pro vided by servers.
client/server computing Form of distributed processing in which some machines (servers) perform computing functions for end-user PCs (clients).
coaxial cable Insulated copper wire; used to carry high-speed data traffic and television signals.
collaboration Mutual efforts by two or more individuals who perform activities to accom plish certain tasks.
commercial (public) portal A website that of fers fairly routine content for diverse audiences. It offers customization only at the user interface.
communications channel Pathway for com municating data from one location to another.
computer network A system that connects computers and other devices through commu nications media so that data and information can be transmitted among them.
corporate portal A website that provides a single point of access to critical business in formation located inside and outside of an organization.
crowdsourcing A process in which an organi zation outsources a task to an undefined, gener ally large group of people in the form of an open call.
digital signals A discrete pulse, either on or off, that conveys information in a binary form.
distance learning (DL) Learning situations in which teachers and students do not meet face to face.
distributed processing Network architecture that divides processing work between two or more computers, linked together in a network.
domain names The name assigned to an Inter net site, consisting of multiple parts, separated by dots, which are translated from right to left.
domain name system (DNS) The system administered by the Internet Corporation for Assigned Names (ICANN) that assigns names to each site on the Internet.
e-learning Learning supported by the web; can be done inside traditional classrooms or in virtual classrooms.
enterprise network An organization’s net work composed of interconnected multiple LANs and WANs.
Ethernet A common local area network protocol.
extranet A network that connects parts of the intranets of different organizations.
fiber-optic cable A communications medium consisting of thousands of very thin filaments of glass fibers, surrounded by cladding, that trans mit information through pulses of light gener ated by lasers.
file server (also called network server) A computer that contains various software and data files for a local area network and contains the network operating system.
hyperlink A connection from a hypertext file or document to another location or file, typically activated by clicking on a highlighted word or image on the screen, or by touching the screen.
hypertext Text displayed on a computer dis play with references, called hyperlinks, to other text that the reader can immediately access.
Hypertext Transport Protocol (HTTP) The communications standard used to transfer pages across the WWW portion of the Internet; defines how messages are formulated and transmitted.
industrywide portal A web-based gateway to information and knowledge for an entire industry.
Internet (the Net) A massive global WAN that connects approximately 1 million orga nizational computer networks in more than 200 countries on all continents.
Internet backbone The primary network con nections and telecommunications lines that link the computers and organizational nodes of the Internet.
Internet Protocol (IP) A set of rules responsi ble for disassembling, delivering, and reassem bling packets over the Internet.
Internet Protocol (IP) address An assigned address that uniquely identifies a computer on the Internet.
Internet service provider (ISP) A company that provides Internet connections for a fee.
Internet telephony (Voice-over-Internet Pro tocol, or VoIP) The use of the Internet as the transmission medium for telephone calls.
Internet2 A new, faster telecommunications network that deploys advanced network ap plications such as remote medical diagnosis, digital libraries, distance education, online sim ulation, and virtual laboratories.
intranet A private network that uses Internet software and TCP/IP protocols.
local area network (LAN) A network that con nects communications devices in a limited geo graphic region, such as a building, so that every user device on the network can communicate with every other device.
metasearch engine A computer program that searches several engines at once and integrates the findings of the various search engines to an swer queries posted by users.
modem Device that converts signals from analog to digital and vice versa.
network access points (NAPs) Computers that act as exchange points for Internet traffic and determine how traffic is routed.
network server See file server.
packet switching The transmission technol ogy that divides blocks of text into packets.
peer-to-peer (P2P) processing A type of cli ent/server distributed processing that allows two or more computers to pool their resources, making each computer both a client and a server.
portal A web-based personalized gateway to information and knowledge that provides infor mation from disparate information systems and the Internet, using advanced search and index ing techniques.
protocol The set of rules and procedures gov erning transmission across a network.
router A communications processor that routes messages from a LAN to the Internet, across several connected LANs, or across a wide area network such as the Internet.
search engine A computer program that searches for specific information by keywords and reports the results.
servers Computers that provide access to various network services, such as printing, data, and communications.
telecommuting A work arrangement whereby employees work at home, at the customer’s premises, in special workplaces, or while trav eling, usually using a computer linked to their place of employment.
teleconferencing The use of electronic com munication that allows two or more people at different locations to have a simultaneous conference.
Transmission Control Protocol/Internet Pro tocol (TCP/IP) A file transfer protocol that can send large files of information across some times unreliable networks with the assurance that the data will arrive uncorrupted.
twisted-pair wire A communications me dium consisting of strands of copper wire twisted together in pairs.
unified communications Common hardware and software platform that simplifies and in tegrates all forms of communications—voice, e-mail, instant messaging, location, and video conferencing—across an organization.
uniform resource locator (URL) The set of letters that identifies the address of a specific resource on the web.
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videoconference A virtual meeting in which participants in one location can see and hear participants at other locations and can share data and graphics by electronic means.
virtual collaboration The use of digital tech nologies that enable organizations or individ uals to collaboratively plan, design, develop, manage, and research products, services, and innovative information systems and electronic commerce applications.
virtual group (team) A workgroup whose members are in different locations and who meet electronically.
virtual universities Online universities in which students take classes on the Internet at home or at an offsite location.
Voice-over-Internet Protocol (VoIP) See In ternet telephony.
website Collectively, all of the web pages of a particular company or individual.
wide area network (WAN) A network, gener ally provided by common carriers, that covers a wide geographical area.
wireless media See broadcast media. wireline media See cable media.
workgroup Two or more individuals who act together to perform a task, on either a perma nent or on a temporary basis.
workflow The movement of information as it flows through the sequence of steps that make up an organization’s work procedures.
World Wide Web (the web, WWW, or W3) A system of universally accepted standards for storing, retrieving, formatting, and display ing information through a client/server archi tecture; it uses the transport functions of the Internet.
Discussion Questions
1. What are the implications of having fiber-optic cable to everyone’s home?
2. What are the implications of BitTorrent for the music industry? For the motion picture industry?
3. Discuss the pros and cons of P2P networks.
4. Should the Internet be regulated? If so, by whom?
5. Discuss the pros and cons of delivering this book over the Internet.
6. Explain how the Internet works. Assume you are talking with some one who has no knowledge of information technology (in other words, keep it very simple).
7. How are the network applications of communication and collabo ration related? Do communication tools also support collaboration? Give examples.
8. Search online for the article from The Atlantic: “Is Google Making Us Stupid?” Is Google making us stupid? Support your answer.
9. Network neutrality is an operating model under which Internet ser vice providers (ISPs) must allow customers equal access to content and applications, regardless of the source or nature of the content. That is, Internet backbone carriers must treat all web traffic equally, not charg ing different rates by user, content, site, platform, or application.
Telecommunications and cable companies want to replace net work neutrality with an arrangement in which they can charge differ entiated prices based on the amount of bandwidth consumed by the
content that is being delivered over the Internet. ISPs further contend that net neutrality hinders U.S. international competitiveness by de creasing innovation and discouraging capital investments in new net work technologies. Without such investments and innovations, ISPs will be unable to handle the exploding demand for Internet and wire less data transmission.
From the opposite perspective, proponents of network neutral ity argue that the risk of censorship increases when network providers can selectively block or slow access to certain content, such as access to competing low-cost services such as Skype and Vonage. They also assert that a neutral Internet encourages innovation. Finally, they contend that the neutral Internet has helped to create many new businesses.
a. How do you feel about the net neutrality issue?
b. Do you believe heavier bandwidth users should pay for more bandwidth?
c. Do you believe wireless carriers should operate under different rules from wireline carriers?
d. Evaluate your own bandwidth usage. (For example: Do you upload and download large files such as movies?) If network neu trality were to be eliminated, what would the impact be for you?
10. Should businesses monitor network usage? Do you see a problem with employees using company-purchased bandwidth for personal use? Please explain your answer.
Problem-Solving Activities
1. Calculate how much bandwidth you consume when using the In ternet every day. How many e-mails do you send daily and what is the size of each? (Your e-mail program may have e-mail file size informa tion.) How many music and video clips do you download (or upload) daily and what is the size of each? If you view YouTube often, surf the web to find out the size of a typical YouTube file. Add up the number of e-mail, audio, and video files you transmit or receive on a typical
day. When you have calculated your daily Internet usage, determine if you are a “normal” Internet user or a “power” Internet user. What impact does network neutrality have on you as a “normal” user? As a “power” user?
2. Access several P2P applications, such as SETI@home. Describe the purpose of each application, and indicate which ones you would like to join.
3. Access http://ipv6.com and www.ipv6news.info and learn about more the advantages of IPv6.
4. Access www.icann.org and learn more about this important organization.
5. Set up your own website using your name for the domain name (e.g., KellyRainer).
a. Explain the process for registering a domain.
b. Which top-level domain will you use and why?
6. Access www.icann.org and obtain the name of an agency or com pany that can register a domain for the TLD that you selected. What is the name of that agency or company?
7. Access the website for that agency or company (in question 6) to learn the process that you must use. How much will it initially cost to register your domain name? How much will it cost to maintain that name in the future?
8. You plan to take a two-week vacation to Australia this year. Using the Internet, find information that will help you plan the trip. Such in formation includes, but is not limited to, the following:
a. Geographical location and weather conditions at the time of your trip
b. Major tourist attractions and recreational facilities
c. Travel arrangements (airlines, approximate fares)
d. Car rental; local tours
e. Alternatives for accommodation (within a moderate budget) and food
f. Estimated cost of the vacation (travel, lodging, food, recreation, shopping, etc.)
g. Country regulations regarding the entrance of your dog
h. Shopping
i. Passport information (either to obtain one or to renew one)
j. Information on the country’s language and culture
k. What else do you think you should research before going to Australia?
9. Visit the websites of companies that manufacture telepresence products for the Internet. Prepare a report. Differentiate between telepresence products and videoconferencing products.
Closing Case
The Network Neutrality Battles Continue
MIS
The Problem
The number of users uploading and downloading huge files such as videos continues to rapidly increase. By the end of 2016, Internet traf fic will have reached approximately 90 exabytes per month. The vast majority of that traffic consists of video uploads, downloads, and streaming.
The Internet bandwidth issue is as much about economics as it is about technology. Currently, consumers can send 1-kilobyte e-mails
10. Access Google (or YouTube) videos and search for “Cisco Magic.” This video shows Cisco’s next-generation telepresence system. Com pare and contrast it with current telepresence systems.
11. Access the website of your university. Does the website provide high-quality information (the right amount, clear, accurate, etc.)? Do you think a high school student who is thinking of attending your uni versity would feel the same way as you?
12. Compare and contrast Google Sites ( www.google.com/sites ) and Microsoft Office Live (www.liveoffice.com). Which site would you use to create your own website? Explain your choice.
13. Access the website of the Recording Industry Association of Amer ica ( www.riaa.com ). Discuss what you find there regarding copyright infringement (i.e., downloading music files). How do you feel about the RIAA’s efforts to stop music downloads? Debate this issue from your point of view and from the RIAA’s point of view.
14. Research the companies involved in Internet telephony (Voice over IP). Compare their offerings as to price, necessary technologies, ease of installation, and so on. Which company is the most attrac tive to you? Which company might be the most attractive for a large company?
15. Access various search engines other than Google. Search for the same terms on several of the alternative search engines and on Google. Compare the results on breadth (number of results found) and precision (results are what you were looking for).
16. Second Life ( www.secondlife.com ) is a three-dimensional, online world built and owned by its residents. Residents of Second Life are av atars who have been created by real people. Access Second Life, learn about it, and create your own avatar to explore this world. Learn about the thousands of people who are making “real-world” money from op erations in Second Life.
17. Access Microsoft’s Bing translator (http://www.microsofttranslator
.com) or Google ( www.google.com/language_tools ) translation pages. Type in a paragraph in English and select, for example, English to-French. When you see the translated paragraph in French, copy it into the text box, and select French-to-English. Is the paragraph that you first entered the same as the one you are looking at now? Why or why not? Support your answer.
or watch the latest 30-gigabyte movie on their large-screen televi sions for the same monthly broadband charge. Unlike the system used for power and water, bills where higher usage results in higher fees, monthly broadband fees are not tied to consumer usage.
A study from Juniper Networks ( www.juniper.net ) highlights this “revenue-per-bit” problem. The report predicts that Internet rev enue for carriers such as AT&T ( www.att.com ) and Comcast ( www
.comcast.com ) will grow by 5 percent per year through 2020. At the same time, Internet traffic will increase by 27 percent annually, mean ing that carriers will have to increase their bandwidth investment by
190 CHAPTER 6 Telecommunications and Networking
Closing Case 191
20 percent per year just to keep up with demand. Under this model, the carriers’ total necessary investment will eventually exceed revenue growth.
Few industry analysts expect carriers to stop investing in new capacity, but analysts agree that financial problems are coming. As Internet traffic increases, analysts expect revenue per megabit to de crease. These figures translate into a lower return on investment (ROI). Although carriers can find ways to increase their capacity, it will be dif ficult for them to gain any revenue benefits from doing so.
The heart of the problem is that, even if the technology is equal to the task of transmitting huge amounts of data, no one is sure how to pay for these technologies. One proposed solution is to eliminate network neutrality.
A Possible Solution
Network neutrality is an operating model under which Internet service providers (ISPs) must allow customers equal access to content and applications, regardless of the source or nature of the content. That is, Internet backbone carriers must treat all web traffic equally, not charging different rates by user, content, site, platform, or application. Telecommunications and cable companies (the ISPs) want to replace network neutrality with an arrangement in which they can charge differentiated prices based on the amount of bandwidth con sumed by the content that is being delivered over the Internet. The ISPs believe that differentiated pricing is the most equitable method by which they can finance the necessary investments in their network
infrastructures.
The ISPs further contend that network neutrality hinders U.S. international competitiveness by decreasing innovation and discour aging capital investments in new network technologies. Without such investments and innovations, the ISPs state that they will be unable to handle the increasing demand for wired and wireless Internet data transmission.
From the opposite perspective, proponents of network neutrality are petitioning Congress to regulate the industry. They argue that the risk of censorship increases when network providers can selectively block or slow access to certain content, such as access to competing low-cost services like Skype and Vonage. They also assert that a neu tral Internet encourages innovation. Finally, they contend that the neutral Internet has helped create many new businesses.
Most analysts expect that users who consume the most data eventually will have to pay more, most likely in the form of tiered pric ing plans. Americans, however, have never had to contend with limits on the amount of data they upload and download, so there may be pushback from users.
On December 21, 2010, the Federal Communications Commission (FCC; www.fcc.gov ) approved network neutrality rules that prohibited wireline-based broadband providers—but not mobile broadband pro viders—from engaging in “unreasonable discrimination” against web traffic. These rules are known as the Open Internet Order.
The Results
In 2012, Verizon initiated a legal action against the FCC, claiming that the agency had overstepped its authority and that its network neutral ity rules were unconstitutional. Verizon may have had a point. The FCC could regulate the physical infrastructure over which packets travel on the network. It was less clear, however, whether the agency could also regulate the actual service or content that those packets deliver.
In January 2014, Verizon won a partial victory in its appeal of the FCC’s Open Internet Order. The U.S. Court of Appeals for the Washing ton D.C. circuit rejected Verizon’s claim that the FCC lacks jurisdiction
over broadband providers. However, the court also ruled that the FCC cannot regulate broadband service providers the same way that it reg ulates telephone companies. This ruling suggested that network neu trality could not be enforced without further legislative intervention.
On February 23, 2014, Netflix agreed to a deal with Comcast to ensure that its movies and TV shows stream more quickly. This agree ment demonstrated a shift in the balance of power in favor of ISPs and the likelihood of rising prices for consumers.
On May 15, 2014, the FCC decided to consider two options regard ing the network neutrality issue: (1) permit fast and slow broadband lanes, which would compromise network neutrality; or (2) reclassify broadband as a telecommunications service, which would preserve network neutrality.
In 2015, the FCC chose the second options. Two main points of the 2015 network neutrality rules are as follows:
· The FCC changed the classification of broadband from an “in formation service” to a “telecommunications service.” This rule allowed the FCC to begin regulating ISPs under the stricter laws that govern common carriers—service providers that transport goods or people, such as airlines, trucking companies, and tele phone companies.
· The FCC rules prohibit the blocking of content, the slowing of transmissions (throttling), and the creation of “fast lanes” (that is, no paid prioritization). Paid prioritization refers to the manage ment of a broadband provider’s network to directly or indirectly favor one type of data traffic over another type through preferen tial traffic management. The rules apply to both fixed and mobile broadband Internet access service.
It is uncertain how FCC regulators will address the practice of “zero rating,” in which wireless providers allow customers to use cer tain applications without having the data from those applications count against data usage caps. Some say this arrangement violates network neutrality.
In June 2016, a federal court ruled that broadband Internet ser vice can be defined as a utility, clearing the way for more rigorous policing of broadband providers and greater protection for Internet users. The decision affirmed the government’s view that broadband is as essential as the telephone and should be available to all Americans, rather than a luxury that does not need close government supervision. The court’s decision upheld the FCC on the declaration of broadband as a utility.
As of November 2016, the court’s decision limits the ability of broadband providers such as Comcast and Verizon to deliver certain content over the Internet at slower speeds. For example, ISPs could slow the transmission streams of Netflix or YouTube. Such business decisions by broadband providers would have created fast and slow lanes on the Internet, subjecting businesses and consumers to extra charges and limited access to online content.
The court’s ruling also created a path for new limits on broadband providers beyond network neutrality. In April 2016, for example, the FCC proposed privacy rules for broadband providers, limiting their ability to collect and share data about their subscribers.
The legal battle over network neutrality continues. The cable and telecommunications industries intend to challenge any unfavorable decision, probably taking the case to the U.S. Supreme Court.
Federal Communication Commission chairman Tom Wheeler resigned on January 20, 2017. His resignation will likely give the Re publican party a majority of the commission, and network neutrality could be undone.
Sources: Compiled from K. Finley, “Tom Wheeler Resigns from the FCC—So Long, Net Neutrality,” Wired, December 15, 2016; M. Orcutt, “Three Big Questions Hanging over Net Neutrality,” MIT Technology Review, August 19, 2016; C. Kang, “Court Backs Rules Treating Internet as Utility, Not Luxury,” New York Times, June 14, 2016; T. Simonite, “India’s Blow Against Facebook Sets
Up a Grand Experiment in Net Neutrality,” MIT Technology Review, February 8, 2016; J. Kastrenakes, “The FCC’s Net Neutrality Rules Are Now in Effect,” The Verge, June 12, 2015; R. Ruiz, “F.C.C. Sets Net Neutrality Rules,” New York Times, March 12, 2015; J. Sommer, “What the Net Neutrality Rules Say,” New York Times, March 12, 2015; J. Kastrenakes, “These Are the FCC’s Rules for Protecting Net Neutrality,” The Verge, March 12, 2015; R. Ruiz and S. Lohr, “F.C.C. Approves Net Neutrality Rules, Classifying Broadband Internet Service
as a Utility,” New York Times, February 26, 2015; “Searching for Fairness on the Internet,” New York Times, May 15, 2014; D. Talbot, “Is Netflix Slowing Down? Good Luck Finding out Why,” MIT Technology Review, February 21, 2014; B. Butler, “Verizon Denies Throttling Amazon’s Cloud, Netflix Services,” Network World, February 5, 2014; J. Feldman, “Net Neutrality: Regulation Makes
Evil Empire Giggle,” Information Week, January 17, 2014; J. Brodkin, “Time Warner, Net Neutrality Foes Cry Foul over Netflix Super HD Demands,” Ars
Technica, January 17, 2013; M. Reardon, “Verizon to FCC: Free Speech Trumps Net Neutrality Rules,” CNET News, July 3, 2012; W. Plank, “Confessions of an iPhone Data Hog,” the Wall Street Journal, January 27, 2012; L. Segall, “Verizon Challenges FCC Net Neutrality Rules,” CNN Money, January 21, 2011; www.fcc
.gov, accessed November 19, 2016.
Questions
1. Are the ISPs correct in claiming that network neutrality will limit the development of new technologies? Support your answer.
2. Are the content providers (e.g., Netflix) correct in claiming that eliminating network neutrality will encourage censorship by the ISPs? Support your answer.
3. Are the content providers correct in claiming that eliminating net work neutrality will result in consumers paying higher prices for content they watch over the Internet? Support your answer.
E-Business and E-Commerce
CHAPTER OUTLINE LEARNING OBJECTIVES
7.1 Overview of E-Business and 7.1 Describe the eight common types of electronic commerce. E-Commerce
7.2 Business-to-Consumer (B2C) 7.2 Describe the various online services of business-to-consumer (B2C) Electronic Commerce commerce, along with specific examples of each.
7.3 Business-to-Business (B2B) 7.3 Describe the three business models for business-to-business (B2B) Electronic Commerce electronic commerce.
7.4 Ethical and Legal Issues in 7.4 Discuss the ethical and legal issues related to electronic commerce, along E-Business with examples.
Thumbtack
Sometimes finding a nearby professional to do a job for you can be challenging. Think of plumbers, moving services, painters, personal trainers, chefs, caterers, cleaning and domestic services, pho tographers, and construction workers, among others. These profession als all belong to a very large industry called local commerce or local services. This industry is difficult to define; however, estimates of its size range from $400 billion to $800 billion per year. Despite its large size, local commerce remains an inefficient market that depends on phone calls, the Yellow Pages, and, when things go wrong, small claims court.
MKT MIS
It is difficult not only for customers to find local professionals but also for local professionals to find customers. In fact, every year pro fessionals spend approximately $65 billion on local ads to generate business leads. Now, a company called Thumbtack is striving to create efficiencies in the local commerce marketplace.
Founded in 2009, Thumbtack ( www.thumbtack.com ) is a mar ketplace that connects customers with local service professionals. On Thumbtack, the providers bid on the customer. Customers fill out an extensive questionnaire, and Thumbtack’s software forwards the request to relevant and nearby professionals, who respond with a price for, and description of, their services. The average job request
on Thumbtack is $600, and businesses are charged a small fee for the leads. Thumbtack divides its jobs into four categories:
1. Home improvement and repair (e.g., plumbing and painting ser vices)
2. Event services (e.g., wedding photographers and catering services)
3. Instruction (e.g., tutoring and music lessons)
4. Wellness (e.g., personal training and chiropractors)
When Thumbtack entered this marketplace, it faced two major problems. First, the company had to list enough suppliers (local pro fessionals) on its website to attract demand (customers). Significantly, Thumbtack did not cold-call anyone. Rather, they analyzed billions of web pages to create a database of information on local professionals. This process helped them learn where service providers searched on line for new business. The company bought targeted web ads on those pages—specifically Google, Facebook, and Bing—to attract profession als to sign up for Thumbtack. As of mid-2016, Thumbtack still did not employ a dedicated sales team to attract new business.
Thumbtack’s second problem was how to get paid. The compa ny’s initial policy was to charge fees after projects were completed.
CHAPTER 7
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Introduction 193
However, that process relied on the participating businesses self- reporting based on the honor system. This policy ultimately was un successful. Thumbtack next implemented a subscription model in which professionals would pay a set price for an unlimited number of introductions. Unfortunately, that process led to customers being spammed. Not surprisingly, this system did not provide a positive customer experience. Finally, Thumbtack decided on a pay-per-lead business model, which helped to ensure that professionals would bid only on projects they could complete. This model generated a 500 per cent increase in revenue in 2014; the company now makes about $30 million per year.
Consider the case of a photographer in Colorado. She tried differ ent online ads to attract customers, but she received few responses be cause there were so many photographers in her area. She then turned to Thumbtack, where she pays about $4.50 per lead. Now, roughly one in five ads results in a job, which average about $250. She estimated that she formerly spent $75 per month on Google ads to achieve the same result.
Thumbtack is competing in the local commerce arena with Yelp ( www.yelp.com ), Angie’s List ( www.angieslist.com ), Zaarly ( www
.zaarly.com ), TaskRabbit ( www.taskrabbit.com ), HomeAdvisor ( www.homeadvisor.com ), eBay (with eBay Hire), and Amazon (with Amazon Home Services; www.amazon.com/services ). Let’s take a closer look at Yelp and Angie’s List, as well as Amazon.
· Amazon announced in 2015 that it was entering the local services business, initially launching its home services to customers in 15 metropolitan areas including Chicago, Houston, and Miami. The Internet giant maintains it thoroughly screens service providers and individual contractors. It further claims that fewer than 3 per cent of applicants survive the vetting process. Amazon charges a 10 to 20 percent referral fee to contractors, and it provides cus tomer support and refunds to dissatisfied customers.
Some professionals have set up anti-Thumbtack groups on Face- book, complaining that unqualified professionals are using the site to challenge them for business. In fact, Thumbtack does not have rat ings and reviews, which both customers and professionals rely on to make informed decisions. As a result, the company is building upon its 485-person quality control team to verify the credentials of the service professionals who advertise on their site. The firm is also experiment ing with displaying average pricing data on their site so customers can see how much a job should cost in their area.
With more than 200,000 unique paying professionals and 3 mil lion successful job leads in 700 job categories per year, Thumbtack sends some $2 billion of business to local firms in the United States. The company has been successful in the venture capital markets, and in 2016 was valued at $1.3 billion.
Sources: Compiled from “Open Enrollment: Helping Our Pros Get Covered,” Thumbtack Journal, November 1, 2016; K. Benner, “Thumbtack Raises New Funding at a $1.3 Billion Valuation,” New York Times, September 29, 2015;
S. Mitra, “Angie’s List Faces Tougher Competition,” sramanamitra.com , July 29, 2015; “Amazon Expands Local Services Marketplace in U.S. Cities,” Reuters, July 22, 2015; H. Stout, “Buying a Faucet from Amazon? Add a Handyman,” New York Times, April 13, 2015; C. Pritchard, “Google Inc, Amazon.com Enter Home Services Market,” Business Finance News, April 13, 2015; H. Stout, “Amazon, Google, and More Are Drawn to Home Services Market,” New
York Times, April 12, 2015; D. Evans, “Why eBay and Amazon Will Redefine Local Commerce,” Clickz, April 8, 2015; T. Lee, “Can Amazon Make Hiring a Plumber as Easy As Buying an iPad?” Vox, March 30, 2015; S. Loeb, “How Does Thumbtack Make Money?” VatorNews, March 27, 2015; R. Mac, “Where Belly Dancers Bid for You,” Forbes, September 8, 2014; C. Taylor, “12 Questions with the CEO of Thumbtack, Google Capital’s New $100 Million Bet,” TechCrunch, August 20, 2014; R. Mac, “Amazon Chases Local Services, the New E-commerce Battleground,” Forbes, June 10, 2014; www.thumbtack.com, accessed
August 19, 2016.
Questions
1. Consider the highly competitive nature of the local services marketplace. Which of the companies discussed in this case has the best chance of “winning” in this marketplace? Support your answer.
2. What competitive advantages does Thumbtack have in the local services marketplace? Provide examples to support your answer.
3. What competitive advantages does Amazon have in the local ser vices marketplace? Provide examples to support your answer.
Introduction
Electronic commerce (EC or e-commerce) is the process of buying, selling, transferring, or exchanging products, services, or information through computer networks, including the In ternet. E-commerce is transforming all of the business functional areas as well as their funda mental tasks, from advertising to paying bills. Its impact is so pervasive that it is affecting every modern organization. Regardless of where you land a job, your organization will be practicing electronic commerce.
Electronic commerce influences organizations in many significant ways. First, it increases an organization’s reach, defined as the number of potential customers to whom the company can market its products. In fact, e-commerce provides unparalleled opportunities for compa nies to expand worldwide at a small cost, to increase market share, and to reduce costs. By utilizing electronic commerce, many small businesses can now operate and compete in market spaces that were formerly dominated by larger companies.
As illustrated in the opening case, electronic commerce is also fundamentally trans forming the nature of competition through the development of new online companies, new business models, and the diversity of EC-related products and services. Recall your study of competitive strategies in Chapter 2, particularly the impact of the Internet on Porter’s five forces. You learned that the Internet can both endanger and enhance a company’s position in a given industry.
It is important for you to have a working knowledge of electronic commerce because your organization almost certainly will be employing e-commerce applications that will affect its strategy and business model. This knowledge will make you more valuable to your organiza tion, and it will enable you to quickly contribute to the e-commerce applications employed in your functional area. As you read What’s in IT for Me? at the end of the chapter, envision your self performing the activities discussed in your functional area.
Going further, you may decide to become an entrepreneur and start your own business, as illustrated in the chapter opening case. If you start your own business, it is even more essential for you to understand electronic commerce, because e-commerce, with its broad reach, will more than likely be critical for your business to survive and thrive. On the other hand, giant, well-known electronic commerce companies use the Internet to compete all over the world, as you see in IT’s About Business 7.1.
IT’s About Business 7.1
Japan’s Largest E-Commerce Company, Rakuten, In just a little over a year, Rakuten’s international activities
194 CHAPTER 7 E-Business and E-Commerce
Overview of E-Business and E-Commerce 195
Competes Globally
amounted to $2.6 billion. Company CEO Hiroshi Mikitani has stated that his firm cannot operate exclusively in Japan. Rather, it simply
MIS needs to defend its market position there. Among the firm’s major
Rakuten ( www.rakuten.com ) is a Japanese electronic commerce foreign activities are the following: company. (The Japanese word rakuten means optimism.) Since it
began in 1997, the company has moved into sports, banking, in- • In early 2014, Rakuten spent $905 million to purchase Viber,
surance, and even wedding planning. Rakuten is so pervasive in the messaging app ( www.viber.com ), from a Cyprus company. Japan that one quarter of online transactions in the country occurs • In September 2014, Rakuten bought Ebates ( www.ebates on the company’s B2C and B2B e-commerce platform, Ichiba. Fur- .com ), an Internet coupon service based in San Francisco, for thermore, the company’s loyalty program has 90 million members. $3 billion. Shoppers using Ebates can use Rakuten’s web por (Japan’s population in mid-2016 was approximately 127 million.) tal to visit other online retailers, including Amazon, and earn The diversified company owns: cash back on their transactions. In 2014, this discount service
· A professional baseball team and a professional soccer team
had $5 billion in purchases and generated profits of about $20
million.
· The Rakuten Bank • In March 2015, Rakuten bought OverDrive ( www.overdrive
· Rakuten Broadband Service .com ), a major e-book service based in Cleveland, Ohio.
· Rakuten Beauty, a chain of beauty salons • In March 2015, Rakuten invested $300 million for a 12 percent
· A vehicle inspection business share of Lyft ( www.lyft.com/drive ) as part of a $530-million
· Rakuten Insurance
· Rakuten Wedding, a wedding-planning service
· BeautyC Navigator, an app that helps couples predict their op timum fertility time
round of financing for the ride-hailing service app.
· Rakuten bought Fits.Me ( https://fits.me ), a London-based startup that creates digital fitting rooms. The firm’s technol ogy enables online shoppers to virtually view how clothing looks on them without visiting a physical store.
Despite its national prominence, Rakuten is not as success • Rakuten has purchased a share in Pinterest ( www.pinterest ful outside Japan. The company is virtually unknown in the United .com ).
States and Europe, and Alibaba controls the majority of e-commerce
· Rakuten acquired French e-commerce portal PriceMinister
in China. Rakuten’s narrow global presence is a barrier to growth given Japan’s shrinking population and its poorly performing econ
omy. As a result, the e-commerce giant is setting its sights overseas, purchasing several foreign companies and investing in others.
· The Rakuten Institute of Technology opened locations in New
York, Tokyo, Paris, Boston, and Singapore. The institute’s
· Rakuten expanded its financial services into the United States, launching a credit card by partnering with a subsidiary of First
$5.66 billion in revenue for 2015. By contrast, Alibaba reported
$12.3 billion, and Amazon reported $107 billion.
National Bank of Omaha. Sources: Compiled from I. Leung, “This Online Startup Tool Is Helping
· In a deal with international payments company Payoneer, Singapore’s Entrepreneurs Find Funding,” Forbes, September 28, 2016;
Rakuten is entering the huge U.S. e-commerce market. The partnership gives international firms access to Rakuten’s
M. Prosser, “Can Japan’s Rakuten Crack the U.S. E-Commerce Market with New Fintech Deal?” Forbes, September 26, 2016; “The World’s Most
Innovative Companies in 2016: Rakuten,” Forbes, May 2016; J. Russell,
American platform, Rakuten.com. Payoneer paves the way for “Rakuten Launches Its Own Security-Enhanced Android App Store in
foreign vendors to sell on Rakuten.com in their local currency. Japan,” TechCrunch, August 19, 2015; “Rakuten’s Research Centers
Focused on Mobile,” PYMNTS.com , July 30, 2015; C. Shu, “Rakuten
Not all of Rakuten’s acquisitions have been successful. As one Opens New Research Centers in Boston and Singapore,” TechCrunch,
example, the electronic bookstore Kobo ( www.kobo.com ), which July 29, 2015; E. Brooke, “Amazon Competitor Rakuten Acquires Virtual
Rakuten purchased in 2011 for $315 million, had not generated a Try-On Service Fits.Me,” Fashionista, July 13, 2015; I. Lunden and N.
profit as of August 2015. Nevertheless, by the end of 2014, the book- store boosted its users by 25 percent, with 23 million customers.
Lomas, “Rakuten Buys Virtual Fitting Room Startup Fits.Me in a Fashion Commerce Play,” TechCrunch, July 12, 2015; D. Loo, “Rakuten to Raise
$1.5 Billion in Japan, Overseas Share Sale,” BloombergBusiness, June
Furthermore, Kobo helped stem the tide of red ink by concentrat- 3, 2015; “Rakuten Forges Ahead in English,” The Japan Times, May 23,
ing on its mobile app to sell e-books. 2015; S. Buhr, “Rakuten Is Looking to Acquire PopSugar for $580 Million,”
One key element of Rakuten’s strategy of global diversification has been to encourage its employees to become fluent in English. And they succeeded. The average score among Rakuten staff was
TechCrunch, April 13, 2015; B. Einhorn, “Japan’s Amazon Has Bigger Dreams,” BloombergBusiness, April 9, 2015; www.rakuten.com, accessed August 21, 2016.
802.6 points out of 990 on the Test of English for International Com- Questions
munication (TOEIC) in 2015. A score above 800 is considered to be 1. Discuss the reasons why founder and CEO Mikitani feels it is
advanced proficiency. imperative for Rakuten to expand beyond the boundaries of
Rakuten now has an English-only requirement, which it calls Japan. Provide examples to support your answer.
“Englishnization.” CEO Mikitani made Englishnization a key plat
form in Rakuten’s global expansion. Virtually all company com munication and interaction—from meetings to internal e-mails—is done in English.
2. How should Amazon and Alibaba combat the global ex-
pansion of Rakuten? Provide examples to support your answer.
As of November 2016, Rakuten’s global growth strategy was 3. Describe any competitive advantages that Rakuten has in its
still in its preliminary stage, and that approach has challenges. competition with Amazon and Alibaba.
In this chapter, you will discover the major applications of e-business, and you will be able to identify the services necessary for its support. You will then study the major types of electronic commerce: business-to-consumer (B2C), business-to-business (B2B), consumer-to- consumer (C2C), business-to-employee (B2E), and government-to-citizen (G2C). You will con clude by examining several legal and ethical issues that impact e-commerce.
As you learn about electronic commerce in this chapter, note that e-commerce can be per formed wirelessly, as you see in our discussion of mobile commerce in Chapter 8. E-commerce also has many social aspects as well, as you see in our discussion of social commerce in Chap ter 9. Finally, e-commerce can now be performed with texting and messaging, as you see in our discussion of conversational commerce in IT’s About Business 11.3.
Overview of E-Business and E-Commerce
7.1
This section examines the basics of e-business and e-commerce. First, we define these two con cepts. You then become familiar with pure and partial electronic commerce, and examine the various types of electronic commerce. Next, you focus on e-commerce mechanisms, which are the ways that businesses and people buy and sell over the Internet. You conclude this section by considering the benefits and limitations of e-commerce.
Definitions and Concepts
Recall that electronic commerce describes the process of buying, selling, transferring, or exchanging products, services, or information through computer networks, including the
Internet. Electronic business (e-business) is a somewhat broader concept. In addition to the buying and selling of goods and services, e-business refers to servicing customers, collaborat ing with business partners, and performing electronic transactions within an organization.
Electronic commerce can take several forms, depending on the degree of digitization in volved. The degree of digitization is the extent to which the commerce has been transformed from physical to digital. This concept can relate to both the product or service being sold and the delivery agent or intermediary. In other words, the product can be either physical or digital, and the delivery agent can also be either physical or digital.
In traditional commerce, both dimensions are physical. Purely physical organizations are referred to as brick-and-mortar organizations. (You may also see the term bricks-and- mortar.) In contrast, in pure EC all dimensions are digital. Companies engaged only in EC are considered virtual (or pure-play) organizations. All other combinations that include a mix of digital and physical dimensions are considered partial EC (but not pure EC). Clicks-and mortar organizations conduct some e-commerce activities, yet their primary business is carried out in the physical world. A common alternative to the term clicks-and-mortar is clicks and-bricks. You will encounter both terms. Clicks-and-mortar organizations are examples of partial EC. E-commerce is now so well established that people generally expect companies to offer this service in some form.
Purchasing a shirt at Walmart Online or a book from Amazon.com is an example of partial EC because the merchandise, although bought and paid for digitally, is physically delivered by, for example, FedEx, UPS, or the U.S. Postal Service. In contrast, buying an e-book from Amazon
.com or a software product from Buy.com constitutes pure EC because the product itself as well as its delivery, payment, and transfer are entirely digital. We use the term electronic commerce to denote both pure and partial EC.
There are a large number of e-commerce business models. Table 7.1 describes several of these models.
Types of E-Commerce
E-commerce can be conducted between and among various parties. In this section, you will identify seven common types of e-commerce, and you will learn about three of them—C2C, B2E, and e-government—in detail. We discuss B2C and B2B in separate sections because they are very complex. We discuss mobile commerce in Chapter 8, social commerce in Chapter 9, and conversational commerce in IT’s About Business 11.3.
· Business-to-consumer electronic commerce (B2C): In B2C, the sellers are organizations, and the buyers are individuals. You will learn about B2C electronic commerce in Sec tion 9.2.
· Business-to-business electronic commerce (B2B): In B2B transactions, both the sellers and the buyers are business organizations. B2B comprises the vast majority of EC volume. You will learn more about B2B electronic commerce in Section 7.3. Look back to Figure 1.5 for an illustration of B2B electronic commerce.
· Consumer-to-consumer electronic commerce (C2C): In C2C (also called customer-to- customer), an individual sells products or services to other individuals. The major strate gies for conducting C2C on the Internet are auctions and classified ads.
In dozens of countries, the volume of C2C selling and buying on auction sites is ex ploding. Most auctions are conducted by intermediaries such as eBay ( www.ebay.com ). Consumers can also select general sites such as www.auctionanything.com , a company that sells software and services that help individuals and organizations conduct their own auctions. Many individuals also conduct their own auctions.
· Business-to-employee (B2E): In B2E, an organization uses EC internally to provide infor mation and services to its employees. For example, companies allow employees to man age their benefits and to take training classes electronically. Employees can also buy discounted insurance, travel packages, and tickets to events on the corporate intranet.
|
TABLE 7.1 |
E-Commerce Business Models |
|
Online direct marketing Manufacturers or retailers sell directly to customers. Very efficient for dig ital products and services. Can allow for product or service customization ( www.dell.com ) |
|
|
Electronic tendering system |
Businesses request quotes from suppliers. Uses B2B with a reverse auction mechanism |
|
Name-your-own-price |
Customers decide how much they are willing to pay. An intermediary tries to match a provider ( www.priceline.com ) |
|
Find-the-best-price |
Customers specify a need; an intermediary compares providers and shows the lowest price. Customers must accept the offer in a short time, or they may lose the deal (www.hotwire.com ) |
|
Affiliate marketing |
Vendors ask partners to place logos (or banners) on partner’s site. If cus tomers click on a logo, go to a vendor’s site, and make a purchase, then the vendor pays commissions to the partners |
|
Viral marketing |
Recipients of your marketing notices send information about your product to their friends |
|
Group purchasing (e-coops) |
Small buyers aggregate demand to create a large volume; the group then conducts tendering or negotiates a low price |
|
Online auctions Companies run auctions of various types on the Internet. Very popular in C2C, but gaining ground in other types of EC as well ( www.ebay.com ) Product customization Customers use the Internet to self-configure products or services. Sellers then price them and fulfill them quickly ( build-to-order ) ( www.jaguar.com ) Electronic marketplaces Transactions are conducted efficiently (more information to buyers and and exchanges sellers, lower transaction costs) in electronic marketplaces (private or public) |
|
|
Bartering online |
Intermediary administers online exchange of surplus products or company receives “points” for its contribution, which it can use to purchase other needed items ( www.bbu.com ) |
|
Deep discounters |
Company offers deep price discounts. Appeals to customers who consider only price in their purchasing decisions ( www.half.com ) |
|
Membership |
Only members can use the services provided, including access to certain information, conducting trades, and so on ( www.egreetings.com ) |
They can also order supplies and materials electronically. Finally, many companies have electronic corporate stores that sell the company’s products to its employees, usually at a discount.
· E-government: E-government is the use of Internet technology in general and e-commerce in particular to deliver information and public services to citizens (called government-to- citizen, or G2C EC) and to business partners and suppliers (called government-to-business, or G2B EC). G2B EC is much like B2B EC, usually with an overlay of government procure ment regulations. That is, G2B EC and B2B EC are conceptually similar. However, the func tions of G2C EC are conceptually different from anything that exists in the private sector (e.g., B2C EC).
E-government is also an efficient way of conducting business transactions with cit izens and businesses and within the governments themselves. E-government makes government more efficient and effective, especially in the delivery of public services. An example of G2C electronic commerce is electronic benefits transfer, in which governments transfer benefits, such as Social Security and pension payments, directly to recipients’ bank accounts.
· Mobile commerce (m-commerce): The term m-commerce refers to e-commerce that is conducted entirely in a wireless environment. An example is using cell phones to shop over the Internet.
· Social commerce: Social commerce refers to the delivery of electronic commerce activities and transactions through social computing.
· Conversational commerce: Conversational commerce (also called chat commerce) refers to electronic commerce using messaging and chat apps to offer a daily choice, often person alized, of a meal, product, or service
Each type of EC is executed in one or more business models. A business model is the method by which a company generates revenue to sustain itself. Table 7.1 summarizes the major EC business models.
