Management Information Systems Discussion

chaPter

5 Networks, telecommunications

and the Internet

LEARNING OUTCOMES

After reading this chapter, you will be able to:

■ specify which components of a communications system are necessary to exchange information within and between businesses;

■ explain the basic components and terminology of networks, including the Internet;

■ identify the benefits available through the introduction of computer networks;

■ identify the advantages and disadvantages of the client/server architecture in comparison with traditional approaches;

■ explain the broad implications of the Internet on the marketplace.

MANAGEMENT ISSUES

As organisations become increasingly dependent on networking technologies, managers need to be aware of the business benefi ts of deploying and updating networks and the risks if they are mismanaged. A basic grasp of the terminology is required for discussing networks with solution providers. From a managerial perspective, this chapter addresses the following questions:

■ What are the business benefits of networks?

■ What are the basic concepts and terminology associated with the Internet and other networks?

■ How does the Internet change marketplace structures?

■ How are network components selected?

CHAPTER AT A GLANCE

MAIN TOPICS

■ Computer networks 178

■ Network components 181

■ Network types 190

■ The Internet 194

FOCUS ON . . .

■ How the Internet works – Internet standards 203

■ Mobile or wireless access devices 206

■ EDI 208

■ Voice over IP (VoIP) 210

CASE STUDIES

5.1 Death of a matchmaker 199

5.2 Americans turning off TV and on to digital devices 208

5.3 Asian apps challenge western dominance 211

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For the modern organisation to operate effectively, the links connecting its people and their computers are vital. The network links provide the channels for information to flow continuously between people working in different departments of an organisation, or in different organisations. This allows people to collaborate much more efficiently than before the advent of networks when information flow was irregular and unreliable. These links also allow hardware such as printers and faxes to be shared more cost- effectively.

As with many aspects of technology, jargon is rife when describing the different parts of and types of network. As an example of the many three-letter acronyms (TLAs), networks of different scales are referred to as LAN, WAN, MAN, VAN, and VPN! Here, we will try to filter out the jargon to highlight the terms you need to know when understanding and specifying information systems for a business.

In this chapter, we trace the use of computer networks from the global network of the Internet through to small-scale networks. We look at the components that form a network and how to specify a suitable architecture for the modern business.

We will see here that most medium and large businesses already use internal company networks and the Internet – the business case is clear, but many smaller businesses are still considering the need for internal or external networks. For this reason, we start by examining the business case for implementing networks and some of the management problems involved with implementing and running networks. Selecting the right solutions for telecommunications becomes ever more important as businesses become more reliant on electronic communications. As new networking technologies become available, companies have to evaluate the benefits against the cost of implementation and running these new technologies. Some of the main telecommunications issues currently, which are highlighted in this chapter, are selecting higher-speed broadband communications to connect to the Internet and the use of wireless networking using technologies like ‘Wi-Fi’ and ‘4G’.

INTRODUCTION

COMPUTER NETWORKS

We can describe the links that transfer information between different parts of an information system on different scales. At the smallest scale, links are etched in silicon between the different components of a microchip. At a larger scale, all the components of a PC, such as the hard disk and main processor, are connected by internal cables. In this chapter, we consider links at a larger scale still, that is, between computers and other hardware devices such as printers, scanners and separate storage devices. These links between computers and other hardware form a computer network.

A computer network can be defined as: ‘a communications system that links two or more computers and peripheral devices and enables transfer of data between the components’.

As we shall see, computer networks are themselves constructed on different scales. Small-scale networks within a workgroup or single office are known as local-area networks (LANs). Larger-scale networks which are national or international are known as wide-area networks (WANs). The Internet is the best-known example of a wide-area network.

What are computer networks?

Computer network

a computer network can be defined as a communication system that links two or more computers and peripheral devices and enables transfer of data between the components.

Local-area network (LAN)

a computer network that spans a limited geographic area, typically a single office or building.

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Wide-area networks (WANs)

networks covering a large area which connect businesses in different parts of the same city, different parts of a country or different countries.

On a national or global scale, communications technology such as satellite and micro-wave transmissions are important in linking businesses. To transfer information electronically, companies create telecommunications systems. These systems consist of both the hardware and the software necessary to set up these links. Telecommunications enable a business that operates from different locations to run as a single unit. This means that the same information and control structures do not need to be repeated at each company office. Instead, information can be managed centrally and control maintained from a central location. As well as improving internal communications in a company, telecommunications also allow companies to collaborate using electronic data interchange or web-based e-procurement with partners such as suppliers. Similarly, customers can transact with the company using the Internet.

Telecommunications

Telecommunications

the method by which data and information are transmitted between different locations.

Networks are vital to a business. They are important for the cost savings and improved communications that arise from an internal network. Beyond this, they are truly vital, because they help a business reach out and connect with its customers, suppliers and collaborators. Through doing this a company can order new raw materials more rapidly and cheaply from its suppliers and can keep in touch with the needs of its customers.

Figure 5.1 indicates the links that may exist between different partners. In some industries, such as the travel industry, travel agents and suppliers (such as the airlines) have made use of telecommunications links for over 25 years. In other sectors, however, most communications have been over the phone or in person, until more recently. The potential for e-business has been made possible by the use of the Internet technologies to reduce the cost and complexity of linking companies.

When computers and telecommunications are integrated, they can provide many advantages. Take the simple example of a humble e-mail sent to a customer or colleague. This costs only a few pence and can be sent to any location in the world immediately. As well as the low cost and fast delivery, it can be integrated to work with the users’ other information needs, perhaps by supplying a spreadsheet as an attachment.

What are the business benefits of networks?

Figure 5.1 Communications links between different stakeholders in an industry

WAN and Internet

Organisation boundary

LAN

Customer IS

Collaborator/ supplier IS

Online services

System users Site 2

System users Site 1

Organisation information

system

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We will now look at the benefits that networks provide in more detail.

1. Reduce cost compared to traditional communications. Costs can be reduced in various ways depending on the type of communication required. If information has to be sent to another location, the cost of sending is very low compared to using a letter or even a fax. If face-to-face communication is needed to exchange information or solve a problem, then the traditional approach would be to jump into a car or onto a plane. Telecommunications now make this less necessary. Meetings can be conducted by conferencing, which not only includes video conferencing, but also sharing ideas through writing on whiteboards or running shared software. Money is saved on transport and accommodation but, perhaps more significantly, the time it takes for people to travel to the meeting is also saved.

2. Reduce time for information transfer. The benefits of shorter times for messages to arrive are obvious, but more subtle benefits can also occur through the rapid transfer of information. It is now possible for the global company to operate 24 hours a day by taking advantage of people working in different time zones. If someone is working on a product design in New Zealand, for example, they can dispatch it for review in Europe at the end of their working day. The review can then be conducted in Europe while the other team members are asleep and will be ready for review the next morning. Using this simple method product designs could be accelerated significantly. Customer service queries can also be turned around more quickly through the use of telecommunications.

3. Enable sharing and dissemination of company information. Opportunities to share information are lost when it is locked in a filing cabinet or stored on an individual’s PC. By placing information on a server, either as a file or within a database, it can be made accessible to all departments that need it and the flow of information in the company is improved. This has proved to be one of the big benefits of intranets. A company selling through agents worldwide can provide information such as prices or technical specifications over an intranet. This information is always up to date, as there is no delay while price lists are reproduced and transported to the agents. Of course, this approach also helps in reducing costs.

4. Enable sharing of hardware resources such as printers, backup, processing power. An obvious benefit of setting up a network is that it enables the cost of equipment such as printers, faxes, modems or scanners to be shared between members of a workgroup. Printers are the most obvious item that can be shared within a business. Workgroup printers may be shared between small teams of three or four or up to twenty or so people, but a more powerful printer would be required in the latter case. For a printer shared by many people, it is usual to use a print server to schedule the jobs and store them while they are pending. Through storing information on a server, the security of the users’ data can be increased by attaching a tape or optical backup device to the server and performing regular backups. Other administrative tasks are also made easier by centralising more complex equipment.

5. Promote new ways of working. As well as the tangible benefits, introducing networks can facilitate a different approach to running a business. Setting up an internal network makes it possible to use group-working tools. Setting up a wide- area network makes electronic data interchange with suppliers possible.

6. Operate geographically separate businesses as one. Through using wide-area communications technology, it is possible to rationalise the operations of a company that originally operated as separate business units in different geographic locations, perhaps with their own working practices, procedures and reporting mechanisms. Linked business units can use common ways of working facilitated by video conferencing as shown in the case study. Sharing of information on best practices can also occur.

7. Restructure relationships with partners. In the same way that different groups or businesses within a company can work more effectively together, different companies can also collaborate better. This may occur, for example, when new products are being designed or when a manufacturer is ordering goods from its suppliers.

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To balance against the many benefits, there are, of course, disadvantages with introducing networks. The main disadvantages are:

1. The initial setup cost may be high, and there may be a considerable period before the costs are paid off.

2. When implementing or updating the network there may be considerable practical difficulties. Deploying cabling can be very disruptive to staff doing their daily work.

3. In the long term, companies become reliant on networks, and breaks in service can be very disruptive. For this reason investment in network maintenance is vital.

4. Security is reduced through introducing a network, since there are more access points to sensitive data. Data may also be intercepted when they are transferred from one site to another.

Despite these disadvantages, most companies still proceed with implementation and take care to reduce the risks of disruption and security breaches. In doing so, further costs will be introduced. Table 5.1 summarises the advantages and disadvantages of networks.

advantages Disadvantages

1. Lower transaction costs due to less human input

1. Overreliance on networks for mission-critical applications

2. Cost of initial setup and administration 3. Disruption during initial setup and maintenance 4. Reduced security due to more external

access points to the network on wide-area networks and the Internet

2. Improved sharing of information and hardware resources

3. Reduced costs through sharing hardware and software

4. Reduced time for communication compared with traditional methods postal mail

5. Increased security of data which are backed up on file servers. Increased security through restricting access via user names and passwords

Table 5.1 A summary of the key advantages and disadvantages of network technology

NETWORK COMPONENTS

In this section we examine how to specify the often confusingly named components that are necessary to setting up a network. We start by looking at the client/server architecture of the modern information system and why this has been adopted by businesses. We will then examine each of the components in turn and look at how they fit together and the important factors in their selection.

The client/server architecture consists of client computers such as PCs sharing resources such as a database stored on more powerful server computers. Processing can be shared between the clients and the servers.

The client/server model of computing

Client/server

the client/server architecture consists of client computers such as Pcs sharing resources such as a database stored on more powerful server computers.

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Client/server architecture is significant since most modern networked information systems are based on this structure. The client/server model involves a series of clients, typically desktop PCs, which are the access points for end-user applications. As shown in Figure 5.2, the clients are connected to a more powerful PC or server computer via a local- area network within one site of a company, or a wide-area network connecting different sites and/or companies. The network is made up of both telecommunications processors to help route the information and the channels and media which carry the information.