Major E-Commerce Mechanisms
Businesses and customers can buy and sell on the Internet through a number of mechanisms. The most widely used mechanisms are as follows:
· Electronic catalogs
· Electronic auctions
· E-storefronts
· E-malls
· E-marketplaces
Let’s look at each one more closely.
Catalogs have been printed on paper for generations. Today, they are also available over the Internet. Electronic catalogs consist of a product database, a directory and search capabili ties, and a presentation function. They are the backbone of most e-commerce sites.
An auction is a competitive buying and selling process in which prices are determined dynamically by competitive bidding. Electronic auctions (e-auctions) generally increase reve nues for sellers by broadening the customer base and shortening the cycle time of the auction. Buyers generally benefit from e-auctions because they can bargain for lower prices. They also do not have to travel to an auction at a physical location.
The Internet provides an efficient infrastructure for conducting auctions at lower adminis trative costs and with a greater number of involved sellers and buyers. Both individual consum ers and corporations can participate in auctions.
There are two major types of auctions: forward and reverse. In forward auctions, sellers solicit bids from many potential buyers. Usually, sellers place items at sites for auction, and buyers bid continuously for them. The highest bidder wins the items. Both sellers and buy ers can be either individuals or businesses. The popular auction site eBay.com is a forward auction site.
In reverse auctions, one buyer, usually an organization, wants to purchase a product or a service. The buyer posts a request for a quotation (RFQ) on its website or on a third-party site. The RFQ provides detailed information on the desired purchase. Interested suppliers study the RFQ and then submit bids electronically. Everything else being equal, the lowest-price bidder wins the auction. The reverse auction is the most common auction model for large purchases (in regard to either quantities or price). Governments and large corporations frequently use this approach, which may provide considerable savings for the buyer.
Auctions can be conducted from the seller’s site, the buyer’s site, or a third party’s site. For example, eBay, the best-known third-party site, offers hundreds of thousands of different items in several types of auctions. Overall, more than 300 major companies, including Amazon.com and Dellauction.com, sponsor online auctions.
An electronic storefront is a website that represents a single store. An electronic mall, also known as a cybermall or an e-mall, is a collection of individual shops consolidated under one Internet address. Electronic storefronts and electronic malls are closely associated with B2C electronic commerce. You will study each one in more detail in Section 7.2.
An electronic marketplace (e-marketplace) is a central, virtual market space on the web where many buyers and many sellers can conduct e-commerce and e-business activities. Elec tronic marketplaces are associated with B2B electronic commerce. You will learn about elec tronic marketplaces in Section 7.3.
Electronic Payment Mechanisms
Implementing EC typically requires electronic payments. Electronic payment mechanisms enable buyers to pay for goods and services electronically, rather than writing a check or using cash. Payments are an integral part of doing business, whether in the traditional manner or online. Traditional payment systems have typically involved cash or checks.
In most cases, traditional payment systems are not effective for EC, especially for B2B. Cash cannot be used because there is no face-to-face contact between buyer and seller. Not everyone accepts credit cards or checks, and some buyers do not have credit cards or checking accounts. Finally, contrary to what many people believe, it may be less secure for the buyer to use the telephone or mail to arrange or send payments, especially from another country, than to complete a secured transaction on a computer. For all of these reasons, a better method is needed to pay for goods and services in cyberspace. This method is electronic payment sys tems. Let’s take a closer look at three types of electronic payment: electronic checks, electronic cards, and bitcoin. We discuss digital wallets in Chapter 8.
Electronic Checks. Electronic checks (e-checks), which are used primarily in B2B, are similar to regular paper checks. A customer who wishes to use e-checks must first estab lish a checking account with a bank. Then, when the customer buys a product or a service, he or she e-mails an encrypted electronic check to the seller. The seller deposits the check in a bank account, and the funds are transferred from the buyer’s account into the seller’s account.
Like regular checks, e-checks carry a signature (in digital form) that can be verified (see www.authorize.net ). Properly signed and endorsed e-checks are exchanged between finan cial institutions through electronic clearinghouses. (For example, see www.eccho.org for details.)
Electronic Cards. There are a variety of electronic cards, and they are used for different purposes. The most common types are electronic credit cards, purchasing cards, stored-value money cards, and smart cards.
Electronic credit cards allow customers to charge online payments to their credit card ac count. These cards are used primarily in B2C and in shopping by small-to-medium enterprises (SMEs). Here is how e-credit cards work (see Figure 7.1).
1. When you purchase a book from Amazon, for example, your credit card information and purchase amount are encrypted in your browser. This procedure ensures the information is safe while it is “traveling” on the Internet to Amazon.
2. When your information arrives at Amazon, it is not opened. Rather, it is transferred auto matically (in encrypted form) to a clearinghouse, where it is decrypted for verification and authorization.
3. The clearinghouse asks the bank that issued you your credit card (the card issuer bank) to verify your credit card information.
4. Your card issuer bank verifies your credit card information and reports this to the clearinghouse.
5. The clearinghouse reports the result of the verification of your credit card to Amazon.
6. Amazon reports a successful purchase and amount to you.
7. Your card issuer bank sends funds in the amount of the pur chase to Amazon’s bank.
8. Your card issuer bank notifies you (either electronically or in your monthly statement) of the debit on your credit card.
9. Amazon’s bank notifies Amazon of the funds credited to its FIGURE 7.1 How e-credit cards work. (The numbers 1–9
account. indicate the sequence of activities.)
FIGURE 7.2 Example of a purchasing card.
© MARKA/Alamy Limited
© Clarence Holmes Photography/ Alamy Limited
Mike Clarke/AFP/Getty Images/NewsCom
FIGURE 7.3 The New York City Metro Card.
FIGURE 7.4 Smart cards are frequently multipurpose.
Purchasing cards are the B2B equivalent of electronic credit cards (see Figure 7.2). In some countries, purchasing cards are the primary form of pay ment between companies. Unlike credit cards, where credit is provided for 30 days (for free) before payment is made to the merchant, payments made with purchasing cards are settled within a week.
Stored-value money cards allow you to store a fixed amount of prepaid money and then spend it as necessary. Each time you use the card, the amount is reduced by the amount you spent. Figure 7.3 illustrates a New York City Metro (subway and bus) card.
Finally, EMV smart cards contain a chip that can store a large amount of information as well as on a magnetic stripe for backward compatibility (see Figure 7.4). EMV stands for Europay, MasterCard, and Visa, the three compa nies that originally created the standard. EMV is a technical standard for smart payment cards. EMV cards can be physically swiped through a reader, inserted into a reader, or read over a short distance using near-field communications. EMV cards are also called “chip and PIN” or “chip and signature” depending on the authentication methods employed by the card issuer.
Bitcoin. Bitcoin is a type of digital currency in which encryption tech niques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of any central bank. Bitcoin can be used to buy things electronically. In that sense, it resembles conventional dollars, euros, or yen, which are also traded digitally. However, bitcoin’s most important characteristic, which makes it different from conventional money, is that it is decentralized. No single institution controls the bitcoin network.
Benefits and Limitations of E-Commerce
Few innovations in human history have provided as many benefits to orga nizations, individuals, and society as e-commerce has. E-commerce benefits organizations by making national and international markets more accessible and by lowering the costs of processing, distributing, and retrieving informa tion. Customers benefit by being able to access a vast number of products and services, around the clock. The major benefit to society is the ability to easily and conveniently deliver information, services, and products to people in cit ies, rural areas, and developing countries.
Despite all these benefits, EC has some limitations, both technological and nontechnolog ical, that have restricted its growth and acceptance. One major technological limitation is the lack of universally accepted security standards. Also, in less-developed countries, telecommu nications bandwidth is often insufficient, and accessing the web is expensive. Nontechnolog ical limitations include the perceptions that EC is insecure, has unresolved legal issues, and lacks a critical mass of sellers and buyers. As time passes, these limitations, especially the tech nological ones, will diminish or be overcome.
Before you go on. . .
1. Define e-commerce and distinguish it from e-business.
2. Differentiate among B2C, B2B, C2C, and B2E electronic commerce.
3. Define e-government.
4. Discuss forward and reverse auctions.
5. Discuss the various online payment mechanisms.
6. Identify some benefits and limitations of e-commerce.
Business-to-Consumer (B2C) Electronic Commerce
7.2
B2B EC is much larger than B2C EC by volume, but B2C EC is more complex. The reason is that B2C involves a large number of buyers making millions of diverse transactions per day from a relatively small number of sellers. As an illustration, consider Amazon, an online retailer that offers thousands of products to its customers. Each customer purchase is relatively small, but Amazon must manage every transaction as if that customer were its most important one. The company needs to process each order quickly and efficiently, and ship the products to the cus tomer in a timely manner. It also has to manage returns. Multiply this simple example by mil lions, and you get an idea of how complex B2C EC can be.
Overall, B2B complexities tend to be more business related, whereas B2C complexities tend to be more technical and volume related. As you noted in the previous section of this chapter, one of the complexities of B2C involves digital payments. IT’s About Business 7.2 illustrates how Stripe is revolutionizing the process of digital payments.
This section addresses the primary issues in B2C EC. We begin by studying the two basic mechanisms that customers utilize to access companies on the web: electronic storefronts and electronic malls. In addition to purchasing products over the web, customers also access online services. Therefore, the next section covers several online services, such as banking, securities trading, job searching, and travel. The complexity of B2C EC creates two major challenges for sellers: channel conflict and order fulfillment. We examine these two topics in detail. Finally, companies engaged in B2C EC must “get the word out” to prospective customers. This section concludes with a look at online advertising.
Electronic Storefronts and Malls
For several generations, home shopping from catalogs, and later from television shopping channels, has attracted millions of customers. Electronic retailing (e-tailing) is the direct sale of products and services through electronic storefronts or electronic malls, usually designed around an electronic catalog format and auctions.
E-commerce enables you to buy from anywhere, at any time. EC offers a wide variety of products and services, including unique items, often at lower prices. The name given to selling unique items is “the long tail.” The long tail describes the retailing strategy of selling a large number of unique items in small quantities.
Shoppers can also gain access to very detailed supplementary product information. They can also easily locate and compare competitors’ products and prices. Finally, buyers can find hundreds of thousands of sellers. Two popular online shopping mechanisms are electronic storefronts and electronic malls.
As we saw earlier in the chapter, an electronic storefront is a website that represents a single store. Each storefront has a unique uniform resource locator (URL), or Internet address, at which buyers can place orders.
An electronic mall, also known as a cybermall, or an e-mall, is a collection of individual shops grouped under a single Internet address. Electronic malls may include thousands of ven dors. For example, Microsoft Bing shopping, ( www.bing.com/shopping ) includes tens of thou sands of products from thousands of vendors, as does Amazon ( www.amazon.com ).
Online Service Industries
In addition to purchasing products, customers also access needed services on the web. Selling books, toys, computers, and most other products on the Internet can reduce vendors’ selling costs by 20 to 40 percent. Further reduction is difficult to achieve because the products must be delivered physically. Only a few products, such as software and music, can be digitized and
202 CHAPTER 7 E-Business and E-Commerce
Business-to-Consumer (B2C) Electronic Commerce 201
IT’s About Business 7.2
Stripe
POM MIS
The rapid growth of electronic commerce necessitated a fast, se cure method for customers to pay online using their credit cards. Traditionally, to process online credit card payments, merchants set up Internet merchant accounts and payment gateway accounts. The merchants obtained their merchant accounts through a bank.
A payment gateway is an application that authorizes payments for e-businesses, online retailers, bricks-and-clicks businesses, or traditional brick-and-mortar businesses. It is the virtual equivalent of a physical point of sale terminal located in retail outlets.
Payment gateways link, on one hand, to credit card accounts belonging to online customers and to Internet merchant accounts on the other. Payment gateways interact with the card issuer’s bank to authorize the credit card in real time when a purchase is made. The funds received flow into the merchant account.
The leading providers of payment gateway accounts are Pay- Pal ( www.paypal.com ), Authorize.net ( www.authorize.net ), Cy bersource ( www.cybersource.com ), and Verisign ( www.verisign
.com ). These providers help merchants set up merchant accounts and payment gateways in one convenient package.
Founded in 2011, Stripe ( https://stripe.com ) is an electronic payment software solution in the financial technology (FinTech) in dustry whose goal is to transform e-payment systems. Stripe allows individuals and businesses to accept payments over the Internet. Stripe focuses on providing the technical, fraud prevention, and banking infrastructure required to operate online payment systems. (Note: Stripe is so serious about fraud prevention that, in 2015, the company introduced a machine-learning-based fraud detection system. We discuss machine learning in Technology Guide 4.)
Using Stripe, merchants can integrate payment processing into their websites without having to register and maintain a mer chant account. For online credit card transactions, merchants cre ate a Stripe account and insert a few lines of JavaScript into their website’s source code. When shoppers provide their credit card in formation, it’s collected directly by Stripe’s servers, so merchants do not need to handle sensitive data. Stripe processes the transac tion, scans for signs of fraud, and charges a fee of 2.9 percent plus 30 cents per transaction. Stripe deposits the funds from the sale into the vendor’s bank account a week later.
In 2015, Stripe launched Relay, a set of software that makes the buying and selling process easier for merchants and shoppers. With Relay, retailers can embed “buy” buttons in apps and social networks such as Facebook, Pinterest, and Twitter and sell directly to users of those apps. Clicking on the button launches a simple Stripe purchase confirmation dialog box to those customers who have already cho sen to have their credit card information stored in those apps.
Consider ShopStyle ( www.shopstyle.com ), which has em bedded Relay into its mobile app. ShopStyle is a search engine that lets fashion-conscious buyers shop at 1,400 merchants, rang ing from mid-range Target and Forever 21 to luxury retailers like Saks Fifth Avenue. ShopStyle accounts for $1 billion in yearly sales. ShopStyle users only have to enter their credit card and personal information just once. Then they can browse and buy from all stores in the ShopStyle app. If that same customer were to make a purchase from Saks and not use Stripe Relay, they would have to
input their information multiple times. With Relay, the transaction takes just a few clicks.
Stripe also hopes that large department stores such as Macy’s and Saks Fifth Avenue will use Relay for selling across other apps. Stripe is also developing a business model with advertising services like InMobi ( www.inmobi.com ), which places ads inside thousands of apps, so customers can buy products within the ads themselves. A new offering from Stripe, called Atlas, gives foreign entrepre neurs a foot in the door to the U.S. market. For $500, Atlas registers a small business as a business entity in Delaware. The owner also gets an American bank account and Stripe merchant account so they can accept payments from around the world. Entrepreneurs are also offered expertise from partners such as Pricewaterhouse- Coopers, ranging from basic tax and legal services, and will get free credit to operate their e-businesses on the Amazon Web Services
cloud computing platform. Atlas has customers in 185 countries. Stripe continues to grow rapidly. In 2016, the company work
force doubled to 380. Analysts estimate that Stripe processes about
$20 billion in payments per year, earning more than $450 million in revenues. After a November 2016 $150 million round of funding, Stripe was valued at some $9.2 billion.
As of November 2016, Stripe supported some 140 global cur rencies, as well as bitcoin transactions. The company was operat ing in 25 countries and had partnerships in place with Visa, Apple Pay, Google Pay, and Alibaba (Alipay). Thousands of other compa nies use Stripe in their e-commerce operations, including Face- book, Twitter, Slack, Salesforce, American Express (Amex Express Checkout), Sony, and Pinterest.
Stripe does face intense competition. PayPal’s Braintree has such big-name clients as Uber and Airbnb. Adyen, a fast-moving European service, has surpassed Stripe in size and is advancing quickly into new areas. Other competitors include Amazon and Litle (owned by Vantiv).
Sources: Compiled from R. Winkler and T. Demos, “Stripe’s Valuation Nearly Doubles to $9.2 Billion,” Wall Street Journal, November 25, 2016; H. Somer ville, “Stripe Expands Payments Service to Cuba to Support Startups,” Reuters, March 18, 2016; L. Rao, “Stripe Wants to Help Cuban Entrepreneurs Enter the Digital Age,” Fortune, March 18, 2016; M. Isaac, “Stripe Atlas Aims to Ease the Way for Foreign Entrepreneurs,” New York Times, February 24, 2016; M. Helft, “How John and Patrick Collison Built Stripe into the PayPal of the Mobile Era,” Forbes, January 4, 2016; J. Quittner, “Why 2015 Was
a Blockbuster Year for Stripe,” Inc.com, November 16, 2015; “Unicorns: Stripe,” Forbes, November 2, 2015; M. Isaac, “Stripe Introduces New Tools to Simplify Mobile Shopping,” New York Times, September 14, 2015; A. Rosen blum, “Stripe Bets on Twitter for Mobile Purchases,” MIT Technology Review, September 14, 2015; L. Rao, “A Billion-Dollar Startup Earns Its Stripes,” For tune, July 28, 2015; J. Quittner, “The Twentysomething Brothers behind a
$3.6 Billion Payments Company,” Inc.com , April 22, 2015; R. Reader, “Stripe Invites Merchants to Help Improve Its Machine-Learning Fraud Detection System,” VentureBeat, January 14, 2015; S. Mishkin, “The Collison Brothers and $1.75bn Online Payments Start-Up Stripe,” The Financial Times, April 17, 2014; P. Burrows, “Stripe Aims to Reinvent E-Payments,” Bloomberg. com, February 23, 2012; https://stripe.com, accessed November 21, 2016.
Questions
1. What are the advantages of Stripe to merchants? Provide examples to support your answer.
2. What are the advantages of Stripe to customers? Provide ex amples to support your answer.
One of the most pressing EC issues relating to online services (as well as in marketing tangible products) is disintermediation. Intermediaries, also known as middlemen, have two functions: (1) they provide information, and (2) they perform value-added services such as consulting. The first function can be fully automated and most likely will be assumed by e-marketplaces and portals that provide information for free. When this development occurs, the intermediaries who perform only (or primarily) this function are likely to be eliminated. The process whereby intermediaries are eliminated is called disintermediation.
In contrast to simply providing information, performing value-added services requires ex pertise. Unlike the information function, then, this function can be only partially automated. Intermediaries who provide value-added services are thriving. The web helps these employees in two situations: (1) when the number of participants is enormous, as with job searches, and
(2) when the information that must be exchanged is complex.
In this section, you will examine some leading online service industries: banking, trading of securities (stocks, bonds), job matching, travel services, and advertising.
Cyberbanking.
Electronic banking, also known as cyberbanking, involves con
ducting various banking activities from home, at a place of business, or on the road instead of at a physical bank location. Electronic banking has capabilities ranging from paying bills to ap plying for a loan. For customers, it saves time and is convenient. For banks, it offers an inexpen sive alternative to branch banking—for example, a cost of about 2 cents per transaction versus
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$1.07 at a physical branch. Cyberbanking also enables banks to attract remote customers. In addition to regular banks with added online services, Internet-only banks, which are dedicated solely to Internet transactions, have emerged (e.g., Ally ( www.ally.com ), Everbank ( www.ever bank.com ), and Bank of Internet USA ( www.bankofinternet.com )).
Online Securities Trading.
Millions of Americans use computers to trade
stocks, bonds, and other financial instruments. In fact, several well-known securities compa nies, including E*Trade, Ameritrade, and Charles Schwab, offer only online trading because it is cheaper than a full-service or discount broker. On the web, investors can find a considerable amount of information regarding specific companies or mutual funds in which to invest (e.g., http://money.cnn.com and www.bloomberg.com ).
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The Online Job Market.
Job seekers use online job market sites such as
www.monster.com , www.simplyhired.com , www.linkedin.com , and www.truecareers.com to help them find available positions. In many countries (including the United States), governments must advertise job openings on the Internet. (See our discussion on LinkedIn and “how to find a job” in Chapter 9.)
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Travel Services. The Internet is an ideal place to plan, explore, and arrange almost any trip economically. Online travel services allow you to purchase airline tickets, reserve hotel rooms, and rent cars. Most sites also offer a fare-tracker feature that sends you e-mail mes sages about low-cost flights. Examples of comprehensive online travel services are Expedia
.com, Travelocity.com, and Orbitz.com. Online services are also provided by all major airline vacation services, large conventional travel agencies, car rental agencies, hotels (e.g., www
.hotels.com ), and tour companies. In a variation of this process, Priceline.com allows you to set a price you are willing to pay for an airline ticket or hotel accommodations. It then attempts to find a vendor that will match your price.
One costly problem that e-commerce can cause is “mistake fares” in the airline industry. For example, on August 6, 2012, El Al ( www.elal.com ), Israel’s national airline, offered flights to Israel worth up to $1,600 for as little as $300. This price was incorrect; the actual price was higher. By the time El Al noticed the mistake and pulled the fare, however, several tickets had been sold, thanks in part to online-travel discussion groups.
Online Advertising.
Advertising is the practice of disseminating information in
an attempt to influence a buyer–seller transaction. Traditional advertising on TV or in newspa pers involves impersonal, one-way mass communication. In contrast, direct response market ing, or telemarketing, contacts individuals by direct mail or telephone and requires them to respond in order to make a purchase. The direct response approach personalizes advertising and marketing. At the same time, however, it can be expensive, slow, and ineffective. It can also be extremely annoying to the consumer.
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The good news is that Internet advertising redefines the advertising process, making it me dia rich, dynamic, and interactive. It improves on traditional forms of advertising in a number of ways. First, Internet ads can be updated any time at minimal cost and therefore can be kept current. These ads can also reach very large numbers of potential buyers all over the world. Furthermore, they are generally cheaper than radio, television, and print ads. Finally, Internet ads can be interactive and targeted to specific interest groups or individuals.
The most common online advertising methods are banners, pop-ups, and e-mail. Banners are simply electronic billboards that promote a product or a vendor. When customers click on a banner, they are transferred to the advertiser’s home page. A pop-up ad appears in front of the current browser window. A pop-under ad appears underneath the active window; when users close the active window, they see the ad. Many users strongly object to these ads, which they consider intrusive. Modern browsers let users block pop-up ads.
E-mail is another online advertising channel. It is generally cost-effective to implement, and it can provide an effective response rate. However, e-mail advertising is often misused, causing consumers to receive a flood of unsolicited e-mail, or spam. Spamming is the indis criminate distribution of electronic ads without the permission of the recipient. Unfortunately, spamming is becoming worse over time.
Two important responses to spamming are permission marketing and viral marketing. Permission marketing asks consumers to give their permission to voluntarily accept online advertising and e-mail. Viral marketing refers to online, word-of-mouth marketing and is closely related to using social media for marketing purposes. (See Section 9.4.)
As to the bad news, users have become very irritated with these online advertising methods. IT’s About Business 7.3 describes users’ response to online advertising.
IT’s About Business 7.3
Ad-Blocking Software 3. Try to sell native advertising.
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Online advertising is responsible in large part for the profit mar- gins of content creators and plays a critical role in keeping online content free. In 2016, online advertising spending worldwide was almost $200 billion, and that figure is expected to increase to $252 billion by 2018.
Content creators need online ads because they need the reve nue from advertisers. The predominant business model for content creators, as well as platforms such as Google and Facebook, has al
Native advertising consists of ads that are disguised as content. In that way, ad blockers cannot block it, but users are confused about whether they are reading independent con- tent or an ad. Many content creators use this model, which advertisers favor. Users, however, find native ads obnoxious because they are basically deceptive.
4. Avoid the online ad problem by offering premium content in search of higher-value advertising that targets a premium au dience.
ways involved the income from online advertising. Advertising is sold 5. Find a nonadvertising revenue source. VentureBeat ( www
based on impressions, or the number of times that people have seen .venturebeat.com ), for example, built a research business an ad. Consequently, content creators employ several business mod- selling high-value reports to companies willing to pay for valu els to try to increase the number of impressions that they deliver. able information.
1. Increase traffic, which is difficult, as most people in the devel- Today, online advertising is facing a crisis because content oped world already have Internet access. This is the reason creators have been emphasizing the intrusive model from the pre- that Facebook (with its solar-powered drones) and Google ceding list (number 2). As a result, users have finally had enough. (with its Project Loon) are so eager to provide Internet access They are irritated with banner ads, pop-ups, and videos that au to areas of the world that do not have it. tomatically start playing when they load a web page. They are irri
2. Place more (and more intrusive) ads on each web page, thus irritating users even more.
tated with full-screen takeovers that force them to find, then click, a tiny “x” before they can read the content that they wanted in the
first place. They are concerned with cookies that track their every web page they visit and click they make, allowing advertisers to tar get them with increasing frequency and precision.
On top of these irritations, another problem has emerged with online advertising. In March 2016, several well-known sites left mil lions of users vulnerable to malicious software, called ransomware. (See IT’s About Business 4.1.) Some security experts argue that the only way to surf safely is to block online ads.
Security firm Malwarebytes reported that MSN, the New York Times, the BBC, and AOL were among the websites containing ads with ransomware. This problem occurred because those websites use third-party suppliers to deliver advertising. Yahoo!, Forbes, and the Economist also had the same problem.
As a result of all these problems with online advertising, many web users are increasingly employing ad-blocking software (called ad blockers) to prevent such online advertising. Specifically, in 2016 some 26 percent of Internet users (70 million people) in the United States employed ad-blocking tools. Industry analysts predicted that in 2017, 32 percent of Americans (almost 90 million people) would employ ad-blocking tools. Globally in 2016, some 200 million people used ad blockers. The result is that content creators lost $22 billion in 2016, a figure expected to increase to $27 billion by 2020.
There are several types of ad blockers:
· Ad blockers that will stop almost every ad and tracker. For ex ample, Privacy Badger ( https://www.eff.org/privacybadger ) spots and blocks what it calls “non-consensual tracking,” or ads and trackers that move with users around the web, serv ing them ads on multiple sites. Privacy Badger stops your browser from displaying anything from third parties that you did not grant permission to view. The site is operated by the nonprofit Electronic Frontier Foundation, which accepts do nations and coding help.
· Ad blockers that are for-profit businesses. Adblock Plus ( https://adblockplus.org ), for example, is the most popular ad blocker, with more than 100 million users worldwide. The tool blocks ads, banners, pop-ups, and video ads, and stops tracking services.
Adblock Plus does not prevent all ads; instead, its ap proach is to allow what it calls “acceptable ads.” With this program, ads that have certain characteristics, such as place ment, size, and distinction, are whitelisted. That means the advertiser shares the revenue gained by whitelisting with Ad- block Plus.
Along these same lines, Google and Microsoft pay to have their ads whitelisted by Adblock Plus and other ad blockers. This cost accrues first to the advertisers and eventually the customers who buy the products or services.
· Ad blockers that collect data. Employing Ghostery ( www
.ghostery.com ), for example, prevents users from seeing ads and being tracked. The company, however, earns revenue by collecting data about the trackers themselves. Ghostery re sells that data to content creators to help increase the speed, privacy, and performance of their websites.
· Ad blockers that use the freemium model. Blockers such as Disconnect ( https://disconnect.me ) and 1Blocker
( https://1blocker.com ) are free apps for mobile users, who then have to pay if they want to use features such as being able to simultaneously block more than one ad or tracker.
· Ad blockers as a function of operating systems. For example, Apple’s iOS 9 and iOS 10 enable owners of Apple devices to download web browser extensions that block ads.
Content creators are fighting back against ad-blocking soft ware. Content creators have begun using ad-block detectors. This type of software tool looks for ad-blockers and then asks the user to disable it and may deny access to content until they do.
For example, in November 2015 some users of Yahoo!’s mail service had problems retrieving their messages. The culprit? They were all using ad-blocking software. Yahoo! stopped those users from logging on until they turned the ad blocker off. In another ex ample, Disney made a change to ESPN.com that rendered videos unwatchable for some users of ad-blocking software.
In August 2016, Facebook said that it would configure its ads to avoid ad blockers. This action was controversial because Face- book has to meet Federal Trade Commission (www.ftc.gov) rules on transparency, which requires it to clearly indicate when some thing is an advertisement. Facebook had also made a commitment to its members that it would clearly label ads.
Almost immediately, Adblock Plus let its users know of a change to their settings that would get around Facebook’s attempt to defeat ad blockers. Furthermore, a Princeton University pro fessor and an undergraduate student developed a prototype ad “highlighter” for the Chrome browser. When using the Facebook Ad Highlighter, a member’s News Feed shows grayed-out ads with the words, “THIS IS AN AD” superimposed on them.
And the results? The battles between content creators and ad blockers continue.
Sources: Compiled from “In an Ad Blocking Battle, Whose Side Is Google On?” AdvertisingAge, September 26, 2016; T. Simonite, “Facebook Can’t Win Against Ad Blockers, and Here’s the Proof,” MIT Technology Review, August 15, 2016; C. Johnston, “Why Facebook Is Really Blocking the Ad Blockers,” The New Yorker, August 12, 2016; G. Slefo, J. Marshall, “Face book Will Force Advertising on Ad-Blocking Users,” Wall Street Journal, August 9, 2016; T. Simonite, “Facebook Has Nuked Ad Blockers, For Now,” MIT Technology Review, August 9, 2016; “U.S. Ad Blocking to Jump by Double Digits This Year,” eMarketer, June 21, 2016; “How Ad Blockers Have Triggered an Arms Race on the Web,” MIT Technology Review, May 26, 2016; T. Simonite, “Are Ad Blockers Needed to Stay Safe Online?” MIT Technology Review, March 16, 2016; J. Greenberg, “Ad Blockers Are Making Money off Ads (and Tracking Too),” Wired, March 2, 2016; “Forbes Readers Served Malicious Ads after Asking Them to Disable Adblocker,” Trend Micro, January 14, 2016; J. Koetsier, “Hurrah! It’s the End of the Line for the Ad-Supported Web!” VentureBeat, September 22, 2015; A. Satariano, “If You Blocked This Ad, We Wouldn’t Get Paid,” Bloomberg BusinessWeek, September 21–27, 2015; C. Johnston, “Welcome to the Block Party,” The Awl, September 14, 2015.
Questions
1. Do you use an ad blocker? Why or why not?
2. As ad blockers proliferate, which of the five business models do you think content creators should use? Support your an swer.
3. Will the ultimate result of ad blockers be that content on the Internet will no longer be free? Support your answer.
Issues in E-Tailing
Despite e-tailing’s increasing popularity, many e-tailers continue to face serious issues that can restrict their growth. Perhaps the two most significant issues are channel conflict and order fulfillment.
Clicks-and-mortar companies may face a conflict with their regular distributors when they sell directly to customers online. This situation, known as channel conflict, can alienate the distributors. Channel conflict has forced some companies to avoid direct online sales. For ex ample, Walmart, Lowe’s, and Home Depot would rather have customers come to their stores. Therefore, although all three companies maintain e-commerce websites, their sites place more emphasis on providing information—products, prices, specials, and store locations—than on online sales.
Channel conflict can arise in areas such as pricing and resource allocation—for example, how much money to spend on advertising. Another potential source of conflict involves the logistics services provided by the offline activities to the online activities. For example, how should a company handle returns of items purchased online? Some companies have com pletely separated the “clicks” (the online portion of the organization) from the “mortar” or “bricks” (the traditional bricks-and-mortar part of the organization). However, this approach can increase expenses, reduce the synergy between the two organizational channels, and alienate customers. As a result, many companies are integrating their online and offline chan nels, a process known as multichanneling.
Multichanneling has created the opportunity for showrooming. Showrooming occurs when shoppers visit a brick-and-mortar store to examine a product in person. They then conduct research about the product on their smartphones. They then often purchase the product from the website of a competitor of the store they are visiting. Showrooming is causing problems for brick-and-mortar retailers, such as Target, Best Buy, and others. At the same time, showroom ing benefits Amazon, eBay, and other online retailers.
Personalized pricing (also known as dynamic pricing) is an issue closely related to show- rooming. IT’s About Business 7.4 discusses personalized pricing in detail.
IT’s About Business 7.4
Personalized Pricing (also known as Dynamic shopkeeper straight in the eyes), how courteous they were, how
Pricing)
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much of a hurry they were in, and many other variables. In that way, the shopkeeper could quickly decide on a price for that cus tomer at that time.
Today, consumers are accustomed to standardized pricing, which The optimal outcome of personalized pricing for the merchant means that when a product is sold through multiple channels, is maximizing the price that each customer will pay. This situation is the cost should not vary by more than the difference in shipping, difficult to achieve because the means of determining the maximum taxation, and distribution costs. If the price is higher for a product amount a customer will pay has not yet been developed. Or has it? at a certain retailer, then customers can easily use the Internet to Some online retailers (e-tailers) are attempting to return to compare prices and features among a huge number of retailers to the strategies of yesterday’s shopkeeper. They are analyzing the purchase that product from another retailer. data (see Chapter 5) that all consumers generate with online activi-
In theory, charging all consumers the same price is ineffective ties and transactions to set different prices for different customers. for merchants, because some customers would have been willing E-tailers can now virtually assess each customer who visits to pay more, and others who opted not to buy would have bought their website. Specifically, when a customer accesses an e-tailer’s at a lower price. Economic theory states that personalized pricing— site, the merchant may know where the customer is located based also called dynamic pricing—can save companies this lost revenue. on his or her Internet Protocol address. Merchants also may know Personalized pricing is the practice of pricing items at a point the customer’s ZIP code. In that case, they can determine the cus determined by a particular customer’s perceived ability to pay. This tomer’s socioeconomic status based on data from the most recent
practice has been in existence as long as commerce itself. Consider federal census.
shopkeepers in the past, who were experts on evaluating pro- When merchants combine these data with cookies (see Chap spective customers based on a wide variety of signals—how they ter 4), they can learn a significant amount about individual cus spoke, how they dressed, how they acted (e.g., did they look the tomers, including some of the websites the customers have visited,
Currently, many retailers use these data to target individual shoppers with personalized offers and promotions. The analy ses that enable retailers to send customized offers to customers also enable them to determine personalized pricing. And, with e-commerce, merchants can easily adjust prices for different cus tomers simply by changing them in the system in real time. They therefore avoid the hassle of physically changing the prices on thousands of products.
Let’s review some prominent examples of personalized pricing.
· Delta Airlines ( www.delta.com ) uses personalized pricing to raise ticket prices for frequent flyers. The rationale was that frequent flyers are probably doing so because they have to travel, usually for business trips. They therefore are willing (however unethusiastically) to pay more than infrequent travelers.
· The Safeway supermarket sends offers to certain shoppers based on their buying history. For example, one customer received a coupon for eggs because the data revealed that she bought regular quantities of high-protein items. With personalized pricing, Safeway can afford to sell the eggs to this customer at a discount because the store will charge less health-conscious shoppers more for the same product.
· In 2000, Amazon ( www.amazon.com ) was found to be charging its regular customers higher prices for some prod ucts, after one shopper deleted the cookies on his computer that identified him as a regular Amazon customer and noted that the price of a DVD dropped. Amazon, which attributed the differences in price to a random price test, refunded custom ers who had paid higher prices. Amazon CEO Jeff Bezos also asserted the company “never will test prices based on cus tomer demographics.”
· Staples ( www.staples.com ) shows customers different prices based on “a range of characteristics that could be discovered about the user.” For example, one shopper saw a lower price for a computer on the retailer’s website than another person who lived farther from the store. Staples’s reasoning was that if someone lives close to the store, then he or she may be lured in to make a quick purchase of the “discounted” item.
· The National Football League (NFL; www.nfl.com ) lets teams use personalized pricing for tickets. The Seattle Se ahawks ( www.seahawks.com ) became the first team to
employ the practice. The team partnered with ticket brokers to “redistribute” 4,000 season seats. Half of the tickets were sold individually to fans on the Blue Pride wait list. The rest of the tickets are sold based on personalized pricing—the higher the demand at the moment of purchase, the higher the price.
Companies such as Wiser ( www.wiser.com ), Dunnhumby ( www.dunnhumby.com ), and Blue Yonder ( www.blue-yonder
.com ) offer software and data solutions to retailers that employ personalized pricing, where prices change over time in response to variables such as inventory, demand, and the prices offered by competitors. Blue Yonder claims it can optimize prices not only ac cording to the region but also to the channel in which the customer is interacting with the retailer.
Most companies remain hesitant to utilize personalized pricing because it remains to be seen whether consumers will accept the practice. Typically, when consumers hear about the practice, they react negatively, and companies employing the practice experience customer dissatisfaction. It is not easy for consumers to detect when they are being targeted with person alized prices.
For luxury brands in particular, personalized pricing could be damaging because it raises questions concerning the intrinsic value of their products. For example, brands such as Louis Vuitton do not discount their products so as not to undermine the consumer per ception of their value. Consumers of luxury goods frequently asso ciate higher prices with higher quality, and vice versa.
Sources: Compiled from L. Couturier, “Is Personalized Pricing Helping or Hurting Sales?” Startup Mindset, November 14, 2016; J. Resende, “Personalized Pricing: ‘Big Data Is Watching You!’” IPdigIT, May 18, 2016;
S. Soper and L. Rupp, “Stores Try Fixed Prices That Aren’t So Fixed,” Bloomberg BusinessWeek, July 27–August 2, 2015; A. Leviton, “Delta Causes More Headaches with Skymiles Changes,” CNBC, July 16, 2015;
N. Payton, “Why Do Dynamic Pricing Programs Flop?” OPower, July 2, 2015; D. Horne, “Seahawks Announce ‘Dynamic Pricing’ Ticket Policy,” KIRO7, June 29, 2015; S. Lipsey, “How Airlines Might Gouge You in the Future: Personalized Pricing,” Yahoo! News, June 16, 2015; R. Thomaselli, “Democrats Take On Airline ‘Personalized Pricing’,” Travel Pulse, April
28, 2015; G. Petro, “Dynamic Pricing: Which Customers Are Worth the Most? Amazon, Delta Airlines, and Staples Weigh In,” Forbes, April 17, 2015; A. Valentine, “How Dynamic Pricing Is Disrupting Online Retail in 2015,” CPC Strategy, April 10, 2015; E. Deprez, “Skiing Gets Online, and Lift Tickets Get Cheaper,” Bloomberg BusinessWeek, March 9–15, 2015;
B. Snyder, “Report Analyzes Amazon’s Dynamic Pricing Strategy,” CIO, January 16, 2015.
Questions
1. How would you feel if you knew that you were being subject ed to personalized pricing?
2. Describe the advantages of personalized pricing for mer chants.
3. Does personalized pricing provide any advantages for cus tomers? Provide examples to support your answer.
4. Discuss the contributions of information technology to the practices of personalized pricing.
The second major issue confronting e-commerce is order fulfillment, which can create problems for e-tailers. Any time a company sells directly to customers, it is involved in various order-fulfillment activities. It must perform the following activities: quickly find the products to be shipped; pack them; arrange for the packages to be delivered speedily to the customer’s door; collect the money from every customer, either in advance, by COD, or by indi vidual bill; and handle the return of unwanted or defective products.
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It is very difficult to accomplish these activities both effectively and efficiently in B2C, be cause a company has to ship small packages to many customers and do it quickly. For this reason, companies involved in B2C activities can experience difficulties in their supply chains. In addition to providing customers with the products they ordered and doing it on time, or
der fulfillment provides all related customer services. For example, the customer must receive assembly and operation instructions for a new appliance. If the customer is unhappy with a product, the company must also arrange for an exchange or a return.
1. Describe electronic storefronts and malls.
2. Discuss various types of online services, such as cyberbanking, securities trading, job searches, travel services, and so on.
3. Discuss online advertising, its methods, and its benefits.
4. Identify the major issues related to e-tailing.
5. What are spamming, permission marketing, and viral marketing?
Business-to-Business (B2B) Electronic Commerce
7.3
In business-to-business (B2B) e-commerce, the buyers and sellers are business organizations. B2B comprises about 85 percent of EC volume. It covers a broad spectrum of applications that enable an enterprise to form electronic relationships with its distributors, resellers, suppliers, customers, and other partners. B2B applications use any of several business models. The major models are sell-side marketplaces, buy-side marketplaces, and electronic exchanges.
Sell-Side Marketplaces
In the sell-side marketplace model, organizations sell their products or services to other or ganizations electronically from their own private e-marketplace website or from a third-party website. This model is similar to the B2C model in which the buyer is expected to come to the seller’s site, view catalogs, and place an order. In the B2B sell-side marketplace, however, the buyer is an organization.
The key mechanisms in the sell-side model are forward auctions and electronic catalogs that can be customized for each large buyer. Sellers such as Dell Computer ( www.dellauction
.com ) use auctions extensively. In addition to conducting auctions from their own websites, organizations can use third-party auction sites like eBay to liquidate items. Companies such as Ariba ( www.ariba.com ) are helping organizations to auction old assets and inventories.
The sell-side model is used by hundreds of thousands of companies. The seller can be either a manufacturer (e.g., Dell or IBM), a distributor (e.g., www.avnet.com ), or a retailer (e.g., www.bigboxx.com ). The seller uses EC to increase sales, reduce selling and advertising expendi tures, increase delivery speed, and lower administrative costs. The sell-side model is especially suitable to customization. Many companies allow their customers to configure their orders on line. For example, at Dell ( www.dell.com ), you can determine the exact type of computer that
Business-to-Business (B2B) Electronic Commerce 209
you want. You can choose the type of chip, the size of the hard drive, the type of monitor, and so on. Similarly, the Jaguar website ( www.jaguar.com ) allows you to customize the Jaguar you want. Self-customization greatly reduces any misunderstandings concerning what customers want, and it encourages businesses to fill orders more quickly.
Buy-Side Marketplaces
Procurement is the overarching function that describes the activities and processes to acquire goods and services. Distinct from purchasing, procurement involves the activities necessary to establish requirements, sourcing activities such as market research and vendor evaluation, and negotiation of contracts. Purchasing refers to the process of ordering and receiving goods and services. It is a subset of the procurement process.
The buy-side marketplace is a model in which organizations attempt to procure needed products or services from other organizations electronically. A major method of procuring goods and services in the buy-side model is the reverse auction.
The buy-side model uses EC technology to streamline the procurement process. The goal is to reduce both the costs of items procured and the administrative expenses involved in pro curing them. EC technology can also shorten the procurement cycle time.
Procurement by using electronic support is referred to as e-procurement. E-procurement uses reverse auctions, particularly group purchasing. In group purchasing, multiple buyers combine their orders so that they constitute a large volume and therefore attract more seller attention. When buyers place their combined orders on a reverse auction, they can also nego tiate a volume discount. Typically, the orders of small buyers are aggregated by a third-party vendor, such as the United Sourcing Alliance ( www.usa-llc.com ).