The server is a more powerful computer that is usually used to store the application and the data shared by the users. When a user wants to run a program on a PC in a client/server system, the applications, such as a word processor, will usually be stored on the hard disk of the server and then loaded into the memory of the client PC, running or ‘executing’ on the processor of the client. The document the user creates would be saved back to the hard disk of the server. This is only one alternative. One of the benefits of client/server is that there are many choices for sharing the workload between resources. The system designers can decide to distribute data and processing across both servers and client computers, as described in Chapter 11. There we also explain how different functions can be partitioned between client and server and the merits of using ‘thin’ or ‘fat’ clients, applications on the former being smaller and easier to maintain.

■ To summarise, the main components of a client/server system shown in Figure 5.2 can be defined as follows:

■ Client software is the interface by which the end-user accesses the software. It includes both the operating system, such as Windows 8, and the applications software, such as word processors. Increasingly, web-based browsers are being used as clients on a company intranet.

■ Server software is used to store information, administer the system and provide links to other company systems. Again, this may be a web server or a database server.

■ The application development environment provides interactive programming tools to develop applications through the application programming interface (API) of the package.

■ The infrastructure or plumbing of the system. This is based on local- and wide-area networking techniques and consists of the telecommunication processors and media.

Why use client/server?

The adoption of the client/server architecture was part of a trend to ‘downsize’ from large mainframes with arrays of user terminals which had limited functionality. This latter type

Figure 5.2 Components of a client/server system

Telecoms channels and media

NetworkClient

Telecoms processor

Telecoms processor

Server

Network server

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of architecture was widespread in businesses during the 1970s and 1980s. The client/server model represented a radically new architecture compared to the traditional, centralised method of a mainframe, with its character-based ‘dumb terminals’ which dated back nearly to the birth of computers. Rather than all the tasks involved in program execution (other than display) occurring on the mainframe, client/server gives the opportunity for them to be shared between a central server and clients. This gives the potential for faster execution, as processing is distributed across many clients.

Cost savings were originally used to drive the introduction of client/server. PC-based servers were much cheaper than mainframes, although the client PCs were more expensive than dumb terminals. The overall savings were dramatic. These savings were coupled with additional benefits of ease of use of the new clients compared with the older terminals. The clients used new graphical user interfaces which were easier to use thanks to a mouse, and the graphics could improve analysis of business data. Customisation of the client is also possible – the end-user is empowered through being able to develop their own applications and view data to their preference. With queries occurring on the back end, this reduces the amount of network traffic that is required. Centralised control of the user administration and data security and archiving can still be retained.

With these advantages, there are also a host of system management problems which were not envisaged when client/server was first adopted. These have been partly responsible for the reduced costs promised with this ‘downsizing’ not materialising. To some extent there is now a backlash, in which the new ‘network-centric’ model is being suggested as a means of reducing these management problems. These disbenefits include:

1. High cost of ownership. Although the purchase price for a PC is relatively low, the extra potential for running different applications and modifications by end-users means that there is much more that can go wrong in comparison with a dumb terminal. More support staff are required to solve problems resulting from the complex hardware and software. The annual cost of ownership of a PC is estimated by the Gartner Group using their total cost of ownership (TCO) measure. The issue of reducing the ‘total cost of ownership’ is considered further in Chapter 16.

2. Instability. Client/server technology is often complex and involves integrating different hardware and software components from many different companies. Given this, client/ server systems may be less reliable than mainframe systems.

3. Performance. For some mission-critical applications, a smaller server cannot deliver the power required. In a travel agency business, for example, this will give rise to longer queues and poorer customer service. For this reason, many banks and travel agents have retained their mainframe-based systems where performance is critical. The use of a PC can also cause delays at the client end, as the screen takes a long time to redraw graphics compared to a teletext terminal.

4. Lack of worker focus. Although PCs can potentially empower end-users, the freedom of choice can also lead to non-productive time-wasting, as users rearrange the colours and wallpaper on their desktop rather than performing their regular tasks!

Despite these difficulties, the compelling arguments of ease of use and flexibility of client/ server still remain. The empowerment of the end-user to develop their own applications and to use and share the data as they see fit is now considered to be the main benefit of client/server.

Servers are vital to an information system, since they regulate the flow of information around the network in the way that a heart controls the flow of blood around the body. Network servers run the network operating system (NOS), the software that is used to

Servers

Servers

a server is a powerful computer used to control the management of a network. It may have a specific function such as storing user files or a database or managing a printer.

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manage the network, and are often used to store large volumes of data. The server and NOS together perform the following functions:

■ Maintain security – access to information in files is restricted according to the user name and password issued to users of the network.

■ Sharing of peripheral devices connected to the network, such as printers and tape drives. These are often attached directly to the server.

■ Sharing of applications such as word processors, which do not then need to be stored on the hard drive of the end-user’s computer. The cost of buying applications can be reduced through buying a ‘site licence’.

■ Sharing of information – access to this data is maintained by the NOS and it is stored within the hard drive of a server as files or as part of a database.

Both applications and data can be managed better when they are stored on a managed server. It is easier to audit who uses which applications and to ensure the security of the data. Data quality can also be managed more effectively.

For the larger network of perhaps 20 people or more, the functions described above may be split between several servers to share the load. There may be a separate file server, print server, password server and database server. In very large companies there will be many servers used for data storage. These will all be linked by the network to ensure that the data are accessible by everyone. They will also be responsible for ensuring through a process known as replication that the same version of data exists on different servers. With the use of many servers, an opportunity exists to spread the computing workload across these servers rather than overloading a single central machine, which is what happened in the days of the mainframe. The sharing of functions across several computers is known as ‘distributed computing’.

Computing blade servers are unique computers, often dedicated to a single application, and the facilities they lack are provided either within the chassis, or, particularly with storage, over a network. The chassis and included blade servers may require a substantial initial investment in hardware and implementation for a business but bring advantages in space, power consumption, cable reduction, reliability, and economy of scale that may offer considerable longer term benefits.

The different types of server are summarised in Table 5.2. When creating an information system, there are a number of critical functions which

must be designed in to the server. These are important requirements which must be checked with server vendors, database vendors and operating systems vendors. They are:

■ Performance. The server should be fast enough to handle all the requests from users attached to the network. A margin should be built in to accommodate future growth in users and network traffic. This means specifying a suitable amount of memory, a fast hard disk and, less importantly, a fast processor.

■ Capacity. When initially specified, the hard disk capacity should be large enough that it will not need to be upgraded in the near future.

■ Resilience/fault tolerance. If there is a problem affecting the hardware, such as a power surge or a problem with the hard disk, it is important that the whole network does not ‘crash’ because of this. Preventive measures should be taken, such as installing an uninterruptible power supply or running two disks in parallel (disk mirroring or RAID – redundant array of inexpensive disks).

■ Clustering is used to spread the load across different servers, so improving reliability and performance. It involves linking several servers together via a high-speed link such as fibre-optic cabling. This can enable parallel processing, where tasks are shared between processors, and also storage mirroring, where duplicate copies of data are stored on different servers to improve performance and reduce the risk of one server failing.

Replication

ensures that the versions of data stored on different servers are consistent. software is used to check changes made to data on each server. changes are transmitted to all other servers.

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The access points for users of a network are known variously as clients, nodes, workstations or, most commonly, just PCs. It is best to use the term ‘client PC’, as this helps distinguish clients from servers which may also be PC-based. To work on the network each client must have networking software such as Novell Netware or TCP/IP installed (see later section). Of course, a physical connection to the network is also required. For a PC on an office LAN, this is provided by a network interface card in one of the PC’s slots. The card is then attached to the network cabling. For a PC at home which is linked to the Internet, the network card is replaced by a modem.

End-user computers or terminals

As well as the physical cables that link the computers, there are also other important components of the complete telecommunications system that have to be purchased by a business. These are the pieces of hardware that are used to link the servers and clients and different networks together. These devices can be thought of as connectors located between client computers and servers. Collectively, these processors can be called telecommunications

Data communications equipment or telecommunications processors

Servers can be specified as powerful PCs running an operating system such as Windows NT or Novell Netware, or they can run the UNIX operating system, from companies such as Sun, IBM or Hewlett-Packard.

Table 5.2 Types of server

type of server Purpose

Network Contains functions to manage the network resources and control user access

File This term is sometimes used to refer to network server functions. It can also indicate that users’ files such as documents and spreadsheets are stored on the network server

Print Dedicated print servers have a queue of all documents for which print requests have been made, often combined with file or network servers

Fax Used to route incoming and outgoing faxes received and sent from the user’s desktop

Mail Stores and forwards e-mail messages

Database Used to store data and provide the software to process data queries supplied by users, often accessed by Structured Query Language (SQL)

Application Used to store programs such as spreadsheet or bespoke applications run by end-users on their PCs. This removes the need to store each application on every user’s hard disk

Communications Manages connections with other networks in a WAN configuration. Sometimes known as ‘gateways’ and attached to other gateway devices such as routers and firewall servers

Blade A computer configuration where elements such as power, cooling, storage are largely provided in an outer housing or chassis. The chassis provides these services to a number of specialised, stripped down motherboard units – the blade servers – each one a complete computer or service device containing only vital processing and storage elements.

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connectors or gateways, but they are usually referred to by their specific names, such as hubs, multiplexers, bridges and routers. In a company that needs to use gateway devices, a specialist is required to maintain them. Modems and network interface cards also fit into this category.

Communications devices

The following are options for connecting telecommunications equipment.

■ Dial-up networking (DUN) facilities allow users to access a network at a remote location via a modem. The modem (modulator–demodulator) works by converting data between digital and analogue form. The modem receives analogue data (for example as transmitted via an analogue telephone line) and converts these into digital data so that the computer can make use of them. Similarly, the modem converts outgoing digital data into an analogue signal before transmitting them.

■ Digital telephone exchanges support an integrated services digital network (ISDN) standard that allows data transfer rates of 64 kbps. An ISDN telephone line provides two separate ‘channels’, allowing simultaneous voice and data transmissions or combined to give a transmission rate of 128 kbps. Since ISDN lines transmit digital data, a modem is not required to make use of the service. Instead, a special terminal adaptor (often called an ‘ISDN modem’) is used to pass data between the computer and the ISDN line.

■ Asymmetric digital subscriber line (ADSL) services makes use of existing telephone lines to provide very high data-transfer rates. ADSL or DSL is usually simply referred to as ‘broadband’ Internet access when offered by ISPs for home and small-business users across their phone lines. Although the bandwidth offered by such services is usually shared by a number of users, ADSL offers many of the benefits associated with ISDN and the potential of data transfer rates of up to 24 Mbps. ADSL is known as ‘asymmetric’ since it offers different speeds for download and upload of data. A range of different options are available for ADSL Internet packages from 512 kbps download. Up to 24 Mbps download is possible across some telephone lines. Variations on ADSL include Annex M which can more than double upload speeds and Annex L which can increase the range of coverage.

■ Satellite communications systems can be used to receive data at very high speeds in remote locations. Such systems are used to beam back news stories from remote locations. The satellite dishes can be fixed or mobile, for example fixed to a car roof.

■ Cable modems make use of the fibre-optic cables that have been installed by cable television companies such as Virgin Media. Services tend to be restricted to heavily populated areas, such as cities and large towns. Cable modems offer very high data- transfer rates, up to a maximum of 100 Mbps.

As more individuals and organisations gain access to high-speed services (known as broadband services, as opposed to traditional ‘narrowband’ services), data transfer speeds are more commonly measured in terms of thousands (kbps) or millions (Mbps) of bits per second. The standard ADSL broadband speed when it was first introduced was 512,000 bps, 512 kbps or 0.512 Mbps and it requires a specific ADSL modem. However, as we will see below, providers have introduced a range of speeds by limiting this speed to enable them to offer a range of packages.

Options for consumer broadband services

Competition in the marketplace amongst broadband providers has caused a great increase in the Internet access options available for consumers and small businesses. While broadband was originally introduced as an ‘always-on’ connection, some Internet service providers (both ADSL and cable companies) have offered lower-speed options while others have capped usage at a fixed number of hours per month or put limits on the amount of data transferred. For example, in 2011, one cable company offered four levels of speed (10Mb,

Modem (modulator– demodulator)

a modem is a communications device that allows users to access ordinary telephone lines.

Analogue

analogue data are continuous in that an infinite number of values between two given points can be represented.

Digital

digital data can only represent a finite number of discrete values.

Dial-up networking (DUN)

dial-up networking software allows users to access a network at a remote location via a modem.

Remote location

remote location describes a means of accessing a network from a distant location. a modem and specialised software allows users to send and receive information from home or an office when travelling.

ISDN (integrated services digital network)

Isdn represents a standard for communications that allows data transfer rates of 64 kpbs. an Isdn telephone line provides two separate ‘channels’, allowing simultaneous voice and data transmissions.

ADSL (asymmetric digital subscriber line)

a communications technique for making use of existing telephone lines to provide very high data-transfer rates.

Satellite communications

a communications link via satellite. the satellite dishes can be fixed or mobile.

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20Mb, 50Mb and 100Mb) with unlimited downloads and another provider offered 20Mb with a 2Gb monthly usage allowance or 20Mb with unlimited monthly usage.

Given the complexity of choice, several Internet services have been created to compare the offerings (Google ‘compare broadband’). For example, visit Broadband Checker (www. broadbandchecker.co.uk) to find out the latest choices in your area or see thinkbroadband (www.thinkbroadband.com) for a wide range of suppliers. The choices in selecting business broadband for small business users are similar to those for home users.

What is behind the rapid adoption of consumer broadband?

What has been most significant in the new millennium is the growth in adoption of broadband services. Ofcom (http://media.ofcom.org.uk/facts/) showed that by 2013 75 per cent of adults in the UK have broadband (fixed and mobile) services with an average speed of 12.0 Mbit/s. Some 55 per cent of adults with an home Internet connection use social networking sites such as Facebook.

Hubs

Hubs are used to connect up to 20 PCs to a network in a convenient way using patch cables (which look similar to phone cables and sockets) running between the back of each PC and the hub. The hub may then be attached to a server or a backbone connection leading to the server.

Bridges and routers

These are used to connect different LANs and transfer data packets from one network to the next. They can be used to connect similar types of LAN. They also offer filtering services to restrict local traffic to one side of the bridge, thus reducing traffic overall. Routers can select the best route for packets to be transmitted and are also used on the Internet backbones and wide-area network to achieve this. Although these devices used to be distinct, they are now produced as hybrids which share functions.

Companies attached to the Internet usually use a router as a gateway to attach their internal network to the Internet. This is often combined with a ‘firewall’, which is intended to reduce the risk of someone from outside the company gaining unauthorised access to company data. (Firewalls are described in more detail in Chapter 15.)

Repeaters

Over a long transmission distance, signal distortion may occur. Repeaters are necessary to increase transmission distances by regenerating signals and retransmitting them.

Data service units and channel service units

These devices are used to connect to digital communications lines by converting signals received from bridges, routers and multiplexers.

Baud

a simple means of measuring the performance of a modem or other device. data transmission rates can also be expressed in bits per second (bps). In general, the higher the baud rate or bps value, the faster and more efficient the device.

Broadband

a relatively high- capacity, high-speed transmission medium such as cable.

Cable modem

these devices allow users to make use of the fibre-optic cables that are installed by cable television companies. they offer very high data transfer rates, up to a maximum of 100 mbps.

Describe the order in which a message passes from one piece of hardware to the next when a home user in the UK sends an e-mail via the Internet to someone in a large corporation in the USA. You should refer to the following terms:

■ mail server; ■ client PC;

Transmission of data through different hardware and network componentsActivity 5.1

➨

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■ modem; ■ hub; ■ network cable; ■ network card; ■ gateway server (telecommunications processor); ■ router.

Treat the Internet transmission as a single stage.

Telecommunications channels

the media by which data are transmitted. cables and wires are known as guided media and microwave and satellite links are known as unguided media.

Telecommunications channels are the different media used to carry information between different locations. These include traditional cables and wires known as guided media, and wires and more recent innovations such as satellite and micro-wave which are unguided media.

We will now examine the benefits and applications of these different media. When doing this, the main factors that need to be considered are the physical characteristics, data transmission method, performance and cost.

Characteristics of guided media

The main types of cabling used in LANs are based on copper cabling. Data are transmitted along this by applying at one end a voltage, which is received at the other. A positive voltage represents a binary one and a negative voltage represents a binary zero. There are three main types of cabling used in networks:

■ Twisted-pair cabling consists of twisted copper wire covered by an insulator. The two wires form a circuit over which data can be transmitted. The twisting is intended to reduce interference. Shielding using braided metal may also be used to reduce external interference. A cable may have more than one pair, such as category 5 cable generally known as CAT5. CAT5 consists of four twisted pairs inside an outer insulating cover. The cable is used for many applications such as computer networking, telephony, low-voltage power distribution and home automation applications such as movement detectors and transmission of high-definition television. CAT5 can support network speeds up to 1 Gbps.

■ Co-axial cable consists of a single solid copper core surrounded by an insulator and a braided metal shield. ‘Co-ax’ can be used to connect devices over longer distances than twisted-pair. It is possibly best known as the means used to connect an antenna to a television set. Co-axial can be used for transmission speeds up to 500  Mbps. There are different grades of co-ax available, with a standard named CT100 suitable for transmission of digital TV around the home. CT125 offers even better performance.

■ Fibre-optic cable consists of thousands of fibres of pure silicon dioxide. Packets are transmitted along fibre-optic cables using light or photons emitted from a light-emitting diode at one end of the cable; detection is by a photo-sensitive cell at the other end. Fibre- optic cables give very high transmission rates since the cable has very low resistance. This is well known as a method by which cable TV is delivered to homes. Fibre optic transmission rates can be as much as 100 times greater than those of co-axial. They are also much smaller and lighter than co-axial or twisted-pair cabling. Other advantages are that they have a much lower data error rate than other media and are harder physically to ‘tap’ into and thus offer greater security.

Telecommunications channels

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Characteristics of unguided or wireless media

For wide-area network cables are still commonly used, but they are being superseded by the use of unguided media. This method uses signals transmitted through air and space from a transmitter to a receiver. It tends to be faster than wired methods. Wireless transmissions can be used for different business applications at different scales:

■ Wireless infra-red transmission can be used for sending data between a portable PC or personal digital assistant (PDA) and a desktop computer. Laser printers can receive documents for printing via wireless infra-red transmission from desktop or laptop computers that do not need to be connected to the printer.

■ Wireless transmission can also be used locally to form a wireless LAN. Here a microwave or narrowband radio transmitter and receiver may be used to connect different buildings. Wireless LANs are often used across college campuses. They have the benefit that the cost of laying cabling is not incurred. This makes them particularly suitable where it is not clear whether a link is needed in the long term.

■ Microwave transmission can be used to beam information through the atmosphere. The maximum distance that can separate microwave transmitters is 45 km, since the signal follows a straight line and the curvature of the earth limits transmission distance. This can make microwave an expensive method of transmitting data, but the cost can be reduced if it is combined with satellite methods.

■ Satellite transmission operates at two orbit levels, high orbit at 22,300 miles in a geostationary orbit and at a lower orbit. Messages are sent from a transceiver at one location on the earth’s surface and are bounced off the satellite to another transceiver. Because of the distances involved, this can give a time delay of up to a quarter of a second, which is evident in interviews conducted by satellite. A range of frequencies can be used. Satellite applications include television, telephone and data transmission.

■ Both guided and unguided media use a number of transmission schemes such as OFDM in order to improve their efficiency. Orthogonal frequency-division multiplexing (OFDM) is used in applications such as digital television and audio broadcasting, wireless networking and broadband internet access.

Orthogonal frequency- division multiplexing (OFDM)

a technique used for transmitting data over guided and unguided media.

The final component that is needed to make all the other components work in unison is a network operating system (NOS). This is systems software necessary to control the access to and flow of information around a network and provides the following functions:

■ access control or security through providing user accounts with user names and passwords;

■ file and data sharing of data stored on a database server or file server; ■ communication between users via e-mail, diary systems or workgroup software such as

Lotus Notes; ■ sharing of devices, enabling, for example, the backup to tape of data on the server, or

printer sharing.

The most widely used NOS for a PC-based LAN are Novell Netware and IBM LAN Manager. However, NOS features are now being built into standard operating systems such as Microsoft Windows, and this is increasingly being adopted by companies. For UNIX- based servers the NOS is a component of the operating system. UNIX is used by many medium and large companies operating servers from companies such as Sun Microsystems, Hewlett-Packard and IBM. It is often thought to offer better stability than Windows NT since it is a long-established NOS.

Network operating systems

Network operating system (NOS)

the software necessary to control the access to and flow of information around a network.

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This section describes a variety of network types that cater for short-range, medium-range and long-range communication implemented using guided and unguided media.

NETWORK TYPES

A personal-area network (PAN) can be implemented using the Bluetooth wireless technology. Bluetooth is used for short-range data transmission between devices and thus can be used to create a small-scale network. Bluetooth is the popular name for the 802.15 wireless networking standard defined by the Institute of Electrical and Electronics Engineers (IEEE). Applications of Bluetooth include wireless keyboards and beaming data between a PDA and a desktop or a laptop and a printer. A popular application of Bluetooth which makes use of its low power needs is the use of wireless headphones. Transmission distances between Bluetooth-enabled devices were initially limited to 10 metres, but can now be up to 100 metres, so there is now the option for using the technology for networking like Wi-Fi. Bluetooth 2 offers transmission speeds of up to 3 Mbps, Bluetooth 3.0 (introduced in 2009) offers 24 Mbps and Bluetooth 4 was introduced in 2010.