Electronic Exchanges
Private exchanges have one buyer and many sellers. Electronic marketplaces (e-marketplaces), called public exchanges or just exchanges, are independently owned by a third party, and they connect many sellers with many buyers. Public exchanges are open to all business orga nizations. Public exchange managers provide all of the necessary information systems to the participants. Thus, buyers and sellers merely have to “plug in” in order to trade. B2B public exchanges are often the initial point of contacts between business partners. Once the partners make contact, they may move to a private exchange or to private trading rooms provided by many public exchanges to conduct their subsequent trading activities.
Electronic exchanges deal in both direct and indirect materials. Direct materials are inputs to the manufacturing process, such as safety glass used in automobile windshields and win dows. Indirect materials are those items, such as office supplies, that are needed for mainte nance, operations, and repairs (MRO).
There are three basic types of public exchanges: vertical, horizontal, and functional. All three types offer diversified support services, ranging from payments to logistics.
Vertical exchanges connect buyers and sellers in a given industry. Examples of vertical ex changes are www.plasticsnet.com in the plastics industry and www.papersite.com in the paper industry. Vertical e-marketplaces offer services that are particularly suited to the community they serve. Vertical exchanges are frequently owned and managed by a consortium, a term for a group of major players in an industry. For example, Marriott and Hyatt own a procurement consortium for the hotel industry, and Chevron owns an energy e-marketplace.
Horizontal exchanges connect buyers and sellers across many industries. They are used primarily for MRO materials. Examples of horizontal exchanges are TradersCity ( www
.traderscity.com ), Globalsources ( www.globalsources.com ), and Alibaba ( www.alibaba.com ).
Finally, in functional exchanges, needed services such as temporary help or extra office space are traded on an “as-needed” basis. For example, Employease ( www.employease.com ) can find temporary labor by searching employers in its Employease Network.
We have looked closely at B2B electronic commerce in this section. IT’s About Busi ness 7.5 shows how Amazon has entered the B2B marketplace.
210 CHAPTER 7 E-Business and E-Commerce
Ethical and Legal Issues in E-Business 211
IT’s About Business 7.5
Amazon Moves into the B2B Marketplace
POM MKT
Amazon Business ( www.amazon.com/business ) is Amazon’s e-commerce website that caters to the wholesale and distribution business-to-business (B2B) sector. Amazon Business does for com mercial customers what Amazon.com does for individuals (B2C).
Amazon’s B2B efforts began with AmazonSupply, which de buted in 2012 with half a million products on offer. By 2014, the inventory had expanded to more than 2.25 million items, includ ing tools, renovation supplies, cleaning supplies, steel pipes, and a host of other products.
In 2015, Amazon created Amazon Business and merged Ama zonSupply into it. Amazon Business uses a hybrid business model, selling both products directly from its own warehouses, as well as those from third-party vendors. The outside vendors, which still have to compete with Amazon products, receive a commission of between 6 and 15 percent for their items sold, depending on the type of product and how big the order is.
Amazon Business customers, who are eligible to buy and sell if they have a tax ID number, can access hundreds of millions of business-only products, obtain bulk discounts, set up a corpo rate credit line, and receive free two-day shipping on orders over
$49. Clients can also talk with manufacturer representatives about product specifications. This process is required for sales of complex technical products.
Amazon Business offers several benefits for vendors. For example:
· The site lists products, along with any accompanying quality certifications such as ISO 9000.
· Amazon Business account holders can qualify for special of fers not available to individuals on the Amazon.com site. This helps vendors meet requirements not to sell products that are forbidden to be sold directly to consumers, such as high-tech healthcare equipment.
· Customers can search for items by both manufacturer and dis tributor part numbers.
· The site can demonstrate products in web videos and host downloadable computer-aided design (CAD) drawings.
Amazon Business also offers benefits for buyers. For example:
· Multiple buyers within an organization can create business ac counts and share payment methods and shipping addresses.
· Promotions from multiple sellers are displayed on one prod uct page, making it easier to compare pricing and vendor rat ings from Amazon.
· Buyers can view other buyers’ product reviews.
· Amazon Business is connected with buyers’ procurement systems, allowing them to put Amazon on their procurement software’s list of authorized sellers.
Wholesalers are taking Amazon’s threat seriously. The whole sale industry in the United States is almost twice the size of the retail industry. In 2014, wholesale sales totaled $7.2 trillion, com pared with more than $4 trillion for retail sales. While the whole sale industry is larger than retail, the companies themselves tend
to be smaller. Most of America’s 35,000 distributors are regional, family-run businesses. Typical yearly sales are under $50 million and only 160 of these businesses report annual sales exceeding
$1 billion. In contrast, Amazon reported more than $89 billion in revenues in 2014, selling goods in both the B2C and B2B market places. The average wholesaler offers approximately 50,000 prod ucts online, compared to Amazon Business’s hundreds of millions of products.
Amazon Business is competitive even in niche markets. Take scientific equipment as an example. Items such as centrifuges and Bunsen burners are usually only offered by specialty dis tributors. But you can get one with the click of a mouse through Amazon Business. Few specialty distributors can compete with Amazon’s huge product list, its easy-to-use website, two-day de livery, physical infrastructure (fulfillment centers in the United States), and information technology infrastructure (e.g., Amazon Web Services).
To acquire and maintain competitive advantage, Amazon Business keeps items that may not sell quickly, in order to avoid stockouts that plague other distributors of specialty items. Indus try analysts estimate that Amazon has on hand more than half the inventory that it offers on the website at any point.
B2B has very small margins, typically 2 to 4 percent. Amazon’s size allows it to make money through high volumes. It achieves these high volumes through—what else?—beating competitors’ prices by about 25 percent on common products, according to a Boston Consulting Group ( www.bcg.com ) report.
Despite its success, Amazon Business does have competition. Consider W.W. Grainger ( www.grainger.com ), in business since 1927, which captures about 6 percent of the entire U.S. B2B mar ket. The company, which sells tools for maintenance and repair, now operates more than 700 regional sales locations and 33 ware houses. The company recorded $10 billion in revenue in 2014, most of which it still generated offline. Nevertheless, in 2014, it had more than $3 billion in online sales.
One area that Amazon Business may not be able to penetrate is the close partnerships that some distributors have with insti tutional clients. For example, medical supplier Cardinal Health ( www.cardinalhealth.com ) has taken control of the entire supply chain at the Nebraska Medical Center. Cardinal handles everything from truck to patient. It orders products from suppliers, tracks product distribution, handles loading dockworkers, and deals with supplier invoicing.
The challenge confronting the nation’s 35,000 wholesalers and distributors is how to compete with Amazon Business. Industry analysts identify two possibilities:
1. Provide value-added, personalized services to customers. For example, Valin Corporation ( www.valinonline.com ) has specialized in the oil and gas sector, dispatching engineers to oilfields to help deploy the company’s products that manage output at surface oil wells.
2. Go into areas Amazon may fear to tread. Amazon may not be interested in trying to get up to speed in specialized business environments. For example, will Amazon want to sell oxygen tanks or soda pumps? Furthermore, Amazon might not want to manage products that are dangerous or exotic, such as dentists’ chairs, or that require specialists.
Sources: Compiled from D. Davis, “Amazon Business Helps Buyers Beat Their Negotiated Supplier Prices,” B2B E-Commerce World, June 7, 2016;
P. Demery, “Amazon’s Billion-Dollar B2B Portal Is Growing Rapidly,” B2B E-Commerce World, May 4, 2016; E. Smith, “Can Amazon ‘Uber’ Dis tributors?” Modern Distribution Management, June 17, 2015; E. Smith,
“Recommended Reading: Amazon Business Open to Distributors,” Modern Distribution Management, June 9, 2015; D. Buss, “New Amazon Business Marketplace Goes after B2B Dollars,” Brand Channel, May 1, 2015; E. Smith, “Amazon Reinvents B2B Model,” Modern Distribution Management, April 29, 2015; S. Soper, “Amazon Business Aims for $1 Trillion Corporate-Spending Market,” BloombergBusiness, April 28, 2015; P. Demery, “Say Hello To Ama zon Business, Good-Bye to AmazonSupply,” Internet Retailer, April 28, 2015;
C. O’Connor, “Amazon Launches Amazon Business Marketplace, Will Close AmazonSupply,” Forbes, April 28, 2015; C. O’Connor, “Amazon’s Wholesale Slaughter: Jeff Bezos’ $8 Trillion B2B Bet,” Forbes, May 7, 2014; J. Hans, “Q&A: How Amazon Could Change ‘B2B’,” Manufacturing.net , February 3, 2014; www.amazon.com/business, accessed August 18, 2016.
Questions
1. Consider Tulsa Community College ( www.tulsacc.edu ), which is using Amazon Business to order test tubes, bas ketballs, office supplies, and other goods instead of having employees buy them from local retailers or specialty sellers. The daily needs of the college’s 15,000 students translate into about $10,000 of orders per month.
What is the impact of Amazon Business on local wholesalers and retailers in Tulsa?
How could local businesses in Tulsa compete with Amazon Business?
2. Provide other methods for wholesalers to compete with Am azon Business.
1. Briefly differentiate between the sell-side marketplace and the buy-side marketplace.
2. Briefly differentiate among vertical exchanges, horizontal exchanges, and functional exchanges.
Ethical and Legal Issues in E-Business
7.4
Technological innovation often forces a society to reexamine and modify its ethical standards. In many cases, the new standards are incorporated into law. In this section, you will learn about two important ethical considerations—privacy and job loss—as well as various legal issues aris ing from the practice of e-business.
Ethical Issues
Many of the ethical and global issues related to IT also apply to e-business. Here you will learn about two basic issues: privacy and job loss.
By making it easier to store and transfer personal information, e-business presents some threats to privacy. To begin with, most electronic payment systems know who the buyers are. It may be necessary, then, to protect the buyers’ identities. Businesses frequently use encryption to provide this protection.
Another major privacy issue is tracking. For example, individuals’ activities on the Inter net can be tracked by cookies (discussed in Chapter 4). Cookies store your tracking history on your personal computer’s hard drive, and any time you revisit a certain website, the server recognizes the cookie. In response, antivirus software packages routinely search for potentially harmful cookies.
In addition to compromising individual privacy, the use of EC may eliminate the need for some of a company’s employees, as well as brokers and agents. The manner in which these unneeded workers, especially employees, are treated can raise ethical issues: How should the company handle the layoffs? Should companies be required to retrain employees for new posi tions? If not, how should the company compensate or otherwise assist the displaced workers?
Legal and Ethical Issues Specific to E-Commerce
Many legal issues are related specifically to e-commerce. A business environment in which buyers and sellers do not know one another and cannot even see one another creates
opportunities for dishonest people to commit fraud and other crimes. These illegal actions range from creating a virtual bank that disappears along with the investors’ deposits to manipulating stock prices on the Internet. Unfortunately, fraudulent activities on the Internet are increasing.
Fraud on the Internet. Internet fraud has grown even faster than Internet use itself. In one case, stock promoters falsely spread positive rumors about the prospects of the com panies they touted in order to boost the stock price. In other cases, the information provided might have been true, but the promoters did not disclose that they were paid to talk up the companies. Stock promoters specifically target small investors who are lured by the promise of fast profits.
Stocks are only one of many areas in which swindlers are active. Auctions are especially conducive to fraud, by both sellers and buyers. Other types of fraud include selling bogus in vestments and setting up phantom business opportunities. Because of the growing use of e-mail, financial criminals now have access to many more potential victims. The U.S. Federal Trade Commission (FTC) (www.ftc.gov) regularly publishes examples of scams that are most likely to be spread by e-mail or to be found on the web. Next, you will see some ways in which consumers and sellers can protect themselves from online fraud.
Tips for safe electronic shopping:
· Look for reliable brand names at sites such as Walmart Online, Disney Online, and Amazon. Before purchasing, make sure that the site is authentic by entering the site directly and not from an unverified link.
· Search any unfamiliar selling site for the company’s address and phone and fax numbers. Call up and quiz the employees about the seller.
· Check out the vendor with the local Chamber of Commerce or Better Business Bureau ( www.bbbonline.org ). Look for seals of authenticity such as TRUSTe.
· Investigate how secure the seller’s site is by examining the security procedures and by reading the posted privacy policy.
· Examine the money-back guarantees, warranties, and service agreements.
· Compare prices with those in regular stores. Too low prices are too good to be true and some catch is probably involved.
· Ask friends what they know. Find testimonials and endorsements on community websites and well-known bulletin boards.
· Find out what your rights are in case of a dispute. Consult consumer protection agencies and the National Consumer League’s Fraud Center ( www.fraud.org ).
· Check Consumerworld ( www.consumerworld.org ) for a collection of useful resources.
· For many types of products, www.resellerratings.com is a useful resource.
Domain Names. Another legal issue is competition over domain names. Domain names are assigned by central nonprofit organizations that check for conflicts and possible infringe ment of trademarks. Obviously, companies that sell goods and services over the Internet want customers to be able to find them easily. In general, the closer the domain name matches the company’s name, the easier the company is to locate.
A domain name is considered legal when the person or business who owns the name has operated a legitimate business under that name for some time. Companies such as Christian Dior, Nike, Deutsche Bank, and even Microsoft have had to fight or pay to acquire the domain name that corresponds to their company’s name. Consider the case of Delta Air Lines. Delta originally could not obtain the Internet domain name delta.com because Delta Faucet had already purchased it. Delta Faucet had been in business under that name since 1954, so it had a legitimate business interest in using the domain name. Delta Air Lines had to settle for delta-airlines.com until it bought the domain name from Delta Faucet. Delta Faucet is now at deltafaucet.com.
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Cybersquatting. Cybersquatting refers to the practice of registering or using domain names for the purpose of profiting from the goodwill or the trademark that belongs to someone else. The Anti-Cybersquatting Consumer Protection Act (1999) permits trademark owners in the United States to sue for damages in such cases.
However, some practices that could be considered cybersquatting are not illegal, although they may well be unethical. Perhaps the more common of these practices is “domain tasting.” Domain tasting lets registrars profit from the complex money trail of pay-per-click advertising. The practice can be traced back to the policies of the organization responsible for regulating web names, the Internet Corporation for Assigned Names and Numbers (ICANN) ( www.icann
.org ). In 2000, ICANN established the five-day “Add Grace Period” during which a company or person can claim a domain name and then return it for a full refund of the registry fee. ICANN implemented this policy to allow someone who mistyped a domain to return it without cost. In some cases, companies engage in cybersquatting by registering domain names that are very similar to their competitors’ domain names in order to generate traffic from people who mis spell web addresses.
Domain tasters exploit this policy by claiming Internet domains for five days at no cost. These domain names frequently resemble those of prominent companies and organizations. The tasters then jam these domains full of advertisements that come from Yahoo! and Google. Because this process involves zero risk and 100 percent profit margins, domain tasters register millions of domain names every day—some of them over and over again. Experts estimate that registrants ultimately purchase less than 2 percent of the sites they sample. In the vast majority of cases, they use the domain names for only a few days to generate quick profits.
Taxes and Other Fees. In offline sales, most states and localities tax business trans actions that are conducted within their jurisdiction. The most obvious example is sales taxes. Federal, state, and local authorities are working on taxation policy for e-business. This problem is particularly complex for interstate and international e-commerce. For example, some people claim that the state in which the seller is located deserves the entire sales tax (in some coun tries, it is a value-added tax (VAT)). Others contend that the state in which the server is located should also receive some of the tax revenues.
In addition to the sales tax, there is a question about where—and in some cases, whether— electronic sellers should pay business license taxes, franchise fees, gross receipts taxes, excise taxes, privilege taxes, and utility taxes. Furthermore, how should tax collection be controlled? Legislative efforts to impose taxes on e-commerce are opposed by an organization named the Internet Freedom Fighters.
In December 2013, the U.S. Supreme Court declined to get involved in state efforts to force web retailers such as Amazon to collect sales tax from customers even in places where the com panies do not have a physical presence. The court’s decision to stay out of the issue put pres sure on Congress to come up with a national solution, as both online and traditional retailers complain about a patchwork of state laws and conflicting lower court decisions. In November 2016, all but five states impose sales taxes on online purchases, and an increasing number have passed legislation to force online retailers to begin collecting those taxes from customers.
Even before electronic commerce over the Internet emerged, the basic law was that as long as a retailer did not have a physical presence in the state where the consumer was shop ping, that retailer did not have to collect a sales tax. Shoppers are supposed to track such pur chases and then pay the taxes owed in their annual tax filings. Few people, however, do this or are even aware of their obligation.
The result is that online retailers have been able to undercut the prices of their non- Internet (e.g., brick-and-mortar stores) competitors for years. As state and local governments have increasingly experienced large cash shortcomings since the 2008 recession, they have fought back. For example, in November 2016, 29 states and the District of Columbia required Amazon to collect sales taxes.
Copyright. Recall from Chapter 3 that intellectual property is protected by copyright laws and cannot be used freely. This point is significant because many people mistakenly believe
that once they purchase a piece of software, they have the right to share it with others. In fact, what they have bought is the right to use the software, not the right to distribute it. That right remains with the copyright holder. Similarly, copying material from websites without permis sion is a violation of copyright laws. Protecting intellectual property rights in e-commerce is ex tremely difficult, however, because it involves hundreds of millions of people in 200 countries with differing copyright laws who have access to billions of web pages.
Before you go on. . .
1. List and explain some ethical issues in EC.
2. Discuss the major legal issues associated with EC.
3. Describe buyer protection and seller protection in EC.
What’s in IT for me?
ACCT For the Accounting Major
Accounting personnel are involved in several EC activities. Design ing the ordering system and its relationship with inventory man agement requires accounting attention. Billing and payments are also accounting activities, as are determining cost and profit allo cation. Replacing paper documents with electronic means will af fect many of the accountant’s tasks, especially the auditing of EC activities and systems. Finally, building a cost-benefit and cost-jus tification system to determine which products and services to take online and creating a chargeback system are critical to the success of EC.
FIN For the Finance Major
The worlds of banking, securities and commodities markets, and other financial services are being reengineered because of EC. On line securities trading and its supporting infrastructure are growing more rapidly than any other EC activity. Many innovations already in place are changing the rules of economic and financial incen tives for financial analysts and managers. Online banking, for ex ample, does not recognize state boundaries, and it may create a new framework for financing global trades. Public financial infor mation is now accessible in seconds. These innovations will dra matically change the manner in which finance personnel operate.
MKT For the Marketing Major
A major revolution in marketing and sales is taking place because of EC. Perhaps its most obvious feature is the transition from a physical to a virtual marketplace. Equally important, however, is the radical transformation to one-on-one advertising and sales and to customized and interactive marketing. Marketing channels are being combined, eliminated, or recreated. The EC revolution is cre ating new products and markets and significantly altering existing ones. Digitization of products and services also has implications for marketing and sales. The direct producer-to-consumer channel is expanding rapidly and is fundamentally changing the nature of customer service. As the battle for customers intensifies, marketing and sales personnel are becoming the most critical success factor
in many organizations. Online marketing can be a blessing to one company and a curse to another.
POM For the Production/Operations Management Major
EC is changing the manufacturing system from product-push mass production to order-pull mass customization. This change requires a robust supply chain, information support, and reengineering of processes that involve suppliers and other business partners. Sup pliers can use extranets to monitor and replenish inventories with out the need for constant reorders. The Internet and intranets also help reduce cycle times. Many production/operations problems that have persisted for years, such as complex scheduling and ex cess inventories, are being solved rapidly with the use of web tech nologies. Companies can now use external and internal networks to find and manage manufacturing operations in other countries much more easily. Also, the web is reengineering procurement by helping companies conduct electronic bids for parts and subas semblies, thus reducing cost. All in all, the job of the progressive production/operations manager is closely tied in with e-commerce.
HRM For the Human Resource Management Major
HR majors need to understand the new labor markets and the im pacts of EC on old labor markets. Also, the HR department may use EC tools for such functions as procuring office supplies. Moreover, becoming knowledgeable about new government online initiatives and online training is critical. HR personnel must also become fa miliar with the major legal issues related to EC and employment.
MIS For the MIS Major
The MIS function is responsible for providing the information technology infrastructure necessary for electronic commerce to function. In particular, this infrastructure includes the company’s networks, intranets, and extranets. The MIS function is also respon sible for ensuring that electronic commerce transactions are secure.
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Chapter Glossary 215
Summary
1. Describe the eight common types of electronic commerce.
In business-to-consumer (B2C) electronic commerce, the sellers are organizations and the buyers are individuals.
In business-to-business (B2B) electronic commerce, the sellers and the buyers are businesses.
In consumer-to-consumer (C2C) electronic commerce, an individ ual sells products or services to other individuals.
In business-to-employee (B2E) electronic commerce, an orga nization uses EC internally to provide information and services to its employees.
E-government is the use of Internet technology in general and e-commerce in particular to deliver information and public services to citizens (called government-to-citizen or G2C EC) and business part ners and suppliers (called government-to-business or G2B EC).
Mobile commerce refers to e-commerce that is conducted entirely in a wireless environment.
Social commerce refers to the delivery of electronic commerce activities and transactions through social computing.
Conversational commerce refers to electronic commerce using messaging and chat apps to offer a daily choice, often personalized, of a meal, product, or service.
We leave the examples of each type to you.
2. Describe the various online services of business-to- consumer (B2C) commerce, along with specific examples of each.
Online advertising over the web makes the advertising process media-rich, dynamic, and interactive.
We leave the examples to you.
3. Describe the three business models for business-to- business electronic commerce.
In the sell-side marketplace model, organizations attempt to sell their products or services to other organizations electronically from their own private e-marketplace website or from a third-party website. Sellers such as Dell Computer ( www.dellauction.com ) use sell-side auctions extensively. In addition to auctions from their own websites, organizations can use third-party auction sites, such as eBay, to liqui date items.
The buy-side marketplace is a model in which organizations at tempt to buy needed products or services from other organizations electronically.
E-marketplaces, in which there are many sellers and many buy ers, are called public exchanges, or just exchanges. Public exchanges are open to all business organizations. They are frequently owned and operated by a third party. There are three basic types of public exchanges: vertical, horizontal, and functional. Vertical exchanges connect buyers and sellers in a given industry. Horizontal exchanges connect buyers and sellers across many industries. In functional ex changes, needed services such as temporary help or extra office space are traded on an as-needed basis.
4. Discuss the ethical and legal issues related to electronic
Electronic banking, also known as cyberbanking, involves conducting various banking activities from home, at a place of business, or on the road instead of at a physical bank location.
Online securities trading involves buying and selling securities over the web.
Online job matching over the web offers a promising environment for job seekers and for companies searching for hard-to-find employ ees. Thousands of companies and government agencies advertise available positions, accept resumes, and take applications on the Internet.
Online travel services allow you to purchase airline tickets, reserve hotel rooms, and rent cars. Most sites also offer a fare-tracker feature that sends you e-mail messages about low-cost flights. The Internet is an ideal place to economically plan, explore, and arrange almost any trip.
commerce, along with examples.
E-business presents some threats to privacy. First, most electronic payment systems know who the buyers are. It may be necessary, then, to protect the buyers’ identities with encryption. Another major pri vacy issue is tracking, through which individuals’ activities on the In ternet can be tracked by cookies.
The use of EC may eliminate the need for some of a company’s employees, as well as brokers and agents. The manner in which these unneeded workers, especially employees, are treated can raise ethical issues: How should the company handle the layoffs? Should companies be required to retrain employees for new positions? If not, how should the company compensate or otherwise assist the displaced workers?
We leave the examples up to you.
Chapter Glossary
auction A competitive process in which either a seller solicits consecutive bids from buyers or a buyer solicits bids from sellers, and prices are determined dynamically by competitive bidding.
brick-and-mortar organizations Organiza tions in which the product, the process, and the delivery agent are all physical.
business model The method by which a com pany generates revenue to sustain itself.
business-to-business electronic commerce (B2B) Electronic commerce in which both the sellers and the buyers are business organizations.
business-to-consumer electronic commerce (B2C) Electronic commerce in which the
sellers are organizations and the buyers are in dividuals; also known as e-tailing.
business-to-employee electronic commerce (B2E) An organization using electronic com merce internally to provide information and services to its employees.
buy-side marketplace B2B model in which organizations buy needed products or services from other organizations electronically, often through a reverse auction.
channel conflict The alienation of existing distributors when a company decides to sell to customers directly online.
clicks-and-mortar organizations Organiza tions that do business in both the physical and digital dimensions.
consumer-to-consumer electronic commerce (C2C) Electronic commerce in which both the buyer and the seller are individuals (not businesses).
cyberbanking Various banking activities con ducted electronically from home, a business, or on the road instead of at a physical bank loca tion; also known as electronic banking.
cybersquatting Registering domain names in the hope of selling them later at a higher price.
disintermediation Elimination of intermedi aries in electronic commerce.
e-government The use of electronic com merce to deliver information and public services to citizens, business partners, and suppliers of government entities, and those working in the public sector.
electronic business (e-business) A broader definition of electronic commerce, including buying and selling of goods and services, and
servicing customers, collaborating with business partners, conducting e-learning, and conducting electronic transactions within an organization.
electronic commerce (EC or e-commerce) The process of buying, selling, transferring, or exchanging products, services, or information through computer networks, including the Internet.
electronic mall A collection of individual shops under one Internet address; also known as a cybermall or an e-mall.
electronic marketplace A virtual market space on the web where many buyers and many sellers conduct electronic business activities.
electronic payment mechanisms Computer- based systems that allow customers to pay for goods and services electronically, rather than writing a check or using cash.
electronic retailing (e-tailing) The direct sale of products and services through storefronts or electronic malls, usually designed around an electronic catalog format and auctions.
electronic storefront The website of a sin gle company, with its own Internet address, at which orders can be placed.
e-procurement Purchasing by using elec tronic support.
exchanges See public exchanges.
forward auctions Auctions that sellers use as a selling channel to many potential buyers; the highest bidder wins the items.
group purchasing The aggregation of pur chasing orders from many buyers so that a vol ume discount can be obtained.
mobile commerce (m-commerce) Electronic commerce conducted in a wireless environment.
multichanneling A process in which a com pany integrates its online and offline channels.
permission marketing Method of marketing that asks consumers to give their permission to voluntarily accept online advertising and e-mail.
person-to-person payments A form of elec tronic cash that enables the transfer of funds be tween two individuals, or between an individual and a business, without the use of a credit card.
public exchanges (or exchanges) Electronic marketplaces in which there are many sellers and many buyers, and entry is open to all; fre quently owned and operated by a third party.
reverse auctions Auctions in which one buyer, usually an organization, seeks to buy a product or a service, and suppliers submit bids; the lowest bidder wins.
sell-side marketplace B2B model in which organizations sell to other organizations from their own private e-marketplace or from a third- party site.
smart cards Cards that contain a micropro cessor (chip) that enables the card to store a considerable amount of information (including stored funds) and to conduct processing.
spamming Indiscriminate distribution of e-mail without the recipient’s permission.
stored-value money cards A form of elec tronic cash on which a fixed amount of prepaid money is stored; the amount is reduced each time the card is used.
viral marketing Online word-of-mouth marketing.
virtual (or pure play) organizations Organi zations in which the product, the process, and the delivery agent are all digital.
Discussion Questions
1. Discuss the major limitations of e-commerce. Which of these limita tions are likely to disappear? Why?
2. Discuss the reasons for having multiple EC business models.
3. Distinguish between business-to-business forward auctions and buyers’ bids for RFQs.
4. Discuss the benefits to sellers and buyers of a B2B exchange.
5. What are the major benefits of G2C electronic commerce?
6. Discuss the various ways to pay online in B2C. Which method(s) would you prefer and why?
7. Why is order fulfillment in B2C considered difficult?
8. Discuss the reasons for EC failures.
9. Should Mr. Coffee sell coffeemakers online? Hint: Take a look at the discussion of channel conflict in this chapter.
10. In some cases, individuals engage in cybersquatting so that they can sell the domain names to companies expensively. In other cases, companies engage in cybersquatting by registering domain names that are very similar to their competitors’ domain names in order to generate traffic from people who misspell web addresses. Discuss each practice in regard to its ethical nature and legality. Is there a dif ference between the two practices? Support your answer.
11. Do you think information technology has made it easier to do business? Or has it only raised the bar on what is required to be able to do business in the twenty-first century? Support your answer with specific examples.
12. With the rise of electronic commerce, what do you think will hap pen to those without computer skills, Internet access, computers, smartphones, and so on? Will they be able to survive and advance by hard work?
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Closing Case 217
Problem-Solving Activities
1. Assume you are interested in buying a car. You can find information about cars at numerous websites. Access five websites for information about new and used cars, financing, and insurance. Decide which car you want to buy. Configure your car by going to the car manufacturer’s website. Finally, try to find the car from www.autobytel.com . What information is most supportive of your decision-making process? Write a report about your experience.
2. Compare the various electronic payment methods. Specifically, collect information from the vendors cited in this chapter and find additional vendors using Google.com. Pay attention to security level, speed, cost, and convenience.
3. Conduct a study on selling diamonds and gems online. Access such sites as www.bluenile.com , www.diamond.com , www.thaigem
.com , www.tiffany.com , and www.jewelryexchange.com .
a. What features do these sites use to educate buyers about gemstones?
b. How do these sites attract buyers?
c. How do these sites increase customers’ trust in online purchasing?
d. What customer service features do these sites provide?
4. Access www.nacha.org . What is NACHA? What is its role? What is the ACH? Who are the key participants in an ACH e-payment? Describe the “pilot” projects currently under way at ACH.
5. Access www.espn.com . Identify at least five different ways the site generates revenue.
6. Access www.queendom.com . Examine its offerings and try some of them. What type of electronic commerce is this? How does this web- site generate revenue?
7. Access www.ediets.com . Prepare a list of all the services the com pany provides. Identify its revenue model.
8. Access www.theknot.com . Identify the site’s revenue sources.
9. Access www.mint.com . Identify the site’s revenue model. What are the risks of giving this website your credit and debit card numbers, as well as your bank account number?
10. Research the case of www.nissan.com . Is Uzi Nissan cybersquat ting? Why or why not? Support your answer. How is Nissan (the car company) reacting to the www.nissan.com website?
11. Enter www.alibaba.com . Identify the site’s capabilities. Look at the site’s private trading room. Write a report. How can such a site help a person who is making a purchase?
12. Enter www.grubhub.com . Explore the site. Why is the site so suc cessful? Could you start a competing site? Why or why not?
13. Enter www.dell.com , go to “Desktops,” and configure a system. Register to “My Cart” (no obligation). What calculators are used there? What are the advantages of this process as com pared with buying a computer in a physical store? What are the disadvantages?
14. Enter www.checkfree.com and www.lmlpayment.com to iden tify their services. Prepare a report.
15. Access various travel sites such as www.travelocity.com , www.orbitz.com , www.expedia.com , www.kayak.com , and www.pinpoint.com . Compare these websites for ease of use and usefulness. Note differences among the sites. If you ask each site for the itinerary, which one gives you the best information and the best deals?
16. Access www.outofservice.com , and answer the musical taste and personality survey. When you have finished, click on “Results” and see what your musical tastes say about your personality. How accurate are the findings about you?
Closing Case
The Alibaba Group
MKT POM MIS
The Problem
Chinese consumers traditionally have shopped at stores close to their homes, with merchants they knew, and they paid in cash. This process limited their selection of goods and services. If they wanted to find a wider selection, then they had to travel to China’s larger cities.
As China’s citizens have become increasingly affluent, their de mand for a greater variety of goods and services has increased ac cordingly. However, Chinese citizens still had to travel to larger cities to satisfy their needs. Given China’s huge population, there was a massive, untouched market for goods and services. The problem was how to provide Chinese shoppers with variety and convenience. Enter Jack Ma.
The Solution
In 1998, Ma and 17 colleagues started the Alibaba Group ( http:// alibabagroup.com ), an e-commerce company that provides
consumer-to-consumer, business-to-consumer, and business-to- business services through web portals. The company links its web portals through its third-party payment platform, Alipay.
Consumer-to-Consumer. Taobao ( www.taobao.com ) opened in 2003 as Alibaba’s response to eBay. Taobao’s rapid growth was the consequence of offering free registration and commission-free transactions using a free, third-party payment platform. By adopting this strategy, Taobao undercut eBay’s standard 15 percent fees. The startup collected money only when sellers chose to advertise their products with banner ads and search ads and when they used Aliba ba’s payment tools. These strategies succeeded, and Taobao became Alibaba’s largest business.
Taobao offers a vast selection of products, ranging from clothes, furniture, and packaged foods to bamboo birdcages and rental “boy friends” to accompany you to a social event. Although most trans actions on Taobao connect buyers and sellers within China, the site reaches international customers as well.
Business-to-Consumer. Alibaba opened Tmall ( www.tmall.com ), a virtual shopping center, in 2008. Tmall provides international com panies with access to Chinese buyers, in exchange for 5 percent of all sales. For example, the online shoe retailer Sneakerhead.com spent 13 years trying to increase its annual revenue beyond $20 million. In 2014, the company accomplished its goal when it doubled its revenues by opening a store on Tmall. This process enabled Sneakerhead to avoid having to use the conventional brokers who were traditionally required to import goods into China. In another example, Premium Australia Foods, a startup company headquartered in Melbourne, sells delicacies such as macadamia nuts, olive oil, honey, and raisins to Chi nese shoppers using Tmall, without establishing physical operations in mainland China. In both cases, Alibaba disintermediated the retail process, enabling Sneakerhead and Premium Australia Foods to retain a larger portion of their sales revenues. Combined daily sales on Tmall and Taobao can total more than $7.5 billion.
Business-to-Business. Alibaba.com ( www.alibaba.com ), the company’s original marketplace, connects Chinese manufacturers with small businesses around the world. The portal manages sales between importers and exporters from more than 240 countries and regions. Alibaba.com developed the Chinese portal 1688.com for do mestic B2B commerce.
As one example, the cosmetics retailer 100% Pure uses Alibaba
.com to source key ingredients and packaging materials from whole salers that list their products on the site. Before Alibaba, Pure man agers would have to travel to China and Taiwan several times a year to meet with suppliers and negotiate contracts. With Alibaba, if one supplier is not reliable, then Pure managers can pick another supplier and shop competitively for prices.
Alibaba.com also provides a retail website, AliExpress.com , that consists primarily of small Chinese businesses that offer products to international online buyers. AliExpress has become the most visited e-commerce website in Russia.
Alipay. Alibaba’s various websites are linked through Alipay ( http://global.alipay.com ), an online, third-party payment proces sor that does not charge transaction fees. Alipay serves as an escrow service, and it guarantees every transaction. Alipay creates trust in a country in which people historically have not conducted business with someone they did not know personally.
Alibaba has placed links to its Alipay service on the websites of large retailers that work with ShopRunner ( www.shoprunner.com ), a logistics company in which Alibaba owns a 40 percent stake. ShopRun ner has formed ties with thousands of Western retail brands such as Neiman Marcus, Tommy Hilfiger, and Toys “R” Us to enable two-day shipping for an annual fee, a service that resembles Amazon Prime. The Alibaba links, visible only to Chinese shoppers, will allow these shoppers to receive expedited shipments from U.S. retailers.
The Results
Analysts envision Alibaba’s future as one in which consumers every where can make purchases from retailers everywhere. Alibaba does have advantages as a global enterprise over Amazon and eBay be cause it facilitates such a large volume of sales into and out of China.
Alibaba does face international challenges, however. Most West ern shoppers are not familiar with Alibaba’s brand, where they already have relationships with retail websites in their home countries.
Alibaba also faces intense competition from Chinese companies. For example, while Tmall controls approximately 50 percent of Chinese e-commerce, JD ( http://en.jd.com ) has 17 percent, according to iRe search ( www.iresearchchina.com ). Furthermore, whereas Alibaba’s
e-commerce is performed primarily on desktops, JD may have an ad vantage in mobile commerce in a country that now has more than 500 million mobile phone users. JD stocks its own goods, and it employs a highly sophisticated delivery system. This arrangement is in contrast to Alibaba, which facilitates direct sales by other enterprises and then contracts out the delivery.
Tencent ( www.tencent.com ), another large Chinese e-commerce company, provides the popular communications platform called We- Chat as well as a competing online-payments platform called Tenpay that is popular on smartphones. In 2014, Tencent purchased a 15 per cent stake in JD, and the two companies formed a strategic partner ship. They will provide a formidable competitive challenge to Alibaba in electronic commerce.
Despite the competition, by mid-2015 approximately 80 percent of all Chinese online shopping sales were flowing through Alibaba’s various web portals. In 2014, the company facilitated the delivery of 5 billion packages from transactions on its retail websites. More than half of that total was sent by delivery companies in China, accord ing to Alibaba’s registration documents with the U.S. Securities and Exchange Commission (SEC). By comparison, UPS ( www.ups.com ) handled about 4.3 billion packages and documents that same year.
Alibaba’s overall strategic direction appears to be expansion in the West, because U.S. consumers spend more money online than anyone else in the world. Ma has invested in many U.S. companies, in cluding the ride-sharing service Lyft (www.lyft.com); Kabam, a maker of online strategy games ( www.kabam.com ); mobile search engine Quixey.com ( www.quixey.com ); and mobile messaging app Tango ( www.tango.me ).
In 2014, Alibaba’s initial public offering in the United States raised
$25 billion. In 2016, the Alibaba sites have 423 million annual active buyers and about 80 percent market share of e-commerce in China. For its fiscal year ending in March 2016, Alibaba beat sales estimates with 39 percent growth over the previous fiscal year. For that fiscal year, Ali baba reported revenue of approximately $15.7 billion.
Sources: Compiled from “Big Data Game-Changer: Alibaba’s Double 11 Event Raises the Bar for Online Sales,” MIT Technology Review, November 14, 2016; S. Wang, “Alibaba’s U.S. Growth Ambitions at Risk after Trump Victory,” Bloomberg.com , November 9, 2016; L. Rao, “Alibaba’s New Favorite Label: Made in the USA,” Fortune, January 1, 2016; K. Chu and G. Wong, “Alibaba Feels Heat from New Rivals,” Wall Street Journal, August 17, 2015; M. Reeves,
M. Zeng, and A. Venjara, “The Self-Tuning Enterprise,” Harvard Business Review, June 2015; “Alibaba Group Announces March Quarter 2015 and Full Fiscal Year 2015 Results,” Business Wire, May 7, 2015; C. Larson, “Alipay Leads a Digital Finance Revolution in China,” MIT Technology Review, January 26, 2015; R. Mac, “Bezos vs. Ma, Holiday Edition,” Forbes, December 15, 2014; L. Chen, R. Mac, and B. Solomon, “Alibaba Claims Title for Largest Global IPO Ever with Extra Share Sales,” Forbes, September 22, 2014; C. Larson, “In China, It’s Meet Me
at Tmall,” Bloomberg BusinessWeek, September 15–21, 2014; B. Stone, “The Alibaba Invasion,” Bloomberg BusinessWeek, August 11–24, 2014; “Alibaba Continues Quest to Own the Chinese Internet,” CNN Money, June 11, 2014;
R. Mac, “Alibaba Launches 11 Main to Grow U.S. Presence Before Its Record American IPO,” Forbes, June 11, 2014; D. Talbot, “Alibaba’s Big Rivals May Have a Mobile Edge,” MIT Technology Review, May 12, 2014; A. Lee, “How Did Alibaba Capture 80% of Chinese E-Commerce?” Forbes, May 8, 2014; www.alibabagroup.com, accessed August 20, 2016.
Questions
1. Discuss the reasons why Chinese consumers have been so eager to embrace electronic commerce.
2. Discuss Alibaba’s entry into the business-to-consumer, consumer to-consumer, and business-to-business e-commerce marketplaces.
3. Why is Alipay so important to the Alibaba Group?
Wireless, Mobile Computing, and Mobile Commerce
CHAPTER OUTLINE LEARNING OBJECTIVES
8.1 Wireless Technologies 8.1 Identify advantages and disadvantages of each of the four main types of wireless transmission media.
8.2 Wireless Computer Networks and Internet 8.2 Explain how businesses can use short-range, medium-range, Access and long-range wireless networks.
8.3 Mobile Computing and Mobile Commerce 8.3 Provide a specific example of how each of the five major
m-commerce applications can benefit a business.
8.4 The Internet of Things 8.4 Describe the Internet of Things, along with examples of how organizations can use the Internet of Things.
Opening Case
CHAPTER 8
Google’s Project Fi
In April 2015, Google announced its new wireless service, Pro ject Fi ( http://fi.google.com ), a prepaid phone service that provides users with mobile data service on three mobile networks, Sprint ( www
MIS
.sprint.com ), T-Mobile ( www.tmobile.com ), and U.S. Cellular ( www
.uscellular.com ) as well as on Wi-Fi networks. In July 2016, Project Fi announced a deal with Three ( www.three.com ), one of the largest cel lular carriers in Europe. The deal brings the total number of foreign countries where Project Fi is available to more than 135. Project Fi had already provided service in more than 120 countries worldwide through relationships that T-Mobile had already established with for eign networks. In an effort to keep costs down, Google initially slowed all overseas data traffic to a relatively slow 256 megabits per second. In July 2016, the company removed the “speed cap” to provide 10 to 20 times faster network speeds for those traveling abroad.
Project Fi automatically and seamlessly routes customers’ data between available Wi-Fi networks and the 4G LTE networks of Sprint, T-Mobile, and U.S. Cellular, depending on which network provides the strongest signal in the user’s location. A major problem is that the
three cellular networks used by Project Fi provide the poorest cover age among major wireless carriers, according to a Root Metrics ( www
.rootmetrics.com ) coverage map.
Project Fi also uses approximately 1 million free, open Wi-Fi hotspots that Google has verified as fast and reliable. In an effort to protect passwords and personal data, Project Fi encrypts data when a customer uses public Wi-Fi.
Project Fi provides many features. Customers can call, text, and check voicemail on their web and Android devices, using Google Hang outs. They can also access the history of calls, messages, and voice- mail. Project Fi is a prepaid service that allows customers to pay only for the amount of data they actually use each month. This process is the opposite of traditional carriers, which bill customers after they use the service. In addition, Project Fi does not require an annual contract. Rather, the service charges $20 per month for unlimited calls, texts, Wi-Fi tethering, and coverage in 135 countries (although customers have to pay 20 cents per minute for calls outside the United States). Project Fi also charges $10 per gigabyte of data.
Customers can change the size of their data plans whenever they want. Furthermore, once a month, customers can decide to put their
219
220 CHAPTER 8 Wireless, Mobile Computing, and Mobile Commerce
Wireless Technologies 221
service on pause. They then lose the ability to forward calls with their Google Voice numbers, and they cannot access mobile data, make calls, or send text messages. However, they receive a credit to their ac counts for each day that they keep the service deactivated. They also receive a credit for the cost of the data they purchased but did not use over the course of the month.
As of September 2016, Project Fi operated only on Google’s Nexus 6P, Nexus 5X, and Nexus 6 smartphones. Customers can set up their phones as a mobile Wi-Fi router and allow their laptops or tablets to surf the Internet on their phone’s data connection, at no extra charge. This process is called wireless tethering. Once customers have acti vated tethering, any device with a wireless connection can connect to the Internet through their smartphone’s connection unless they set up password protection. If they select this option, then only people with access to the password can connect to their smartphones.
Project Fi puts pressure on wireless carriers to do away with lu crative “breakage.” Breakage is a term used in the telecommunications industry to indicate unused data at the end of a month. Many tradi tional wireless plans require subscribers to pay for certain amounts of data that expire at the end of each month. A study by Validas ( www
.validas.com ), a company that analyzes consumers’ bills to help them choose the most appropriate wireless plan, noted that smartphone users typically waste $28 each month on unused data. The $28 repre sents breakage.
The practice of breakage is coming under pressure from other companies as well. Startups such as Scratch Wireless ( www
.scratchwireless.com ) offer usage-based models. Furthermore, major carriers such as T-Mobile and AT&T ( www.att.com ) allow subscribers to roll their data over.
expensive wireless spectrum and then sell expensive wireless Inter net service. (All wireless communications signals travel over the air through radio frequencies, which are known as spectrum.) In fact, Google’s entry into the wireless market has the potential to disrupt the wireless industry.
Essentially, Project Fi is how wireless should work. Your phone will connect to the network with the best signal, not the signal that a lone carrier happens to offer at a given location.
Sources: Compiled from S. Carpenter, “5 Key Things to Know Before You Switch to Google’s Project Fi,” Forbes, September 27, 2016; M. Duran, “Google’s Project Fi Wireless Service Is Crazy Cheap. But Should You Switch?” Wired,
July 15, 2016; C. Metz, “Google’s Project Fi Is One Step Closer to Unifying the World’s Wireless Networks,” Wired, July 12, 2016; J. Raphael, “Project Fi Revisited: 6 Months with Google’s Weird Wireless Service,” Computerworld, April 14, 2016; D. Orf, “My Time with Google’s Cellular Service Was Mostly a
Disaster,” Gizmodo, August 21, 2015; D. Bohn, “Google’s Project Fi Cell Phone Service Is Simple, Until It’s Not,” The Verge, August 8, 2015; A. Pressman, “Google’s Project Fi a New Option for Cheap Phone Plans,” Yahoo! Finance, August 5, 2015; A. Martonik, “What Is Project Fi, How Does It Work, and Why Do I Want It?” Android Central, July 9, 2015; B. Fung, “Project Fi Review: The Most Remarkable Feature of Google’s New Cell Service,” Washington Post, July 8, 2015; “5 Things to Know about Google’s Project Fi,” CBS News, May 4, 2015; “Google’s Project Fi Aims to Speed Up Mobile Communications by Tapping into Free WiFi Hotspots,” Kurzweilai.ne t, April 23, 2015; M. Aguilar, “Project Fi: Google’s Plan to Fix Your Wireless Service Is Here,” Gizmodo, April 22, 2015; R. Metz, “Google’s New Wireless Service Should Make Verizon and AT&T Squirm,” MIT Technology Review, April 22, 2015; R. Knutson and A. Barr, “Google Set to Unveil Wireless Service,” Wall Street Journal, April 22, 2015; http://fi.google
.com, accessed September 14, 2016.
Questions
1. Describe how Google’s Project Fi works.
2. Assume that you are the CEO of Verizon Wireless ( www
.verizonwireless.com ). How would you compete with Project Fi?
Introduction
The traditional working environment that required users to come to a wired computer is inef fective and inefficient. The solution was to build computers that are small enough to carry or wear and that can communicate through wireless networks. That is, your computing device now comes with you.
The ability to communicate any time and anywhere provides organizations with a strate gic advantage by increasing productivity and speed and improving customer service. The term wireless is used to describe telecommunications in which electromagnetic waves, rather than some form of wire or cable, carry the signal between communicating devices such as comput ers, smartphones, and iPads.
Before you continue, it is important to distinguish between the terms wireless and mobile—they can mean different things. The term wireless means exactly what it says: without wires. In contrast, mobile refers to something that changes its location over time. Some wire less networks, such as MiFi (discussed later in this chapter), are also mobile. Others, however, are fixed. For example, microwave towers form fixed wireless networks.
Wireless technologies enable individuals and organizations to conduct mobile computing, mobile commerce, and the Internet of Things. We define these terms here, and then we discuss each one in detail later in the chapter.
Mobile computing refers to a real-time, wireless connection between a mobile device and other computing environments, such as the Internet or an intranet. Mobile commerce—also known as m-commerce—refers to e-commerce (EC) transactions (see Chapter 7) conducted
with a mobile device. The Internet of Things means that virtually every object has processing power with either wireless or wired connections to a global network.
Wireless technologies and mobile commerce are spreading rapidly, replacing or supple menting wired computing. Cisco ( www.cisco.com ) predicts that the volume of mobile web traf fic will continue to increase rapidly over the next decade.
Almost all (if not all) organizations use wireless computing. Therefore, when you begin your career, you likely will be assigned a company smartphone and a wirelessly enabled com puter. Clearly, then, it is important for you to learn about wireless computing not only because you will be using wireless applications but also because wireless computing will be important to your organization. In your job, you will be involved with customers who conduct wireless transactions, with analyzing and developing mobile commerce applications, and with wireless security. And the list goes on.
Simply put, an understanding of wireless technology and mobile commerce applications will make you more valuable to your organization. When you look at “What’s in IT for Me?” at the end of the chapter, envision yourself performing the activities discussed in your functional area. For those of you who are inclined to be entrepreneurs, an understanding of wireless tech nology can also help you start and grow your own business.
The wireless infrastructure upon which mobile computing is built may reshape the entire IT field. The technologies, applications, and limitations of mobile computing and mobile com merce are the focus of this chapter. You begin the chapter by learning about wireless devices, wireless transmission media, and wireless security. You continue by examining wireless com puter networks and wireless Internet access. You then look at mobile computing and mobile commerce, which are made possible by wireless technologies. Next, you turn your attention to the Internet of Things. You conclude by familiarizing yourself with a critical component of the wireless environment—namely, wireless security.
Wireless Technologies
8.1
Wireless technologies include both wireless devices, such as smartphones, and wireless trans mission media, such as microwave, satellite, and radio. These technologies are fundamentally changing the ways organizations operate.
Individuals are finding wireless devices convenient and productive to use, for several rea sons. First, people can make productive use of time that was formerly wasted—for example, while commuting to work on public transportation. Second, because people can take these devices with them, their work locations are becoming much more flexible. Third, wireless technology enables people to schedule their working time around personal and professional obligations.
Wireless Devices
Wireless devices provide three major advantages to users:
1. They are small enough to easily carry or wear.
2. They have sufficient computing power to perform productive tasks.
3. They can communicate wirelessly with the Internet and other devices.
Modern smartphones exhibit a process called dematerialization. Essentially, dematerial ization occurs when the functions of many physical devices are included in one other physical device. Consider that your smartphone includes the functions of digital cameras for images and video, radios, televisions, Internet access through web browsers, recording studios, edit ing suites, movie theaters, GPS navigators, word processors, spreadsheets, stereos, flashlights, board games, card games, video games, an entire range of medical devices, maps, atlases, en cyclopedias, dictionaries, translators, textbooks, watches, alarm clocks, books, calculators,
FIGURE 8.1 Dematerialization with smartphones.
address books, credit card swipers, magnifying glasses, money and credit cards, car keys, ho tel keys, cellular telephony, Wi-Fi, e-mail access, text messaging, a full QWERTY keyboard, and many, many others. Figure 8.1 illustrates the process of dematerialization with smartphones.
Our smartphones have come a long, long way in a short period of time. Consider these smartphone capabilities (as of late 2016):
· In the United States alone, Verizon ( www.verizon.com ) and AT&T ( www.att.com ) offer 4G LTE to over 300 million people. (4G LTE can reach speeds of 50 Mbps.) Therefore, modern smartphones are about 500 times faster than the first iPhone, which was released in 2007.
· Many high-end smartphones can take video in ultra-high definition 4K. 4K resolution refers to a display device having horizontal resolution on the order of 4,000 pixels. Pixels are the dots that make up onscreen images. The more pixels there are, the sharper and more real istic that images and video look.
· Smartphones can function as mobile (digital) wallets.
· Some smartphones can be charged without plugging them in. For example, Google’s Nexus 4, 5, 6, and 7 and Samsung’s Galaxy 6 all include built-in wireless charging.
· While not all smartphones have wireless charging built in yet, many of them have fast charging. Motorola ( www.motorola.com ) says that its Moto X Pure Edition can obtain eight hours of battery life from a 15-minute charge.
· Smartphones are employing biometrics (discussed in Chapter 4). Apple has fingerprint scanners on its devices with its Touch ID feature. Google has facial recognition on its Android smartphones in the form of its Face Unlock feature. The Android “Smart Lock” feature can use other methods to recognize you and keep you from having to constantly reauthenticate it. You can activate “on-body detection,” which knows if you have your phone in your hand or in your pocket, “trusted voice,” which enables voice recognition, and “trusted devices,” which can use Bluetooth to authenticate you when connected to your smartwatch or your car.
· The Nextbit Robin ( http://nextbit.com ) uses an intelligent method of cloud storage (dis cussed in Technology Guide 3) to give its Android smartphone virtually unlimited storage. Essentially, the service takes the content that you do not use often and automatically
One downside of smartphones is that people can use them to copy and pass on confi dential information. For example, if you were an executive at Intel, would you want workers snapping pictures of their colleagues with your secret new technology in the background? After all, one of the functions of a smartphone is that of a digital camera that can transmit wire lessly. New jamming devices are being developed to counter the threat. Some companies, such as Samsung ( www.samsung.com ), have recognized the danger and have banned these devices from their premises altogether. Regardless of any disadvantages, however, cell phones, and particularly smartphones, have had a far greater impact on human society than most of us realize.
Consider Africa, for example. One in six of Africa’s 1 billion inhabitants now use a cell phone. These phones are transforming healthcare across the continent in many ways:
· Medical personnel are obtaining high-quality data that can inform them of who is dying and from what causes, who is sick, and where clusters of disease are occurring.
· Cell phones are now making it possible for parents to register the birth of a child very easily and for governments to more accurately plan healthcare interventions, such as vaccina tion schedules.
· Cell phones are improving vaccine supply chains, preventing unnecessary stockouts, and ensuring that vaccines are available when children are brought into clinics to be immunized.
· Healthcare workers in the field can access health records and schedule appointments with patients.
Smartphones are also instrumental in other ways. IT’s About Business 8.1 illustrates how they are driving the growth of electronic commerce in Vietnam.
IT’s About Business 8.1
Smartphones Drive Growth of Electronic the country. Even though data are typically expensive in develop
Commerce in Vietnam
MIS
ing countries, data prices in Vietnam are among the lowest in the world, at just over $3 per gigabyte. In just 10 years, the number of people with an Internet connection went from 12 percent in 2005 to
Historically, the Vietnamese economy has been based on cash. The almost half in 2016. This growth has been largely thanks to smart- norm has been to borrow money informally from a trusted circle phones, which have helped drive a rapid increase in electronic com of family and friends. Most merchants do not offer any other op- merce (EC).
tion than to pay in cash. At the same time, however, the majority of The number of active mobile social media accounts in Vietnam merchants believe that they would benefit from mobile payments is also increasing faster than in China, India, or Brazil. E-commerce because they could handle less cash and avoid possible counter- is being buoyed by social networks, which are used by consumers feit bills. Meanwhile, Vietnamese consumers are interested in using and businesses alike. Nearly one-quarter of Vietnamese firms state mobile “wallets” to deposit, withdraw, and save money for safety that they conduct business through social networks.
reasons and to pay for goods and services for convenience. Enter Electronic commerce in Vietnam generated revenue of $4.1 wireless communications and devices. billion in 2016, compared with $700 million in 2012. Much of this Wireless communication has had a significant impact in Viet- commerce was mobile commerce. Popular products for Vietnamese nam. In a country where few people have a landline phone, millions online shoppers include furniture, electronics, fashion, cosmetics, of Vietnamese are moving directly into wireless technologies. In the appliances, and books. Nearly 70 percent of these online shoppers
past, e-commerce companies were not successful in Vietnam be- pay in cash, with the remainder paying with electronic wallets. cause few people had a landline to be able to access the Internet, The largest EC sites in Vietnam are:
particularly in outlying areas.
Telecommunications companies such as Viettel Mobile ( http://vietteltelecom.vn ), which has Vietnam’s largest number of subscribers, and Mobiphone ( www.mobiphone.vn ), owned by Vietnam Mobile Telecom Services Company ( http://vnpt.vn ), have deployed wireless communications throughout much of
· MKT Lazada ( www.lazada.vn): Lazada is one of Vietnam’s major shopping sites, offering a large variety of products, in cluding luxury goods. The firm emphasizes customer service. For example, motorcycle riders in Lazada uniforms deliver all types of goods to Lazada customers.
· Facebook: In 2016, there were some 35 million Facebook us ers in Vietnam. Facebook is the second most-active EC site in Vietnam.
· Hot Deal ( www.hotdeal.vn ): Hot Deal is a shopping site that emphasizes the service sector (e.g., travel and meals).
Short video clips are especially popular among Vietnam’s mo bile users, who like to share clips easily. Yan.vn, an MTV-style music and entertainment organization, is capitalizing on that trend. Yan
.vn is using the web to popularize its television shows, which are carried over cable networks to approximately 5 million households as well as to many of Ho Chi Minh City’s cafés and bars. The com pany is also posting unedited excerpts of celebrity interviews on line before the complete interviews are approved by government censors for television. The company has also launched a free soap opera on YouTube.
Just like in the West, the mobile web in Vietnam is helping some people achieve celebrity status. For example, farmer Nguyen Duc Hau rose to fame as a TV actor after his off-key renditions of Vietnamese love ballads became a YouTube sensation. Similarly, comedian JVevermind has more than 1.5 million subscribers to his channel on YouTube, building his audience by sharing clips on social media sites such as Facebook, Twitter, Google+, and Instagram.
Even state-owned media outlets, such as the newspaper Tuoi Tre (Youth), have launched websites as content providers com pete to become Vietnam’s most popular social and entertainment site. There is much at stake. Media Partners Asia, a research and
consulting firm, projected that advertising in Vietnam would total
$1.2 billion by 2017, nearly double the amount in 2014.
Sources: Compiled from K. Tran, “Companies Should Take Advantage of Vietnamese’s (sic) Growing Tendency to Shop on Mobile,” Vietnam
Investment Review, June 30, 2016; “M-Commerce to Take off in Vietnam,” Vietnam+, April 14, 2016; S. Vagus, “Mobile Commerce Is Booming in Vietnam,” Mobile Commerce Press, February 17, 2016; “Mobile Commerce Grows Fast in Vietnam,” VietnamNet, July 23, 2015; “Mobile Commerce Growing Fast in Asia Pacific with Half of Smartphone Users Now Shopping on Their Device,” The Engagement Bureau, June 17, 2015; J. Hookway, “Vietnam’s Mobile Revolution Catapults Millions Into the Digital Age,” Wall Street Journal, June 15, 2015; J. Campbell, “E-Commerce and Retail in Vietnam: Growing Momentum vs Restrictions,” LinkedIn.com , May 26, 2015; “Vietnam E-Commerce Report 2014,” Ministry of Industry and Trade of the Socialist Republic of Vietnam, May 7, 2015; N. Ngoc, “Lazada, Sendo Top Vietnam’s E-Commerce Market in 2014,” DealStreetAsia, February 25, 2015;
N. Uy, “Surge in Smartphones Spurs Likely M-Commerce Boom in Vietnam,” HKTDC Research, September 19, 2014; “Mobile Commerce in Emerging Asia,” Ericsson, August 2014; J. Dung, “Vietnam E-Commerce Overview and Market Size,” eCommerce MILO, April 9, 2014; www.lazada.vn, accessed September 15, 2016.
Questions
1. Discuss the impact of wireless communications technolo gies on the growth of electronic commerce in Vietnam.
2. Describe the advantages of wireless connections over land- line connections.
3. Discuss the implications of Vietnam “skipping” wireline communications by moving directly to wireless commu nications.
Wireless Transmission Media
Wireless media, or broadcast media, transmit signals without wires. The major types of wire less media are microwave, satellite, and radio. Table 8.1 lists the advantages and disadvan tages of each type.
Microwave. Microwave transmission systems transmit data through electromagnetic waves. These systems are used for high-volume, long-distance, line-of-sight communication. Line-of-sight means that the transmitter and receiver are in view of each other. This require ment creates problems because the Earth’s surface is curved rather than flat. For this reason, microwave towers usually cannot be spaced more than 30 miles apart.
|
TABLE 8.1 |
Advantages and Disadvantages of Wireless Media |
|
|
Channel |
Advantages |
Disadvantages |
|
Microwave |
High bandwidth Relatively inexpensive |
Must have unobstructed line of sight Susceptible to environmental interference |
|
Satellite |
High bandwidth Large coverage area |
Expensive Must have unobstructed line of sight Signals experience propagation delay Must use encryption for security |
|
Radio |
High bandwidth Signals pass through walls Inexpensive and easy to install |
Creates electrical interference problems Susceptible to snooping unless encrypted |
|
TABLE |
8.2 |
Three Basic Types of Telecommunications Satellites |
|
Type |
Characteristics Orbit Number Use |
|
|
GEO |
Satellites stationary relative to point on Earth 22,300 miles 8 TV signal Few satellites needed for global coverage Transmission delay (approximately 0.25 second) Most expensive to build and launch Longest orbital life (many years) |
|
|
MEO |
Satellites move relative to point on Earth 6,434 miles 10 to 12 GPS Moderate number needed for global coverage Requires medium-powered transmitters Negligible transmission delay Less expensive to build and launch Moderate orbital life (6 to 12 years) |
|
|
LEO |
Satellites move rapidly relative to point on Earth 400 to 700 miles Many Telephone Large number needed for global coverage Requires only low-power transmitters Negligible transmission delay Least expensive to build and launch Shortest orbital life (as low as 5 years) |
Clearly, then, microwave transmissions offer only a limited solution to data communica tions needs, especially over very long distances. Microwave transmissions are also susceptible to environmental interference during severe weather such as heavy rain and snowstorms. Al though long-distance microwave data communications systems are still widely used, they are being replaced by satellite communications systems.
Satellite. Satellite transmission systems make use of communication satellites. Currently, there are three types of satellites circling Earth: geostationary-earth-orbit (GEO), medium-earth-orbit (MEO), and low-earth-orbit (LEO). Each type has a different orbit, with GEO being farthest from Earth and LEO being the closest. In this section, you examine the three types of satellites and then discuss three satellite applications: global positioning systems, Internet transmission through satellites, and commercial imaging. Table 8.2 compares and contrasts the three types of satellites.
As with microwave transmission, satellites must receive and transmit data through line of sight. However, the enormous footprint—the area of Earth’s surface reached by a satellite’s transmission—overcomes the limitations of microwave data relay stations. That is, satellites use broadcast transmission, which sends signals to many receivers at one time. So, even though satellites are line-of-sight, like microwave, they are high enough for broadcast transmission, thus overcoming the limitations of microwave.
The most basic rule governing footprint size is simple: The higher a satellite orbits, the larger its footprint. Thus, medium-earth-orbit satellites have a smaller footprint than geostationary satellites, and low-earth-orbit satellites have the smallest footprint of all. Figure 8.2 compares the footprints of the three types of satellites.
Types of Orbits. Geostationary-earth-orbit satellites orbit 22,300 miles directly above the equator. These satellites maintain a fixed position above Earth’s surface because, at their altitude, their orbital period matches the 24-hour rotational period of Earth. For this reason, receivers on Earth do not have to track GEO satellites. GEO satellites are excel lent for sending television programs to cable operators and for broadcasting directly to homes.
One major limitation of GEO satellites is that their transmissions take a quarter of FIGURE 8.2 Comparison of satellite
a second to send and return. This brief pause, one kind of propagation delay, makes footprints.
Medium-earth-orbit satellites are located about 6,000 miles above Earth’s surface. MEO or bits require more satellites to cover Earth than GEO orbits because MEO footprints are smaller. MEO satellites have two advantages over GEO satellites: They are less expensive and they do not have an appreciable propagation delay. However, because MEO satellites move with re spect to a point on Earth’s surface, receivers must track these satellites. (Think of a satellite dish slowly turning to remain oriented to a MEO satellite.)
Low-earth-orbit satellites are located 400 to 700 miles above Earth’s surface. Because LEO satellites are much closer to Earth, they have little, if any, propagation delay. Like MEO satel lites, however, LEO satellites move with respect to a point on Earth’s surface and therefore must be tracked by receivers. Tracking LEO satellites is more difficult than tracking MEO satellites because LEO satellites move much more quickly relative to a point on Earth.
Unlike GEO and MEO satellites, LEO satellites can pick up signals from weak transmitters. This feature makes it possible for satellite telephones to operate through LEO satellites, be cause they can operate with less power using smaller batteries. Another advantage of LEO sat ellites is that they consume less power and cost less to launch.
At the same time, however, the footprints of LEO satellites are small, which means that many satellites are needed to cover the planet. For this reason, a single organization often produces multiple LEO satellites, known as LEO constellations. Two examples are Iridium and Globalstar.
Iridium ( www.iridium.com ) has placed a LEO constellation in orbit that consists of 66 satel lites and 12 in-orbit spare satellites. The company claims it provides complete satellite commu nications coverage of Earth’s surface, including the polar regions. Globalstar ( www.globalstar
.com ) also has a LEO constellation in orbit.
Global Positioning Systems. The global positioning system (GPS) is a wireless sys tem that uses satellites to enable users to determine their position anywhere on Earth. GPS is supported by 24 MEO satellites that are shared worldwide. The exact position of each sat ellite is always known because the satellite continuously broadcasts its position along with a time signal. By using the known speed of the signals and the distance from three satellites (for two-dimensional location) or four satellites (for three-dimensional location), it is possible to find the location of any receiving station or user within a range of 2 meters (approximately 6 feet). GPS software can also convert the user’s latitude and longitude to an electronic map.
Most of you are probably familiar with GPS in automobiles, which “talks” to drivers when giving directions. Figure 8.3 illustrates a driver obtaining GPS information in a car.
Commercial use of GPS for activities such as navigating, mapping, and surveying has be come widespread, particularly in remote areas. Cell phones in the United States now must have a GPS embedded in them so that the location of a person making an emergency call—for exam ple, 911, known as wireless 911—can be detected immediately.
Three other global positioning systems are either planned or operational. The Russian GPS, GLONASS, accomplished full global coverage in October 2011. China expects to complete its GPS system, called Beidou, by 2020.
The European Union GPS is called Galileo. At the end of 2016, Galileo opened for free public use with 18 available satellites. The entire Galileo system is expected to be completed by 2020 with the launch of six additional satellites.
Jeff Chiu/ASSOCIATED PRESS
An interesting application of GPS technology involves the prob lem of mislabeled fish. As you see in IT’s About Business 8.2, GPS technology can help us trust that the fish we are ordering on the menu is indeed that type of fish.
Internet over Satellite. In many regions of the world, Internet
FIGURE 8.3 Obtaining GPS information in an automobile.
over Satellite (IoS) is the only option available for Internet connec tions because installing cables is either too expensive or physically
IT’s About Business 8.2
Using Technology for Sustainable Seafood
POM
To evade the duty the United States imposes, about 65 percent on imports of low-value fish, some seafood exporters deliberately mis label cheaper fish species as more expensive species to mislead in spectors. In one instance, a business avoided more than $60 million in tariffs by labeling Asian catfish as grouper. In 2013, Oceana ( www
.oceana.org ), a nonprofit U.S. organization, tested the DNA samples of 1,200 fish and determined that one in three had been mislabeled. Researchers tend to identify seafood fraud with foreign fisher
ies. A large majority of the seafood consumed in the United States comes from countries with lax fishing regulations, with Thailand and Vietnam being the worst.
The Pew Charitable Trusts ( www.pewtrusts.org ) estimates that 20 percent of the ocean harvest is illegal. This practice dimin ishes stocks of certain species (e.g., tuna) to the point at which their survival is in danger. Fishermen often mislabel their catch for many reasons, including to lower their tariffs and to avoid fines for fishing without a license or for exceeding their quotas.
Until recently, the only way to positively identify the correct species of fish was with DNA testing. However, the process takes at least half a day—too long for most wholesale buying decisions. To day, however, Grouperchek, a portable technology, can accurately identify one species of fish—grouper—in 45 minutes, for only $30. Grouperchek developers are working to expand the technology’s capabilities to other species of fish.
Shellcatch ( www.shellcatch.com ) is providing another solu tion. The San Francisco–based startup is taking advantage of the increasing requests for sustainable seafood. Consumers, retailers, and restaurateurs are concerned about overfishing and fraud, and Shellcatch hopes its technology can help save the seafood industry from the brink. Shellcatch claims that its technology lets consum ers know the people behind the fish they are eating.
Shellcatch sees a growing need for its technology. In many countries, regulations require large fishing vessels to have either vessel-monitoring systems or people on board to ensure that the boats are not venturing into protected areas. However, these sys tems are very costly. Also, while they are deployed on large com mercial vessels, the monitoring methods are often not used on small fishing boats, of which there are millions worldwide.
In the past, Chilean fishermen have fished for flounder and ab alone with nets, hooks, and their accumulated knowledge of their craft. Today, they also use satellite networks and cloud computing to maximize the price for their catch. Approximately 250 Chilean fishermen use Shellcatch technology. The Chilean branch of the Na ture Conservancy provided more than $100,000 in grants and train ing to help fishermen install Shellcatch’s equipment on their boats.
MIS Fishing boats using Shellcatch have a small camera
that uses GPS to document which types of fish they catch and where. When they get to shore, the fishermen weigh their catches on a video-equipped scale and label them with unique bar codes and Quick Response (QR) codes. The information then stays with the fish, ready to be uploaded into the cloud and downloaded by a patron at a restaurant, who can find out more about the catch of the day by scanning their smartphone over the menu. Diners can also access pictures of the fisherman reeling in the catch, which
is meant to satisfy consumers who want to know the identity and origin of their food. One restaurant owner notes that many of her customers want to know more about the fish on their plates, even down to the particular cove where the fish was caught.
The Shellcatch equipment can stand up to the rigors of small boats. The hardware is small and waterproof. It also uses a long-lasting battery, making it suitable for boats without power. The users don’t have to upgrade the software, as that is done con stantly. Small boat owners can also use the technology to help defend themselves against allegations of wrongdoing, while gov ernment agencies can keep a closer eye on their catches. For exam ple, the United States claims that Mexican fishermen are catching endangered loggerhead sea turtles in the Northern Pacific. Their rising death toll has led the United States to threaten sanctions against Mexico. The Mexican government denies the charges and is paying Shellcatch to observe 16 fishing boats, using data analytics to determine if the sea turtles are indeed being accidentally caught in fishing nets. Shellcatch announced it would roll out its sea turtle monitoring program to 200 more boats in Mexican waters.
Chilean fishermen employing Shellcatch claim they earn about 25 percent more for their products from high-end restau rants and supermarkets that want to know where their fish are caught. The fishermen also think that Shellcatch can help stop years of overfishing. The reason is they can catch fewer fish and still bring in the same amount of money.
Shellcatch’s business plan is to eventually make a profit by marketing to fishermen who want to sell traceable seafood. In 2015, some of the Chilean fishermen the company had enlisted did indeed start paying for Shellcatch. Shellcatch has also partnered with more than 50 restaurants, grocery stores, and other stores in Chile that purchase Shellcatch-certified seafood.
The company’s business plan also includes selling the data from its devices to governments, environmental groups, restau rant owners, retailers, and distributors. The firm could also reap rewards from the recent U.S. move to make the seafood industry more responsible by endorsing a system that logs fish from the boat to the table. Shellcatch is also expanding its business to Peru, and it plans to expand to other countries.
Sources: Compiled from O. McCarthy, “Satellites, Dynamite, and More—
7 Ways to Save the Ocean from Illegal Fishing,” Conserve, October 11, 2016;
K. Cutlip, “When Vessels Report False Locations,” Skytruth, August 26, 2016;
J. John, “Watching for Illegal Fishing with Eyes on the Seas,” Mongabay Wildtech, March 14, 2016; D. Bank, “Bountiful Catch for Sustainable Seafood Investors: Finalists in Fish 2.0 Competition,” Huff ington Post, September 16, 2015; “37 Innovative Seafood Companies to Pitch at Fish 2.0 Finals,” Fish 2.0, September 14, 2015; R. Shore, “Consumers Can See Who Caught that Fish they’re Eating,” Vancouver Sun, June 1, 2015; C. Elton, “Tracing the Fish on Your Plate Back to the Sea,” Bloomberg, May 21, 2015; M. Fontanazza, “Untan gling the Net of Seafood Fraud,” Food Safety Tech, April 14, 2015; N. Lou, “Bait and Switch: The Fraud Crisis in the Seafood Industry,” The Atlantic, March 19, 2015; D. Abel, “U.S. Aims to Curb Seafood Fraud,” Boston Globe, March 16, 2015; www.shellcatch.com, www.fish20.org, accessed September 18, 2016.
Questions
1. Describe how the Shellcatch technology benefits fishermen, consumers, and the environment.
2. What are the potential disadvantages of the Shellcatch tech nology for fishermen?
In 2016, the leading Internet-over-satellite companies were HughesNet ( www.hughesnet
.com), Exede ( www.exede.com ), EarthLink ( www.earthlink.net ), and dishNET ( www.dishnet.com ). Other players are entering this market.
In January 2015, OneWeb ( http://oneweb.world ) announced that it would build a microsat ellite network to bring Internet access to all corners of the globe. OneWeb aims to target rural markets, emerging markets, and in-flight Internet services on airlines. The company plans to create a network of 648 small, low earth orbit satellites, each weighing some 285 pounds and orbiting 750 miles above the Earth. OneWeb plans to launch its Internet-over-satellite service in 2019.
Elon Musk (the founder of Tesla Motorcars and SpaceX) announced his plans to launch some 4,000 satellites into low earth orbit by 2021. Musk said his Internet-over-satellite service is intended to be the primary means of long-distance Internet traffic for people in sparsely pop ulated areas.
Commercial Imaging. Another satellite application is commercial images from orbit, using nanosatellites. Very small satellites, called nanosatellites, are built in a standard format known as a CubeSat. CubeSats are 4-inch cubes weighing about 3 pounds. A nanosatellite typ ically costs between $150,000 and $1 million to develop and launch, compared to $200 million to $1 billion for a full-sized satellite.
Several companies are involved in launching nanosatellites for scientific and commercial purposes. Planet Labs ( www.planet.com ) take pictures of the Earth more frequently than tra ditional satellites and at a small fraction of the cost. However, the images from the company’s nanosatellites are at a lower resolution.
Spire ( http://spire.com ) nanosatellites contain sensors and carry out various missions. One of these missions is locating objects. For example, more than 250,000 ships broadcast an au tomatic identification signal. A fleet of nanosatellites in low earth orbit could pick up these signals and provide frequent updates of the ships’ positions without the vessels having to use expensive dedicated satellite communications.
Called SkySats, Skybox’s ( www.skyboximaging.com ) small satellites are larger than the other two companies’ satellites, weighing about 220 pounds. SkySats are able to cap ture high-resolution imaging data. On August 1, 2014, Google acquired Skybox Imaging and changed its name to Terra Bella ( https://terrabella.google.com ). On September 16, 2016, Terra Bella launched four more SkySats.
Radio. Radio transmission uses radio wave frequencies to send data directly between transmitters and receivers. Radio transmission has several advantages. First, radio waves travel easily through normal office walls. Second, radio devices are fairly inexpensive and easy to install. Third, radio waves can transmit data at high speeds. For these reasons, radio in creasingly is being used to connect computers to both peripheral equipment and local area networks (LANs; discussed in Chapter 6). (Note: Wi-Fi and cellular also use radio frequency waves.)
As with other technologies, however, radio transmission has its drawbacks. First, radio media can create electrical interference problems. Also, radio transmissions are susceptible to snooping by anyone who has similar equipment that operates on the same frequency.
Another problem with radio transmission is that when you travel too far away from the source station, the signal breaks up and fades into static. Most radio signals can travel only 30 to 40 miles from their source. However, satellite radio overcomes this problem. Satellite radio (or digital radio) offers uninterrupted, near CD-quality transmission that is beamed to your radio, either at home or in your car, from space. In addition, satellite radio offers a broad spectrum of stations, including many types of music, news, and talk.
XM Satellite Radio and Sirius Satellite Radio were competitors that launched satellite radio services. XM broadcast its signals from GEO satellites, while Sirius used MEO satellites. In July 2008, the two companies merged to form Sirius XM ( www.siriusxm.com ). Listeners subscribe to the service for a monthly fee.
Google Project Loon. Project Loon is Google’s plan to provide Internet access to rural and remote areas, using balloons at an altitude of 11 miles. The balloons will create an aerial wireless network with up to 4G LTE speeds.
Facebook Drones. Facebook plans to use solar-powered drones to provide Internet ac cess to rural and remote areas. The drones have the wingspan of a Boeing 737, yet weigh less than 1,000 pounds. They are planned to fly at altitudes above 60,000 feet and stay aloft for three months at a time. They will use the power necessary to operate three hair dryers and will use a new laser-beam technology, which was still under development in November 2016, to deliver Internet service.
Wireless Security
Clearly, wireless networks provide numerous benefits for businesses. However, they also pre sent a huge challenge to management—namely, their inherent lack of security. Wireless is a broadcast medium, and transmissions can be intercepted by anyone who is close enough and has access to the appropriate equipment. There are four major threats to wireless networks: rogue access points, war driving, eavesdropping, and radio frequency jamming.
A rogue access point is an unauthorized access point into a wireless network. The rogue could be someone in your organization who sets up an access point meaning no harm but fails to inform the IT department. In more serious cases, the rogue is an “evil twin”—someone who wishes to access a wireless network for malicious purposes.
In an evil twin attack, the attacker is in the vicinity with a Wi-Fi-enabled computer and a separate connection to the Internet. Using a hotspotter—a device that detects wireless networks and provides information on them (see www.canarywireless.com )—the attacker simulates a wireless access point with the same wireless network name, or SSID, as the one that authorized users expect. If the signal is strong enough, users will connect to the attacker’s system instead of the real access point. The attacker can then serve them a web page asking for them to pro vide confidential information such as usernames, passwords, and account numbers. In other cases, the attacker simply captures wireless transmissions. These attacks are more effective with public hotspots (e.g., McDonald’s and Starbucks) than with corporate networks.
War driving is the act of locating WLANs while driving (or walking) around a city or else where. To war drive or walk, you simply need a Wi-Fi detector and a wirelessly enabled com puter. If a WLAN has a range that extends beyond the building in which it is located, then an unauthorized user might be able to intrude into the network. The intruder can then obtain a free Internet connection and possibly gain access to important data and other resources.
Eavesdropping refers to efforts by unauthorized users to access data that are traveling over wireless networks. Finally, in radio frequency (RF) jamming, a person or a device intentionally or unintentionally interferes with your wireless network transmissions.
Before you go on. . .
1. Describe the most common types of wireless devices.
2. Describe the various types of transmission media.
3. Describe four threats to the security of wireless transmissions.
Wireless Computer Networks and Internet Access
8.2
You have learned about various wireless devices and how these devices transmit wireless signals. These devices typically form wireless computer networks, and they provide wireless Internet access. In this section, you will study wireless networks, which we organize by their effective distance: short range, medium range, and wide area.
Short-Range Wireless Networks
Short-range wireless networks simplify the task of connecting one device to another. They also eliminate wires, and they enable users to move around while they use the devices. In general, short-range wireless networks have a range of 100 feet or less. In this section, you consider three basic short-range networks: Bluetooth, ultra-wideband (UWB), and near-field communi cations (NFC).
Bluetooth. Bluetooth ( www.bluetooth.com ) is an industry specification used to create small personal area networks. A personal area network is a computer network used for commu nication among computer devices (e.g., telephones, personal digital assistants, smartphones) located close to one person. Bluetooth uses low-power, radio-based communication. Blue- tooth 5 can transmit up to approximately 50 megabits per second (Mbps) up to 400 meters (roughly 1300 feet). These characteristics mean that Bluetooth 5 will be important for the Inter net of Things (discussed in Section 8.4) applications.
Common applications for Bluetooth are wireless handsets for cell phones and portable music players. Advantages of Bluetooth include low power consumption and the fact that it uses radio waves that are emitted in all directions from a transmitter. For this reason, you do not have to point one Bluetooth device at another to create a connection.
Bluetooth low energy, marketed as Bluetooth Smart, enables applications in the health- care, fitness, security, and home entertainment industries. Compared to “classic” Bluetooth, Bluetooth Smart is less expensive and consumes less power, although it has a similar commu nication range. Bluetooth Smart is fueling the “wearables” (wearable computer) development and adoption.
Ultra-Wideband. Ultra-wideband is a high-bandwidth wireless technology with trans mission speeds in excess of 100 Mbps. Time Domain ( www.timedomain.com ), a pioneer in UWB technology, has developed many UWB applications. One interesting application is the PLUS Real-Time Location System (RTLS). An organization can use PLUS to locate multiple people and assets simultaneously. Employees, customers, and visitors wear the PLUS Badge Tag. PLUS As set Tags are also placed on equipment and products. PLUS is extremely valuable for healthcare environments, where knowing the real-time location of caregivers (e.g., doctors, nurses, tech nicians) and mobile equipment (e.g., laptops, monitors) is critical.
Other interesting ultra-wideband applications include:
· Mobile robotics: Enable robots to navigate autonomously indoors and in other GPS-denied environments and guide drones as they fly
· Heavy equipment industries such as manufacturing and mining: Precisely position the arm of a crane and track forklifts moving indoors and outdoors
· Defense and security: Low false alarm rate, wireless perimeter fences and indoor mapping and through-wall surveillance
Near-Field Communication. Near-field communication (NFC) has the smallest range of any short-range wireless network. It is designed to be embedded in mobile devices
230 CHAPTER 8 Wireless, Mobile Computing, and Mobile Commerce
Wireless Computer Networks and Internet Access 231
such as cell phones and credit cards. For example, using NFC, you can wave your device or card within a few centimeters of POS terminals to pay for items. NFC can also be used with mobile wallets (discussed in Section 8.3).
Medium-Range Wireless Networks
Medium-range wireless networks are the familiar wireless local area networks (WLANs). The most common type of medium-range wireless network is Wireless Fidelity, or Wi-Fi. WLANs are useful in a variety of settings, some of which may be challenging.
Wireless Fidelity is a medium-range WLAN, which is a wired LAN but without the cables. In a typical configuration, a transmitter with an antenna, called a wireless access point (see
FIGURE 8.4 Wireless access
© Roman Samokhin/Shutterstock
Figure 8.4), connects to a wired LAN or to satellite dishes that provide an Internet connec- point.
tion. A wireless access point provides service to a number of users within a small geograph ical perimeter (up to approximately 300 feet), known as a hotspot. Multiple wireless access points are needed to support a larger number of users across a larger geographical area. To communicate wirelessly, mobile devices, such as laptop PCs, typically have a built-in wireless network interface capability.
Wi-Fi provides fast and easy Internet or intranet broadband access from public hotspots located at airports, hotels, Internet cafés, universities, conference centers, offices, and homes. Users can access the Internet while walking across a campus, to their office, or through their homes. Users can also access Wi-Fi with their laptops, desktops, or PDAs by adding a wireless network card. Most PC and laptop manufacturers incorporate these cards into their products.
The Institute of Electrical and Electronics Engineers (IEEE) has established a set of stan dards for wireless computer networks. The IEEE standard for Wi-Fi is the 802.11 family. As of mid-2016, there were many standards in this family. The most recent examples include:
· 802.11ac: Will support wireless bandwidth of 1.3 Gbps (1.3 billion bits per second); will provide the ability to fully support a “multimedia home” in which high-definition video can be streamed simultaneously to multiple devices. Essentially, you will be able to wirelessly network your TV, DVR, smartphone, and sound system for complete on-demand access through any Internet-enabled device.
· 802.11ad: Supports wireless bandwidth up to 7 Gbps; targeted to the “wireless office” as opposed to the “wireless home” because the standard is line-of-sight and works best inside one room.
The major benefits of Wi-Fi are its low cost and its ability to provide simple Internet access. It is the greatest facilitator of the wireless Internet—that is, the ability to connect to the Internet wirelessly.
Corporations are integrating Wi-Fi into their strategies. For example, Starbucks, McDon ald’s, Panera, and Barnes & Noble offer customers Wi-Fi in many of their stores, primarily for Internet access. As you see in IT’s About Business 8.3, Bobbejaanland, a family theme park in Belgium, deployed a Wi-Fi network to improve its guest experience.
Although Wi-Fi has become extremely popular, the technology does have problems. Three factors are preventing the commercial Wi-Fi market from expanding even further: roaming, security, and cost:
1. At this time, users cannot roam from hotspot to hotspot if the hotspots use different Wi-Fi network services. Unless the service is free, users have to log on to separate accounts and, where required, pay a separate fee for each service. (Some Wi-Fi hotspots offer free service, while others charge a fee.)
2. Security is the second barrier to greater acceptance of Wi-Fi. Because Wi-Fi uses radio waves, it is difficult to shield from intruders.
3. The final limitation to greater Wi-Fi expansion is cost. Even though Wi-Fi services are rela tively inexpensive, many experts question whether commercial Wi-Fi services can survive when so many free hotspots are available to users.
232 CHAPTER 8 Wireless, Mobile Computing, and Mobile Commerce
Wireless Computer Networks and Internet Access 233
IT’s About Business 8.3
Wi-Fi Network Provides Advantages to a Belgian Theme Park
POM MKT MIS
Bobbejaanland Family Park ( www.bobbejaanland.be ) is one of Belgium’s most popular theme parks, boasting a 56-acre campus, 40 rides, and approximately 800,000 guests per year. To manage all the facilities, the 50-plus-year-old park has various devices installed around the campus, including various computers and point-of-sale (PoS) devices. The management team also wanted its visitors to have free Wi-Fi.