It has been suggested that use of Bluetooth for business purposes represents a security risk through a process known as ‘bluesnarfing’. An example of this often referred to is that, if you so wished, you could go to an airport passenger lounge and scan the diaries or contacts on passengers’ different laptops, phones or PDAs.

Ultra-wideband (UWB) allows the transfer of data up to 2 Gbps over around 10 metres. The technology could be used to connect electronic devices in the house such as PC, printer, scanner, monitor, MP3 player, DVD player and digital camera and so eliminate unsightly cabling. UWB is at present little used due to a lack of agreement on standards and the need to keep transmission power low so as not to interfere with 3G.

Personal-area networks (PAN)

Bluetooth

a wireless standard for transmission of data between devices over short ranges (less than 10 metres).

Ultra-wideband (UWB)

a wireless standard for high-speed transmission of data between devices over short ranges (less than 10 metres).

A local-area network (LAN) consists of a single network segment or several connected segments that are limited in extent, hence local. A network segment defines a group of clients that are attached to the same hub or network interface card linked to a single server. The term ‘local’ can be interpreted in different ways. LANs are usually limited to a company occupying a single building, but could equally connect several buildings across a larger company site. Faster, higher-capacity links such as fibre-optic cables connecting different LANs or network segments are sometimes referred to as ‘backbones’. Such networks may just have a single server if the company is of fewer than, say, 20 people. Larger companies with hundreds of employees are very likely to have several central servers and possibly departmental servers also. A LAN is used to share computer resources between different members of a company or workgroup. For example, a printer sharer allows several computers to be attached to a single printer, thus reducing costs. Manual printer sharers are controlled by turning a dial to indicate which computer will be used to send data to the printer. Automatic printer sharers detect any data sent to the printer and configure themselves accordingly.

A simple network that links three PC workstations with a shared server and printer is shown in Figure 5.3. This is an example of a LAN that might serve a workgroup or a small company. Here the computers and the printer are the main components of the network, with the cables and network cards forming other components. We will explain servers in more detail later. For now, consider them as a more powerful computer that is used to store data and help the other PCs communicate. The final component needed to make the

Local-area network (LAN)

Local-area network (LAN)

a computer network that spans a limited geographic area, typically a single office or building.

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network function, which is not shown on the diagram, is the communications software that enables all the components to work together.

A small-scale or workgroup network gives the following benefits by enabling:

■ workers to share common information which is typically stored on the server; ■ communication between workers, perhaps through e-mail or a shared diary system; ■ sharing of various facilities such as printing, hard disk storage or software applications

on the server.

The capability to share devices and applications also gives the additional major benefit of cost reduction.

Wi-Fi is the shorthand often used to describe a high-speed wireless local-area network. Most Wi-Fi networks use a standard IEEE protocol known as 802.11 a, b or g. The 802.11a variant offers speeds up to 54 Mbps at 5 GHz. The 802.11b and 802.11g variants both operate at a frequency of 2.4 GHz and are thus compatible. 802.11b offers speeds up to 11 Mbps and 802.11g offers speeds up to 54 Mbps. The 802.11n standard aims to achieve transmission speeds above 100 Mbps and a recent development is the 802.11ac standard which aims to deliver speeds above 500 Mbps.

Wi-Fi is widely deployed in an office or home environment where it removes the need for cabling and adds flexibility. Note that this increased usage has security limitations since Wi-Fi encryption is limited and communications can potentially be intercepted or ‘sniffed’ by anyone in the vicinity with appropriate scanning software.

For WLANs additional hardware is needed. For example, home users need to buy a wireless router (sometimes with firewall software included) which connects to the Internet and shares the Internet and local network access with all PCs in the house which contain wireless cards to receive the signal. Other devices can also be used; for example, music or video streamed from the Internet can be played on appropriate devices. Transmission is limited in home applications to around 100 m line-of-sight.

Hotspots consist of access points positioned in a strategic spot in a public place to provide wireless coverage for a specific area. This allows employees and customers access to the Internet from their laptops or other mobile devices without the need to connect using a wire. In 2012 it was estimated that over 16,000 public Wi-Fi hotspots where available in the UK (http://stakeholders.ofcom.org.uk/market-data-research/other/telecoms-research/ broadband-speeds/infrastructure-report-2012/).

Figure 5.3 A small workgroup network connecting a single server to three PCs and a laser printer

IBM personal computer

IBM personal computer

IBM personal computer

Server Laser printer

Wi-Fi (‘wireless fidelity’)

a high-speed wireless local-area network enabling wireless access to the Internet for mobile, office and home users.

Hotspot

an access point positioned in a strategic spot in a public place to provide wireless coverage for a specific area.

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Layouts for a local-area network

The physical layout of a LAN is known as a network topology. Bus, star, ring and combinations are most common.

There are a number of different arrangements for connecting the clients to the server in a local-area network. These are known by the description of the layout or topology: bus, star or ring. The layouts of the arrangements are shown in Figure 5.4. When building a network for a company, the topology adopted will form part of the specification for the company performing installation of the network. The topology chosen and the media used to implement it will affect the network cost and performance, so these aspects are referred to in the description below. The advantages of the different types of topology are summarised in Table 5.3.

Network topology

the physical layout of a lan is known as a network topology. Bus, star, ring and combinations are most common.

Figure 5.4 Local-area network topologies

Token ring

Ring

Host or

hub

Star

Host or

hub

Host or

hub

Star-configured bus

Bus

Large cities such as London or New York often have a high-speed metropolitan-area network (MAN) to connect businesses within the city. Singapore has developed the concept of the ‘intelligent island’ in which businesses of the city are connected by a very high-speed network.

A MAN can be implemented using a Metro Ethernet which is a network based on the Ethernet standard for computer communications over a network. Alternatively a MAN can be implemented using WiMax (Worldwide Interoperability for Microwave Access) which is

Metropolitan-area network (MAN)

Metropolitan-area networks (MAN)

a metropolitan-area network (man) refers to a network covering a city or university campus.

Metro Ethernet

a network covering a metropolitan area based on the ethernet standard.

WiMax

wimax is the name given to the Ieee 802.16 wireless standard which allows an access range of up to 30 miles at speeds of up to 75 mbps.

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the name given to the IEEE 802.16 wireless standard. WiMax can also be used for ‘last mile’ wireless broadband access as an alternative to cable connections.

topology Characteristics advantage Disadvantage

Bus or linear Simple. Based on co-axial Ethernet cable, e.g. twisted pair 10 Base-T

Easy to install and manage for small workgroup

Breaks in the cable disrupt the whole network

Star Each PC is connected via a cable to a central location.

Provides protection from cable breaks

Dependent on central host

Each PC is not usually connected directly to the server, but via a hub

Ring A continuous ring of network cable, e.g. token ring. The word ‘token’ refers to a packet of data which is passed from one node to the next

Suitable for large data volumes and mission- critical applications

Higher initial cost and time for installation

Table 5.3 Summary of the characteristics, advantages and disadvantages of the main local-area network topologies

These are large in extent and may connect offices in different parts of the same city, different parts of a country or even different countries (Figure 5.5). The WAN will connect many servers at each site. When we connect from a PC at one site to a server at another site, we talk about connecting to a ‘remote’ server across a WAN. If there is a large international

Wide-area network (WAN) Wide-area network (WAN)

networks covering a large area which connect to businesses in different parts of the same city, different parts of a country or different countries.

Figure 5.5 A wide-area network (WAN)

Manchester LAN

London HQ LAN Washington LAN

Tokyo LAN

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coverage, it will be referred to as a ‘global network’. If the WAN enables communication across the whole company, it is referred to as the ‘enterprise network’ or ‘enterprise-wide network’. Companies usually pay for their own ‘leased lines’ or communications links between different sites. Virtual private networks and value-added networks, which are described later, provide cheaper alternatives where the communications links are shared.

Often the network used to connect remote sites is the public telephone, referred to as POTS or ‘plain old telephone system’. A company can also lease private or dedicated lines from a telecommunications supplier to connect sites, or can set up links using microwave or satellite methods.

Value-added networks (VANs) are so named because they allow a company to minimise its investment in wide-area communications while still receiving all the benefits this can bring. The cost of setting up and maintaining the network is borne by the service provider, which then rents out the network to a number of companies. This works out more cheaply than if a company had leased its own point-to-point private lines, but it is not as secure.

A similar concept to VAN is virtual private networks (VPNs). These are data networks that make use of the public telecommunications infrastructure and Internet, but information remains secure by the use of what is known as a ‘tunnelling protocol’ and security procedures such as ‘firewalls’, which are described in Chapter 15. A virtual private network can again be contrasted with a system of owned or leased point-to-point lines that can only be used by one company.

Value-added networks (VANs)

Value-added networks (VAN)

Value-added networks (Vans) give a subscription service enabling companies to transmit data securely across a shared network.

Virtual private network (VPN)

a data network that makes use of the public telecommunication infrastructure and Internet, but information remains secure by the use of security procedures.

Peer-to-peer network

a simple type of local- area network which provides sharing of files and peripherals between Pcs.

A peer-to-peer network is a simple type of local-area network which provides sharing of files and peripherals between PCs. The same principle can be used on a larger scale – online music sharing systems are peer-to-peer.

‘Peer-to-peer’ refers to the capability of any computer on a local-area network to share resources, in particular files and peripherals, with others. It is particularly appropriate for small workgroups where central control from a server is less necessary. Windows provides these capabilities. For example, a user can, with permission, share across the network a file stored on another user’s hard disk. With a peer-to-peer arrangement, data will be distributed and therefore difficult to backup and secure.

Peer-to-peer networking

Private branch exchange (PBX)

enables switching between phones or voice and data using existing telephone lines.

A private branch exchange (PBX) enables switching between phones or voice and data using existing telephone lines. This can be used for printer sharing, for example.

Private branch exchange (PBX)

THE INTERNET

The Internet allows communication between millions of connected computers worldwide. Information is transmitted from client PCs whose users request services to server computers that hold information and host business applications that deliver the services in

What is the Internet?

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response to requests. The Internet is a large-scale client/server system. By June 2012 it was estimated that, worldwide, there were over 2.4 billion Internet users or 34 per cent of the world’s population (http://www.internetworldstats.com/stats.htm). The client PCs within homes and businesses are connected to the Internet via local Internet service providers (ISPs) which, in turn, are linked to larger ISPs with connection to the major national and international infrastructure or backbones (Figure 5.6). In the UK, at the London Internet Exchange in the Docklands area of east London, a facility exists to connect multiple backbones of the major ISPs within the UK onto a single high-speed link out of the UK into Europe and through to the rest of the world. These high-speed links can be thought of as the motorways on the ‘information superhighway’ while the links provided from ISPs to consumers are equivalent to slow country roads.