To help accomplish these goals, the park deployed a Wi-Fi network from Fortinet ( www.fortinet.com ), a California-based provider of network security solutions that consists of 30 hotspots that cover almost every square foot of the park. The wireless net work is protected by Fortinet’s FortiGate firewall. (We discussed firewalls in Chapter 4.) The park also deployed Fortinet’s FortiPres ence system, which collects information from connected devices. Using location information from these devices, FortiPresence can guess a device’s location and place it on a dynamic map of the park. Gathering data on visitors was valuable to park managers.
They use the FortiPresence system to map the traffic flow of visi tors, to analyze the location and the length of the lines at the park’s rides and concession stands, and to develop profiles of new and returning guests. Managers can discover how visitors come to the park, when and where they eat lunch, which exhibits and rides they visit, how much time they spend in specific areas, and which shops they access, to name just a few areas of interest. Basically, park managers wanted to know more about what visitors did in order to increase their enjoyment and to entice them to spend more money. For example, what if the park could attract visitors to specific at tractions or specific shops?
To collect visitors’ data, the park invites them to register on its website through an e-mail address or Facebook. Visitors must agree to a disclaimer that clearly explains that their mobile devices will be followed while they are inside the park. Guests have the op tion of having their information erased after they leave the park.
At almost no cost, the park’s registration system creates a customer database. In the offseason, the park contacts visitors on the list with offers and news regarding season passes, upcoming events, and new attractions. With repeat customers, Bobbejaan land merges location data with analytics to provide increasingly targeted offers to them.
Bobbejaanland doesn’t just customize offers to guests before their visit; it targets them while onsite through portal access points at certain locations throughout the park. As an example, if a guest
accesses the portal near a pizza stand, the portal can display a pro motion regarding offers at that stand.
The park tracks visitors’ locations not just to send promotional notifications to them, but to alert staff to possible problems before they happen. For example, a higher number of guests in a particular area could signal the need to restock drinks or vending machines, although the machines themselves send signals over an Internet of Things sensor when they’re almost empty. Park staff may also determine that an increase in guests in a certain location requires sending janitorial staff or security guards. Conversely, if the track ing indicates a decrease in guests in an area, then managers can do various things to save money, such as postponing the opening of a ride, operating the ride less often, or closing the ride early.
In implementing its Wi-Fi network, Bobbejaanland had to take data privacy into consideration, because under Belgian law, the park is considered an Internet service provider and it must therefore abide by the country’s ISP regulations. That means that it must collect a certain amount of their customers’ data as they go through the park in order to investigate possible incidents.
In addition to park guests, Fortinet created two other types of profiles for park Wi-Fi users. One is for park office staff and the other is for staff who circulate throughout the park. All three types of users have distinctive encryption levels and firewalls.
The park notes that the Wi-Fi system paid for itself in only one season. Visitors can download a park app and use the Wi-Fi on- site to navigate their way around, search for prices, and chat with friends. Bobbejaanland was looking into other technologies to help customers, such as Bluetooth low-energy beacons and radio- frequency identification (RFID).
Sources: Compiled from S. Sclafane, “The IoT Revolution: Coming to a Warehouse and a Theme Park Near You,” Carrier Management, August 17, 2015; X. Mertens, “Wi-Fi Enhances Guest Experience and Profitability for Belgian Theme Park,” Computer Weekly, July 3, 2015; D. Mumpower,
“6 Huge Ways That Theme Parks Will Change by 2020,” Theme Park Tourist, April 12, 2015; “Bobbejaanland Selects Fortinet to Deploy Park-Wide
Wi-Fi Infrastructure for Visitors and Staff,” www.fortinet.com , March 25, 2015; E. Alton, “What the Internet of Things Might Mean for Theme Parks, Museums, and Other Fun Places,” Entertainment Designer, January 21, 2015; “Theme Parks Are Trying to Incorporate Tech to Lure You off the Couch,” Mashable, November 21, 2014; www.bobbejaanland.be, accessed September 22, 2016.
Questions
1. Describe the advantages of the Wi-Fi network to Bobbejaan land Family Park.
2. Describe potential disadvantages of the Wi-Fi network to Bobbejaanland Family Park.
Wi-Fi Direct. Until late 2010, Wi-Fi could operate only if the hotspot contained a wireless antenna. Because of this limitation, organizations have typically used Wi-Fi for communica tions of up to about 800 feet. For shorter, peer-to-peer connections, they have used Bluetooth. This situation changed following the introduction of a new iteration of Wi-Fi known as Wi-Fi Direct. Wi-Fi Direct enables peer-to-peer communications, so devices can connect directly. It allows users to transfer content among devices without having to rely on a wireless antenna. Devices with Wi-Fi Direct can broadcast their availability to other devices just as Bluetooth
devices can. Finally, Wi-Fi Direct is compatible with the more than 1 billion Wi-Fi devices cur rently in use.
Wi-Fi Direct will probably challenge the dominance of Bluetooth in the area of device-to- device networking. It offers a similar type of connectivity but with greater range and much faster data transfer.
MiFi. MiFi is a small, portable wireless device that provides users with a permanent Wi-Fi hotspot wherever they go. Thus, users are always connected to the Internet. The range of the MiFi device is about 10 meters (roughly 30 feet). Developed by Novatel, the MiFi device is also called an intelligent mobile hotspot. Accessing Wi-Fi through the MiFi device allows up to five persons to be connected at the same time, sharing the same connection. MiFi also allows users to use voice-over-IP technology (discussed in Chapter 6) to make free (or cheap) calls, both locally and internationally.
MiFi provides broadband Internet connectivity at any location that offers 3G cellular net work coverage. One drawback is that MiFi is expensive both to acquire and to use.
Super Wi-Fi. The term Super Wi-Fi was coined by the U.S. Federal Communications Com mission (FCC) to describe a wireless network proposal that creates long-distance wireless In ternet connections. (Despite the name, “Super Wi-Fi” is not based on Wi-Fi technology.) Super Wi-Fi uses the lower-frequency “white spaces” between broadcast TV channels. These frequen cies enable the signal to travel farther and penetrate walls better than normal Wi-Fi frequencies. Super Wi-Fi is already in use in Houston, Texas; Wilmington, North Carolina; and the Uni versity of West Virginia. The technology threatens cell phone carriers’ 3G technology, and it
could eventually bring broadband wireless Internet access to rural areas.
Wide-Area Wireless Networks
Wide-area wireless networks connect users to the Internet over a geographically dispersed ter ritory. These networks typically operate over the licensed spectrum—that is, they use portions of the wireless spectrum that are regulated by the government. In contrast, Bluetooth, Wi-Fi, and Super Wi-Fi operate over the unlicensed spectrum and are therefore more prone to inter ference and security problems. In general, wide-area wireless network technologies fall into two categories: cellular radio and wireless broadband.
Cellular Radio. Cellular telephones (cell phones) provide two-way radio communications over a cellular network of base stations with seam less handoffs. Cellular telephones differ from cord less telephones, which offer telephone service only within a limited range through a single base station attached to a fixed landline—for example, within a home or an office.
© Engine Images-Fotolia.com; © AP/Wide World Photos
The cell phone communicates with radio anten nas, or towers, placed within adjacent geographic areas called cells (see Figure 8.5). A telephone mes sage is transmitted to the local cell—that is, the an tenna—by the cell phone and is then passed from cell to cell until it reaches the cell of its destination. At this final cell, the message either is transmitted to the receiving cell phone or it is transferred to the public switched telephone system to be transmitted to a wireline telephone. This is why you can use a cell
phone to call other cell phones as well as standard wireline phones.
FIGURE 8.5 A cellular network and the public switched telephone system.
Cellular technology is quickly evolving, moving toward higher transmission speeds, richer features, and lower latencies. This rapid evolution is necessary because more people are us ing mobile phones and tablets and data traffic is exploding. According to a press release from AT&T, data traffic on its network increased by more than 150,000 percent from 2007 through 2016, with 60 percent of its data traffic consisting of video. Cellular technology has progressed through a number of stages:
· First generation (1G) cellular networks used analog signals and had low bandwidth (capacity).
· Second generation (2G) used digital signals primarily for voice communication; it provided data communication up to 10 Kbps.
· 2.5G used digital signals and provided voice and data communication up to 144 Kbps.
· Third generation (3G) uses digital signals and can transmit voice and data up to 384 Kbps when the device is moving at a walking pace, 128 Kbps when it is moving in a car, and up to 2 Mbps when it is in a fixed location. 3G supports video, web browsing, and instant messaging.
3G does have disadvantages. Perhaps the most fundamental problem is that cellular companies in North America use two separate technologies: Verizon and Sprint use Code Division Multiple Access (CDMA), while AT&T and T-Mobile use Global System for Mobile Communications (GSM). CDMA companies are currently using Evolution-Data Optimized (EV-DO) technology, which is a wireless broadband cellular radio standard.
3G is also relatively expensive. In fact, most carriers limit how much information you can download and what you can use the service for. For example, some carriers prohibit you from downloading or streaming audio or video. If you exceed the carriers’ limits, they reserve the right to cut off your service.
· Fourth generation (4G) is not one defined technology or standard. The International Telecommunications Union (ITU) has specified speed requirements for 4G: 100 Mbps (million bits per second) for high-mobility communications such as cars and trains, and 1 Gbps (billion bits per second) for low-mobility communications such as pedestrians. A 4G system is expected to provide a secure all-IP-based mobile broadband system to all types of mobile devices. Many of the current 4G offerings do not meet the ITU spec ified speeds, but they call their service 4G nonetheless. See “IT’s Personal” for more information.
Long-term evolution (LTE) is a wireless broadband technology designed to support roaming Internet access through smartphones and handheld devices. LTE is approximately 10 times faster than 3G networks.
XLTE (advanced LTE) is designed to handle network congestion when too many peo ple in one area try to access an LTE network. XLTE is designed to provide all users with no decrease in bandwidth.
· Fifth generation (5G) is expected to be deployed by 2020. Industry analysts expect 5G net works to meet three criteria:
1. 5G networks must be able to deliver a download speed of at least 1 gigabyte per sec ond. In early 2017, 5G was tested by several companies that have reported download speeds that are 10 to 100 times faster than 4G.
2. 5G networks must reduce latency to less than one millisecond. Latency is the lag time it takes for the network or your device to respond to a command.
3. 5G networks must use less energy than 4G networks. With 5G, wearable computers (e.g., Fitbit), smartphones, tablets, and other devices with sensors that are location- and context-aware will work together with apps and services that you use.
Because of their improved transmission rates, low latency, and reduced power con sumption, 5G networks will improve many other technologies, which include:
· The Internet of Things (IoT, discussed later in this chapter) will become much more powerful and widespread.
· Virtual reality will begin to realize its potential for gaming and business applica tions. Business applications include virtual meetings between remote employ ees, and virtual training for workers.
· Robots in factories and distribution centers will be able to perform additional tasks.
· Physicians will be able to perform remote surgery on distant patients using wire lessly controlled robotic hands linked to a 5G network.
· Driverless vehicles will become safe enough to operate autonomously on roads because vehicles will respond instantly to various driving conditions.
Wireless Broadband, or WiMAX. Worldwide Interoperability for Microwave Access, popularly known as WiMAX, is the name for IEEE Standard 802.16. WiMAX has a wireless access range of up to 31 miles, compared to 300 feet for Wi-Fi. WiMAX also has a data transfer rate of up to 75 Mbps. It is a secure system, and it offers features such as voice and video. WiMAX antennas can transmit broadband Internet connections to an tennas on homes and businesses located miles away. For this reason, WiMAX can provide long-distance broadband wireless access to rural areas and other locations that are not currently being served.
Consider this example of the use of WiMAX. On April 1, 2015, a fire broke out in the under ground electrical cable ducts in a tunnel under a major highway in London. The fire burned for 36 hours and caused major disruptions to broadband service in the area. With fiberoptic, broadband access to the Internet not available, businesses turned to WiMAX from Luminet ( http://luminet.co.uk ). One business owner noted that Luminet helped his company get its main office back online in less than 24 hours. Furthermore, Luminet’s broadband service helped the company quickly move its staff back from its disaster recovery site.
It’s Personal: Wireless and Mobile
What the GSM3GHSDPA+4GLTE? This chapter explains the many mobile plat forms that are available to you as a consumer. Specifically, it discusses cellular, Bluetooth, Wi-Fi, satellite, and other wireless options. Within the cellular area, however, things get confus ing because the telecommunications companies use so many acronyms these days. Have you ever wondered if Verizon 3G was equivalent to AT&T 3G? What about 4G and 4G LTE? Of course, most people assume that 4G is faster than 3G, but by how much?
To appreciate this confusion, consider that when Apple released one update to its mobile operating system (iOS), AT&T suddenly began to display 4G rather than 3G on the iPhone—de spite the fact that the phone had not been upgraded! Pretty nice, right? Wrong. In this instance, the “upgrade” simply consisted of a new terminology for the existing technology. The speed of the 3G/4G network had not changed. (Note: AT&T “4G LTE” is a different technology that does offer significantly higher speeds than AT&T 3G or 4G.)
Actual connection speeds are described in bit rates, meaning how many bits (1s or 0s) a de vice can transmit in 1 second. For example, a speed listed as 1.5 Mbps translates to 1.5 million bits per second. That sounds like a tremendous rate. Knowing the bits per second, however, is only part of understanding the actual speed. In reality, connection speed is not the same as throughput, which is the amount of bandwidth actually available for you to use. Throughput will always be less than the connection speed.
To understand this point, consider how your car operates. It is probably capable of driv ing more than 100 mph. However, you are “throttled down” by various speed limits, so you never reach this potential speed. Your actual speed varies, depending on the route you take, the speed limits imposed along that route, the weather, the amount of traffic, and many other factors. In the same way, even though AT&T, Verizon, Sprint, and other companies boast incred ible wireless speeds (“Up to 20 Mbps!”), they will always say “up to” because they know that you will never actually download a file at that rate.
The best method for determining the actual speeds of the various networks is to go to your local wireless store and run a speed test using the demo model they have on display. This test will give you first-hand experience of the actual throughput speed you can expect from their network. The result is much more realistic than terms such as 3G, 4G, and 4G LTE.
Here is how to perform the test: First, make certain the unit is connected only to a cellu lar network (not Wi-Fi). Then go to http://speedtest.net , and click “Begin Test.” I just ran this test from my iPhone 4S on AT&T’s 4G (not 4G LTE) network. My download speed was 3.80 Mbps, and my upload speed was 1.71 Mbps. These numbers are more informative than any name they are given (3G, 4G, etc.) because they indicate exactly what I can expect from my wireless connection. Run this test at competing stores (AT&T, Verizon, Sprint, T-Mobile, etc.), and you will have real data to compare. As names change, you can always run a test to find the facts.
Before you go on. . .
1. What is Bluetooth? What is a WLAN?
2. Describe Wi-Fi, cellular service, and WiMAX.
Mobile Computing and Mobile Commerce
8.3
In the traditional computing environment, users come to a computer, which is connected with wires to other computers and to networks. Because these networks need to be linked by wires, it is difficult or even impossible for people on the move to use them. In particular, salespeople, repair people, service employees, law enforcement agents, and utility workers can be more effective if they can use IT while in the field or in transit. Mobile computing was designed for workers who travel outside the boundaries of their organizations as well as for anyone traveling outside his or her home.
Mobile computing refers to a real-time connection between a mobile device and other computing environments, such as the Internet or an intranet. This innovation is revolutionizing how people use computers. It is spreading at work and at home; in education, healthcare, and entertainment; and in many other areas.
Mobile computing has two major characteristics that differentiate it from other forms of computing: mobility and broad reach. Mobility means that users carry a device with them and can initiate a real-time contact with other systems from wherever they happen to be. Broad reach refers to the fact that when users carry an open mobile device, they can be reached in stantly, even across great distances.
Mobility and broad reach create five value-added attributes that break the barriers of ge ography and time: ubiquity, convenience, instant connectivity, personalization, and localiza tion of products and services. A mobile device can provide information and communication regardless of the user’s location (ubiquity). With an Internet-enabled mobile device, users can access the web, intranets, and other mobile devices quickly and easily, without booting up a PC or placing a call through a modem (convenience and instant connectivity). A company can customize information and send it to individual consumers as a short message service (SMS) (customization). And, knowing a user’s physical location helps a company advertise its products and services (localization). Mobile computing provides the foundation for mobile commerce (m-commerce).
Mobile Commerce
Besides affecting our everyday lives, mobile computing is also transforming the way organiza tions conduct business by allowing businesses and individuals to engage in mobile commerce. As you saw at the beginning of this chapter, mobile commerce (or m-commerce) refers to elec tronic commerce (EC) transactions that are conducted in a wireless environment, especially on the Internet. Like regular EC applications, m-commerce can be transacted on the Internet, private communication lines, smart cards, and other infrastructures. M-commerce creates op portunities for businesses to deliver new services to existing customers and to attract new cus tomers. The development of m-commerce is driven by the widespread availability of mobile devices, the declining prices of such devices, and rapidly improving wireless bandwidth.
Mobile computing and m-commerce include many applications, which result from the capabilities of various technologies. You will examine these applications and their impact on business activities in the next section.
Mobile Commerce Applications
Mobile commerce applications are many and varied. The most popular applications include location-based applications, financial services, intrabusiness applications, accessing informa tion, and telemetry. The rest of this section examines these various applications and their ef fects on the ways people live and do business.
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Mobile Computing and Mobile Commerce 237
Financial Services.
Mobile financial applications include banking, wireless
payments and micropayments, money transfers, mobile wallets, and bill payment services. The bottom line for mobile financial applications is to make it more convenient for customers to transact business regardless of where they are or what time it is.
FIN
Web shoppers historically have preferred to pay with credit cards. Because credit card companies typically charge fees on transactions, however, credit cards are an inefficient way to make very small purchases. The growth of relatively inexpensive digital content, such as music (e.g., iTunes), ring tones, and downloadable games, is driving the growth of micropayments (very small purchase amounts, usually less than $10), as merchants seek to avoid paying credit card fees on small transactions.
A mobile wallet (also called a digital wallet) is an application (app) used for making fi nancial transactions. These apps can be on users’ desktops or on their smartphones. When the app is on a smartphone, it becomes a mobile wallet. Mobile wallets replace the need to carry physical credit and debit cards, gift cards, and loyalty cards, as well as boarding passes and other forms of identification. Mobile wallets may also store insurance and loyalty cards, driv ers’ licenses, ID cards, website passwords, and login information. Furthermore, mobile wallets eliminate having to enter shipping, billing, and credit card data each time you make a purchase at a website. The data are encrypted in the user’s phone, tablet, or computer, and the wallet contains a digital certificate that identifies the authorized cardholder.
To use a mobile wallet, consumers wave their phones a few inches above a payment ter minal instead of swiping a plastic card. This process uses a contact-free technology called near- field communications (NFC). There are a number of mobile wallets from which to choose:
· Google Wallet is a mobile wallet that uses near-field communications to allow its users to store debit cards, credit cards, loyalty cards, and gift cards on their smartphones. Google Wallet provides a tap-to-pay feature with which users tap their smartphones on supported terminals to pay for items. With Google Wallet, users launch an app, then type in a pin so Google can access their stored card credentials. Google Wallet also provides a peer-to-peer payment system that can send money to a real, physical Google Wallet card.
· Android Pay is a digital wallet that also provides a tap-to-pay feature. With Android Pay, users do not need an app and do not have to enter a PIN. The wallet’s functionality is built into the operating system.
· MasterCard’s Contactless, American Express’s ExpressPay, and Visa’s PayWave are EMV- compatible, contactless payment features. EMV (which stands for Europay, MasterCard, and Visa, the three companies that originally created the standard) is a technical standard for smart payment cards. EMV cards are smart cards that store their data on chips rather than on magnetic stripes. They can be contact cards that must be physically inserted into a reader, or contactless cards that can be read over a short distance using radio frequency identification technology. EMV cards are also called chip-and-pin cards.
· Apple Pay is a mobile wallet that uses near-field communications to enable users to make payments using various Apple devices. Apple Pay does not require Apple-specific con- tactless payment terminals and will work with Visa’s PayWave, Mastercard’s PayPass, and American Express’s ExpressPay terminals. The wallet is similar to other wallets with the addition of two-factor authentication. To pay at points of sale, users hold their authenti cated Apple device to the point-of-sale system. iPhone users authenticate by holding their fingerprint to the phone’s Touch ID sensor, and Apple Watch users authenticate by double clicking a button on the device.
· Huawei Pay: Huawei ( www.huawei.com ), the Chinese mobile phone manufacturer, has partnered with UnionPay, China’s state-operated card network, to launch the Huawei Pay mobile wallet in September 2016. The wallet uses near-field communications and biomet rics to make in-store payment through Huawei phones.
· Peru Digital Payments, a company owned and operated by the country’s leading financial institutions, launched Bim in 2016, a mobile payment program that unites all their online customer interfaces on one system. The software is the first of its kind. While there are 255 mobile money programs in 89 countries around the world, no other program includes all of a country’s banks. Furthermore, all three major Peruvian wireless carriers will offer users access to Bim.
The stakes in this competition are enormous because the small fees generated every time consumers swipe their cards add up to tens of billions of dollars annually in the United States alone. The potential for large revenue streams is real because mobile wallets have clear ad vantages. For example: Which are you more likely to have with you at any given moment—your phone or your physical wallet? Also, keep in mind that if you lose your phone, it can be located on a map and remotely deactivated. Plus, your phone can be password protected. Your physi cal wallet, however, cannot perform these functions.
Location-Based Applications and Services. M-commerce B2C applications include location-based services and location-based applications. Location-based mobile com merce is called location-based commerce (or L-commerce).
Location-based services provide information that is specific to a given location. For exam ple, a mobile user can (1) request the nearest business or service, such as an ATM or a restau rant; (2) receive alerts, such as a warning of a traffic jam or an accident; and (3) find a friend. Wireless carriers can provide location-based services such as locating taxis, service personnel, doctors, and rental equipment; scheduling fleets; tracking objects such as packages and train boxcars; finding information such as navigation, weather, traffic, and room schedules; target ing advertising; and automating airport check-ins.
MKT
Consider, for example, how location-based advertising can make the marketing process more productive. Marketers can use this technology to integrate the current locations and preferences of mobile users. They can then send user-specific advertising messages con cerning nearby shops, malls, and restaurants to consumers’ wireless devices.
Peer-to-peer parking apps are interesting location-based services. IT’s About Busi ness 8.4 shows how these apps have fared in various cities.
Mobile Advertising.
Mobile advertising is a form of advertising through cell
phones, smartphones, or other mobile devices. Analysts estimate that mobile advertising revenue will reach approximately $7 billion by 2020. IT’s About Business 8.5 illustrates the effectiveness of mobile advertising by taking a look at the practice in rural India.
MKT
How to Find a Parking Place
POM
The size of the parking industry in the United States is estimated to be $18 billion, and finding a parking space in cities remains a major challenge. Although many cities have witnessed an increase in the number of residents who are using public transportation, bi cycles, or carpools, the number of available parking spaces has not increased. Studies have revealed that motorists can spend as much as 45 minutes searching for an open parking space. Furthermore, parking experts state that up to one in three vehicles circulating in
U.S. cities consists of drivers looking for an empty parking space. As a consequence of inadequate parking, local businesses lose cus tomers, and emissions increase significantly.
Several technologies have emerged in recent years to help alleviate the parking problem. Peer-to-peer parking apps such as MonkeyParking, Parkmodo, and Haystack allowed drivers to sell the rights to parking spaces on streets. Drivers who were about to leave a space used the apps to connect with a client who was willing to pay them to wait and give the client the space. The app company helped set the price, and took a commission.
Another app, PocketParker, uses smartphones to monitor the location and movements of other users who have the app. The app integrates parking lot data from OpenStreetMap ( www.open streetmap.org ) and data from combined user actions to calculate the odds that a particular parking lot has an open parking spot.
ParkWhiz ( www.parkwhiz.com ), SpotHero (www.spothero
.com ), and JustPark ( www.justpark.com ) are e-parking services that allow users to check the availability of parking spaces in par ticipating parking lots and garages and to book guaranteed spaces before reaching their destination.
Valet companies Stratim ( www.stratim.com ), Luxe Valet ( www.luxe.com ), and Caarbon ( www.caarbon.com ) allow driv ers to click on an app so that when they arrive at their destination a valet takes their cars for as long as they need. When drivers are ready for their cars, they click on the app again. The three compa nies view their business model as the gateway to offering a range of services, such as gas, car washes, and oil changes.
Some cities, including San Francisco and Boston, are invest ing in networks of sensors in parking spaces. The sensors, which cost approximately $225 each, give motorists information about available spaces while also providing cities with data to structure parking rates that adjust for demand. Fitting up a limited number of sensors in areas where parking will bring high prices would soon pay for their installation while reducing traffic. Critics of the plan note that the sensors do not work in parking spots in residential neighborhoods that have no parking meters.
In mid-2014, cities including Los Angeles, San Francisco, and Boston banned MonkeyParking, ParkModo, and Haystack. The cities charged that the companies’ business model was illegal because they were making money from free public parking. In es sence, the apps were charging for something they did not own. The cities also approved ordinances making it illegal for any company similar to these three firms to conduct business within city limits.
In March 2015, MonkeyParking (now an app in the Apple iStore) went back to San Francisco with a new business model that complied with the city’s laws. Instead of letting users sell public property, the company moved its turf to private property, namely users’ driveways. The opportunity for MonkeyParking users is re ally the space in front of the driveway, because most city driveways are too small to hold a car without blocking the sidewalk. Drivers who wish to park are connected with nearby driveways or driveway spots. The driver pays a $10 flat fee, and the driveway owner deter mines how long the car may remain. MonkeyParking takes 20 per cent of the flat fee.
Sources: Compiled from D. Streitfeld, “Parking Apps Face Obstacles at Every Turn,” New York Times, June 10, 2015; C. Woodward, “The Endless Sage of Haystack, an Illegal App that Tried to Sell Public Parking,” beta Boston, June 10, 2015; J. Eskenazi, “MonkeyParking Is Back and Ready to Disrupt Your Driveway,” San Francisco Gate, March 25, 2015; J. Brasuell, “MonkeyParking App Is Back—This Time It’s Legal,” Planetizen, March 24, 2015; C. Mims, “No ‘Free Parking’ for an App that Tried,” Wall Street Journal, January 25, 2015; “MonkeyParking App Could Soon Be Banned in LA,” ABC News, January 7, 2015; K. Rector, “Canton Resident’s Haystack Parking App No Longer Operating,” Baltimore Sun, November 24, 2014; A. Vaccaro, “In a Post-Haystack Boston, City Exploring More Parking Technology,” Boston
.com , September 24, 2014; G. Maddaus, “Kicked Out of San Francisco, MonkeyParking App Plans a Fresh Start in Santa Monica,” LA Weekly, Sep tember 18, 2014; C. Garling, “Smartphone Movements Could Reveal Empty Parking Spots,” MIT Technology Review, September 15, 2014; J. Brustein, “How Much Would You Pay for a Parking Spot?” Bloomberg BusinessWeek, August 11–24, 2014; J. Lowensohn, “Parking Spot Startup Vows to Fight San Francisco’s Plan to Shut It Down,” The Verge, June 27, 2014; S. Larson, “San Francisco Tells Parking Apps to Stop Auctioning Spaces,” ReadWrite, June 23, 2014.
Questions
1. Describe how the e-parking apps use wireless communica tions.
2. The developers of the e-parking apps argued that they were only selling information about parking places and not the parking places themselves. Was this a valid argument? Why or why not?
3. Were the reactions of San Francisco, Los Angeles, and Bos ton to the e-parking apps appropriate? Why or why not?
4. Were the cities inhibiting entrepreneurship? Why or why not?
Intrabusiness Applications. Although business-to-consumer (B2C) m-commerce receives considerable publicity, most of today’s m-commerce applications actually are used within organizations. In this section, you will see how companies use mobile computing to sup port their employees.
Mobile devices increasingly are becoming an integral part of workflow applications. For example, companies can use nonvoice mobile services to assist in dispatch functions—that is, to assign jobs to mobile employees, along with detailed information about the job. Target areas
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Mobile Computing and Mobile Commerce 241
IT’s About Business 8.5
Mobile Advertising in Rural India
MKT
In the developed world, many businesses advertise to consum ers through their web-connected smartphones. In the developing world, however, many people do not have smartphones. As a re sult, companies are using mobile campaigns to attract customers who have “basic” cell phones and who live in locations where cable television or even newspapers have limited reach.
For example, in India most people do not live in big cities. Of the 400 million mobile phones used by rural residents, some 90 percent are not “smart.” Further complicating this situation, many villages do not have access to traditional media such as television, radio, and newspapers. Some villages have intermittent electricity. Despite these limitations, advertisers in India see some benefits to reaching rural consumers through mobile phones rather than tradi tional mass media campaigns. For one thing, ads on mobile phones cost less and are more targeted. For another thing, consumer spending among India’s rural villagers is increasing at a faster rate than among India’s urban centers.
Many advertisers are starting to use mobile as a cost-effective strategy to reach areas with a poor infrastructure. For example, 250,000 rupees ($4,100) buys only a 10-second advertisement during the mythological drama Mahabharat on India’s Star Plus television network, which attracts 6.3 million viewers per week. It would cost advertisers roughly the same amount to reach approxi mately 21,000 people with a 15-minute phone call—a much longer period in which to engage with consumers.
Consider the case of Unilever ( www.unilever.com ), the world’s second-largest consumer products company, which markets a range of food, hygiene, and cleansing products including Hellmann’s mayonnaise, Caress soap, Lipton tea, and Axe deodorant. Unilever wanted to reach India’s 833 million rural villagers. The company therefore implemented a marketing campaign that operates as fol lows: A user places a call using a basic cell phone to a special number that disconnects after two rings so that the consumer does not have to pay for that call. The cell phone user then receives a 15-minute prerecorded selection of Bollywood music and jokes, interspersed with four ads for various Unilever health and beauty products. All us ers listen to the same recorded segment, which changes each week. In March 2014, at least 2 million people subscribed to the free service. Unilever’s mobile campaign in India for its Axe men’s deodor
ant takes a similar approach, using free calls to customers. When a consumer buys Axe, he can enter a code on the package into a drawing to win a ticket to a party on a yacht. After registering, the man regularly receives a call on his cell with a woman’s prerecorded voice, urging him to buy more Axe to boost his chances of winning. Unilever maintains that its mobile ads have gained 8 million listeners. Advertising through mobile phones can reach massive numbers of people, measure their response, and constantly engage
them, claims the CEO of NetCore ( www.netcore.in ), the company that manages Unilever’s mobile service. Mobile advertising is able to obtain information on each subscriber, which helps to target campaigns.
Several companies, including Cadbury, the chocolate-making subsidiary of Mondelez ( www.mondelezinternational.com ), have adopted a different strategy in which they offer free mobile air time credit to customers. In India, 97 percent of mobile users have phones with prepaid SIM cards. Buyers of Cadbury’s 5-Star choco late bar can enter a code on the package to get free airtime credits. Similarly, PepsiCo ( www.pepsico.com ) offers 15 rupees of free air time for buying various beverages and snacks. And what can Indian consumers do with their free airtime? They can take advantage of an offer from Marico ( www.marico.com ), India’s largest seller of hair oil, which provides mobile customers with prerecorded calls offering basic English lessons.
An advantage to digital marketing is being able to measure so much consumer data. But it’s hard for advertisers to determine whether their mobile advertising campaigns directly result in prod uct sales. In a country with over a billion people, advertising costs in India can rapidly reach unsustainable levels if millions of users opt in to the free services. There are also concerns about the shelf life of such ad campaigns: Consumers could become bored with the same, or similar, ads.
And the bottom line? Research from eMarketer ( www
.emarketer.com ) suggests that advertisers in India planned to spend some $250 million in 2016 to reach consumers on tablets and mobile phones.
Sources: Compiled from R. Patil, “Money Is Where Mobile Is: The Future of Mobile Advertising in India,” The Economic Times, March 31, 2016; G. Jarboe, “Mobile Marketing Done Right: 2 Masterful Case Studies,” linkdex, April 23, 2015; J. Voight, “For Unilever’s CMO, Global Growth and Social Responsi bility Are Now Inseparable Goals,” AdWeek, March 23, 2015; L. Gonzalez, “Radio Station Reaches Remote Areas through Cell Phones,” PSFK, June 24, 2014; N. Mortimer, “Unilever’s Indian Mobile Entertainment Channel Reaches 60% of Non-TV Households,” The Drum, June 3, 2014; A. Narayan, “Pick Up. Your Ad Is Calling,” Bloomberg BusinessWeek, April 21–27, 2014; “Unilever Woos Indian Villagers with Free Mobile Music,” Digital Strategy Consulting, April 22, 2014; S. Malviya, “Hindustan Unilever Runs Bihar’s Most Popular Radio on Mobile Phones,” The Economic Times, March 4, 2014; www.unilever.com, accessed September 10, 2016.
Questions
1. Why is it so important to adapt business strategies to exist ing technologies? Provide examples from this case in your answer.
2. Describe the impacts of wireless technologies on various companies’ marketing campaigns in India.
3. Discuss the limitations that “basic” cell phones can place on marketing campaigns.
for mobile delivery and dispatch services include transportation (delivery of food, oil, news papers, cargo; courier services; tow trucks; taxis), utilities (gas, electricity, phone, water); field service (computers, office equipment, home repair); healthcare (visiting nurses, doctors, social services); and security (patrols, alarm installation).
Accessing Information. Another vital function of mobile technology is to help users obtain and use information. Two types of technologies—mobile portals and voice portals—are designed to aggregate and deliver content in a form that will work within the limited space available on mobile devices.
A mobile portal aggregates and provides content and services for mobile users. These services include news, sports, and e-mail; entertainment, travel, and restaurant information; community services; and stock trading. Major players around the world are i-mode from NTT DoCoMo ( www.nttdocomo.com ), Vodafone, O2, T-Mobile, Yahoo!, AOL, and MSN.
A voice portal is a website with an audio interface. Voice portals are not websites in the normal sense because they can also be accessed through a standard phone or a cell phone. A phone number connects you to a website, on which you can request information verbally. The system finds the information, translates it into a computer-generated voice reply, and tells you what you want to know. Most airlines use voice portals to provide real-time information on flight status.
Another example of a voice portal is the voice-activated 511 travel-information line devel oped by Tellme.com. This technology helps callers inquire about weather, local restaurants, current traffic, and other valuable information.
Telemetry Applications.
Telemetry is the wireless transmission and receipt
of data gathered from remote sensors. Telemetry has numerous mobile computing applica tions. For example, technicians can use telemetry to identify maintenance problems in equip ment, and doctors can monitor patients and control medical equipment from a distance. Car manufacturers use telemetry applications for remote vehicle diagnosis and preventive main tenance. For example, drivers of many General Motors cars use its OnStar system ( www.onstar
POM
.com ) in numerous ways.
An interesting telemetry application for individuals is an iPhone app called Find My iPhone. Find My iPhone is a part of the Apple iCloud ( www.apple.com/icloud ). This app pro vides several very helpful telemetry functions. If you lose your iPhone, for example, it offers two ways to find its approximate location on a map. First, you can sign in to the Apple iCloud from any computer. Second, you can use the Find My iPhone app on another iPhone, iPad, or iPod Touch.
If you remember where you left your iPhone, you can write a message and display it on your iPhone’s screen. The message might say, “Left my iPhone. Please call me at 301-555-1211.” Your message appears on your iPhone, even if the screen is locked. And, if the map indicates that your iPhone is nearby—perhaps in your office under a pile of papers—you can tell Find My iPhone to play a sound that overrides the volume or silent setting.
If you left your iPhone in a public place, you may want to protect its contents. You can remotely set a four-digit passcode lock to prevent people from using your iPhone, accessing your personal information, or tampering with your settings. Going further, you can initiate a remote wipe (erase all contents) to restore your iPhone to its factory settings. If you eventually find your phone, then you can connect it to your computer and use iTunes to restore the data from your most recent backup.
If you have lost your iPhone and you do not have access to a computer, you can download the Find My iPhone app to a friend’s iPhone, iPad, or iPod Touch and then sign in to access all the Find My iPhone features.
Before you go on. . .
1. What are the major drivers of mobile computing?
2. Describe mobile portals and voice portals.
3. Describe wireless financial services.
4. Discuss some of the major intrabusiness wireless applications.
The Internet of Things
8.4
The Internet of Things (IoT), also called the Internet of Everything, the Internet of Anything, the Industrial Internet, and machine-to-machine (M2M) communication, is a system in which any ob ject, natural or manmade, has a unique identity (i.e., its own IP address) and is able to send and receive information over a network (i.e., the Internet) without human interaction. The adoption of IPv6 (discussed in Chapter 6), which created a vast number of IP addresses, has been an im portant factor in the development of the IoT. In fact, there are enough IP addresses to uniquely identify every object on Earth.
The IoT can be considered as invisible “everywhere computing” that is embedded in the objects around us. Examples of objects are your clock radio, your kitchen appliances, your ther mostat, your clothing, your smartphone, a cardiac patient’s heart monitor, a chip in a farm animal, and automobile sensors that alert a driver when tire pressure is low or the gas tank needs to be refilled.
Wireless sensors are an underlying technology of the Internet of Things. A wireless sensor is an autonomous device that monitors its own condition, as well as physical and environmen tal conditions around it, such as temperature, sound, pressure, vibration, and movement. Sen sors can also control physical systems, like opening and closing a valve and controlling the fuel mixture in your car. Wireless sensors can be as small as a grain of rice.
Wireless sensors collect data from many points over an extended space. A sensor contains processing, storage, and radio-frequency antennas for sending and receiving messages. Each sensor “wakes up” or activates for a fraction of a second when it has data to transmit. It then relays those data to its nearest neighbor. So, rather than every sensor transmitting its data to a remote computer, the data travel from sensor to sensor until they reach a central computer where they are stored and analyzed. An advantage of this process is that if one sensor fails, then another one can pick up the data. This process is efficient, reliable, and extends battery life of the sensor. Also, if the network requires additional bandwidth, then operators can boost performance by placing new sensors when and where they are required.
Wireless sensors provide information that enables a central computer to integrate reports of the same activity from different angles within the network. This system en ables the network to determine with much greater accuracy myriad types of informa tion such as the direction in which a person is moving, the weight of a vehicle, and the amount of rainfall over a field of crops. One type of wireless sensor uses radio- frequency identification (RFID) technology, which we discuss next.
Radio-Frequency Identification
Radio-frequency identification (RFID) technology allows manufacturers to attach tags with antennas and computer chips on goods and then track their movement through radio signals. RFID was developed to replace bar codes.
A typical bar code, known as the Universal Product Code (UPC), is made up of 12 digits that are batched in various groups. Bar codes have worked well, but they have limitations. First, they require a line-of-sight to the scanning device. This system works well in a store, but it can pose substantial problems in a manufacturing plant or a warehouse or on a shipping and receiving dock. Second, because bar codes are printed on paper, they can be ripped, soiled, or lost. Third, the bar code identifies the manufacturer and product but not the actual item.
Quick response (QR) codes are also used in place of bar codes. A QR code is a two-dimensional code, readable by dedicated QR readers and camera phones. Fig ure 8.6 illustrates bar codes, QR codes, and an RFID tag. QR codes have several advan tages over bar codes:
· QR codes can store much more information.
242 CHAPTER 8 Wireless, Mobile Computing, and Mobile Commerce
The Internet of Things 243
FIGURE 8.6 Bar codes, RFID tags, and QR codes.
· Data types stored in QR codes include numbers, text, URLs, and even Japanese characters.
· QR codes are smaller because they store information both horizontally and vertically.
· QR codes can be read from any direction or angle, so they are less likely to be misread.
· QR codes are more resistant to damage.
RFID systems use tags with embedded microchips, which contain data, and antennas to transmit radio signals over a short distance to RFID readers. The readers pass the data over a network to a computer for processing. The chip in the RFID tag is programmed with information that uniquely identifies an item. It also contains information about the item such as its location and where and when it was made. (See Figure 8.7.)
There are two basic types of RFID tags: active and passive. Active RFID tags use internal batteries for power, and they broadcast radio waves to a reader. Because active tags contain batteries, they are more expensive than passive RFID tags, and they can be read over greater distances. Therefore, they are used primarily for more expensive items. In contrast, passive RFID tags rely entirely on readers for their power. They are less expensive than active tags, but they can be read only up to 20 feet. For these reasons, they are generally applied to less expensive merchandise. Problems with RFID include expense and the comparatively large size of the tags.
Examples of the Internet of Things in Use
There are numerous examples of how the Internet of Things is being deployed. We discuss just a few of them here:
· The Smart Home: In a smart home, your home computer, television, lighting and heating controls, home security system (including smart window and door locks), thermostats, and appliances have embedded sensors and can communicate with one another through a home network. You control these networked objects through various devices, including your pager, smartphone, television, home computer, and even your automobile. Appro priate service providers and homeowners can access the devices for which they are au thorized. Smart home technology can be applied to any building, turning it into a smart building.
Consider Nest Labs ( www.nest.com ; now owned by Google), which produces a digital thermostat that combines sensors and web technology. The thermostat senses not only air temperature, but also the movements of people in a house. It then adjusts room tem peratures accordingly to save energy.
· Healthcare: Patients with non-life-threatening conditions can wear sensors, or have them implanted—for example, to monitor blood pressure or glucose levels—that are monitored by medical staff. In many cases, the patients can be shown how to interpret the sensor data themselves. Also, consumer-oriented sensors such as the Fitbit can encourage people to adopt healthier lifestyles.
· Automotive: Modern cars have many sensors that monitor functions such as engine op eration, tire pressure, fluid levels, and many others. Cars can warn drivers of impending mechanical or other problems and automatically summon roadside assistance or emer gency services when necessary. Furthermore, sensors provide advanced driver assistance such as automatic parking, blind spot monitoring, driver drowsiness detection, forward collision warning, and many other functions.
FIGURE 8.7 Small RFID reader and RFID tag.