A variety of end-user tools are available to exchange information over the Internet – web browsers and e-mail are the best known. As we will see in the next section, although the Internet has existed for around 30 years, it is only since the early 1990s, when the web browser was first widely adopted, that the use of the Internet by business has grown dramatically.

The Internet

the Internet refers to the physical network that links computers across the globe. It consists of the infrastructure of network servers and communications links between them that are used to hold and transport information between the client Pcs and web servers.

Internet service provider (ISP)

a provider enabling home or business users a connection to access the Internet. they can also host web-based applications.

Backbones

high-speed communication links used to enable Internet communications across a country and internationally.

Figure 5.6 Infrastructure components of the Internet

Business networks

Home networks

LOCAL ISPs

BACKBONES

INTERNET

Business web servers GLOBAL

ISPs

The simplest way in which the Internet can be described is as a global network system made up of smaller systems. The history and origin of the Internet as a business tool is surprising since it has taken a relatively long time to become an essential part of business. The Internet was conceived by the Defense Advanced Research Projects Agency (DARPA), an American intelligence organisation, in 1969. The Internet began to achieve its current form in 1987, growing from systems developed by DARPA and the National Science Foundation (NSF). See Gillies and Cailliau (2000) for a detailed description of the history of the Internet.

Development of the Internet

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The Internet is only the latest of a series of developments through which the human race has used technology to disseminate information. Kampas (2000) identifies ten stages that are part of five ‘megawaves’ of change. The first six stages are summarised in Table 5.4. It is evident that many of the major advancements in the use of information have happened within the last hundred years. This indicates that the difficulty of managing technological change is likely to continue. Kampas goes on to speculate on the impact of access to lower- cost, higher-bandwidth technologies.

It is useful to identify e-business opportunities in terms of whether an organisation is using the Internet to transact with consumers (business-to-consumer – B2C) or other businesses (business-to-business – B2B).

Business-to-business transactions predominate over the Internet, in terms of value, if not frequency. Figure 5.7 helps explain why this is the case. It shows that there are many more opportunities for B2B transactions than B2C, both between an organisation and its suppliers, together with intermediaries, and through distributors such as agents and wholesalers with customers. Additionally there is a higher level of access to the Internet among businesses than among consumers, and a greater propensity to use it for purchasing.

Table 5.5 gives examples of different companies operating in the business-to-consumer (B2C) and business-to-business (B2B) spheres and also presents transactions where consumers transact directly with consumers (C2C). It has been suggested that employees should be considered as a separate type of interaction through the use of intranets – this is sometimes referred to as employee-to-employee or E2E. Other types of transactions, such as government, have also been defined.

The role of the Internet in restructuring business relationships

The relationship between a company and its suppliers and customers shown in Figure 5.4 can be dramatically altered by the opportunities afforded by the Internet. This occurs because the Internet offers a means of bypassing some of the channel partners. This process is known as disintermediation or ‘cutting out the middleman’.

Business and consumer models of Internet access

Business-to-consumer (B2C)

commercial transactions are between an organisation and consumers.

Business-to-business (B2B)

commercial transactions are between an organisation and other organisations.

Disintermediation

the removal of intermediaries such as distributors or brokers that formerly linked a company to its customers.

Stage enabling technology Killer applications and impact

1. Documentation 3500 BC to AD 1452

Written language and the development of clay tablets in Mesopotamia

Taxes, laws and accounting giving rise to the development of civilisation and commerce

2. Mass publication 1452 to 1946 The Gutenberg press of movable metal type

Demand for religious and scientific texts resulting in scientific advances and ideological conflicts

3. Automation 1946 to 1978 Electric power and switching technologies (vacuum tubes and transistors)

Code breaking and scientific calculations. Start of information age

4. Mass interaction 1978 to 1985 Microprocessor and personal computer Spreadsheets and word processing

5. Infrastructuralisation 1985 to 1993

Local- and wide-area networks, graphical user interfaces

E-mail and enterprise resource planning

6. Mass communication 1993 to c. 2005

Internet, World Wide Web, Java Mass information access for commu- nications and purchasing

Table 5.4 Six stages of advances in the dissemination of information

Source: Based on kampas (2000).

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Figure 5.7 B2B and B2C interactions between an organisation, its suppliers and its customers

Business customer

Public customer

Business-to-consumer (B2C) transactions

Business-to-business (B2B) transactions

Intermediaries

Intermediaries

Intermediaries

Organisation Suppliers

Figure 5.8 illustrates disintermediation in a graphical form for a consumer distribution channel. Further intermediaries such as additional distributors may occur in a business- to-business market. Figure 5.8(a) shows the position where a company markets and sells it products by ‘pushing’ them through a sales channel. Figures 5.8(b)(c) and (d) show three different types of disintermediation in which the retailer (b), wholesaler (c) or the wholesaler and retailer (d) are bypassed, allowing the producer to sell and promote direct to the consumer. The benefits of disintermediation to the producer are clear – it is able to remove the sales and infrastructure cost of selling through the channel. Some of these cost savings can be passed on to the customer in the form of cost reductions.

At the start of business hype about the Internet in the mid-1990s there was much speculation that widespread disintermediation would see the failure of many intermediary companies as direct selling occurred. However, although sales at amazon.co.uk continue to increase this has not led to the demise of bookshops such as Waterstones. Disintermediation can be a powerful force however, for example the travel industry has seen a major shift from the use of travel agents offering packaged flight and hotel bookings to consumers dealing directly with flight providers (for example easyJet, RyanAir, Bmibaby, Jet2, British Airways) and to a lesser extent Internet-based hotel providers (for example www.shangri-la.com, www.hyatt.com).

transaction type example

B2B Car leasing (www.nationwidevehiclecontracts.co.uk)

Construction resources (www.constructionplus.co.uk)

B2C Expedia travel (www.expedia.co.uk)

Flights (www.qantas.com)

C2C Advice on trips (www.tripadvisor.co.uk)

Auction site (www.ebay.co.uk)

Table 5.5 Examples of types of transactions between businesses and consumers

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In fact, although disintermediation has occurred, the creation of new intermediaries between customers and suppliers, termed re-intermediation, has also occurred. For example, in the travel industry sites such as Tripadvisor (www.tripadvisor.com) provide information regarding destinations and hotels and then provide links to hotel providers.

What are the implications of re-intermediation for the e-commerce manager? First, it is necessary to make sure that your company, as a supplier, is represented with the

new intermediaries operating within your chosen market sector. This implies the need to integrate, using the Internet, databases containing price information with those of different intermediaries.

Secondly, it is important to monitor the prices of other suppliers within this sector (possibly by using the intermediary web site for this purpose).

Thirdly, it may be appropriate to create your own intermediary, for example DIY chain B&Q has set up its own intermediary to help budding DIYers, but it is positioned separately from its owners.

Figure 5.8 Disintermediation of a consumer distribution channel

Pepsi (soda drinks distribution) traditional distribution channel

Producer Wholesaler Retailer Consumer

Dell (Computers) wholesale direct to customers on website

(b)

(c)

(d)

(a)

Producer Wholesaler Retailer Consumer

Worldbuydirect.com website that allows retailers to buy direct from producers

Producer Wholesaler Retailer Consumer

Chatworth’s Farm Shop (groceries and meat) produce and sell direct to customer on website

Producer Wholesaler Retailer Consumer

Re-intermediation

the creation of new intermediaries between customers and suppliers providing services such as supplier search and product evaluation.

Purpose To provide an example of the services provided by ‘cybermediaries’ and explore their viability as businesses.

■ Visit the Kelkoo web site (www.kelkoo.co.uk), shown in Figure 5.9, and search for this book, a CD or anything else you fancy. Explain the service that is being offered to customers.

Re-intermediation in practiceActivity 5.2

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Figure 5.9 Kelkoo.com, a European price comparison site

■ Write down the different revenue opportunities for this site (some may be evident from the site, but others may not; write down your ideas also).

■ Given that there are other competing sites in this intermediary category such as PriceRunner (www.pricerunner.com), assess the future of this online business using press releases and comments from other sites such as Moreover (www.moreover.com).

Source: www.kelkoo.com

Today we live in a world where almost anything can be bought or sold directly through an internet platform. The role of the middleman – from retailer to broker and even financier – is being hit on all fronts. And yet somehow the estate agent model, which depends on matching buyers and sellers, withstands.

It is, to say the least, a puzzle.

Before I go on I should declare an interest. I’ve started to think about selling my London flat, which has made me wonder: do I really need an agent to help me in that process in this day and age of online platforms?

Also, how easy would it be to arrange a private sale? And why on earth aren’t more people selling without the middleman?

The more I think about it, the more I struggle to understand how the estate agent model has managed to defy technology’s disruptive influence. Why would anyone pay a commission when an internet listing can open just as big a market door?

My suspicion is that, for now, the estate agent’s lingering presence relates to three things.

Death of a matchmaker By Izabella Kaminska,

CASE STUDY 5.1

➨

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Intranets and extranets

The majority of Internet services are available to any business or consumer that has access to the Internet. However, many e-business applications that access sensitive company information require access to be limited to favoured individuals or third parties. If information is limited to those inside an organisation, this is an intranet. If access is extended to some others, but not everyone beyond the organisation, this is an extranet. The relationship between these terms is illustrated in Figure 5.10. Extranets can be accessed by

Intranet

a private network within a single company using Internet standards to enable employees to share information using e-mail and web publishing.

First, the mass-sell websites that exist today were designed to complement rather than disrupt the old model. Simply speaking, they make it very hard for individuals to market properties.

Second is platform liquidity and choice. Existing independent platforms don’t yet have the inventory or scale to attract buyers from the incumbent mass-sell sites that still depend on agents. This, however, stands to change as more inventory comes their way. Also, liquidity begets liquidity.

Last and not least, estate agents themselves are getting better at securing new stock and capturing continuing business, often through ever more aggressive tactics.

For example, in my experience it’s difficult to make a property inquiry in the UK without immediately being asked about your plans for your existing property. Valuations are presented almost as a condition for viewings. Estate agents have a reputation for being pushy but, compared with the last time I was in the market, they seem more desperate.

In short, the industry’s response to the technological threat has not been to improve service and desirability for its product but to become more monopolistic and cartel-like. This, of course, comes at the cost of the low- end of the market, which stays entrapped but fails to benefit from the clubby relationships still offered to the high-end part of the market.

While it’s true that these tactics have been successful thus far, I’m not sure they will be enough to withstand the trend towards disintermediation. It seems inevitable that the independent sites will gain critical mass eventually.