© Ecken, Dominique/ Keystone Pressedienst/ Zuma Press
· Supply Chain Management: The IoT can make a company’s supply chain much more transparent. A company can now track, in real time, the movement of raw materials and parts through the manufacturing process to finished products delivered to the customer. Sensors in fleet vehicles (e.g., trucks) can monitor the condition of sensitive consignments (e.g., the temperature of perishable food). They can also trigger automatic security alerts if a container is opened unexpectedly.
POM
· Environmental Monitoring: Sensors monitor air and water quality, atmospheric and soil conditions, and the movements of wildlife.
· Infrastructure Management: Sensors monitor infrastructures such as bridges, railway tracks, and roads. They can identify and report changes in structural conditions that can compromise safety.
· Energy Management: Sensors will be integrated into all forms of energy-consuming de vices, for example, switches, power outlets, lightbulbs, and televisions. They will be able to communicate directly with utility companies through smart meters to balance power generation and energy usage. Another valuable application of sensors is to use them in smart electrical meters, thereby forming a smart grid. (See this chapter’s closing case.)
· Agriculture: Sensors monitor, in real time, air temperature, humidity, soil temperature, soil moisture, leaf wetness, atmospheric pressure, solar radiation, trunk/stem/fruit diameter, wind speed and direction, and rainfall. The data from these sensors are used in precision agriculture. (Precision agriculture is a farming technique based on observing, measuring, and responding to inter- and intrafield variability in crops.)
· Transportation: Sensors placed on complex transportation machines such as jet engines and locomotives can provide critical information on their operations. Consider General Electric (GE; www.ge.com ), which embeds “intelligence” in the form of 250 sensors in each of its giant locomotives. The sensors produce 9 million data points every hour. How can these sensors improve the performance of such a huge machine?
POM
One of the biggest problems on locomotives is faulty bearings. If a bearing fails, then an axle might freeze, leaving a train marooned on the tracks. In remote areas, this situation could be disastrous, not to mention expensive, because other trains would back up for
IT’s About Business 8.6
The Internet of Things Improves FedEx’s Dock that tell EDEN which one will be available when the truck arrives.
Operations
POM
This system ensures that all workers have the same information. Supervisors can get in on the game by assigning a particular dock to a particular truck by clicking on its icon on their EDEN computer.
A critical part of FedEx’s operations is the cooperation among fore- Millions of actions are made through EDEN each day, and it men, forklift drivers, and truck drivers to load and unload items at is intuitive to use. In fact, EDEN is so easy to use that FedEx was its freight distribution centers. In the past, dock operations were able to roll out the application to 12,000 users in 250 locations in performed manually, and they were highly inefficient. Supervisors a matter of just a few months. The training for the system involved would hand out assignments to dockworkers at their workstations watching a short video and reading a reference guide.
and manually plan workloads and shift schedules, and produce a FedEx expects that EDEN will save more than $9 million a year log of hours actually worked. These and other manual processes from improvements in dock and trailer yard planning and manage- meant that estimated driver arrival times were usually a guess, and ment and estimated-time-of-arrival accuracy.
supervisors never knew if a dock was in use unless that dock’s com- Sources: Compiled from D. Rathore, “Reinvent Supply Chain Operations
puter had been manually updated. the IoT Way,” Internet of Things Agenda, August 8, 2016; J. Manyika, M.
To improve the efficiency and effectiveness of its dock oper- Chui, P. Bisson, J. Woetzel, R. Dobbs, J. Bughin, and D. Aharon, “Unlocking
ations, FedEx launched a scheduling and messaging system that the Potential of the Internet of Things,” McKinsey & Company, June 2015;
the company calls EDEN (Equipment Detection, Event Notification) Dock/Yard. Employees throughout the FedEx logistics chain have mobile devices and touchscreen displays so the EDEN software
B. Franks, “How Disney, FedEx Create Value at the Corner of Customer Expe rience and the Internet of Things,” Forbes, March 13, 2015; J. Twentyman, “Internet of Things Is Ready to Deliver,” Financial Times, October 21, 2014; “FedEx Uses Real-Time Messaging and Interconnected Devices to Improve
can send messages between them, whether they’re in a truck, on a Dock Activities,” Datamark Incorporated, May 6, 2014; S. O’Neill, “How
forklift, or anywhere in the freight dock. The system also works with FedEx Streamlines Operations at Freight Docks,” InformationWeek, April 2,
handheld devices and computers used by office workers, automat- ing dock assignments and schedules almost live.
Perhaps the most impressive automation happens using Inter
2014; T. Leung, “FedEx Rides the IoT Wave with Near Real-Time Tracking,” Computerworld, September 10, 2013; www.fedex.com, accessed September 17, 2016.
net of Things applications. Even before a truck arrives at the freight Questions
distribution center, its every move is tracked and the relevant pro- 1. Describe the problems faced by FedEx that led to the compa
cesses swing into action. Tractor-trailers have sensors that send ny’s decision to implement the EDEN system.
GPS information to each truck’s onboard EDEN-connected com 2. Discuss the advantages of the EDEN system.
puter. Dockworkers use the EDEN information from each truck to
know what it’s carrying and its location. Each dock door has sensors
3. Discuss potential disadvantages of the EDEN system.
miles behind the stalled one. In this situation, the company would have to send a crane to lift the locomotive off the track and transport it back to a shop.
To avoid this type of scenario, GE embeds one sensor inside each locomotive’s gear case that transmits data on oil levels and contaminants. By examining these data, GE can predict the conditions that cause bearings to fail and axles to freeze. GE data analysts claim that sensors that predict part failures before they occur will translate into billions of dollars of savings for GE’s rail customers.
GE also uses locomotive sensors to optimize the entire network of U.S. trains. Today, the average velocity of a freight train operating between U.S. cities ranges from 20 to 25 miles per hour. Why is this number so low? The reason is a combination of factors: con gestion in the train yards, breakdowns (see the preceding discussion), and the frequent necessity of letting other trains pass. GE has developed a software tool called Movement Planner that gathers and integrates sensor data on velocity, traffic, and location from many locomotives. This analysis increases the average speed of its customers’ trains. One of GE’s customers, Norfolk Southern, states that an average speed increase of 1 mile per hour for its trains would be worth $200 million. GE’s goal is to increase average train speeds by 4 miles per hour.
IT’s About Business 8.6 provides another example of an IoT application, in which FedEx implemented its EDEN system to improve the efficiency of its dock operations.
Before you go on. . .
1. Define the Internet of Things and RFID.
2. Provide two examples (other than those mentioned in this section) of how the Internet of Things benefits organizations (public sector, private sector, for-profit, or not-for-profit).
3. Provide two specific business uses of RFID technology.
What’s in IT for me?
ACCT For the Accounting Major
Wireless applications help accountants count and audit inventory. They also expedite the flow of information for cost control. Price management, inventory control, and other accounting-related ac tivities can be improved with the use of wireless technologies.
FIN For the Finance Major
Wireless services can provide banks and other financial institutions with a competitive advantage. For example, wireless electronic payments, including micropayments, are more convenient (any where, any time) than traditional means of payment, and they are less expensive. Electronic bill payment from mobile devices is be coming more popular, increasing security and accuracy, expediting cycle time, and reducing processing costs.
MKT For the Marketing Major
Imagine a whole new world of marketing, advertising, and sell ing, with the potential to increase sales dramatically. Such is the promise of mobile computing. Of special interest for marketers are location-based advertising as well as the new opportunities resulting from the Internet of Things and RFID. Finally, wireless
technology also provides new opportunities in sales force automa tion (SFA), enabling faster and better communications with both customers (CRM) and corporate services.
POM For the Production/Operations Management Major
Wireless technologies offer many opportunities to support mo bile employees of all kinds. Wearable computers enable offsite employees and repair personnel working in the field to service customers faster, better, and less expensively. Wireless devices can also increase productivity within factories by enhancing com munication and collaboration as well as managerial planning and control. Mobile computing technologies can also improve safety by providing quicker warning signs and instant messaging to isolated employees.
HRM For the Human Resource Management Major
Mobile computing can improve HR training and extend it to any place at any time. Payroll notices can be delivered as SMSs. Wire less devices can also make what they do even more convenient for
employees to select their own benefits and update their personal data.
MIS For the MIS Major
MIS personnel provide the wireless infrastructure that enables all organizational employees to compute and communicate any time,
anywhere. This convenience provides exciting, creative, new ap plications for organizations to reduce expenses and improve the efficiency and effectiveness of operations (e.g., to achieve transpar- ency in supply chains). Unfortunately, as you read earlier, wireless applications are inherently insecure. This lack of security is a seri- ous problem with which MIS personnel must contend.
Summary
1. Identify advantages and disadvantages of each of the three main types of wireless transmission media.
Microwave transmission systems are used for high-volume, long- distance, line-of-sight communication. One advantage is the high vol ume. A disadvantage is that microwave transmissions are susceptible to environmental interference during severe weather such as heavy rain and snowstorms.
Satellite transmission systems make use of communication sat ellites, and they receive and transmit data through line-of-sight. One advantage is that the enormous footprint—the area of Earth’s surface reached by a satellite’s transmission—overcomes the limitations of mi crowave data relay stations. Like microwaves, satellite transmissions are susceptible to environmental interference during severe weather.
Radio transmission systems use radio-wave frequencies to send data directly between transmitters and receivers. An advantage is that radio waves travel easily through normal office walls. A disadvantage is that radio transmissions are susceptible to snooping by anyone who has similar equipment that operates on the same frequency.
2. Explain how businesses can use short-range, medium- range, and long-range wireless networks, respectively.
long-distance broadband wireless access to rural areas and remote business locations.
3. Provide a specific example of how each of the five major m-commerce applications can benefit a business.
Location-based services provide information specific to a location. For example, a mobile user can (1) request the nearest business or service, such as an ATM or restaurant; (2) receive alerts, such as a warning of a traffic jam or an accident; and (3) find a friend. With location-based advertising, marketers can integrate the current locations and pref erences of mobile users. They can then send user-specific advertis ing messages about nearby shops, malls, and restaurants to wireless devices.
Mobile financial applications include banking, wireless payments and micropayments, money transfers, wireless wallets, and bill pay ment services. The bottom line for mobile financial applications is to make it more convenient for customers to transact business regardless of where they are or what time it is.
Intrabusiness applications consist of m-commerce applications that are used within organizations. Companies can use nonvoice mo bile services to assist in dispatch functions—that is, to assign jobs to
mobile employees, along with detailed information about the job.
Short-range wireless networks simplify the task of connecting one device to another, eliminating wires, and enabling people to move around while they use the devices. In general, short-range wireless net works have a range of 100 feet or less. Short-range wireless networks include Bluetooth, ultra-wideband, and near-field communications. A business application of ultra-wideband is the PLUS Real-Time Location System from Time Domain. Using PLUS, an organization can locate multiple people and assets simultaneously.
Medium-range wireless networks include Wi-Fi networks. Wi-Fi provides fast and easy Internet or intranet broadband access from public hotspots located at airports, hotels, Internet cafés, universities, conference centers, offices, and homes.
Wide-area wireless networks connect users to the Internet over geographically dispersed territory. They include cellular telephones and wireless broadband. Cellular telephones provide two-way radio communications over a cellular network of base stations with seam less handoffs. Wireless broadband has a wireless access range of up to 31 miles and a data transfer rate of up to 75 Mbps. WiMAX can provide
When it comes to accessing information, mobile portals and voice portals are designed to aggregate and deliver content in a form that will work within the limited space available on mobile devices. These portals provide information anywhere and any time to users.
Telemetry is the wireless transmission and receipt of data gath ered from remote sensors. Company technicians can use telemetry to identify maintenance problems in equipment. Car manufacturers use telemetry applications for remote vehicle diagnosis and preventive maintenance.
4. Describe the Internet of Things along with examples of how various organizations can use the Internet of Things.
The Internet of Things (IoT) is a system in which any object, natural or manmade, has a unique identity (using IPv6) and the ability to send and receive information over a network (i.e., the Internet) without hu man interaction.
We leave the examples of various uses of the IoT up to the student.
Chapter Glossary
Bluetooth Chip technology that enables short-range connection (data and voice) be tween wireless devices.
cellular telephones (cell phones) Phones that provide two-way radio communications over a cellular network of base stations with seamless handoffs.
global positioning system (GPS) A wireless system that uses satellites to enable users to determine their position anywhere on Earth.
hotspot A small geographical perimeter within which a wireless access point provides service to a number of users.
Internet of Things (IoT) A scenario in which objects, animals, and people are provided with unique identifiers, and the ability to automati cally transfer data over a network without requir ing human-to-human or human-to-computer interaction.
location-based commerce (L-commerce) Mobile commerce transactions targeted to in dividuals in specific locations, at specific times.
microwave transmission A wireless system that uses microwaves for high-volume, long- distance, point-to-point communication.
mobile commerce (or m-commerce) Elec tronic commerce transactions that are con ducted with a mobile device.
mobile computing A real-time connection be tween a mobile device and other computing en vironments, such as the Internet or an intranet.
mobile portal A portal that aggregates and provides content and services for mobile users.
mobile wallet (m-wallet) A technology that allows users to make purchases with a single click from their mobile devices.
near-field communication (NFC) The small est of the short-range wireless networks that is designed to be embedded in mobile devices like cell phones and credit cards.
personal area network A computer network used for communication among computer de vices close to one person.
propagation delay Any delay in communica tions from signal transmission time through a physical medium.
radio-frequency identification (RFID) tech nology A wireless technology that allows manufacturers to attach tags with antennas and computer chips on goods and then track their movement through radio signals.
radio transmission Uses radio-wave frequen cies to send data directly between transmitters and receivers.
satellite radio (or digital radio) A wireless system that offers uninterrupted, near CD- quality sound that is beamed to your radio from satellites.
satellite transmission A wireless transmis sion system that uses satellites for broadcast communications.
telemetry The wireless transmission and re ceipt of data gathered from remote sensors.
ultra-wideband (UWB) A high-bandwidth wireless technology with transmission speeds in excess of 100 Mbps that can be used for appli cations such as streaming multimedia from, say, a personal computer to a television.
voice portal A website with an audio interface.
wireless Telecommunications in which elec tromagnetic waves carry the signal between communicating devices.
wireless access point An antenna connecting a mobile device to a wired local area network.
Wireless Fidelity (Wi-Fi) A set of standards for wireless local area networks based on the IEEE 802.11 standard.
wireless local area network (WLAN) A computer network in a limited geographi cal area that uses wireless transmission for communication.
Discussion Questions
1. Given that you can lose a cell phone as easily as a wallet, which do you feel is a more secure way of carrying your personal data? Support your answer.
2. If mobile computing is the next wave of technology, would you ever feel comfortable with handing a waiter or waitress your cell phone to make a payment at a restaurant the way you currently hand over your credit or debit card? Why or why not?
3. What happens if you lose your NFC-enabled smartphone or it is stolen? How do you protect your personal information?
4. In your opinion, is the mobile (or digital) wallet a good idea? Why or why not?
5. Discuss how m-commerce can expand the reach of e-business.
6. Discuss how mobile computing can solve some of the problems of the digital divide.
7. List three or four major advantages of wireless commerce to con sumers and explain what benefits they provide to consumers.
8. Discuss the ways in which Wi-Fi is being used to support mobile computing and m-commerce. Describe the ways in which Wi-Fi is affecting the use of cellular phones for m-commerce.
9. You can use location-based tools to help you find your car or the closest gas station. However, some people see location-based tools as an invasion of privacy. Discuss the pros and cons of location-based tools.
10. Discuss the benefits of telemetry in healthcare for the elderly.
11. Discuss how wireless devices can help people with disabilities.
12. Some experts say that Wi-Fi is winning the battle with 3G cellular service. Others disagree. Discuss both sides of the argument and sup port each one.
13. Which of the applications of the Internet of Things do you think are likely to gain the greatest market acceptance over the next few years? Why?
248 CHAPTER 8 Wireless, Mobile Computing, and Mobile Commerce
Problem-Solving Activities
1. Investigate commercial applications of voice portals. Visit several vendors, for example, Microsoft and Nuance. What capabilities and ap plications do these vendors offer?
2. Using a search engine, try to determine whether there are any com mercial Wi-Fi hotspots in your area.
3. Examine how new data-capture devices such as RFID tags help or ganizations accurately identify and segment their customers for ac tivities such as targeted marketing. Browse the web, and develop five potential new applications not listed in this chapter for RFID technol ogy. What issues would arise if a country’s laws mandated that such devices be embedded in everyone’s body as a national identification system?
4. Investigate commercial uses of GPS. Start with www.neigps.com . Can some of the consumer-oriented products be used in industry? Pre pare a report on your findings.
5. Access www.bluetooth.com . Examine the types of products being enhanced with Bluetooth technology. Present two of these products to the class and explain how they are enhanced by Bluetooth technology.
6. Explore www.nokia.com . Prepare a summary of the types of mo bile services and applications Nokia currently supports and plans to support in the future.
7. Enter www.ibm.com . Search for “wireless e-business.” Research the resulting stories to determine the types of wireless capabilities and applications IBM’s software and hardware support. Describe some of the ways these applications have helped specific businesses and industries.
8. Research the status of 4G and 5G cellular service by visiting vari ous links. Prepare a report on the status of 4G and 5G based on your findings.
9. Enter Pitney Bowes Business Insight ( www.pbinsight.com ). Click on “MapInfo Professional,” then click on the “Resources” tab, then on the “Demos” tab. Look for the location-based services demos. Try all the demos. Summarize your findings.
10. Enter www.packetvideo.com . Examine the demos and products and list their capabilities.
11. Enter www.onstar.com . What types of fleet services does OnStar provide? Are these any different from the services OnStar provides to individual car owners? (Play the movie.)
12. Access various search engines to find articles about the “Internet of Things.” What is the “Internet of Things”? What types of technologies are necessary to support it? Why is it important?
Closing Case
Pacific Gas & Electric Turns to Smart Meters
POM MIS
The Problem
Peak demand—defined as the hourly period that represents the high est point of customer consumption of electricity—is the major chal lenge confronting electrical utilities. This period usually occurs around 5:30 P.M. It is driven by a combination of office and domestic demand and, at certain times of the year, by the onset of darkness. When peak demand arrives, electric utilities must have the power available to meet it.
One strategy to meet peak demand is to build enough power plants to satisfy every possible supply-and-demand scenario. How ever, the costs and environmental impacts of this approach would be far too high to make it a realistic solution.
Another strategy is to implement demand-response programs, which are designed to be both fiscally and environmentally responsi ble. These programs offer incentives (typically in the form of rebates) to businesses that volunteer to temporarily reduce their electricity use at times when demand could outpace supply. These businesses turn off unnecessary lighting and office equipment, raise thermostat set tings, and delay using electric appliances until evening hours.
The IT Solution
In addition to implementing demand-response programs, Pacific Gas & Electric (PGE; www.pge.com ) was the first California utility and the largest utility in the United States to install smart meters in customers’
homes in an effort to meet peak demand. The utility now captures four readings per hour from 9.4 million customers instead of the standard one reading per month.
The smart meters are capable of taking 12 readings per min ute. However, even collecting data every 15 minutes has generated concerns among homeowners. For example, demonstrators in Marin County (just north of San Francisco), fearing an invasion of their pri vacy, blocked PGE installation trucks.
Smart meters capture how much energy is being consumed at each site and then broadcast those data over radio frequency to a PGE neighborhood area network. In turn, each area network reports the data to a central data center. The meters do not have the intelli gence to know which types of home devices are consuming energy or how much energy each device is using. They simply collect raw usage data. Even so, PGE can now analyze much more data than it could in the past. Significantly, the company is using those data to upgrade its operations.
The smart meters feed two terabytes of data per month into a PGE data warehouse. PGE replicates the data for each division and makes them available for analysis without any personal identifying in formation, in order to protect the privacy of its customers.
Using those data, PGE has launched an analytics service, called PG&E Interval Data Analytics, that has helped the utility integrate the functions of energy generation in PGE power plants with energy dis tribution to customers. These formerly isolated functions—known as silos—are now integrated with near-real-time usage data from the smart meters.
Closing Case 249
The first analysis identified those customers who were using the most electricity. These customers could be two heavy industries in a neighborhood. Alternatively, demand in a residential neighborhood could increase when children get home from school and turn on tele visions, computers, and game consoles. In any case, the utility has cre ated a long list of energy-conservation and efficiency incentives that it can offer contributors to peak demand. (One incentive is the utility’s demand-response program noted earlier.)
For example, on a hot day, PGE can use the smart meter data to identify which customers are using the most air conditioning, which at one time was causing rolling brownouts in California. Some California homeowners now allow PGE to install a switch on their air conditioners that dials down the air conditioning (increases the thermostat temper ature) as peak demand approaches and dials the air conditioning back up (decreases the thermostat temperature) after the demand passes.
The Results
“Shaving peak demand” has been critically important to the utility industry for many years. However, without smart meters and Interval Data Analytics, utility executives lacked the ability to manage their systems so as to meet customer demand with sufficient precision. The data from smart meters have enabled them to achieve this precision.
PGE now reports usage data directly to consumers over the My Energy section on its website. Customers must register to view the data, which includes a graph of each month’s energy consumption, with one line comparing similar homes and another line comparing efficient homes.
Furthermore, PGE has added a button to its My Energy page that allows consumers to download the data to their own spread sheets with a single click. Customers are able to send those data to a third party, such as Opower ( www.opower.com ). Opower is a
software-as-a-service (SaaS; discussed in Technology Guide 3) com pany that provides cloud-based software to roughly 100 utilities and their customers. Opower’s software provides customers with better information about their energy consumption patterns, along with per sonalized methods to save both energy and money. Customers using Opower have reduced their energy usage by an average of 2.5 percent.
Sources: Compiled from J. St. John, “U.S. Smart Meter Deployments to Hit 70M in 2016, 90M in 2020,” Green Tech Media, October 26, 2016; T. Turkel, “Consumers Still Waiting for Smart Meters to Pay Off,” Portland Press Herald, July 19, 2015; K. Tweed, “Opower Books $90M Contract with PG&E—Its Biggest Ever,” Greentech Media, May 13, 2015; C. Mooney, “Why 50 Million Smart Meters Still Haven’t Fixed America’s Energy Habits,” Washington Post, January 29, 2015; “Assessment of Demand Response and Advanced Metering,” Federal Energy Regulatory Commission, December 2014; “Smart Meters Lay Foundation for Understanding Energy Costs,” Nationwide Energy Partners, December 18, 2014; B. Spiller and K. Mohlin, “Smart Meters Need Effective Electricity Pricing to Deliver Their Full Benefits,” Environmental Defense Fund, December 16, 2014;
M. Wald, “Power Savings of Smart Meters Prove Slow to Materialize,” New York Times, December 5, 2014; C. Babcock, “PG&E Delivers on Promise of Smart Meters,” InformationWeek, April 1, 2014; E. Howland, “Smart Meters Are Here. So Why Isn’t Dynamic Pricing?” Utility Dive, January 8, 2014; Y. Maskrey and E. Ifuku, “Demonstrating Fast Demand Response and Integrating Intermittent Renewable Energy,” Electric Light and Power, August 22, 2013; C. King, “How Smart Meters Fight Power Outages,” GigaOM, July 5, 2012; www.pge.com, www.opower.com, accessed September 22, 2016.
Questions
1. What is the role of wireless technologies in smart-metering systems?
2. Describe the potential disadvantages of smart-metering systems.
3. Discuss the advantages of smart meters to utility companies.
4. Discuss the advantages of smart meters to the customers of util ity companies.
Social Computing
CHAPTER OUTLINE LEARNING OBJECTIVES
9.1 Web 2.0 9.1 Describe six Web 2.0 tools and two major types of Web 2.0 sites.
9.2 Fundamentals of Social Computing in Business 9.2 Describe the benefits and risks of social commerce to
companies.
9.3 Social Computing in Business: Shopping 9.3 Identify the methods used for shopping socially.
9.4 Social Computing in Business: Marketing 9.4 Discuss innovative ways to use social networking sites for
advertising and market research.
9.5 Social Computing in Business: Customer 9.5 Describe how social computing improves customer Relationship Management service.
9.6 Social Computing in Business: Human Resource 9.6 Discuss different ways in which human resource managers Management make use of social computing.
Opening Case
Social Commerce Company Teespring Plans to Become a Platform
Social commerce company Teespring ( http://teespring
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.com ) is one of the leading T-shirt manufacturers and sellers in the United States. The company prints millions of T-shirts each year and has shipped 19 million tees since the company was founded in 2011. Regardless of the T-shirt design, Teespring either has a design, or it will help independent contractors design and make the T-shirt, sell it, and take a percentage. In fact, hundreds of people have made more than $100,000 selling tees through the company’s website. According to Teespring, 30 people earned more than $1 million in 2015. Teespring says that about 60 percent of its sales come through ads on social media, with approximately 20 percent of the people who buy Teespring tees sharing their purchases on Facebook.
Teespring’s full-time employees serve as the back-office staff for independent designers, operating their online sales, making and
shipping the tees, processing payments, and managing customer service. Teespring charges designers about $9 per shirt, depending on the quality of the cotton and the complexity of the design. The de signers set the retail price and earn the difference. Teespring prints shirts only when a customer has placed an online order. As a result, the company and its designers are not left with unsold inventory. This process is an excellent example of mass customization, or make-to order production.
Independent designers use Facebook extensively because the social network’s 1.5 billion users provide such a vast amount of data on what its users like and dislike. Designers also use free tools such as Google Trends ( www.google.com/trends ) and Reddit (www.reddit
.com) to identify current trends in specific niches that allows them to identify potential audiences.
For example, one designer noticed hundreds of thousands of shares and social engagement regarding images and sayings related to the U.S. women’s soccer team. She then went to Facebook, identified
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Introduction 251
current active groups following the team, and created a large list of people from those groups. She created various designs, uploaded them to Teespring, worked with Teespring designers, and marketed the T-shirts that Teespring produced to this passionate audience.
Teespring’s annual revenue exceeds $100 million. In 2014, the firm raised approximately $58 million in venture funding and built a 105,000-square-foot printing factory in Kentucky. The company is planning to contract out as little production as possible to other com panies, thereby keeping its production costs to a minimum. Further more, Teespring wants to have customer service and production in the same facility. If shoppers have questions about an order, or have a problem with an order, it is more efficient for customer service to be co-located with production.
What’s next for Teespring? Its production and payments systems could prove invaluable for many more types of entrepreneurs. One of Teespring’s founders noted, “T-shirts are to Teespring what books are to Amazon.” The company’s next step is to go beyond shirts into hats, stickers, posters, and smartphone cases. Essentially, Teespring plans to become a platform for entrepreneurs to create and sell all types of merchandise online.
For example, Teespring has signed a partnership deal with the Na tional Football League, which now allows licensed apparel with team logos to be sold on Teespring’s website. Teespring is also negotiating with the National Basketball Association. Teespring has also acquired European apparel platform, Fabrily ( http://fabrily.com ), to help them expand Teespring’s international reach.
Building a powerful platform enables a company’s ecosystem to contribute to innovation. The platform enables other businesses to easily connect their businesses to yours, build products and services on top of your products and services, thus co-creating value. Let’s look at several examples:
· In 1998, Google was an excellent search engine, but not yet a platform. By adding features such as Gmail, Google Maps, Goo gle Docs, YouTube, and many others, Google has become a very powerful platform.
· By inviting thousands of users to develop apps for its iPhone and iPad, Apple has become a platform and generated billions of dol lars in new revenue.
· Facebook began as a social networking website for college stu dents. The firm has become a powerful platform by expanding
its offerings to include business and marketing sites, community gaming sites, e-mail, instant messaging, groups, blogs, advertis ing, consumer data mining, and many others.
· Uber developed a mobile app that allows customers with smart- phones to submit a trip request that is then sent to Uber drivers who use their own cars. Uber is rapidly becoming a platform as it begins to offer new services such as postal, gift, and grocery deliv ery, as well as limousine and even medical services.
Consider this example of Teespring becoming a platform. The firm formed a partnership with music merchandise company Manhead Merchandising ( www.manheadmerch.com ) to deliver custom cloth ing for its portfolio of music artists. The partnership enables Manhead to leverage Teespring’s innovative production and payment system to expand its electronic commerce business. Artists can also sell their own merchandise online with no upfront costs or inventory risk.
For example, Manhead artist Fall Out Boy used Teespring to launch a limited-edition T-shirt in a special 24-hour sale. The band pro moted this shirt exclusively through its social media channels, gener ating $40,000 in sales in a single day.
One caveat: Teespring’s expenses are increasing at the same time that Facebook ad rates are rising. Furthermore, the company has to deal with a number of legal complaints about tees that use copyrighted images from movies or sports teams, or images that copy existing top sellers. The company says that its staff members review all designs to avoid incurring liability. In one instance, the Ohio State University sued Teespring for trademark infringement. The case was settled with no financial penalty for Teespring.
Sources: Compiled from A. Zaleski, “How a T-Shirt Company Snared a Whopping $58 Million,” CNBC, June 7, 2016; B. Mateen, “Teespring Campaigns Still Making a Killing,” affengineer.com , January 12, 2016; S. Perez, “Teespring Eliminates 70 Jobs in Providence as Company Restructures,” TechCrunch, June 24, 2015; K. Mulvaney, “R.I. Startup Teespring Moving Jobs to Kentucky, San Francisco,” Providence Journal, June 24, 2015; “Is Teespring and Facebook Marketing Still Viable in 2015?” CNN News Center, May 28, 2015; “Teespring & Manhead Merchandising Team Up to Create Social Commerce Opportunities for Musicians,” PRNewswire, May 12, 2015; A. Satariano, “How Your T-Shirt Can Make You Rich,” Bloomberg BusinessWeek, April 16, 2015; S. Perez, “Teespring Raises $35 Million Series B from Khosla Ventures as It Prepares to Expand Beyond Apparel,” TechCrunch, November 18, 2014; A. Konrad, “Teespring Says It’s Minting New Millionaires Selling Its T-Shirts, Raises $35 Million of Its Own,” Forbes, November 18, 2014; A. Taub, “Teespring: Is This Rhode Island–Based Startup the Future of Custom Apparel?” Forbes, January 3, 2013; http:// teespring.com, accessed August 3, 2016.
Questions
1. Discuss the relationship between social computing and Teespring’s business model.
2. Explain this statement: “T-shirts are to Teespring what books are to Amazon.”
3. What other products and services can Teespring offer to truly be come a platform?
Introduction
Humans are social beings. Therefore, human behavior is innately social. Humans typically ori ent their behavior around other members of their community. As a result, people are sensitive to the behavior of people around them, and their decisions are generally influenced by their social context.
Traditional information systems support organizational activities and business processes, and they concentrate on cost reductions and productivity increases. A variation of this tradi tional model, social computing, is a type of IT that combines social behavior and information systems to create value. Social computing is focused on improving collaboration and interac tion among people and on encouraging user-generated content, as you see in this chapter’s opening case.
Significantly, in social computing, social information is not anonymous. Rather, it is im portant precisely because it is linked to particular individuals, who in turn are linked to their own networks of individuals.
Social computing makes socially produced information available to everyone. This infor mation may be provided directly, as when users rate a movie (e.g., at Rotten Tomatoes), or indirectly (as with Google’s PageRank algorithm, which sequences search results).
In social computing, users, rather than organizations, produce, control, use, and manage content through interactive communications and collaboration. As a result, social computing is transforming power relationships within organizations. Employees and customers are empow ered by their ability to use social computing to organize themselves. Thus, social computing can influence people in positions of power to listen to the concerns and issues of “ordinary peo ple.” Organizational customers and employees are joining this social computing phenomenon, with serious consequences for most organizations.
Significantly, most governments and companies in modern developed societies are not prepared for the new social power of ordinary people. Today, managers, executives, and gov ernment officials can no longer control the conversation around policies, products, and other issues.
In the new world of business and government, organizational leaders will have to demon strate authenticity, even-handedness, transparency, good faith, and humility. If they do not, then customers and employees may distrust them, to potentially disastrous effects. For exam ple, customers who do not like a product or service can quickly broadcast their disapproval. An other example is that prospective employees do not have to take their employers at their word for what life is like at their companies—they can find out from people who already work there. A final example is that employees now have many more options to start their own companies, which could compete with their former employers.
As you see from these examples, the world is becoming more democratic and reflective of the will of ordinary people, enabled by the power of social computing. On the one hand, social power can help keep a company vital and can enable customers and employee activists to be come a source of creativity, innovation, and new ideas that will move a company forward. On the other hand, companies that show insensitivity toward customers or employees quickly find themselves on a downward slide.
For example, Kenneth Cole came under fire for suggesting on Twitter that news of its spring collection led to riots in Egypt, and American Apparel was blasted online for offering a Hurricane Sandy sale. Lesson to be learned: If companies want to win the favor and loyalty of customers, they should refrain from making comments that may suggest that they were trying to profit from other people’s misery.
Social computing is exploding worldwide, with China having the world’s most active social media population. In one McKinsey survey, 91 percent of Chinese respondents reported that they had visited a social media site in the previous six months, compared with 70 percent in South Korea, 67 percent in the United States, and 30 percent in Japan. Interestingly, the survey found that social media has a greater influence on purchasing decisions for Chinese consumers than for consumers anywhere else in the world.
Social computing is also increasing dramatically in Africa. Facebook, YouTube, and Insta gram are the leading social networks in African countries. However, Facebook does have rivals in Africa, one of which is Mxit ( www.mxit.com ). Although Mxit’s active users have fallen to about 5 million, the social network is among the most engaged in Africa, with the average user signing in five times per day and spending 105 minutes per day on the site.
The chapter opening case illustrates how businesses today are using social comput ing in a variety of innovative ways, including marketing, production, customer relationship
252 CHAPTER 9 Social Computing
Web 2.0 253
management, and human resource management. In fact, so many organizations are compet ing to use social computing in as many new ways as possible that an inclusive term for the use of social computing in business has emerged: social commerce. Because social computing is facilitated by Web 2.0 tools and sites, you begin this chapter by examining these technologies. You then turn your attention to a diverse number of social commerce activities, including shop ping, advertising, market research, customer relationship management, and human resource management.
When you complete this chapter, you will have a thorough understanding of social com puting and the ways in which modern organizations use this technology. You will be familiar with the advantages and disadvantages of social computing as well as the risks and rewards it can bring to your organization. For example, most of you already have pages on social network ing sites, so you are familiar with the positive and negative features of these sites. This chapter will enable you to apply this knowledge to your organization’s efforts in the social computing arena. You will be in a position to contribute to your organization’s policies on social comput ing. You will also be able to help your organization create a strategy to use social computing. Finally, social computing offers incredible opportunities for entrepreneurs who want to start their own businesses.
Web 2.0
9.1
The World Wide Web, which you learned about in Chapter 6, first appeared in 1990. Web 1.0 was the first generation of the web. We did not use this term in Chapter 6 because there was no need to say “Web 1.0” until Web 2.0 emerged.
The key developments of Web 1.0 were the creation of websites and the commercialization of the web. Users typically had minimal interaction with Web 1.0 sites. Rather, they passively received information from those sites.
Web 2.0 is a popular term that has proved difficult to define. According to Tim O’Reilly, a noted blogger, Web 2.0 is a loose collection of information technologies and applications, plus the websites that use them. These websites enrich the user experience by encouraging user participation, social interaction, and collaboration. Unlike Web 1.0 sites, Web 2.0 sites are not so much online places to visit as web locations that facilitate information sharing, user- centered design, and collaboration. Web 2.0 sites often harness collective intelligence (e.g., wikis); deliver functionality as services, rather than packaged software (e.g., web services); and feature remixable applications and data (e.g., mashups).
In the following sections, we discuss five Web 2.0 information technology tools: tagging, Really Simple Syndication, blogs, microblogs, and wikis. We then turn our attention to the two major types of Web 2.0 sites: social networking sites and mashups.
Tagging
A tag is a keyword or term that describes a piece of information, for example, a blog, a picture, an article, or a video clip. Users typically choose tags that are meaningful to them. Tagging allows users to place information in multiple, overlapping associations rather than in rigid cat egories. For example, a photo of a car might be tagged with “Corvette,” “sports car,” and “Chev rolet.” Tagging is the basis of folksonomies, which are user-generated classifications that use tags to categorize and retrieve web pages, photos, videos, and other web content.
One specific form of tagging, known as geotagging, refers to tagging information on maps. For example, Google Maps allows users to add pictures and information, such as restaurant or hotel ratings, to maps. Therefore, when users access Google Maps, their experience is enriched because they can see pictures of attractions, reviews, and things to do, posted by everyone, and all related to the map location they are viewing.
FIGURE 9.1 The website of National Public Radio (NPR) with RSS toolbar aggregator and search function.
Courtesy of NPR. Used with permission.
Really Simple Syndication
Really Simple Syndication (RSS) is a Web 2.0 feature that allows you to receive the infor mation you want (customized information), when you want it, without having to surf thou sands of websites. RSS allows anyone to syndicate (publish) his or her blog, or any other content, to anyone who has an interest in subscribing to it. When changes to the content are made, subscribers receive a notification of the changes and an idea of what the new content contains. Subscribers can then click on a link that will take them to the full text of the new content.
For example, CNN.com provides RSS feeds for each of its main topic areas, such as world news, sports news, technology news, and entertainment news. NBC uses RSS feeds to allow viewers to download the most current version of shows such as Meet the Press and NBC Nightly News. Figure 9.1 illustrates how to search an RSS and locate RSS feeds.
To use RSS, you can use a special newsreader that displays RSS content feeds from the websites you select. Many such readers are available, several of them for free (see Feedspot; www.feedspot.com ). Most browsers also have built-in RSS readers. For an excellent RSS tutorial, visit www.mnot.net/rss/tutorial .
Blogs
A weblog (blog for short) is a personal website, open to the public, in which the site creator expresses his or her feelings or opinions through a series of chronological entries. Bloggers— people who create and maintain blogs—write stories, convey news, and provide links to other articles and websites that are of interest to them. The simplest method of creating a blog is to sign up with a blogging service provider, such as www.blogger.com (now owned by Google), www.xanga.com , and www.sixapart.com . The blogosphere is the term for the millions of blogs on the web.
Many companies listen to consumers in the blogosphere who express their views on the companies’ products. Marketers refer to these views as consumer-generated media. For example, Nielsen ( www.nielsen-online.com ) “mines” the blogosphere to provide information for its clients in several areas. Nielsen helps clients find ways to serve potential markets, ranging from broad-based to niche markets. The company also helps clients detect false rumors before these rumors appear in the mainstream media, and it gauges the potency of a marketing push or the popularity of a new product.
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Blogs often provide incredibly useful information, often before the information becomes available in traditional media outlets (e.g., television, newspapers). Although blogs can be very useful, they also have shortcomings. Perhaps the primary value of blogs is their ability to bring current, breaking news to the public in the fastest time possible. Unfortunately, in doing so, bloggers sometimes cut corners, and their blogs can be inaccurate. Regardless of their various problems, however, blogs have transformed the ways in which people gather and consume information.
Microblogging
Microblogging is a form of blogging that allows users to write short messages (or capture an image or embedded video) and publish them. These messages can be submitted through text messaging from mobile phones, instant messaging, e-mail, or simply over the web. The content of a microblog differs from that of a blog because of the limited space per message (usually up to 140 characters). A popular microblogging service is Twitter.
Twitter is a free microblogging service that allows its users to send messages and read other users’ messages and updates, known as tweets. Tweets are displayed on the user’s pro file page and delivered to other users who have signed up to receive them.
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Twitter is becoming a very useful business tool. It allows companies to quickly share information with people interested in their products, thereby creating deeper relation ships with their customers. Businesses also use Twitter to gather real-time market intelligence and customer feedback. As an individual user, you can use Twitter to inform companies about your experiences with their business, offer product ideas, and learn about great offers.
Microblogging is very popular in China, with Weibo ( www.weibo.com ) being the most popular microblogging service in that country. Weibo has over 200 million monthly active members.
Wikis
A wiki is a website made up entirely of content posted by users. Wikis have an “edit” link on each page that allows any user to add, change, or delete material, thus fostering easy collaboration. Wikis take advantage of the combined input of many individuals. Consider Wikipedia ( www
.wikipedia.org ), an online encyclopedia that is the largest existing wiki. Wikipedia contains over 5 million articles in English (as of November 2016), which attract some 500 million views every day. Wikipedia relies on volunteer administrators who enforce a neutral point of view, and it encourages users to delete copy that displays a clear bias. Nevertheless, there are still major debates over the reliability of Wikipedia articles. Many educators will not allow students to cite references from Wikipedia because Wikipedia content is of uncertain origin. Moreover, Wikipe dia does not provide any quality assessment or fact checking by experts. Therefore, academics and other professionals have major concerns about the accuracy of user-provided content.
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Organizations use wikis in several ways. In project management, for exam ple, wikis provide a central repository for capturing constantly updated product features and specifications, tracking issues, resolving problems, and maintaining project histories. Wikis also enable companies to collaborate with customers, suppliers, and other business partners on projects. Wikis are also valuable in knowledge management. For example, companies use wikis to keep enterprisewide documents, such as guidelines and frequently asked questions, accurate and current.
Social Networking Websites
A social network is a social structure composed of individuals, groups, or organizations linked by values, visions, ideas, financial exchange, friendship, kinship, conflict, or trade. Social net working refers to activities performed using social software tools (e.g., blogging) or social net working features (e.g., media sharing). Social networking allows convenient connections to those of similar interest.
A social network can be described as a map of all relevant links or connections among the network’s members. For each individual member, that map is his or her social graph. Mark Zuckerberg of Facebook originally coined this term to refer to the social network of relation ships among Facebook users. The idea was that Facebook would take advantage of relation ships among individuals to offer a richer online experience.
Social networks can also be used to determine the social capital of individual participants. Social capital refers to the number of connections a person has within and between social networks.
Participants congregate on social networking websites where they can create their own profile page for free and on which they can write blogs and wikis; post pictures, videos, or mu sic; share ideas; and link to other web locations they find interesting. Social networkers chat using instant messaging and Twitter, and they tag posted content with their own key words, making content searchable and facilitating interactions and transactions. Social networkers converse, collaborate, and share opinions, experiences, knowledge, insights, and perceptions with one another. They also use these websites to find like-minded people online, either to pursue an interest or a goal or just to establish a sense of community among people who may never meet in the real world.
Participants who post on social networking sites tend to reveal a great deal of personal information. As a result, if they are not careful, bad things can happen.
Table 9.1 displays the variety of online social networking platforms. Social networking websites allow users to upload their content to the web in the form of text, voice, images, and videos.