The real shame is that, in the interim, the industry has failed to recognise that it must evolve if it is to avoid being fully digitised. Evolution lies in recognising that the future is about more than just sourcing inventory or matching. People may have the power to market properties directly but they still desire all the indirect services associated with expertise and convenience.

That includes everything from drawing up plans, man- aging appointments, opening doors, fielding questions and, at the later parts of the process, hand-holding both the buyer and seller through the transaction process – one which can involve complicated chains that need constant management.

Yet rather than adapting, agents have become fixated with protectionist tactics focused on capturing new properties or the pushing of mortgages and finance to customers. And this is exactly the sort of thing that puts off would-be clients. The industry would do better if it responded more creatively.

For example, imagine a new type of model focused entirely on convenience, local knowledge, prospecting and the hand-holding of clients. Or, perhaps a model that understands that the cost burden should be shared equally between seller and buyer?

For many years the estate-agent market prided itself on being localised, specialised and fragmented. If you wanted to buy in Richmond, you had to go to the area to talk to local specialist agents directly.

Looking for and selling property was a labour- intensive process, one in which local knowledge was key and liquidity was guarded by a handful of local operators.

Property websites understandably changed the rules of the game. Market access was no longer linked to local specialists. Searches became quicker, deeper and further reaching. Buyers got more choice, sellers got access to ever wider audiences.

But rather than embracing this new field, the industry has seemingly stumbled at the last hurdle. Rather than turning itself into a market facilitator and gate opener, it’s stubbornly stuck to the role of gatekeeper and inventory guardian.

The problem with closed gates, of course, is that people will always find ways around them. I, for one, have already been tempted to jump the fence.

QUESTION

Discuss the barriers to disintermediation in the estate agency business.

Source: Kaminska, I. (2013) Death of a matchmaker. Financial Times. 22 February. © The Financial Times Limited 2013. All Rights Reserved.

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authorised people outside the company such as collaborators, suppliers or major customers, but information is not available to everyone with an Internet connection – only those with password access. Note that the term ‘intranet’ is sometimes loosely used to refer to an extranet.

Intranet applications

Intranets are used extensively for supporting the marketing function. They are also used to support core supply-chain management activities as described in the next section on extranets. A marketing intranet has the following advantages:

■ reduced product lifecycles – as information on product development and marketing campaigns is rationalised we can get products to markets faster;

■ reduced costs through higher productivity, and savings on hard copy; ■ better customer service – responsive and personalised support with staff accessing

customer information via the web; ■ distribution of information through remote offices nationally or globally.

Intranets are also used for sharing these types of information:

■ staff phone directories; ■ staff procedures or quality manuals; ■ information for agents such as product specifications, current list and discounted prices,

competitor information, factory schedules and stocking levels – all this information normally has to be updated frequently and can be costly;

Figure 5.10 The relationship between intranets, extranets and the Internet

Intranet

Extranet

The Internet

Company onlyThe world

The world

Suppliers, customers,

collaborators

Suppliers, customers,

collaborators

Extranet

formed by extending the intranet beyond a company to customers, suppliers and collaborators.

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■ staff bulletin or newsletter; ■ training courses.

Extranet applications

Extranets are used extensively to support supply chain management as resources are ordered from suppliers and transformed into products and services delivered to customers. To enable different applications within a company, such as a sales ordering system and an inventory control system that interoperate with each other and databases in other companies, requires an internal company intranet to be created that can then communicate across an extranet with applications on another company intranet.

The case study ‘get control of your web site’ describes how the distinction between the locations of applications for intranets, extranets and public web sites in becoming smaller.

Firewalls

Firewalls are necessary when we are creating an intranet or extranet to ensure that outside access to the confidential information does not occur. Firewalls are usually created as software mounted on a separate server at the point where the company is connected to the Internet. Firewall software can then be configured to only accept links from trusted domains representing other offices in the company.

The World Wide Web, introduced in Chapter 3, provides a standard method for exchanging and publishing information on the Internet. The medium is based on standard document formats such as HTML (Hypertext Markup Language) which can be thought of as similar to a word-processing format such as that used for Microsoft Word documents. This standard has been widely adopted because:

■ it offers hyperlinks which allow users to readily move from one document or web site to another – the process known as ‘surfing’;

■ HTML supports a wide range of formatting, making documents easy to read on different access devices;

■ graphics and animations can be integrated into web pages; ■ interaction is possible through HTML-based forms that enable customers to supply their

personal details for more information on a product, perform searches, ask questions or make comments.

It is the combination of web browsers and HTML that has proved so successful in establishing widespread business use of the Internet. The use of these tools provides a range of benefits including the following:

■ It is easy to use since navigation between documents is enabled by clicking on hyperlinks or images. This soon becomes a very intuitive way of navigation which is similar across all web sites and applications.

■ It can provide a graphical environment supporting multimedia which is popular with users and gives a visual medium for advertising.

■ The standardisation of tools and growth in demand means information can be exchanged with many businesses and consumers.

What is the World Wide Web?

Firewall

a specialised software application mounted on a server at the point where the company is connected to the Internet. Its purpose is to prevent unauthorised access into the company from outsiders.

World Wide Web

the most common technique for publishing information on the Internet. It is accessed through web browsers which display web pages of embedded graphics and html/ Xml-encoded text.

Hyperlink

a method of moving between one web-site page and another, indicated to the user by an image or text highlighted by underlining and/or a different colour.

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We have introduced the general terms and concepts that describe the operation of the Internet and World Wide Web. In this section we look in more detail at the standards that have been adopted to enable transfer of information. Knowledge of these terms is useful for anyone involved in the management of e-commerce since discussion with suppliers may involve them.

Web browsers and servers

Web browsers are software used to access the information on the WWW that is stored on web servers. Web servers are used to store, manage and supply the information on the WWW. The main web browsers are Microsoft Internet Explorer, Mozilla Firefox, Google Chrome, Apple Safari and Opera. Browsers display the text and graphics accessed from web sites and provide tools for managing information from web sites.

Web browsers communicate with web servers in the following way. A request from the client PC is executed when the user types in a web address, clicks on a hyperlink or fills in an online form such as a search. This request is then sent to the ISP and routed across the Internet to the destination server using the mechanism described in the section on protocols. The server then returns the requested web page if it is a static (fixed) page, or if it requires reference to a database, such as a request for product information, it will pass the query on to a database server and will then return this to the customer as a dynamically created web page. Information on all page requests is stored in a transaction log file which records the page requested, the time it was made and the source of the enquiry.

Web browsers

Browsers such as microsoft Internet explorer provide an easy method of accessing and viewing information stored as web documents on different servers.

Web servers

store and present the web pages accessed by web browsers.

Protocol

the Internet functions using a series of standard protocols which allow different computers to communicate with each other.

Static web page

a page on the web server that is invariant.

Dynamically created web page

a page that is created in real time, often with reference to a database query, in response to a user request.

Transaction log files

a web server file that records all page requests from site visitors.

HOW THE INTERNET WORKS – INTERNET STANDARDSFOCUS ON…

Internet standards are important since they are at the heart of definitions of the Internet. According to Leiner et al. (2003), on 24 October 1995 the Federal Networking Council unanimously passed a resolution defining the term ‘Internet’:

‘Internet’ refers to the global information system that – (i) is logically linked together by a globally unique address space based on the Internet Protocol (IP) or its subsequent extensions/follow-ons; (ii) is able to support communications using the Transmission Con- trol Protocol/Internet Protocol (TCP/IP) suite or its subsequent extensions/follow-ons, and/ or other IP-compatible protocols; and (iii) provides, uses or makes accessible, either publicly or privately, high level services layered on the communications and related infra-structure described herein.

TCP/IP development was led by Robert Kahn and Vince Cerf in the late 1960s and early 1970s and, according to Leiner et al. (2003), four ground rules controlled Kahn’s early work on this protocol. These four ground rules highlight the operation of the TCP/IP protocol:

■ Distinct networks would be able to communicate seamlessly with other networks. ■ Communications would be on a best-effort basis, i.e. if a data packet didn’t reach the

final destination, it would be retransmitted from the source until successful receipt. ■ Black boxes would be used to connect the networks; these are the gateways and routers

produced by companies such as Cisco and 3Com. There would be no information retained by the gateways in order to keep them simple.

■ There would be no global control of transmissions, these would be governed by the requester and sender of information.

Networking standards

TCP/IP

the transmission control protocol is a transport-layer protocol that moves data between applications. the Internet protocol is a network-layer protocol that moves data between host computers.

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It can be seen that simplicity, speed and independence from control were at the heart of the development of the TCP/IP standards.

The data transmissions standards of the Internet such as TCP/IP are part of a larger set of standards known as the open systems interconnection (OSI) model. This defines a layered model that enables servers to communicate with other servers and clients. When implemented in software, the combined layers are referred to as a ‘protocol stack’. The seven layers of the OSI model are:

■ Application. This layer is not the application itself, such as the web browser. Instead, it provides functions for privacy, messaging and file transfer.

■ Presentation. This layer includes data-transfer protocols such as SMTP, HTTP and FTP. ■ Session. This layer is so called since it manages session and connection coordination. It

sets up, coordinates, and terminates conversations, exchanges and dialogues between the applications at each end of a communications channel. As such, the session layer is specific to each presentation-layer type such as SMTP, HTTP or FTP.

■ Transport. This layer ensures the integrity of data transmitted, i.e. are all data transmitted? Examples include the Internet transmission control protocol and Novell SPX.

■ Network. Defines protocols for opening and maintaining links between servers. This layer handles the routeing of the data (sending it in the right direction to the right destination on outgoing transmissions and receiving incoming transmissions at the packet level). The network layer does routeing and forwarding. The best-known network layers are the Internet protocol (IP) and Novell IPX.

■ Data link. Defines the rules for sending, receiving and acknowledging information exchange at the level of 1s and 0s.

■ Physical layer. Low-level description of physical transmission methods such as ISDN, ADSL and co-axial cables.

The postal service is a good analogy for the transmission of data around the Internet using the TCP/IP protocol. Before we send mail, we always need to add a destination address. Likewise, the IP protocol acts as an addressed envelope that is used to address a message to the appropriate IP address of the receiver.

The Internet is a packet-switched network that uses TCP/IP as its protocol. This means that, as messages or packets are sent, there is no part of the network that is dedicated to them. This is like the fact that when your letters and parcels are sent by post they are mixed with letters and parcels from other people. The alternative type of network is the circuit-switched network such as phone systems where the line is dedicated to the user for the duration of the call. Taking the analogy further, the transmission media of the Internet such as telephone lines, satellite links and optical cables are the equivalent of the vans, trains and planes that are used to carry post. In addition to the transmission media, components of the network are also required to direct or route the packets or messages via the most efficient route. On the Internet these are referred to as ‘routers’ or ‘hubs’, and are manufactured by companies such as Cisco and 3Com. The routers are the equivalent of postal sorting offices which decide the best route for mail to take. They do not plan the entire route of the message, but rather direct it to the next router that seems most appropriate given the destination and current network traffic.

Some addressing information goes at the beginning of your message; this information gives the network enough information to deliver the packet of data. The IP address of a receiving server is usually in the form 207.68.156.58, which is a numerical representation of a better-known form such as www.microsoft.com. Each IP address is unique to a given organisation, server or client, in a similar way to postal codes referring to a small number of houses. The first number refers to the top-level domain in the network, in this case.com. The remaining numbers are used to refer to a particular organisation.

Once the Internet message is addressed, the postal analogy is not so apt since related information is not sent across the Internet in one large message. For reasons of efficiency, information sent across IP networks is broken up into separate parts called packets. The

Open systems interconnection (OSI) model

a layered model of data transmission standards that enables servers to communicate with other servers and clients.

IP address

the unique numerical address of a computer.

Packets

a packet is a formatted unit of data. a packet contains both the data the user is sending or receiving (user data) and control information which provides information that the network needs to deliver the user data, for example the source and destination addresses of the data.

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information within a packet is usually between 1 and 1500 characters long. This helps to route information most efficiently and fairly with different packets sent by different people gaining equal priority. The transmission control protocol, TCP, performs the task of splitting up the original message into packets on dispatch and reassembling it on receipt. Combining TCP and IP, you can think of an addressed IP envelope containing a TCP envelope which in turn contains part of the original message that has been split into a packet.

HTTP, the hypertext transfer protocol is a standard used to allow web browsers and servers to transfer requests for delivery of web pages and their embedded graphics. When you click on a link while viewing a web site, the web browser you are using will request information from the server computer hosting the web site using the HTTP protocol. Since this protocol is important for delivering the web pages, the letters http:// are used to prefix all web addresses. HTTP messages are divided into HTTP ‘get’ messages for requesting and web page and HTTP ‘send’ messages. The web pages and graphics transferred in this way are transferred as packets, which is why web pages do not usually download smoothly, but come in jumps as different groups of packets arrive.

The inventor of HTTP, Tim Berners Lee, describes its purpose as follows (Berners Lee, 2000):

HTTP rules define things like which computer speaks first, and how they speak in turn. When two computers agree they can talk, they have to find a common way to represent their data so they can share it.

The HTTP protocol

HTTP (hypertext transfer protocol)

httP or hypertext transfer protocol is a standard that defines the way information is transmitted across the Internet between web browsers and web servers.

Web addresses refer to particular pages on a web server which is hosted by a company or organisation. The technical name for web addresses is uniform or universal resource locators (URLs). URLs can be thought of as a standard method of addressing similar to postcodes that make it straightforward to find the name of a site.

Web addresses are usually prefixed by ‘http://’ to denote the http protocol that is explained above. Web addresses always start with ‘http://’, so references to web sites in this book and in most promotional material from companies omit this part of the URL. Indeed, when using modern versions of web browsers, it is not necessary to type this in as part of the web page location since it is added automatically by the web browser. Although the vast majority of sites start with ‘www’, this is not universal, so it is necessary to specify this.

Web addresses are structured in a standard way as follows: http://www.domain-name.extension/filename.html

Uniform resource locators (URLs)

Uniform (universal) resource locators (URLs)

a web address used to locate a web page on a web server.

The domain name refers to the name of the web server and is usually selected to be the same as the name of the company, and the extension will indicate its type. The extension is known as the global top-level domain (gTLD). There are also some 250 country-code top- level domains (ccTLD).

Some common gTLDs are:

■ .com represents an international or American company such as www.travel-agency.com ■ .co.uk represents a company based in the UK such as www.thomascook.co.uk ■ .ac.uk for a UK university (e.g. www.aston.ac.uk) ■ .org.uk or .org are for not-for-profit organisations (e.g. www.greenpeace.org).

Domain names

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The ‘filename.html’ part of the web address refers to an individual web page, for example ‘products.html’ for a web page summarising a company’s products. When a web address is typed in without a filename, for example www.bt.com, the browser automatically assumes the user is looking for the home page, which by convention is referred to as index.html. When creating sites, it is therefore vital to name the home page index.html. The file index. html can also be placed in sub-directories to ease access to information. For example, to access a support page a customer would type www.internic.net.

HTML (Hypertext Markup Language)

html is a standard format used to define the text and layout of web pages. html files usually have the extension .html or .htm.

XML or eXtensible Markup Language

a standard for transferring structured data, unlike html which is purely presentational.

MOBILE OR WIRELESS ACCESS DEVICESFOCUS ON…

The characteristics that mobile or wireless connections offer to their users is that they provide ubiquity (can be accessed from anywhere), reachability (their users can be reached when not in their normal location) and convenience (it is not necessary to have access to a power supply or fixed-line connection). In addition to these obvious benefits, there are additional benefits that are less obvious: they provide security – each user can be

The main web page standards (introduced in Chapter 3) are HTML (Hypertext Markup Language) and, for data exchange, XML (eXtensible Markup Language).

Web page standards

Note that gTLDs are continuously under review by Icann, the Internet Corporation for Assigned Names and Numbers (www.icann.org). Available are.biz for business,.name to be used by individuals,.museum,.pro for professionals,.aero for aviation,.coop for cooperatives and.info. Some of the proposed gTLDs refused included ‘.sex’, ‘.shoes’, ‘.kids’ and ‘.xxx’. The introduction of these names, while increasing choice where.com names have already been assigned, may make finding the URL of a company more difficult – it may less often be sufficient to take the name of the company and add ‘.com’. According to another view, existing companies such as Amazon will attempt to register with the new domain such as ‘.biz’ which will not help to increase the availability of gTLD names.

Icann is involved in domain name arbitration. Its first case involved an individual who offered the name WorldWrestlingFederation.com to the World Wrestling Federation. The WWF won since it was considered the individual was ‘cybersquatting’. In another case, Penguin books stated that it had a claim to www.penguin.org which had been registered by an individual. But in this case the company lost since the respondent argued convincingly that he was known as Penguin and his wife as Mrs Penguin!

Domain name registration

If a company wants to establish a web presence they need to register a domain name that is unique to them. Domain names can be registered via an ISP or at more favourable rates direct from the domain name services:

■ InterNIC – www.internic.net. Registration and information about sites in the .com, .org and .net domains.

■ Nominet – www.nominet.org.uk. This is the main co.uk site.

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authenticated since each wireless device has a unique identification code; their location can be used to tailor content and they provide a degree of privacy compared with a desktop PC – looking for a new job on a wireless device might be better than under the gaze of a boss! The case study ‘Ubiquity will be a hard state to reach’ examines the mix of mobile, wireless and fixed connections that are being used in order to provide the maximum coverage of Internet services to the world population.

In addition to offering voice-calls, mobile phones have increasingly been used for e-mail and text messaging, using the short messaging service (SMS) standard. During 2011 it was estimated that there were over 5.9 trillion SMS messages exchanged worldwide! Traffic is expected to increase to 9.4 trillion by 2016 (http://mobithinking.com/mobile- marketing-tools/latest-mobile-stats/c#mobilemessaging). To allow the transmission of sound, images and video, as well as text, the multimedia messaging service (MMS) has been established. This allows the transmission of formatted text, images in formats such as JPEG and GIF, audio in formats such as MP3 and video in MPEG format. Unlike the SMS standard which limits the size of messages to 160 bytes there is no limit to the size of messages using MMS. During 2011 it was estimated that there were over 1.6 trillion MMS messages exchanged worldwide. (http://mobithinking.com/mobile-marketing- tools/latest-mobile-stats/c#mobilemessaging). Whilst mobile phone users can create and send their own MMS messages, perhaps the biggest use of MMS is likely to be companies sending MMS messages to customers. For example, a company could send visitors an MMS map to help them find its office. Other possible applications include weather reports, news and sport bulletins, etc. Internet access by phone is also becoming increasingly popular.

Short messaging service (SMS)

the standard for sending text messages by mobile phone.

Multimedia messaging service (SMS)

the standard for sending multimedia messages by mobile phone.

In 1999 the first of a new generation of mobile phones such as the Nokia 7110 were introduced; these offered the opportunity to access the Internet. They are known as wireless application protocol or WAP phones or, in more common parlance, web-enabled or Internet phones. What these phones offer is the facility to access information on web sites that has been specially tailored for display on the small screens of mobile phones.

In 2001 new services became available on GPRS (General Packet Radio Service), sometimes referred to as 2.5G. This is approximately five times faster than the 2G devices using the GSM (global system for mobile communication) standard used for most mobile voice calls. GPRS is an ‘always-on’ service which is charged according to usage. The display is still largely text-based and based on the WAP protocol.

In 2004 a completely new generation of 3G services based on the UMTS wireless technology became available, offering a maximum practical download speed of 384 kbps (although 2 Mbps is possible) and an upload speed of 64 kbps. So 3G is approximately six times faster than GPRS. 3G allows rapid delivery of video and images with ‘always-on’ web browsing and permits MMS messages to be sent (although small MMS messages can be sent even with second generation networks using GPRS).

In the UK, auctions in 2000 for the licence to operate on these frequencies exceeded £20 billion – such was the perceived importance of these services to the telecommunications companies. You can read the historic document giving the background to 3G and these auctions at: www.ofcom.org.uk/static/archive/spectrumauctions/3gindex.htm.

In 2012 Ofcom allowed EE, the owner of the Orange and T-Mobile networks, to use its existing bandwidth to launch fourth-generation (4G) mobile services. The group aims to cover 70 per cent of the UK by 2013 and 98 per cent by 2014. 4G aims to give consistently faster and more reliable service for video and music streaming, mobile gaming, and sending emails with large attachments.

High-speed mobile services

Wireless application protocol (WAP)

waP is a technical standard for transferring information to wireless devices, such as mobile phones.

GPRS (General Packet Radio Service) (2.5G)

Improved digital (Gsm) standard for mobile devices.

3G

digital standard for mobile devices featuring always-on broadband internet availability.

4G

digital standard for mobile devices featuring faster speeds for applications such as video and music streaming.

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The amount of time people in the US spend consuming digital media is set to overtake hours spent watching television for the first time this year, marking a significant tipping point in the shift away from traditional forms of media.

The average adult will spend five hours and nine minutes a day online or consuming other types of digital media this year, an increase of 38 minutes, or 16 per cent, compared with 2012, according to new estimates from eMarketer.

The amount of time spent watching TV is projected to fall by seven minutes to four hours and 31 minutes.

In another pivotal change, mobile devices such as smartphones and tablets will overtake the computer as the primary means of consuming digital media. The amount of time people spend using mobile devices to surf the web will increase by nearly an hour to two hours and 21 minutes, compared to one hour and 33 minutes in 2012.