These social networking sites produce a massive amount of information uploaded by their users. As you see in IT’s About Business 9.1, startup Banjo has developed software to integrate and analyze all this information.
Enterprise Social Networks
Business-oriented social networks can be public, such as LinkedIn.com. As such, they are owned and managed by an independent company.
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IT’s About Business 9.1
Banjo Organizes the World’s Social Media Banjo displays data from geolocated posts uploaded from
mobile devices, through a user-friendly website. Banjo integrates uploads from the top social networks, including Twitter ( www
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We all encounter “noise” generated by social media. In this context, .twitter.com ), Instagram ( https://instagram.com ), Vine ( https:// noise consists of the massive amounts of unstructured data gener- vine.co ), Facebook ( www.facebook.com ), Russia’s VKontakte ated from tweets, Facebook updates, images, and full motion video ( https://vk.com ), and China’s Weibo ( www.weibo.c om), among clips, uploaded to various social media websites. Within this noise, others.
there are important signals that need to be noted, collected, and an- How Banjo Works. In 2011, Banjo launched a consumer news alyzed. The problem is clear: How can we make sense of all the noise? app (called Banjo 1.0) that integrated various social media feeds. Startup Banjo ( http://ban.jo ) has developed software that As reported by AppData ( www.appdata.com ), Banjo was down- functions as an event-detection engine. The software catalogs so- loaded approximately 7.5 million times. Banjo 1.0 still exists, but
cial media activities by location, yielding an unmatched richness of the company no longer actively supports it.
data concerning events that occur around the globe, in real time. As The next generation of Banjo, Banjo 2.0, benefited from the such, Banjo has developed an information-gathering and dissemi- fact that users of Banjo 1.0 accessed it through a social network. nating system that works anywhere in the world. Banjo could access the posts of its 7.5 million users but also those
of all their approximately 1.2 billion friends on their social net works. Banjo 2.0 harnessed the power of its reach to 1.2 billion people and their ability to capture images, videos, and text through their mobile devices.
Banjo maps a grid over the whole world, consisting of more than 35 billion squares, each about the size of a football field. Since 2011, Banjo has continually observed every square in real time, overlaying every mobile public post onto its grid. The soft ware knows what the usual characteristics are for each square: this square is in a wheat field; this square is in a war zone with smoke and fire; this square is in Disneyland, and so on.
Every minute, Banjo’s software analyzes thousands of geo located mobile posts, examining data on linguistics and location, and classifying photos and videos. When the data indicate an abnormality from the baseline, such as unusual activity in a nor mally quiet area, Banjo alerts company staff, who investigate the alert and either ignore it or notify users. As Banjo’s software accu mulates more data and can “learn,” staff need to intervene less often.
Banjo’s analytics include not only the ability to identify loca tions and photos, but to “rewind” the state of each square on each social media network. (The rewind function means that users can see what occurred before a particular event occurred, for example, just before an earthquake.)
Rather than users trying to make sense of their social media feeds through hashtags and keywords, they can have an integrated view of their feeds, from any location on earth. Users enter their location (plus any desired keywords), and the Banjo maps resizes to scale. All the relevant public posts for that location are shown as pins on the map, with links to text, photos, and video. This process occurs in real time.
Traditionally, users have asked, “How do we mine social me dia?” Banjo integrates social media from the perspective of mobile phones, which are in specific locations in the real world. As a result, Banjo asks, “How can we know what is going on in a specific place at a specific time?”
Naturally, such a treasure trove of data could be a privacy minefield. Banjo has tried to protect users’ data by developing a patented system of automatically searching its database and re moving any posts that have been made private or deleted by users. When users alter their privacy settings, Banjo wipes out all informa tion retroactively. The information is no longer in Banjo’s system and no longer in Banjo’s users’ systems, immediately.
Banjo Applications. Banjo’s technology has implications for diverse industries, including news and media, financial services, marketing, insurance, public health, and many others.
Banjo isn’t just a way to locate an impromptu street party— it can also save lives. It was credited with alerting authorities to a shooting on a Florida campus, thanks to a tweet sent by one of the witnesses. Shortly after midnight on November 20, 2014, a single tweet was posted from a spot near the Florida State University (FSU; www.fsu.edu ) campus in Tallahassee. The tweet had no hashtag, but Banjo picked up on the words “scared to death,” and noted an increase in the number of Twitter and Instagram posts sent from that location. The software noted the deviation in that grid square and alerted Banjo employees, who contacted the CBS affiliate in Tallahassee. That station investigated and was the first on the scene to report that a shooting took place in an FSU library, wounding three. Media companies, such as NBC and ESPN, are among Banjo’s longest-member clients.
POM Here are more applications of Banjo by media out lets. Sinclair Broadcasting Group ( www.sbgi.net ), which owns 162 television stations in 79 markets, uses Banjo as a sort of remote re porting team. Banjo informs its newsrooms when a story develops. A news director can visit the scene virtually, following a real-time stream of all the posts of photos, videos, and commentary from users at that location. The newsroom can then connect with the authors of those posts without needing to tweet or e-mail, and get permission to broadcast their content, without having to send a reporter to the scene. Sinclair can use Banjo to create a time line of events that occurred before a certain activity, such as an album of images and videos that happened just before the Charlie Hebdo attacks in Paris in January 2015. The technology allows Sinclair to syndicate its newscasts to licensees economically.
FIN Banjo technology is also disrupting the business world.
In November 2014, Banjo analyzed images of a fire at a diesel pipeline in Saudi Arabia. Its photo algorithms twigged to the incident. Custom ers working in the finance field used the information when trading on oil in less than an hour after the photos were flagged. Two hours after the initial Banjo notification, when the media picked up on the story, the price of oil futures rose by $2 a barrel. Clearly, traders could make huge amounts of money with the lead times provided by Banjo alerts. Banjo is quick to point out that its goal is not to gather all the personal information about users and sell it to advertisers. Instead, it generates and sells intelligence from the content that users will
ingly provide.
Social media is not the be-all and end-all source of informa tion. It doesn’t provide all the data needed for Banjo’s intelligence gathering. Therefore, the startup is adding new data sources, such as weather data from various countries, including the National Weather Service (which has approached Banjo about constructing an alert system) as well as satellite imagery. Furthermore, Banjo notes that in an Internet of Things environment, sensors in physical objects such as vehicles and buildings also emit data worth collecting.
Sources: Compiled from “Banjo Gives Away Crystal Ball to Members of the Media,” Banjo Press Release, September 24, 2015; B. Golden, “How an
Innovative Mobile App Uses Location to Track Events,” CIO, August 26, 2015;
D. Pierson, “Banjo’s Ability to Track Events in Real Time Gives Clients Com petitive Edge,” Los Angeles Times, June 20, 2015; J. Paduda, “Will Banjo Be the Social Media App that Revolutionizes Insurance?” joepaduda.com , June 3, 2015; D. MacMillan, “Banjo Raises $100 Million to Detect World Events in Real Time,” Wall Street Journal Digits, May 6, 2015; A. Talbert, “How a Social Media Company You’ve Never Heard of Is Primed to Revolutionize Custom er Service,” Zoho Blogs, April 27, 2015; W. Schmidt, “What Would You Do If You Had a Crystal Ball?” Tech.co, April 22, 2015; H. Clancy, “Why Social Me dia Startup Banjo Will Strike a Chord with Marketers,” Fortune, April 2, 2015;
W. Bourne, “The Most Important Social Media Company You’ve Never Heard of,” Inc, April 2015; O. Williams, “Banjo Updates Mobile Apps to Create TiVO for Social Media,” TheNextWeb, March 8, 2014; D. Etherington, “Banjo Puts News and Live Events Front and Center with Version 4.0 of Its Mobile App,” TechCrunch, January 16, 2014; M. Butcher, “New Banjo App Aims to Become a True Browser for Location, A Much Bigger Opportunity,” TechCrunch, November 15, 2012; T. Geron, “Banjo App Connects with the Nearby Social World,” Forbes, June 22, 2011; http://ban.jo, accessed August 15, 2016.
Questions
1. What are potential disadvantages of Banjo? ( Hint: What about privacy concerns?)
2. How would marketing managers use Banjo? Provide an ex ample to support your answer.
3. How would insurance companies use Banjo? Provide an ex ample to support your answer.
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TABLE 9.1 |
Categories of Social Networking Web Sites |
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Socially oriented: Socially focused public sites, open to anyone: · Facebook ( www.facebook.com ) · Google+ ( https://plus.google.com ) · Hi5 ( www.hi5.com ) |
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Professional networking: Focused on networking for business professionals: · LinkedIn ( www.linkedin.com ) |
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Media sharing: · Netcasting includes podcasting (audio) and videocasting (audio and video). For example, educational institutions use netcasts to provide students with access to lectures, lab demonstrations, and sports events. In 2007, Apple launched iTunes U, which offers free content provided by major U.S. universities such as Stanford and MIT. · Web 2.0 media sites allow people to come together and share user-generated digital media, such as pictures, audio, and video: · Video (Amazon Video on Demand, YouTube, Hulu, Facebook) · Music (Amazon MP3, Last.fm, Rhapsody, Pandora, Facebook, iTunes) · Photographs (Photobucket, Flickr, Shutterfly, Picasa, Facebook) |
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Communication: · Blogs: Blogger, LiveJournal, TypePad, WordPress, Vox, Xanga · Microblogging/Presence applications: Twitter, Tumblr, Yammer |
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Collaboration: · Wikis (Wikimedia, PBworks, Wetpaint) |
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Social bookmarking (or social tagging ): Focused on helping users store, organize, search, and manage bookmarks of web pages on the Internet: · Delicious ( www.delicious.com ) · StumbleUpon ( www.stumbleupon.com ) · Google Reader ( http://reader.google.com ) · CiteULike ( www.citeulike.com ) |
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Social news: Focused on user-posted news stories that are ranked by popularity based on user voting: · Digg ( www.digg.com ) · Chime.in ( http://chime.in ) · Reddit ( www.reddit.com ) |
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Events: Focused on alerts for relevant events, people you know nearby, and so on: · Eventful ( www.eventful.com ) · Meetup ( www.meetup.com ) · Foursquare ( www.foursquare.com ) |
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Virtual meeting place: Sites that are essentially three-dimensional worlds, built and owned by the residents (the users): · Second Life ( www.secondlife.com ) |
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Discovery: · Foursquare ( http://foursquare.com ) helps its members discover and share information about businesses and attractions around them. |
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Online marketplaces for microjobs: · For example, TaskRabbit ( www.taskrabbit.com ) and Zaarly ( www.zaarly.com ) enable people to farm out chores to a growing number of temporary personal assistants. Thousands of unemployed and underemployed workers use these sites. The part-time or full-time tasks are especially popular with stay-at-home moms, retirees, and students. Workers choose their jobs and negotiate their rates. |
However, an increasing number of companies have created in-house, private social networks for their employees, former employees, business partners, and customers. Such networks are “behind the firewall” and are often referred to as corporate social networks. Em ployees use these networks to create connections that allow them to establish virtual teams, bring new employees up to speed, improve collaboration, and increase employee retention by creating a sense of community. Employees are able to interact with their co-workers on a level that is typically absent in large organizations or environments in which people work remotely.
Corporate social networks are used for many processes, including:
· Networking and community building, both inside and outside an organization
· Social collaboration: Collaborative work and problem solving using wikis, blogs, instant messaging, collaborative office, and other special-purpose web-based collaboration plat forms; for example, see Laboranova ( www.laboranova.com )
· Social publishing: Employees and others creating, either individually or collaboratively, and posting contents—photos, videos, presentation slides, and documents—into a mem ber’s or a community’s accessible-content repository such as YouTube, Flickr, SlideShare, and DocStoc
· Social views and feedback
· Social intelligence and social analytics: Monitoring, analyzing, and interpreting conversa tions, interactions, and associations among people, topics, and ideas to gain insights. So cial intelligence is useful for examining relationships and work patterns of individuals and groups and for discovering people and expertise.
Mashups
A mashup is a website that takes different content from a number of other websites and mixes them together to create a new kind of content. The launch of Google Maps is credited with pro viding the start for mashups. A user can take a map from Google, add his or her data, and then display a map mashup on his or her website that plots crime scenes, cars for sale, or anything else (see Figure 9.2). There are many examples of mashups (for a complete list of mashups, see www.programmableweb.com ):
· Craigslist developed a dynamic map of all available apartments in the United States that are listed on their website ( www.housingmaps.com ).
FIGURE 9.2 GoogleMaps (
www.googlemaps.com
) is a classic example of a mashup. In this case, GoogleMaps is pulling in information from public transportation websites to pro vide the customer with transit directions.
Before you go on. . .
1. Differentiate between blogs and wikis.
2. Differentiate between social networking websites and corporate social networks.
Fundamentals of Social Computing in Business
9.2
Social computing in business, or social commerce, refers to the delivery of electronic com merce activities and transactions through social computing. Social commerce also supports social interactions and user contributions, allowing customers to participate actively in the marketing and selling of products and services in online marketplaces and communities. With social commerce, individuals can collaborate online, obtain advice from trusted individuals, and find and purchase goods and services. A few examples of social commerce include:
· Disney allows people to book tickets on Facebook without leaving the social network.
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· PepsiCo provides a live notification when its customers are close to physical stores (grocery, restaurants, gas stations) that sell Pepsi products. The company then uses Four square to send them coupons and discount information.
· Mountain Dew attracts video game lovers and sports enthusiasts through Dewmoc racy contests. The company also encourages the most dedicated community members to contribute ideas on company products.
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· Levi’s advertises on Facebook by enabling consumers to populate a “shopping cart” based on what their friends think they would like.
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Benefits and Risks of Social Commerce
Social commerce offers numerous benefits to both customers and vendors, as described in
Table 9.2.
Despite all of its benefits, social computing does involve risks. It is problematic, for example, to advertise a product, brand, or company on social computing websites where content is user-generated and is not edited or filtered. Companies that employ this strategy must be willing to accept negative reviews and feedback. Of course, negative feedback can be some of the most valuable information that a company receives, if it uses this information properly.
Companies that engage in social computing are always concerned with negative posts. For example, when a company creates a Facebook business page, by default the site allows other members of the website—potentially including disgruntled customers or unethical com petitors—to post notes on the firm’s Facebook Wall and to comment on what the firm has posted.
Going further, if the company turns off the feature that lets other users write on its Wall, people may wonder what the company is afraid of. The company will also be eliminating its
260 CHAPTER 9 Social Computing
Fundamentals of Social Computing in Business 261
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TABLE 9.2 |
Potential Benefits of Social Commerce |
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Benefits to Customers · Better and faster vendor responses to complaints, because customers can air their complaints in public (on Twitter, Facebook, YouTube) · Customers can assist other customers (e.g., in online forums). · Customers’ expectations can be met more fully and quickly. · Customers can easily search, link, chat, and buy while staying on a social network’s page. |
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Benefits to Businesses · Can test new products and ideas quickly and inexpensively · Learn a lot about their customers · Identify problems quickly and alleviate customer anger · Learn about customers’ experiences through rapid feedback · Increase sales when customers discuss products positively on social networking sites · Create more effective marketing campaigns and brand awareness · Use low-cost user-generated content, for example, in marketing campaigns · Obtain free advertising through viral marketing · Identify and reward influential brand advocates |
opportunity to engage in customer conversations, particularly conversations that could market the firm’s products and services better than the company could do itself. Similarly, the com pany could delete posts. However, that policy only encourages the post author to scream even louder about being censored.
Another risk is the 20–80 rule of thumb, which posits that a minority of individuals (20 percent) contribute most of the content (80 percent) to blogs, wikis, social computing websites, and so on. For example, in an analysis of thousands of submissions to the news voting site Digg over a three-week time frame, the Wall Street Journal reported that roughly 33 percent of the stories that made it to Digg’s homepage were submitted by 30 contributors (out of 900,000 registered members).
Other risks of social computing include:
· Information security concerns
· Invasion of privacy
· Violation of intellectual property and copyright
· Employees’ reluctance to participate
· Data leakage of personal information or corporate strategic information
· Poor or biased quality of user-generated content
· Cyberbullying/cyberstalking and employee harassment
Consider Rosetta Stone ( www.rosettastone.com ), which produces software for lan guage translation. To obtain the maximum possible mileage out of social computing and limit the firm’s risks on social media, Rosetta Stone implemented a strategy to control its customer interaction on Facebook. The strategy involves both human intervention and software to help monitor the firm’s Facebook presence. Specifically, the software helps to monitor Wall posts and respond to them constructively.
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Fans of facebook.com/RosettaStone who post questions on its Wall are likely to receive a prompt answer because the Facebook page is integrated with customer service software from Parature ( www.parature.com ). The software scans Wall posts and flags those posts that require a company response, as opposed to those in which fans of the company are talking among themselves. Rosetta Stone customer service representatives are also able to post responses to the Wall that are logged in to the Parature issue-tracking database.
A new business model has emerged, enabled by social computing and environmental con cerns. This business model is called collaborative consumption.
Collaborative Consumption
Collaborative consumption is an economic model based on sharing, swapping, trading, or renting products and services, enabling access over ownership. The premise of collaborative consumption is that having access to goods and services is more important than owning them. This new model is transforming social, economic, and environmental practices.
Collaborative consumption is a broad term that includes many collaborative practices, such as collaborative production, crowdfunding, peer-to-peer lending, and others. In collab orative production, users sell the extra power generated from their solar panels back to the utility company’s grid to help power someone else’s home. Crowdfunding is the practice of funding a project by raising money from a large number of people, typically through the In ternet. Peer-to-peer lending is the practice of lending money to unrelated individuals without using a traditional financial institution such as a bank.
Collaborative consumption is a very old concept. We have been bartering and cooperating throughout human history. If we did not have money, we traded time, meals, favors, or per sonal belongings, and many cultures today do the same. On the web, the peer-to-peer model started with eBay ( www.ebay.com ) in 1995. Then Craigslist ( www.craigslist.com ) began in the late 1990s, followed by Zipcar ( www.zipcar.com ) in 2000 and Airbnb ( www.airbnb.com ) in 2007.
Trust is the greatest concern of this new economic model. Sharing works well only when the participants’ reputations are involved. Most sharing platforms try to address this issue by creating a self-policing community. Almost all platforms require profiles of both parties, and they feature community rating systems.
Startups such as TrustCloud ( http://trustcloud.com ) are trying to become the portable rep utation system of this new economy. The company has developed an algorithm that collects (if you choose to opt in) your online “data exhaust”—the trail you leave as you engage with others on Facebook, LinkedIn, Twitter, commentary-filled sites like TripAdvisor, and others. It then cal culates your reliability, consistency, and responsiveness. The result is a contextual badge that you carry to any website, a trust rating similar to the credit rating you have in the offline world. Collaborative consumption does have advantages. Participants cite advantages that in clude self-management, variety, and the flexibility that comes from being able to set their own schedules. The model can be beneficial for part-time workers, young people such as students, the unemployed, stay-at-home parents, and retired persons. The model allows people to share
their underused assets and earn income.
For example, over half of Airbnb hosts in San Francisco said that the service helps them pay their rent and the average RelayRides member makes an extra $250 per month. Forbes magazine estimated that through collaborative consumption, people were expected to earn more than $3.5 billion in 2016.
Collaborative consumption has positive environmental impacts. As our population grows, we are using valuable resources—water, food, oil—in a way that is not sustainable. The new model helps us use our natural resources more wisely, by sharing, not owning.
On the other hand, collaborative consumption does have disadvantages. The law and reg ulatory agencies are trying to keep abreast of the rapidly growing companies in this economy. Consider these examples:
· Without a permit, residents in San Francisco are prohibited from renting for under 30 days (although the practice still occurs).
· New York City passed an “illegal hotel law” in 2010 that prevents people from subletting apartments for less than 29 days, which is preventing Airbnb from expanding its market in that city.
· Uber and Lyft often function as taxi companies, but do not have to follow worker regula tions or laws that apply to existing taxi companies because the services consider their employees to be independent contractors rather than employees.
People working for collaborative consumption services often work seven-day weeks, per forming a series of one-off tasks. They have little recourse when the services for which they work change their business models or pay rates. To reduce the risks, workers typically sign up
262 CHAPTER 9 Social Computing
Fundamentals of Social Computing in Business 263
Participants have no basic employee benefits or protections. As independent contractors, they do not quality for employee benefits such as health insurance, disability insurance, payroll deductions for Social Security, retirement savings plans, or unemployment benefits. They do not have the right to organize into a union, meaning that they do not have access to union- based collective bargaining processes. They also do not have the right to due process should a service remove them from its platform.
In April 2016, Uber reached a settlement in two class action lawsuits that require the com pany to pay as much as $100 million to the drivers represented in the cases, but will allow Uber to continue to categorize its drivers as contractors, not employees. To work more effectively with its drivers, Uber has a new driver deactivation policy in place and the company has agreed not to deactivate drivers who decline trips regularly.
There are numerous, diverse companies in the collaborative consumption market including:
· Uber ( www.uber.com ) operates the Uber mobile app, which allows consumers with smart- phones to submit a trip request that is sent to Uber drivers who use their own cars.
· Airbnb ( www.airbnb.com ) is a website for people to list, find, and rent lodgings.
· Zipcar ( www.zipcar.com ) and RelayRides ( http://relayrides.com ) are car-sharing services.
· Yerdle ( https://yerdle.com ) is a smartphone app that helps people give and get things for free. They gain credits by giving things away and spend those credits on whatever they need (e.g., clothes, kitchen appliances, and tools).
· Skillshare ( www.skillshare.com ) provides access to top-class tutors very cheaply.
· Tradesy ( www.tradesy.com ) lets users sell and buy used clothes from well-known brands. The service takes 9 percent of profits.
· JustPark ( www.justpark.com ) is a London startup that allows users to charge people to use their driveways as a safe, secure parking spot.
· Bla Bla Car ( www.blablacar.com ) lets you rent out extra seats in your car when you go on a trip.
· Leftover Swap is an app with which users can find leftover food to share. This service is important in the United States, where we waste some 30 percent of our food.
· Streetbank ( www.streetbank.com ) allows users to lend things to your neighbors or borrow things you need to use for a set amount of time.
· Feastly ( https://eatfeastly.com ) gives users a way to share any type of meal with people in their area.
· Cookening ( www.cookening.com ), a service available throughout Europe and in New York City, allows travelers to pay to eat with a local person or family to make your trip more authentic.
· Marriott International ( www.marriott.com ) offers meeting spaces on LiquidSpace ( https:// liquidspace.com ). LiquidSpace is an online marketplace that allows people to rent office space by the hour or the day. Hundreds of Marriott hotels now list meeting spaces, and the program has expanded the company’s reach by attracting local businesspeople from surrounding areas.
· FLOOW2 ( www.floow2.com ), based in the Netherlands, calls itself a “business-to-business sharing marketplace where companies and institutions can share equipment, as well as the skills and knowledge of personnel.” The company lists more than 25,000 types of equipment and services in industries such as construction, agriculture, transportation, real estate, and healthcare.
The economic model of collaborative consumption is growing around the world. IT’s About Business 9.2 discusses Tujia, the leading vacation rental website in China.
IT’s About Business 9.2
Is Tujia the Airbnb of China?
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Vacation rental websites are growing in popularity among trav elers around the world as they look for cheaper alternatives to hotels, while property owners gain a new source of income. In recent years, tourism has increased rapidly in China, driven by rising personal incomes. To accommodate this trend, Tujia ( www
.tujia.com ) is a Chinese online property rentals website. There are more than 50 million vacant properties in China, due in part to a growing economy, rapid urbanization, and attractive mort gage rates. This situation means that China is ripe for Tujia’s busi ness model.
Tujia (which means “journey home”) was founded in 2010. In June 2016, Tujia purchased peer-to-peer renting company Mayi.com and now lists 430,000 properties in more than 300 cities in mainland China and Southeast Asia, Japan, and South Korea. The startup manages approximately 10,000 properties themselves, with third-party property managers handling the remainder. For example, in Beijing, one Tujia property manager looks after about two dozen apartments in the Central Business District. If an owner approaches Tujia to list his or her property in that area, then the company has its local manager check out the property, take pictures, and then Tujia lists that property. When a customer books a property, Tujia receives a percentage of the rental income.
When deciding on expansion locations, Tujia simply follows Chinese tourists to their favorite destinations. The most popular overseas locations for Chinese tourists are Thailand, Indonesia, Taiwan, Hong Kong, Korea, and Japan. As a result, Tujia concen trates on these areas first.
Airbnb ( www.airbnb.com ) and Tujia have similar business models, connecting homeowners with travelers looking for a place to stay. However, there are differences between the two compa nies. Specifically, Chinese and other Asian tourists are different from Western tourists. For example, Asian consumers tend to think much longer before staying in a stranger’s house. Furthermore, Airbnb targets foreigners traveling to China, whereas Tujia focuses on Chinese traveling within China or out of the country. Another dif ference is that Tujia deals directly with property owners, cleaning and inspecting their homes, and it also lists surplus inventory on behalf of real estate developers.
Tujia has picked up on other key differences between Chinese and other Asian tourists and Western tourists. The first is the mat ter of trust. Trust is critical for Chinese and Asian travelers, as the vacation rental market is in its infancy relative to the United States and other countries.
Virtually no two Tujia vacation properties are the same, unlike hotels, which have a certain amount of standardization that regular guests can trust. To manage the trust issue, Tujia has local teams handling check-in and check-out, as well as inspecting the prop erties. The teams ensure that all photos of a property are current and accurate. Tujia also reassures its users that when they reserve a property, it will indeed be available. If a property is not available for any reason, Tujia will find other accommodations for that guest.
Asian travelers also have a different standard when it comes to the level of service provided. When Asians travel, they prefer to be served. Therefore, Tujia tailors its offerings to Chinese guests.
To compete with hotels, almost all Tujia properties have cer tain services, such as cleaning. Some properties, such as villas in Qiandao Hu, near Shanghai, that rent for $1,000 per night, offer ser vices rivaling five-star hotels, such as having its own butler.
Tujia lists other properties in tourist locales, such as one property near Tai Hu, a famous lake in Suzhou. Chinese visit there on vacation, so Tujia provides bicycles and tours. Many of Tujia’s customers travel with families, so the company lists larger properties such as villas that have activities for children. Because many Chinese love to cook, Tujia lists accommodations with kitchens.
Tujia follows specific criteria that determine the kind of prop erties that are listed. In addition to personal inspections, Tujia monitors client comments very carefully and operates an around the-clock call center for any complaints. Tujia encourages its cus tomers to provide feedback.
The company takes an especially close look at reviews with three stars or less (out of five stars) and at reviews in which the cus tomer said “I’m not going to recommend Tujia to my friends” or “I’m not coming back again.” In these cases, Tujia tries to contact customers, but the company always follows up with property own ers and managers. Sometimes, Tujia deletes such properties from its inventory or moves them down in the Tujia rankings system. The company tells these owners and managers that if they fix the prob lems, then their ranking will increase.
Competitor websites such as Maiyi and Xiaozhu list less ex pensive properties, while Tujia concentrates on mid- to high-end properties.
Tujia works with Ctrip ( http://english.ctrip.com ), China’s big gest online travel agency. If customers access the Chinese version of Ctrip, there is a tab that drives traffic to Tujia’s website. Tujia also offers car rentals to its customers through Ctrip.
From the start, Tujia has had to cooperate with the Chinese government. In fact, the company has inked deals with over 160 local governments across the country. For example, Tujia launched the vacation rental association in Sanya by cooperating with the government. Therefore, Tujia helped set regulations for short-term rental properties in the region. Tujia is also hoping that the wish of Chinese Prime Minister Li Keqiang, who said that China should ease limits on e-commerce, will come true.
In another round of funding, Tujia raised $300 million in Au gust 2015, bringing its value to approximately $1.3 billion.
Sources: Compiled from D. Ting, “Interview: Airbnb’s China Rival Tujia and the Power of Home-Field Advantage,” Skift, August 23, 2016; “‘Airbnb of China’—Tujia’s Orders Set a New Record and House Sharing Favored by an Increasing Number of Chinese Users,” PR Newswire, August 13, 2016;
S. Chen, “China’s Home-Sharing Site Surpasses Airbnb,” Forbes, May 9, 2016; N. Mahajan, “How Tujia, ‘China’s Airbnb’, Is Different from Airbnb,” CKGSB Knowledge, August 12, 2015 N. Mahajan, L. Davidson, “Cracking China Just Got Harder for Airbnb as Rival Tujia Lands $300M Funding,” The Telegraph, August 3, 2015; S. Millward, “China’s Airbnb-esque Tujia is a New Startup Unicorn after $300M Funding,” Techinasia, August 3, 2015; A. Tsang, “Chinese Property-Rental Site Tujia Raises $300 Million,” New York Times, August 3, 2015; L. Chen and E. Chan, “China’s Airbnb Valued at More than
$1 Billion after Funding,” Bloomberg Business, August 2, 2015; J. Osawa, “‘China’s Airbnb’ Rests Easy over $1.3 Billion Valuation,” AsiaOne Business News, July 30, 2015; “Tujia.com, The Chinese Airbnb, Seeks International Growth,” Hospitality, April 8, 2015; S. Cheung, “China’s Answer to Airbnb, Tujia.com, Raises $100M,” Venture Capital Dispatch, June 18, 2014; www.tujia.com, accessed August 13, 2016.
266 CHAPTER 9 Social Computing
Social Computing in Business: Shopping 265
1. Visit Airbnb’s website and learn about the company’s ser vices. Now, describe the differences in the services provided by Airbnb and Tujia.
2. As Airbnb attempts to expand in China, and Tujia attempts to expand internationally, describe which company might be more successful and why.
Companies are engaged in many types of social commerce activities, including shop ping, advertising, market research, customer relationship management, and human resource management. In the next sections of this chapter, you will learn about each social commerce activity.
Before you go on. . .
1. Briefly describe the benefits of social commerce to customers.
2. Briefly describe the risks of social commerce to businesses.
3. What are the benefits of collaborative consumption to customers?
4. What are the benefits and risks of collaborative consumption to participants (i.e., workers)?
Social Computing in Business: Shopping
9.3
Social shopping is a method of electronic commerce that takes all of the key aspects of social networks—friends, groups, voting, comments, discussions, reviews, and others—and focuses them on shopping. Social shopping helps shoppers connect with one another based on tastes, location, age, gender, and other selected attributes.
The nature of shopping is changing, especially shopping for brand-name clothes and re lated items. For example, popular brands such as Gap, Shopbop, InStyle, and Lisa Klein are joining communities on Stylehive ( www.stylehive.com ) to help promote the season’s latest fashion collections. Shoppers are using sites like ThisNext ( www.thisnext.com ) to create profiles and blogs about their favorite products in social communities. Shoppers can tag each item, so that all items become searchable. Moreover, searching within these websites can yield results targeted specifically to individual customers.
There are several methods to shop socially. You will learn about each of them in the next section.
Ratings, Reviews, and Recommendations
Before making a purchase, customers typically collect information such as what brand to buy, from which vendor, and at what price. Online customers obtain this information through shop ping aids such as comparison agents and websites such as Epinions ( www.epinions.com ). Today, customers also use social networking to guide their purchase decisions. They are increasingly using ratings, reviews, and recommendations from friends, fans, followers, and experienced customers.
Ratings, reviews, and recommendations are usually available in social shopping. In addition to seeing what is already posted, shoppers have an opportunity to contribute their own ratings and reviews and to discuss ratings and reviews posted by other shoppers (see Figure 9.3). The ratings and reviews come from the following sources:
· Customerratingsandreviews: Integrated into the vendor’s web page, a social network page, a customer review site, or in customer feeds (e.g., Amazon, iTunes, Buzzillions, Epinions).
FIGURE 9.3 Epinions ( www
.epinions.com ) is a website that allows customers to rate any thing from cars to music. In this screenshot, customers review a popular children’s film.
· Expert ratings and reviews: Views from an independent authority (e.g., Metacritic).
· Sponsored reviews: Paid-for reviews (e.g., SponsoredReviews, PayPerPost).
· Conversational marketing: Individuals converse through e-mail, blog, live chat, discussion groups, and tweets. Monitoring these conversations yields rich data for market research and customer service.
As one example, Maui Jim ( www.mauijim.com ), the sunglass company, employed favorable word-of-mouth marketing as a key sales driver. The company uses Bazaarvoice’s Ratings & Reviews to allow customers to contribute five-point ratings and authentic prod uct reviews on the company’s entire line of sunglasses and accessories. In effect, Maui Jim extended customers’ word-of-mouth reviews across the web.
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Maui Jim encourages its customers to share their candid opinions on the style, fit, and performance of all of its sunglass models. To accomplish this goal, the company integrates cus tomer reviews into its website search function to ensure that shoppers who are interested in a particular product will see that product’s rating in the search results. Customer response to this rating system has been overwhelmingly positive.
Social recommendation websites such as ShopSocially ( www.shopsocially.com ), Blippy ( www.blippy.com ), and Swipely ( www.swipely.com ) encourage conversations about purchases. The product recommendations are submitted by users’ friends and acquaintances and argu ably are more trustworthy than reviews posted by strangers.
ThisNext ( www.thisnext.com ) is a website in which people recommend their favorite prod ucts to others. The site blends two powerful elements of real-world shopping: word-of-mouth recommendations from trusted sources and the ability to browse products in a way that natu rally leads to discovery.
Regarding recommendations, a filter bubble is a result of a search in which a website al gorithm guesses what a user would like to see based on information about that user, such as location and past searches. As a result, users see information that reinforces their viewpoints. For example, one user who searched Google for “BP” received investment news for British Pe troleum. Another user searched for that exact same term and received information about the Deepwater Horizon oil spill.
We must be careful when our search results begin to reflect only our thinking on a sub ject. This process is called the filter bubble (coined by Eli Pariser). A filter bubble is a result of a
FIGURE 9.4 LivingSocial (
www.livingsocial.com
) is a popular example of a group shopping website
personalized search in which a website algorithm predicts what information a user would like to see based on user location and past searches on the website. As a result, users do not receive information that disagrees with their viewpoints. Prime examples of this type of website algo rithm include Google Personalized Search results and Facebook’s personalized news stream. Amazon has the same type of algorithm. For example, if you search Amazon for only books in science fiction, you may miss out on best-selling books in many other genres.
Group Shopping
Group shopping websites such as Groupon ( www.groupon.com ) and LivingSocial ( www.livingsocial
.com , see Figure 9.4) offer major discounts or special deals during a short time frame. Group buying is closely associated with special deals (flash sales).
People who sign up with LivingSocial receive e-mails that offer deals at, for example, a restaurant, a spa, or an event in a given city. They can click on either “Today’s Deal” or “Past Deal” (some past deals may still be active). They can also click on an icon and receive the deal the next day. Customers who purchase a deal receive a unique link to share with their friends. If a customer persuades three or more people to buy that specific deal using his or her link, then the customer’s deal is free.
Individuals can also shop together virtually in real time. In this process, shoppers log on to a website and then contact their friends and family. Everyone then shops online at the same time. Some real-time shopping providers, such as DoTogether ( www.dotogether.com ) and Wet Seal ( www.wetseal.com ), have integrated their shopping service directly into Facebook. Cus tomers log in to Facebook, install the firm’s app, and then invite their friends to join them on a virtual retail shopping experience.
Shopping Communities and Clubs
Shopping clubs host sales for their members that last just a few days and usually feature luxury brands at heavily discounted prices. Club organizers host three to seven sales per day, usually
Luxury brands effectively partner with online shopping clubs to dispose of special-run, sample, overstock, or liquidation goods. These clubs are rather exclusive, which prevents the brands’ images from being diminished. Examples are Beyond the Rack ( www.beyondtherack
.com ), Gilt Groupe ( www.gilt.com ), Rue La La ( www.ruelala.com ), and One King’s Lane ( www
Kaboodle ( www.kaboodle.com ) is another example of a shopping community. Kaboodle is a free service that lets users collect information from the web and store it on a Kaboodle list that they can share with other shoppers. Kaboodle simplifies shopping by making it easier for people to find items they want in a catalog and by allowing users to share recommendations with one another using Kaboodle lists and groups. People can also use Kaboodle lists for plan ning vacations, sharing research for work and school, sharing favorite bands with friends, and basically everything else they might want to collect and share information about.
Social Marketplaces and Direct Sales
Social marketplaces act as online intermediaries that harness the power of social networks for introducing, buying, and selling products and services. A social marketplace helps members market their own creations (see Etsy in Figure 9.5). Other examples are as follows:
· Craigslist ( www.craigslist.com ) provides online classifieds in addition to supporting social activities such as meetings and events.
· Fotolia ( www.fotolia.com ) is a social marketplace for the community of creative people who enjoy sharing, learning, and expressing themselves through images, forums, and blogs; members provide royalty-free stock images that other individuals and professionals can legally buy and share.
· Flipsy ( www.flipsy.com ) can be used by anyone to list, buy, and sell books, music, movies, and games.
FIGURE 9.5 Etsy (
www.etsy
.com ) is a social marketplace for all handmade or vintage items.
Before you go on. . .
1. Before making a purchase, why are ratings, reviews, and recommendations so important to potential customers?
2. Define collaborative consumption, and describe how collaborative consumption is a “green” phenomenon.
Social Computing in Business: Marketing
9.4
Marketing can be defined as the process of building profitable customer relationships by creating value for customers and capturing value in return. There are many components to a marketing campaign, including (1) define your target audience; (2) develop your message (i.e., how you will solve their problem); (3) decide on how you will deliver your message (e.g., e-mail, snail mail, web advertising, social networks); and (4) follow up.
MKT
An interesting way for authors to market to their readers is occurring in the publishing industry. IT’s About Business 9.3 shows how Wattpad enables readers to actually participate in the development of a work of fiction.
Advertising
Social advertising refers to advertising formats that make use of the social context of the user viewing the ad. Social advertising is the first form of advertising to leverage forms of social influence such as peer pressure and friend recommendations and likes.
MKT
Many experts believe advertising is the solution to the challenge of making money from social networking sites and social commerce sites. Advertisers have long noted the large num ber of visitors on social networks and the amount of time they spend there. As a result, they are willing to pay to place ads and run promotions on social networks. Advertisers now post ads on all major social networking websites.
Most ads in social commerce consist of branded content paid for by advertisers. These ads belong to two major categories: social advertisements (or social ads) and social apps. Social advertisements are ads placed in paid-for media space on social media networks. Social apps are branded online applications that support social interactions and user contributions (e.g., Nike+).
Viral marketing—that is, word-of-mouth advertising—lends itself especially well to social networking. For example, Stormhoek Vineyards ( www.stormhoek.com ) initiated a marketing campaign by offering bloggers a free bottle of wine. Within six months, roughly 100 of these bloggers had posted voluntary comments—the majority of them positive—about the wine on their blogs. These comments were, in turn, read by other bloggers.
There are other innovative methods to advertise in social media. Consider the following:
· Use a company Facebook page, including a store that attracts fans and lets them “meet” other customers. Then, advertise in your Facebook store.
· Tweet business success stories to your customers.
· Integrate ads into YouTube videos.
· Use native advertising. Native advertising is a sales pitch that fits into the flow of the infor mation being shown. Many publishers view native advertising as risky because it has the potential to erode the public’s trust. (See IT’s About Business 7.3).
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IT’s About Business 9.3
Wattpad helps authors market their work
MKT
Today’s authors have many options to publish their work. Two of the most common are traditional publishing and self-publishing.
In traditional publishing, authors complete their manuscripts and submit proposal letters to publishing houses (or have a literary agent do this for them, if they can obtain the services of an agent.) An editor reads the manuscript and decides to either reject it, leav ing the author free to offer it to another publisher), or to publish it. If the decision is to publish the manuscript, the house buys the rights from the author and puts up the money to edit, design, and market the book. The publishing house pays authors royalties on the number of books sold.
The Internet then enabled authors to publish their own books. One of the most common ways to self-publish is through Amazon and its self-publishing platform, Kindle Direct. Authors upload their books digitally to Amazon’s website. The Amazon team, analyzing the company’s massive customer databases, designs e-mail and Kindle marketing campaigns and selects keywords for Amazon’s search engine. In most cases, Amazon handles distribution and pay ment processing. Amazon sells the majority of its books as e-books through Kindle, but also prints paperback books on demand.
Typically, self-published authors upload their books for free to the Amazon site. Authors receive a percentage of the sale price of each book, which is usually 70 percent.
Now technology is enabling a new way to write and market works of fiction. Serialized fiction is a work published in sequential installments. Serialized fiction is writing repurposed for a mobile society, in which readers’ attention is fleeting. Storytelling app Wattpad ( www.wattpad.com ), the frontrunner in this digital sto rytelling world, has more than 2 million authors who create a daily average of 100,000 items for 20 million readers.
Wattpad is a social reading platform and writing community in which authors post articles, stories, fiction, and poems, either online or through the mobile app. This process enables authors to make their creative works available to a larger number of readers. Readers are able to comment and like stories. Wattpad is free to readers.
The primary goal for Wattpad authors is to gain a fan base. After that, the writer must keep them coming back for more. The writers accomplish this goal by regularly uploading new work and by communicating directly with readers. Having many fans is critical because traditional publishers look more favorably on an author with a manuscript and 15,000 fans, than on an author with only a manuscript. Wattpad has caught the attention of the traditional publishing industry, which is looking for the next J. K. Rowling (author of the Harry Potter series) in its midst. Publishers are also picking up tips from Wattpad on how to boost engagement with readers.
Sometimes the readers help alter the story. Readers can send a private message to the writer, sign up to be an official fan, vote in favor of a work, or suggest actors to play the roles of certain char acters if the story were turned into a movie.
Another way in which Wattpad differs from the traditional publishing industry is that the stories are often first drafts, not hav ing been smoothed with rewriting or editing. One reason is that the prose is written as instinctively as possible, to take advantage
of the immediacy of the electronic medium. For another thing, English is a second language for many of Wattpad’s international readers, so the spontaneous prose is more direct and therefore eas ier to understand.
There are few Hemingways among Wattpad authors, who ad mit they do not make sacrifices for their art or toil for hours coming up with just the right word or phrase. Young women are the target audience for the most popular categories of fiction, which include romance, vampire fiction, and mysteries. Wattpad writers are not paid for their work.
Two examples show the value of Wattpad to its authors. Basi cally, if authors are successful enough on Wattpad, they might be considered by traditional publishing houses. Consider Wattpad au thor, Anna Todd. Several times a week, she uses Wattpad to publish a new installment of “After,” the story of Tessa and Harry. Within seconds of posting, readers are already commenting on the new episode. Within 24 hours, there are usually some 10,000 comments. One way that Wattpad can make money is to become the agent for a popular author. Wattpad is marketing the book and movie rights for “After” on behalf of Ms. Todd.
Another Wattpad author, Ali Novak, has published four nov els on the app. She was so overwhelmed with fan support that she had to cut back on engaging with readers. Ms. Novak hit the self-publishing jackpot in 2015 when a traditional publisher, Sourcebooks, published her most popular novel, “My Life with the Walter Boys,” whose heroine moves in with a family with 12 boys, in paperback.
Wattpad generates a little revenue, mostly from advertising, although it has received $46 million in venture capital funding. To in crease revenue, Wattpad created Wattpad Futures, a service that will insert paid ads between the chapters of certain stories. Whenever an ad is seen, the author and Wattpad will earn a commission. Wattpad says that some writers received from $1,000 to $2,000 per month.
Wattpad also made an arrangement with NBC Universal Cable Productions. NBC hopes to create new shows based on Wattpad stories. NBC says that it will choose the stories, in part, based on Wattpad statistics. The data will reveal stories with large fan bases and NBC says that readers will inspire the development process of the new shows.
Sources: Compiled from A. Ha, “Universal Plans to Bring Wattpad Stories to TV,” TechCrunch, November 21, 2016; N. Hoffelder, “The Fourth Time Is the Charm: Wattpad to Interrupt Stories with Adverts,” Digital Reader, August 17, 2016; A. Ha, “Wattpad Sets Its Sights on Brands, Publishers, and Holly wood with Wattpad Studios,” TechCrunch, April 26, 2016; N. Shapiro, “The Perks, Pitfalls, and Paradoxes of Amazon Publishing,” Seattle Weekly News, November 4, 2014; D. Jacobs, “How to Self-Publish Your Book Through Am azon,” Forbes, April 25, 2014; J. Koetsier, “Social Reading Platform Wattpad Announces Massive $46M Financing Round,” Venturebeat, April 8, 2014; D. Streitfeld, “Web Fiction, Serialized and Social,” New York Times, March 23, 2014; G. Bello, “PW Select December 2012: Wattpad Revolutionizes Online Storytelling,” Publishers Weekly, December 21, 2012; P. Sansevieri, “Under standing How the Traditional Publishing Model Works,” Huffington Post, July 5, 2011; www.wattpad.com, accessed August 12, 2016.
Questions
1. Describe the social computing aspects of Wattpad.
2. What are other ways that Wattpad might generate revenue?
3. What are possible disadvantages for Wattpad authors?
Market Research
Traditionally, marketing professionals used demographics compiled by market re search firms as one of their primary tools to identify and target potential customers. Ob taining this information was time-consuming and costly, because marketing professionals had to ask potential customers to provide it. Today, however, members of social networks provide this information voluntarily on their pages! (Think about all the information that you provide on your favorite social networking websites.) Because of the open nature of social networking, merchants can easily find their customers, see what they do online, and learn who their friends are.
MKT
This information provides a new opportunity to assess markets in near real time. Word-of mouth has always been one of the most powerful marketing methods—more often than not, people use products that their friends like and recommend. Social media sites can provide this type of data for numerous products and services.
Companies are using social computing tools to obtain feedback from customers. This trend is referred to as conversational marketing. These tools enable customers to supply feed back through blogs, wikis, online forums, and social networking sites. Again, customers are providing much of this feedback to companies voluntarily and for free.
Social computing not only generates faster and cheaper results than traditional focus groups but also fosters closer customer relationships. For example, Dell Computer operates a feedback website called IdeaStorm that allows customers to suggest and vote on improve ments in its offerings (see Figure 9.6).
Retailers are aware that customers, especially younger ones, not only want to be heard but also want to know whether other customers agree with them. Consequently, retailers are increasingly opening up their websites to customers, allowing them to post product reviews, ratings, and, in some cases, photos and videos.
As a result of this strategy, customer reviews are emerging as prime locations for online shoppers to visit. Approximately one-half of consumers consult reviews before making an on line purchase, and almost two-thirds are more likely to purchase from a site that offers ratings and reviews.
Using social computing for market research is not restricted to businesses. Customers also enjoy the capabilities that social computing offers when they are shopping.
FIGURE 9.6 Customers share their ideas and feedback with Dell through IdeaStorm (
www.ideastorm.com
).
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Social Computing in Business: Marketing 271
Conducting Market Research Using Social Networks
Customer sentiment expressed on Twitter, Facebook, and similar sites represents an incredibly valuable source of information for companies. Customer activities on social net working sites generate huge amounts of data that must be analyzed, so that management can conduct better marketing campaigns and improve their product design and their service of ferings. The monitoring, collection, and analysis of socially generated data, and the resultant strategic decisions are combined in a process known as social intelligence.
MKT
MIS
An example of social intelligence is Wendy’s International ( www.wendys.com ), which uses software to sift through the more than 500,000 customer messages the fast-food chain collects each year. Using Clarabridge ( www.clarabridge.com ) text analytics software, Wendy’s analyzes comments from its online notes, e-mails, receipt-based surveys, and social media. Before adopting this software, the company used a combination of spreadsheets and keyword searches to review comments in what it describes as a slow and expensive manual approach. In contrast, the new software enables Wendy’s to track customer experiences at the store level within minutes.
Social networks provide excellent sources of valuable information for market research. In this section, you will see illustrative examples of how to use Facebook, Twitter, and LinkedIn for market research.
Using Facebook for Market Research. There are several ways to use Facebook for market research. Consider the following examples:
· Obtain feedback from your Facebook fans (and their friends, if possible) on advertising campaigns, market research, and so on. It is the equivalent of holding a free focus group.
· Test-market your messages. Provide two or three options, and ask fans which one they prefer and why.
· Use Facebook for survey invitations (i.e., to recruit participants). Essentially, turn Facebook into a giant panel, and ask users to participate in a survey. Facebook offers a self-service model for displaying ads, which can function as invitations to take a survey. Facebook also allows you to target your audience very specifically based on traditional demographic cri teria such as age and gender.
Using Twitter for Market Research. Your customers, your prospects, and indus try thought leaders all use Twitter, making it a rich source of instantly updated information. Consider the following examples:
· Visit Twitter Search ( www.twitter.com/search ). Enter a company’s Twitter name. Not only can you follow what the company is saying, you can also follow what everyone is saying to them. Monitoring replies to your competitors and their employees will help you develop your own Twitter strategy by enabling you to observe (a) what your competitors are doing and, more importantly, (b) what people think about them. You can also follow the compa ny’s response to this feedback.
· Take advantage of the tools that enable you to find people in the industries in which they operate. Use search.twitter.com to monitor industry-specific keywords. Check out Twellow ( www.twellow.com ). This site automatically categorizes a Twitter user into one to three in dustries based on that person’s bio and tweets.
· Do you want to know what topic is on most people’s minds today? If so, then review the chart on TweetStats ( www.tweetstats.com ). It will show you the most frequently used words in all of Tweetdom, so you can be a part of those conversations.
· An increasing number of companies are utilizing Twitter to solicit information from cus tomers and to interact with them. Examples are Dell (connecting with customers), JetBlue (learning about customers), Teusner Wines (gathering feedback, sharing information), and Pepsi (rapid response time in dealing with complaints).
Social Computing in Business: Customer Relationship Management 273
Using LinkedIn for Market Research. Post a question (e.g., solicit advice) regard ing the topic or issue you are interested in. You may obtain a better result if you go to a specific LinkedIn group.
Before you go on. . .
1. Is social advertising more effective than advertising without a social component? Why or why not?
2. Describe how marketing professionals use social networks to perform marketing research.
Social Computing in Business: Customer Relationship Management
9.5
The customer service profession has undergone a significant transformation, both in the ways that customer service professionals conduct business and in the ways that customers adapt to interacting with companies in a newly connected environment. Social computing has vastly altered both the expectations of customers and the capabilities of corporations in the area of customer relationship management. (We discuss customer relationship management in detail in Chapter 11.)
Customers are now incredibly empowered. Companies are closely monitoring social com puting not only because they are mindful of the negative comments posted by social network members but also because they perceive an opportunity to involve customers proactively to reduce problems through improved customer service.
Consider this example: Papa John’s Pizza fired a cashier at one of its New York restaurants and apologized to an Asian-American customer for a receipt that identified her as “lady chinky eyes.” Minhee Cho, a communications manager at the nonprofit investigative journalism group ProPublica, posted a photo of the receipt on her Twitter account, and it was viewed almost 200,000 times in a single day. John Schnatter, chairman and CEO of Papa John’s, immediately posted an apology on Facebook. In his apology, he asserted that he had apologized personally to Ms. Cho as well.
Empowered customers know how to use the wisdom and power of crowds and commu nities to their benefit. These customers choose how they interact with companies and brands, and they have elevated expectations concerning their experiences with a company. They are actively involved with businesses, not just as purchasers but also as advocates and influenc ers. As a result, businesses must respond to customers quickly and appropriately. Fortunately, social computing provides many opportunities for businesses to do just that, thereby offer ing businesses the opportunity to turn disgruntled customers into champions for the firm. IT’s About Business 9.4 shows how General Motors used social media in an attempt to alleviate the company’s debacle over faulty ignition switches.
Before you go on. . .
1. Discuss why social computing is so important in customer relationship management.
2. Describe how social computing improves customer service.
274 CHAPTER 9 Social Computing
Social Computing in Business: Human Resource Management 275
The General Motors Recall and Its Aftermath
MKT
On February 7, 2014, General Motors (GM; www.gm.com ) be gan a series of recalls of its small cars because of faulty ignition switches, totaling (in August 2015) 2.6 million Chevrolet Cobalts and other small cars. The switches could shut off the engine during driving, stalling the car and preventing the airbags from inflating. GM had known about the ignition switch problem for at least 10 years.
The parts needed to repair the ignition switches were sched uled to become available on April 7, 2014, with repairs to begin the same day. However, as of June 2014, the replacement switches had been delivered only intermittently to dealerships as demand far ex ceeded the supply.
A fund was established to compensate victims and their families. It found that as of November 2016, at least 124 deaths and 266 injuries were attributable to the faulty ignition switches. The fund, run by attorney Kenneth Feinberg, had received 4,342 claims.
Attempts to Address the Disaster. We, the authors, feel strongly that there is no “solution” to the deaths and injuries caused by the faulty ignition switches. However, we feel that it is instructive to study the various ways in which General Motors attempted to address the disaster.
The Personal Approach. First, Mary Barra, CEO of GM, gave a speech to the company’s employees. She apologized for the de- fect-and-recall disaster and announced the firing of 15 employ ees, some of whom were executives. She also said that GM would compensate consumers rather than fight pending lawsuits. Fur thermore, in testimony before the U.S. Congress, Barra apologized to GM customers and promised to make safety the number one issue at the automaker. She also said, “Today’s GM will do the right thing.”
The Repair Approach. By the end of 2014, GM had fixed over
1.3 million of the cars with defective ignition switches. The auto- maker said that it had contacted an additional 2.4 million owners of recalled cars who had not had their cars repaired. GM efforts to contact these owners included:
· Sending a letter to or calling every known owner at least six times, in English and in Spanish.
· Mailing letters to 5.3 million identified current and former owners, telling them of the GM Ignition Switch Compensation Fund.
· Creating a national call center with 72 representatives.
The Social Media Approach. As noted earlier, GM is using traditional channels to tell the public about the recall, such as letters to owners, blogs, a call center, and the news media. But the company is also using social media to get the word out that it’s trying to make things right for owners of the recalled vehi cles, while using other channels to market its new models to people who weren’t affected by the recall. The automaker does
face problems on social media, because a company’s public im age is molded both by what it does and by what other people say about it.
GM’s 20-person social media team, in Detroit, keeps tabs on about 100 independent automobile forums seven days a week. Team members answer questions and complaints from vehicle owners.
The social media team has to frequently reassure owners of the affected vehicles that they are safe to drive while they wait for repairs. Even so, many owners have asked for loaner cars or free rentals. GM did furnish more than 6,000 loaner vehicles, and some times paid for owners to rent non-GM vehicles.
Consider the Facebook page of General Motors, which promotes jobs and features new cars. However, the page also contains comments from disgruntled GM customers who feel strongly that GM knowingly sold them unsafe automobiles. On the other hand, there are numerous posts from GM staff to those commenting on the recall, replying to their questions and corresponding by private messages to clear up their particular problems.
Let’s look at a specific example of how social media is helping GM deal with the recall disaster. One GM customer in Alaska was frustrated with her attempts to get the company to help with her 2006 Saturn Ion. Those Ions, along with five other models, were recalled because of a similar ignition switch prob lem as with the Cobalts. The problem could likewise cause the engine to stall and disable the air bags. The problem could be triggered by a heavy key ring that bumped or pulled down the ignition switch.
The customer, getting nowhere after an hour on the phone with a GM representative, turned to Twitter to air her frustra tion. She tweeted, “@GM your agents keep telling me to take my car to a GM dealer for the recall, after I’ve explained I live on an island in Alaska! Help!!!” GM’s Twitter reps took heed and contacted her through a private message to work out a solution. They agreed to ship her car to the nearest GM dealer, about 300 miles away in Juneau, by ferry. It would reimburse the $600 ferry cost and pay for a rental car while her Saturn was being repaired.
Even though there were many media stories about federal in vestigations into how GM failed to issue the recall after a decade, Twitter users’ views about GM and its brands were virtually un changed during the crisis. Rather than posting about the recalls, many owners are using Twitter to share tips and put pressure on GM to take such actions as providing affected owners with loaner cars until their vehicles could be repaired.
In a refinement of its social media strategy, GM is now an alyzing social media and blogs to catch wind of possible issues with its vehicles. In that way, the automaker can be alerted to problems much earlier, perhaps when they occur in as few as 10 cars.
The Results. In September 2015, GM announced a $900 million payment to settle criminal charges related to its recall. GM had been charged with wire fraud; prosecutors alleged that it also
tried to hide material facts from a U.S. regulator. As part of the set- GM Navigate Troubling Brand Sentiment,” Social Media Today, June 26,
tlement, GM confessed that it did not disclose the ignition switch’s potentially lethal defect that prevented some air bags from inflat- ing. The automaker also admitted to deceiving owners about their
2015; A. Sharman, “GM Uses Tiny Recalls to Head Off Bigger Problems over Car Faults,” Financial Times, May 31, 2015; G. Gardner, “GM Outreach Extensive, But Doesn’t Reach All Owners,” Detroit Free Press, November 15, 2014; J. Twentyman, “Using Social Media to Drive Change at General
vehicles’ safety. GM’s settlement is considered a penalty, so the Motors,” Diginomica, October 17, 2014; P. Valdes-Dapena, “GM: Steps to a
company cannot deduct it from its taxes. Recall Nightmare,” CNN Money, June 30, 2014; R. Cook, “General Motors
GM’s legal woes were not over. In July 2016, the U.S. Court of Appeals in Manhattan ruled that GM could not be absolved from
Announces 30th Recall of Year,” CBS News/Associated Press, May 23, 2014;
K. Naughton, “GM Dealers Turn Therapists for Anxious Recall Customers,”
Bloomberg News, April 5, 2014; T. Spangler, “Mom of GM crash victim:
hundreds of lawsuits from owners affected by the defect who ‘My Heart Is so Broken’,” USA Today, April 1, 2014; V. Goel, “G.M. Uses wanted as much as $10 billion in compensation. The court ruled Social Media to Manage Customers and Its Reputation,” New York Times, that these lawsuits could go ahead despite GM’s bankruptcy sale March 23, 2014; J. McDermott, “Why GM is Bringing its Social Media Data
in 2009 to a new business entity. The decision also keeps alive the lawsuits by people who bought GM vehicles after the company’s bankruptcy sale was finalized and who argue that they would
In-House,” Digiday, March 13, 2014; V. Bond, “GM Uses Social Media to
Respond to Customer Gripes,” Automotive News, March 8, 2014;
www.gm.com , accessed August 12, 2016.
not have purchased the cars had they been aware of the faulty Questions
switch. 1. What else could GM do, in general, to manage its recall cri sis? Provide specific examples to support your answer.
Sources: Compiled from R. Tetzeli, “The Accelerators,” Fast Company,
2. What else could GM do with social media to help manage
November 2016; C. Isidore, “GM Settles Two Ignition Switch Cases,” CNN
Money, September 6, 2016; E. Larson and M. Fisk, “GM Can’t Avoid Up to its recall crisis? Provide specific examples to support your
$10 Billion in Switch Suits, Court Says,” Bloomberg.com , July 13, 2016; answer.
J. White, J. Stempel, and N. Raymond, “Recall Settlement Frees GM CEO to Confront New Challenges,” Reuters, September 17, 2015; D. Durbin,
3. Refer to Chapter 2. Would GM’s use of social media be a stra
“GM Ignition Switch Deaths Total 124 as Fund Nears Completion,” CBS tegic information system for the automaker? Why or why
News, July 13, 2015; A. Bourque, “How Social Data Helped Jaguar and not?
Social Computing in Business: Human Resource Management
9.6
Human resource (HR) departments in many organizations use social computing appli cations outside their organizations (recruiting) and inside their organizations (employee devel opment). For example, Deloitte Touche Tohmatsu ( www.deloitte.com ) created a social network to assist its HR managers in downsizing and regrouping teams.
HRM
Recruiting
Both recruiters and job seekers are moving to online social networks as recruiting plat forms. Enterprise recruiters are scanning online social networks, blogs, and other social re sources to identify and find information about potential employees. If job seekers are online and active, there is a good chance that they will be seen by recruiters. There are many passive job seekers on social networks—people who are employed but would take a better job if one came to their attention. So, it is important that both active and passive job seekers maintain online profiles that accurately reflect their background and skills. Closing Case 1 takes a look at the rewards and the difficulties inherent in the online recruiting process. It also provides some tips to assist you in a job search.
HRM
In another example, one HR director uses the HR social media management software Bull horn Reach ( www.bullhornreach.com ), which allows her to post jobs to eight different social networks simultaneously. Bullhorn Reach also enables her to analyze metrics that measure the effectiveness of her social recruiting efforts.
Onboarding
Onboarding is how new employees acquire the necessary knowledge, skills, and behav iors to become effective members of the organization. Through the use of social media, new hires can learn what to expect in their first few days on the job and find answers to common questions. Because they are available inside the company’s firewall, these social communities can provide detailed information about corporate policies, as well as giving employees the op portunity to complete necessary forms online. These communities also provide introductory training, such as workplace safety information and how to use enterprise applications.
HRM
Employee Development
Human resource managers know that the best strategy to enable, encourage, and pro mote employee development is to build relationships with employees. To this end, a number of HR professionals are using enterprise social tools such as Chatter ( www.salesforce.com/ chatter ), Yammer ( www.yammer.com ), and Tibbr ( www.tibbr.com ) to tap into the wisdom of every employee. These tools help connect employees to work efficiently across organizations and to collaborate on sales opportunities, campaigns, and projects. They help companies simplify workflows and capture new ideas. They enable HR managers to find subject matter experts within the organization, recommending relevant people for every project team, sales team, and other functions.
HRM
As HR managers learn more about employees’ skills, expertise, and passions through such tools, they can better motivate them, thereby helping them become more engaged and excited about their work. Employees can then be better rewarded for their expertise.
Another area of employee development is training. A large percentage of the time and expense of employee education and learning management can be minimized by utilizing e-learning and interactive social learning tools. These tools help create connections among learners, instructors, and information. Companies find that these tools facilitate knowledge transfer within departments and across teams. Examples of these tools are Moodle ( http:// moodle.com ), Joomia ( www.joomia.org ), and Bloomfire ( www.bloomfire.com ).
In 2015, LinkedIn acquired Lynda.com ( www.lynda.com ), an online education company offering thousands of video courses in software, creative, and business skills. The company produces video tutorials taught by industry experts. Members of Lynda have unlimited access to watch the videos.
With this acquisition, LinkedIn plans to incorporate job certifications and training into its offerings. One LinkedIn executive noted that a LinkedIn user could be looking for a job, imme diately see the skills necessary for that job, and then be prompted to take the relevant and accredited course on Lynda that will help him or her acquire those skills and land the job.
Finding a Job
The other side of organizational recruiting are those people looking for jobs. Let’s say you want to find a job. Like the majority of job hunters, you will probably conduct at least part of your search online because the vast majority of entry-level positions in the United States are now listed only online. Job sites are the fastest, least expensive, and most efficient method to con nect employers with potential employees.
Today, job searchers use traditional job sites and social networks such as LinkedIn. Appli cants like you have helped LinkedIn raise its market share in job searches from 4.7 percent in 2010 to more than 12 percent by early 2015.
To find a job, your best bet is to begin with LinkedIn ( www.linkedin.com ), which has more than 500 million registered members. You should definitely have a profile on LinkedIn, which, by the way, is free. (See the bulleted list that follows for mistakes to avoid on your LinkedIn profile.)
LinkedIn’s success comes from its ability to accurately identify its market segment. The company’s automated approach does not lend itself well to the upper tier of the job market—for
example, CEO searches—where traditional face-to-face searches continue to be the preferred strategy. At the other end of the spectrum—that is, low-paying, low-skill jobs such as cashiers and truck drivers—job boards provide faster results. LinkedIn targets the vast sweet spot be tween these two extremes, helping to fill high-skill jobs that pay anywhere from $50,000 to
$250,000 or more per year. This is the spot you will likely occupy when you graduate.
A number of job-search companies are competing with LinkedIn. These companies are try ing to create better-targeted matching systems that leverage social networking functionality. These companies include Monster ( www.monster.com ), Simply Hired ( www.simplyhired.com ), Career Builder ( www.careerbuilder.com ), Indeed ( www.indeed.com ), Jobvite ( http://recruiting
.jobvite.com ), Dice Open Web ( www.dice.com/openweb ), and many others.
The most important secret to making online job search sites work for you is to use them carefully. Job coaches advise you to spend 80 percent of your day networking and directly contacting the people in charge of jobs you want. Devote another 10 percent to headhunters. Spend only the remaining 10 percent of your time online.
Here is how to make your time online count. To start with, as you read just a moment ago, you should have a profile on LinkedIn. The following list shows you the mistakes not to make on your LinkedIn profile.
· Do have a current, professional picture. (No dogs, no spouses, no babies, etc.)
· Do make certain your LinkedIn Status is correct and current.
· Do join groups related to your field of study or even to your personal interests.
· Do list an accurate skill set. Do not embellish.
· Do not use the standard connection request. Do some research on that person and tailor your connection request to that person.
· Do not neglect LinkedIn’s privacy settings. When you have a job and are looking for an other one, you will want to be discreet. You can set your privacy settings so that your boss does not see that you are looking for opportunities.
· Do not skip the Summary. The Summary is a concise way of selling yourself. Write it in the first person.
· Do not eliminate past jobs or volunteer work.
· Do not say you have worked with someone when you have not.
Next, access the job sites such as those listed earlier. These sites list millions of jobs and they make it easy to narrow your search using filters. These filters include title, company name, location, and many others. Indeed allows you to search within a specific salary range. Simply- Hired lets you sort for friendly, socially responsible, and even dog-friendly workplaces.
These sites have advanced search options. Try plugging in the name of a company you might want to work for or an advanced degree that qualifies you for specialized work. For ex ample, you could enter “CFA” if you are a certified financial analyst or “LEED” if you are a build ing engineer with expertise in environmental efficiency.
SimplyHired has a useful tool called “Who do I know.” If you have a LinkedIn profile, then this tool will instantly display your LinkedIn contacts with connections to various job listings. “Who do I know” also syncs with Facebook.
One more trick to using the aggregators: Configure them to deliver listings to your inbox.
Set up an e-mail alert that delivers new job postings to you every day.
You should also search for niche sites that are specific to your field. For technology-related jobs, for example, Dice ( www.dice.com ) has a strong reputation. For nonprofit jobs, try Idealist ( www.idealist.org ). For government jobs, the U.S. government’s site is an excellent resource: www.usajobs.gov .
One more great online resource is Craigslist ( www.craigslist.com ). It is one site the aggrega tors do not tap. Craigslist focuses on local listings, and it is especially useful for entry-level jobs and internships.
Beyond locating listings for specific jobs, career coaches contend that job sites can be a resource for keywords and phrases that you can pull from job descriptions and include in your résumé, cover letters, and e-mails. Use the language from a job description in your cover letter.
Websites like Vault ( www.vault.com ), Monster, and CareerBuilder provide some helpful career tips. Vault, in particular, offers very useful career guides.
The bottom line: It is critical to extend most of your efforts beyond an online search.
Before you go on. . .
1. Explain why LinkedIn has become so important in the recruiting process.
2. If you are looking for a job, what is the major problem with restricting your search to social networks?
What’s in IT for me?
ACCT For the Accounting Major
FIN For the Finance Major
Many of the popular social networking sites have users who subscribe to finance-oriented subgroups. Among these groups are finance professionals who collaborate and share knowledge as well as nonfinancial professionals who are potential clients.
MKT For the Marketing Major
Social computing tools and applications enable marketing professionals to become closer to their customers in a variety of ways, including blogs, wikis, ratings, and recommendations. Mar keting professionals now receive almost real-time feedback on products.
POM For the Production/Operations Management Major
Social computing tools and applications allow production person nel to “enlist” business partners and customers in product devel opment activities.
HRM For the Human Resource Management Major
Social networks offer tremendous benefits to human resource pro fessionals. HR personnel can perform a great deal of their recruiting activities by accessing such sites as LinkedIn. They can also check out potential new hires by accessing a large number of social net working sites. Internally, HR personnel can use private, internal social networks for employee expertise and experience to find the best person for a position or project team.
MIS For the MIS Major
The MIS department is responsible for two aspects of social com puting usage: (1) monitoring employee usage of social computing applications while at work, both time and content, and (2) devel oping private, internal social networks for company employees and then monitoring the content of these networks.
Summary
1. Describe five Web 2.0 tools and two major types of Web 2.0 sites.
A weblog (blog for short) is a personal website, open to the public, in which the site creator expresses his or her feelings and opinions with
a series of chronological entries.
A tag is a keyword or term that describes a piece of information (e.g., a blog, a picture, an article, or a video clip).
Really Simple Syndication allows you to receive the information you want (customized information), when you want it, without having to surf thousands of websites.
Microblogging is a form of blogging that allows users to write short messages (or capture an image or embedded video) and publish them.
A wiki is a website on which anyone can post material and make changes to already posted material. Wikis foster easy collaboration and they harness the collective intelligence of Internet users.
Chapter Glossary 279
Social networking websites allow users to upload their content to the web in the form of text (e.g., blogs), voice (e.g., podcasts), images, and videos (e.g., videocasts).
A mashup is a website that takes different content from a num ber of other websites and mixes them together to create a new kind of content.
2. Describe the benefits and risks of social commerce to com panies.
Social commerce refers to the delivery of electronic commerce activi ties and transactions through social computing.
Benefits of social commerce to customers include the following: better and faster vendors’ response to complaints; customers can as sist other customers; customers’ expectations can be met more fully and quickly; customers can easily search, link, chat, and buy while staying in the social network’s page.
Benefits of social commerce to vendors include the following: can test new products and ideas quickly and inexpensively; learn much about their customers; identify problems quickly and alleviate an ger; learn from customers’ experiences with rapid feedback; increase sales when customers discuss products positively on social network ing sites; create better marketing campaigns and brand awareness; use low-cost user-generated content, for example, in marketing cam paigns; get free advertising through viral marketing; identify influential brand advocates and reward them.
Risks of social computing include information security concerns; invasion of privacy; violation of intellectual property and copyright; em ployees’ reluctance to participate; data leakage of personal information or corporate strategic information; poor or biased quality of users’ gen erated content; cyberbullying/cyberstalking and employee harassment.
3. Identify the methods used for shopping socially.
Social shopping is a method of electronic commerce that takes all of the key aspects of social networks—friends, groups, voting, comments, discussions, reviews, and others—and focuses them on shopping.
Methods for shopping socially include what other shoppers say; group shopping; shopping communities and clubs; social market places and direct sales; and peer-to-peer shopping.
4. Discuss innovative ways to use social networking sites for advertising and market research.
Social advertising represents advertising formats that employ the so cial context of the user viewing the ad.
Innovative ways to advertise in social media include the follow ing: create a company Facebook page; tweet business success stories
to your customers; integrate ads into YouTube videos; add a Facebook “Like” button with its sponsored story to your product; use sponsored stories.
· Using Facebook for market research: Get feedback from your Facebook fans (and their friends, if possible) on advertising cam paigns, market research, and so forth; test-market your messag es; use Facebook for survey invitations.
· Using Twitter for market research: Use Twitter Search; use Twel low; look at the chart on TweetStats.
· Using LinkedIn for market research: Post a question (e.g., solicit advice) regarding the topic or issue you are interested in.
5. Describe how social computing improves customer service.
Customers are now incredibly empowered. Companies are closely monitoring social computing not only because they are mindful of the negative comments posted by social network members but also because they see an opportunity to involve customers proactively to reduce problems by improved customer service.
Empowered customers know how to use the wisdom and power of crowds and communities to their benefit. These customers choose how they interact with companies and brands, and they have ele vated expectations. They are actively involved with businesses, not just as purchasers but also as advocates and influencers. As a result, businesses must respond to customers quickly and accurately. Fortu nately, social computing provides many opportunities for businesses to do just that, thereby giving businesses the opportunity to turn dis gruntled customers into champions for the firm.
6. Discuss different ways in which human resource managers make use of social computing.
· Recruiting: Both recruiters and job seekers are moving to online social networks as new recruiting platforms. Enterprise recruiters are scanning online social networks, blogs, and other social re sources to identify and find information about potential employ ees. If job seekers are online and active, there is a good chance that they will be seen by recruiters. Social networks have many members who are passive job seekers—people who are employed but would take a better job if it came to their attention—as well as active job seekers. So, it is important that both active and passive job seekers maintain profiles online that truly reflect them.
· Employee development: HR managers are using social tools to build relationships with employees. As HR managers learn more about employees, they can help them become more engaged and excited about their work.
Chapter Glossary
blog (weblog) A personal website, open to the public, in which the site creator expresses his or her feelings and opinions with a series of chronological entries.
blogosphere The term for the millions of blogs on the web.
collaborative consumption An economic model based on sharing, swapping, trading, or renting products and services, enabling access over ownership.
microblogging A form of blogging that al lows users to write short messages (or capture
an image or embedded video) and publish them.
Really Simple Syndication A technology that allows users to receive the information they want, when they want it, without having to surf thousands of websites.
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social advertising Advertising formats that make use of the social context of the user view ing the ad.
social capital The number of connections a person has within and between social networks.
social commerce The delivery of electronic commerce activities and transactions through social computing.
social computing A type of information technology that combines social behavior and information systems to create value.
social graph A map of all relevant links or con nections for one member of a social network.
social intelligence The monitoring, collec tion, and analysis of socially generated data and the resultant strategic decisions.
social marketplaces These act as online in termediaries that harness the power of social networks for introducing, buying, and selling products and services.
social network A social structure composed of individuals, groups, or organizations linked by values, visions, ideas, financial exchange, friendship, kinship, conflict, or trade; social net working activities performed using social soft ware tools (e.g., blogging) or social networking features (e.g., media sharing).
social shopping A method of electronic com merce that takes all of the key aspects of social networks (friends, groups, voting, comments, discussions, reviews, etc.) and focuses them on shopping.
tag A keyword or term that describes a piece of information.
tweet Messages and updates posted by users on Twitter.
Twitter A free microblogging service that al lows its users to send messages and read other users’ messages and updates.
Web 2.0 A loose collection of information technologies and applications, plus the web- sites that use them.
Web 2.0 media Any website that provides user-generated media content and promotes tagging, rating, commenting, and other in teractions among users and their media contributions.
weblog See blog.
wiki A website on which anyone can post material and make changes to other material.
Discussion Questions
1. How would you describe Web 2.0 to someone who has not taken a course in information systems?
2. If you were the CEO of a company, would you pay attention to blogs about your company? Why or why not? If yes, would you consider some blogs to be more important or more reliable than are others? If so, which ones? How would you find blogs relating to your company?
3. Do you have a page on a social networking website? If yes, why? If no, what is keeping you from creating one? Is there any content that you definitely would not post on such a page?
4. How can an organization best employ social computing technolo gies and applications to benefit its business processes?
5. What factors might cause an individual, an employee, or a company to be cautious in the use of social networks?
6. Why are advertisers so interested in social networks?
7. What sorts of restrictions or guidelines should firms place on the use of social networks by employees? Are social computing sites a threat to security? Can they tarnish a firm’s reputation? If so, how? Can they enhance a firm’s reputation? If so, how?
8. Why are marketers so interested in social networks?
9. Why are human resource managers so interested in social networks?
Problem-Solving Activities
1. Enter www.programmableweb.com and study the various services that the website offers. Learn how to create mashups and then propose a mashup of your own. Present your mashup to the class.
2. Go to Amazon’s Mechanical Turk website ( www.mturk.com ). View the available Human Intelligence Tasks (HITs). Are there any HITs that you would be interested in to make some extra money? Why or why not?
3. Access Pandora ( www.pandora.com ). Why is Pandora a social net working site?
4. Access ChatRoulette ( www.chatroulette.com ). What is interesting about this social networking site?
5. Using a search engine, look up the following:
· Most popular or most visited blogs. Pick two and follow some of the posts. Why do you think these blogs are popular?
· Best blogs (try www.bloggerschoiceawards.com ). Pick two and consider why they might be the “best blogs.”
6. Research how to be a successful blogger. What does it take to be a successful blogger? What time commitment might be needed? How frequently do successful bloggers post?
Closing Case
Pinterest’s Business Model for Generating Revenue
MKT POM
The Problem
Founded in 2010, social computing website Pinterest ( www.pinterest
.com ) is a visual discovery social network in which people create and share image collections of anything that interests them on their smart- phones, tablets, and computers. Pinterest is particularly popular with women, but men are beginning to slowly catch up.
Pinterest users upload, save, sort, and manage images using visual bookmarks—known as pins—from anywhere on the web to themati cally organized boards, using the “Pin It” button. Users can have several boards for various themes or topics. Users can also browse the content of others and repin, meaning that they can pin another user’s pin to their own board. The most popular categories on Pinterest are food and drink, do-it-yourself and crafts, fashion, home décor, and travel.
In 2014, Pinterest decided to monetize their impressive usage sta tistics. The problem was: How best to accomplish this goal?
The IT Solution
Pinterest presents an interesting opportunity for marketing managers regarding how users interact with the app. Let’s compare Pinterest to Facebook and Twitter along the time dimension. Facebook users volunteer a vast amount of historical information such as birthplace, alma mater, vacations, connections, events, and memories, which the company uses to precisely target its ad offerings. In contrast, Twitter collects current information that is limited to 140 characters per tweet. Therefore, Twitter cannot offer Facebook’s level of detail, which is why its revenue per user is only half that of Facebook’s.
Therefore, if Facebook collects data on its users’ past and Twitter on its users’ present, then Pinterest collects data on its users’ future. That is, Pinterest collects data about what its users want to do in the future, which is exactly what marketers want to know. When a user pins an image of a wedding dress or a coffee table to one of her boards, she is sending a signal to merchandisers who want to sell her that wed ding dress or that coffee table. In essence, there is intent around a pin. Now let’s compare Pinterest to Google along the discovery di mension. Pinterest executives state that, in the e-commerce arena, Google is useful only if users already know what they are looking for.
On the other hand, Pinterest exposes people to possibilities that they never would have known existed.
As a result, Pinterest introduced two programs to help businesses leverage the forward-looking nature of user information on Pinterest. The advertising program is called Promoted Pins and the e-commerce program is called Buyable Pins.
The Advertising Program. Promoted Pins are a form of paid adver tising. They are native advertisements, meaning that they show up in users’ Pinterest boards just like any other pin. That is, like Facebook’s Sponsored Posts and Twitter’s Promoted Tweets, Promoted Pins take the same form as the user-generated content around it. Businesses can target Promoted Pins at specific users in various demographic, geographic, and other behavior- and interest-based groups.
Let’s compare native advertising on Pinterest with native adver tising on Facebook. Facebook may know that you are a fan of your uni versity and that you wear a size L (large). However, when you see an ad for a university T-shirt in your News Feed, it can be an interruption,
because you probably did not go on Facebook looking to buy your university’s T-shirt. On the other hand, Pinterest users are in the mode of planning how to spend their money. If a user is browsing for Euro pean vacation ideas, then an Expedia pin showing vacation ideas for Prague or Paris is not an intrusion. On the contrary, the pin is just more information.
Pinterest conducts workshops for the partners in its Promoted Pins program (i.e., its advertising clients). After a workshop, partic ipants typically see the interaction rate on their pins increase by 25 percent. It is important for these advertising clients to see this increase because they are paying $30 to $40 per thousand impres sions. This rate is several times higher than the rate that Facebook advertisers pay. (The cost per thousand impressions refers to the ex pense incurred for every thousand potential customers who view an advertisement.)
Instead of choosing to pay for views or click on their Promoted Pins, advertisers can choose to pay with a “cost-per-engagement” (CPE) model or a “cost-per-action” (CPA) model. With the CPE model, advertisers will pay only when users engage with their Pins, such as repinning. With the CPA model, advertisers will pay only when users download their app or actually click through to their website and make a purchase.
Pinterest provides a suite of tools to help retailers quantify the return on their time and dollars and is collaborating with them to de velop new ones tailored to their needs. After implementing Promoted Pins, retailers have reported increases in web traffic, number of new users, audience reach, and audience engagement. One analysis of data from 25,000 retailers showed that users driven to e-commerce sites from Pinterest are 10 percent likelier to buy something than those coming from other social sites.
The E-Commerce Program. Pinterest has advantages in e-com merce, as industry analysts find that its users are more likely to share product links and make big purchases than users of other social plat forms. In June 2015, Pinterest added Buyable Pins to its app. (At this time, both Facebook and Twitter are conducting tests of “Buy” buttons for frictionless shopping.)
Buyable Pins allow Pinterest to enter the e-commerce business, rather than just driving traffic to retailer’s websites. They provide a method for merchants to sell products through Pinterest. These pins make it possible for users to purchase a product directly from the pin. Unlike Promoted Pins, Buyable Pins are free to use. That is, Pinterest does not charge merchants or users a fee when they buy through a Buyable Pin.
Buyable Pins are blue “Buy It” buttons that appear next to the site’s familiar red “Pin It” buttons. After viewing the Pin and tapping the Buy It button, Pinterest users securely check out using Apple Pay or their credit card, without ever leaving the Pinterest app.
Pinterest is not the merchant of record in transactions that occur through its app. That is, users will not see a charge from Pinterest on credit card statements. The charge will come from the retailer, even though users will not have visited the retailer’s website or mobile app in the process of making a purchase on Pinterest.
The reason is that Pinterest is using Braintree ( www.braintree payments.com ) and Stripe ( https://stripe.com ) to vault, or securely store, cards. That process means that Pinterest does not have to store card numbers, but it can still keep credit card information for fu
282 CHAPTER 9 Social Computing
purchases. Pinterest users also do not have to remember their card numbers every time they click the Buy It button.
The Results
In 2014, Pinterest generated its first revenue, when the company began charging advertisers to promote their products and services. Many in dustry analysts believe that, on the basis of average revenue per users, it is only a matter of time before Pinterest exceeds Facebook.
By 2016, the site accounted for some 30 percent of global social- mediated sales. During the 2016 holiday season, Pinterest accounted for about one-quarter of all social sharing activity. Among social net works, only Facebook, with its 1.5 billion users, drives more traffic to web publishers.
In November 2016, Pinterest’s user base increased to more than 150 million monthly active users around the world. Pinterest users had created more than 1 billion boards made up of more than 75 billion individual pins, with 54 million new pins added each day. Pinterest was on track to earn approximately $200 million in 2016 (and $300 million in 2017) and had a market valuation of approximately $11 billion.
It is interesting to note that each new person who joins Pinterest brings more interests, tastes, and trends into the system. This flood of data allows Pinterest to improve its personalized recommendation engine. In November 2016, Pinterest was serving more than 10 billion recommendations per day, which was double the amount the com pany served in 2015.
It is also interesting that 55 percent of the people on Pinterest want to shop for products, compared to just 12 percent of people on
social networks. Furthermore, in November 2016, nearly 40 percent of global signups were men.
Sources: Compiled from K. Chaykowski, “Pinterest Reaches 150 Million Monthly Users, Boosts Engagement among Men,” Forbes, October 13, 2016;
M. Lynley, “Pinterest Brings on a New Head of Engineering Who Specializes in Image Search,” TechCrunch, September 6, 2016; J. Hempel, “Pinterest Reinvents Itself to Prove It’s Really Worth Billions,” Wired, April 19, 2016; O. Thomas, “Who’s Making Money with Pinterest’s Buyable Pins?” ReadWrite, June 11, 2015; J. Guynn, “Pinterest to Launch ‘Buy’ Buttons,” USA Today, June 2, 2015; T. Simonite, “Pinterest’s Bid to Reinvent Online Shopping,” MIT Technology Review, June 1, 2015; E. Baig, “Pinterest’s Silbermann: We Are Not a Social Network,” USA Today, May 28, 2015; J. D’Onfro, “Why $11 Billion Pinterest Thinks It Has the ‘Best Kind of Business Model’,” Business Insider,
May 19, 2015; E. Griffith, “The Unicorn List,” Fortune, May 15, 2015; J. Boorstin, “Pinterest’s Big Plan to ‘Pin’ Profits,” CNBC, February 17, 2015; J. Bercovici, “Social Media’s New Mad Men,” Forbes, November 3, 2014; J. Bercovici, “Inside Pinterest: The Coming Ad Colossus that Could Dwarf Twitter and Facebook,” Forbes, October 15, 2014; J. Brandon, “Pinterest Links Up with Salesforce, Others to Monetize Data,” Business Cloud News, May 21, 2014; J. Marshall, “Pinterest Opens Up Data Firehose for Marketers,” Wall Street Journal, May
20, 2014; D. MacMillan, “Pinterest CEO Lays Out Growth Plan, Sees Revenue in 2014,” Wall Street Journal, January 21, 2014; www.pinterest.com, accessed August 9, 2016.
Questions
1. Discuss why Pinterest’s model of user engagement might be more valuable to marketers than Google’s model, Facebook’s model, or Twitter’s model.
2. Describe the social computing aspects of Pinterest’s model of user engagement.