Meanwhile, hours spent using a desktop PC or laptops for internet-related activities will fall by eight minutes, from two hours and 27 minutes in 2012 to two hours and 19 minutes.

The change in consumer behaviour is already shaking the foundations of the advertising business.

Google reported a larger than expected drop in advertising rates during the most recent quarter because of the shift to mobile, where ad rates are typically cheaper. By contrast, Facebookshares have soared after the company last week reported better than expected mobile ad revenues.

This week, Publicis and Omnicomannounced a $35bn tie-up, which will create the world’s largest advertising and marketing services group. Executives are pitching the deal, the largest in the history of the ad industry, as a way to create a technology and digital media-driven advertising company for the future.

‘The objective was not to do a deal to be bigger,’ said Maurice Lévy, the chief executive of Publicis. ‘The objective is to drive the key issues of the future of this industry.’

Yet advertising dollars still lag behind consumer behaviour. While marketers are steadily shifting their budgets to follow how people are spending their time, ad spending on television is far greater than on digital media.

Marketers are set to spend $205bn on television commercials worldwide this year compared to the $116.8bn they are expected to spend on digital ads, according to eMarketer.

Americans turning off TV and on to digital devices By Emily Steel in New York

CASE STUDY 5.2

Source: Steel, E. (201?) Americans turning off TV and on to digital devices. Financial Times. ????. © The Financial Times Limited 201?. All Rights Reserved.

QUESTION

What are the implications of the switch from television to digital media?

Transactional e-commerce predates PCs and the World Wide Web by some margin. In the 1960s, electronic data interchange (EDI) and electronic funds transfer (EFT) over secure private networks became established modes of intra- and inter-company transaction. The idea of standardised document exchange can be traced back to the 1948 Berlin Airlift, where a standard form was required for efficient management of items flown to Berlin from many locations. This was followed by electronic transmission in the 1960s in the US transport industries. The EDIFACT (Electronic Data Interchange for Administration, Commerce and Transport) standard was later produced by a joint United Nations/European committee to facilitate international trading. There is also a similar X12 EDI standard developed by the ANSI Accredited Standards Committee.

EDIFOCUS ON…

Electronic data interchange (EDI)

the exchange, using digital media, of structured business information, particularly for sales transactions such as purchase orders and invoices between buyers and sellers.

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Clarke (1998) considers that EDI is best understood as the replacement of paper-based purchase orders with electronic equivalents, but its applications are wider than this. The types of documents exchanged by EDI include business transactions such as orders, invoices, delivery advices and payment instructions as part of EFT. There may also be pure information transactions such as a product specification, for example engineering drawings or price lists. Clarke (1998) defines EDI as:

the exchange of documents in standardised electronic form, between organisations, in an automated manner, directly from a computer application in one organisation to an application in another.

DTI (2000) describes EDI as follows:

Electronic data interchange (EDI) is the computer-to-computer exchange of structured data, sent in a form that allows for automatic processing with no manual intervention. This is usually carried out over specialist EDI networks.

It is apparent from these definitions that EDI is one form, or a subset, of electronic commerce. A key point is that direct communication occurs between applications (rather than between computers). This requires information systems to achieve the data processing, data management associated with EDI, and integration with associated information systems such as sales order processing and inventory control systems.

Internet EDI enables EDI to be implemented at lower costs since rather than using proprietary, so-called value-added networks (VANs), it uses the same EDI standard documents but using lower cost transmission techniques through virtual private networks (VPNs) or the public Internet. Internet EDI also includes EDI-structured documents being exchanged by e-mail or in a more automated form using FTP.

Virtual private networks can be used to enable remote workers such as sales representatives or teleworkers to access a company network and access customer databases and file servers, thus making them more productive by giving the information they need in real time. Such VPNs are not only for large organisations, but smaller organisations can use them. For example, a medium-sized company with five travelling sales representatives could access customer data and product information in ‘real time’ while meeting clients in different parts of the country. Traditionally, this would have been achieved through connecting a laptop via a phone line, but this is not practical in clients’ offices. Today, laptops with wireless data transmission cards can be used to access the company network from anywhere that has access. Alternatively a VPN can be used to access company data using smaller mobile devices such as Pocket PCs and personal digital assistants using WAP or 3G wireless transmission which were described earlier in this chapter.

Electronic funds transfer

automated digital transmission of money between organisations and banks.

Internet EDI

use of edI data standards delivered across non-proprietary IP networks.

The benefits of EDI are the same as those for Internet-based electronic commerce between organisations. The benefits of using EDI to streamline business processes include:

■ more rapid fulfilment of orders. Reduced lead times are achieved through reduced times in placing and receiving orders, reduced times of information in transit and integration with other processes;

■ fewer errors in data entry and less time spent by the buyer and supplier on exception handling;

■ reduced costs resulting from reduced staff time, material savings such as paper and forms and improved inventory control.

Benefits and limitations of EDI

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Voice over IP (VoIP) can be used for transmitting voice over a LAN or on a wider scale. You will remember that IP stands for Internet protocol and so VoIP enables phone calls to be made over the Internet. IP enables a single network to handle all types of communications needs of an organisation, i.e. data, voice and multimedia. VoIP (pronounced ‘voyp’) is proving increasingly popular for reducing the cost of making phone calls both within an office and between offices, particularly internationally. In the longer term it will also be used by major telecommunications companies such as AT&T and BT to replace their existing voice networks with IP networks.

In addition to the cost-reduction benefits, other benefits include:

■ click-to-call – users click the number they want from an on-screen directory to call. ■ call forwarding and conferencing to people at other locations. ■ unified messaging – e-mails, voicemails and faxes all integrated into a single inbox. ■ hot-desking – calls are routed to staff wherever they log in – on-site or off-site. ■ cost control – review and allocation of costs between different businesses is more

transparent.

To implement VoIP several options are available to managers:

1. Peer-to-peer. The best-known peer-to-peer solution is Skype which is free to download and Skype-to-Skype (PC-to-PC) calling is free. A service called SkypeOut enables calls to landlines or mobile phones at a reduced cost compared to traditional billing. This service is only really suited to smaller businesses, but could be used in larger businesses for some staff who call abroad frequently to bypass the central system. Skype also offers two premium services, SkypeIn and Skype Voicemail. SkypeIn customers can purchase a personal number to receive incoming calls from a fixed or mobile line, and can manage incoming messages with Skype Voicemail.

2. Hosted service. This principle is similar to hosted software from application service providers (ASPs). Here, a company makes use of a large centralised IP-based system shared between many companies. This potentially reduces costs, but some companies might be concerned about outsourcing their entire phone directory.

3. Complete replacement of all telephone systems. This is potentially costly and disruptive in the short term, but new companies or relocating companies may find this the most cost-effective solution.

4. Upgrading existing telephone systems to use VoIP. Typically, the best compromise for existing companies.

Early EDI solutions were expensive to implement. Despite efforts to create national and international standards for document formats, they were based on proprietary technologies which tended to lock a company into that supplier since each EDI link tended to be set up specifically for a single supplier and buyer. This made it difficult to switch the connection to another supplier. If a company was multi-sourcing rather than single-sourcing then separate EDI standards might be needed for each supplier. Internet EDI tends to reduce these disadvantages.

Although EDI was established before Internet-based e-commerce became wide-spread, it appears to have a future. The volume of Internet EDI is increasing rapidly and revision of EDI standards to be compatible with XML should guarantee its continued use.

VOICE OVER IP (VoIP)FOCUS ON…

Voice over IP (VoIP)

Voice data are transferred across the Internet – it enables phone calls to be made over the Internet.

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Popular mobile chat services are posing a threat to traditional operators, write FT reporters

Nguyen Tung Lam, a 16-year-old high school student in Hanoi, uses Japanese mobile messaging service Line to chat with his girlfriend because she ‘likes the cute icons such as the teddy bear and bunny’.

Doan Nguyen Trang, another Vietnamese teenager, prefers South Korea’s KakaoTalk app because it is promoted by a wildly popular Korean boy band.

‘I use KakaoTalk because Big Bang also use it and they are number one; I love them,’ says the 14-year-old.

KakaoTalk, Line and WeChat, a mobile messaging app developed by China’s Tencent, are spending tens of millions of dollars on television advertising, online promotions and celebrity endorsements as they fight for the attention of tech-savvy southeast Asian teenagers.

With a population of 600m people, a fast-growing middle class and fast-rising smartphone sales, southeast Asia has become the front line in a battle for mobile phone users that is threatening the traditional dominance of mobile phone network operators, global internet companies such as Facebook and Google and now- struggling handset maker BlackBerry.

Like their western rivals, KakaoTalk, Line and WeChat allow users to send free messages through mobile internet connections but their playful, teen-friendly style has set them apart, driving them to the top of many app download charts.

‘When you use Asian mobile chat apps such as KakaoTalk or Line, you have a certain sense of joy and fun communicating with your loved ones, whereas western apps focus more on pure functionality,’ says Le Hong Minh, chairman of VNG Corporation, Vietnam’s leading internet company.

KakaoTalk sparked the Asian mobile messaging revolution when it launched in 2010, but it has been overtaken by Line which this month crossed the 200m user threshold, two years after its inception – an accomplishment that took Facebook and Twitter more than five years.

‘Facebook and Google definitely see these mobile messaging apps as a threat,’ says Mark Ranson, an analyst at technology research company Ovum.

BlackBerry, long dominant in Indonesia because of its free Messenger service, is losing ground due to growing competition from the Asian chat apps that can be downloaded to any smartphone.

Sales of smartphones in southeast Asia have surged in the past few years because of rising incomes and the advent of cheaper, often Chinese-made phones that sell for as little as $50.

Southeast Asians bought 44m smartphones in the 12 months to April, a rise of 60 per cent on the previous year, according to GfK, a market research group.

‘Southeast Asia is like Korea three or four years ago,’ says Lee Sir-goo, joint chief executive of KakaoTalk. ‘If you think about Korea, KakaoTalk really took off when these smartphone devices were first being sold [in large numbers].’

Like Samsung, Hyundai and other South Korean companies, KakaoTalk has been benefiting from the widespread popularity of South Korean music and TV shows in Asia.

Along with WeChat and Line, which is based in Japan but owned by NHN, a South Korean internet company, it tailors its marketing strategies in each of the big emerging Asian markets including India, Indonesia, the Philippines and Vietnam. That is a markedly different approach from US-based Google and Facebook, which tend to eschew traditional TV and billboard advertising and localisation in favour of building homogenous global communication products such as email and instant messaging.

Mr Ranson says the rise of these Asian messaging apps shows the limits of the ‘one-size fits all’ approach, even as Facebook hits back with its own enhanced messaging services.

‘If you’re really serious about breaking into new markets, you need to customise and listen to local users,’ he says. ‘But for a massive company like Facebook, it’s hard to listen to people in every country.’

The three apps are free to download and the companies say they are focusing on attracting new users rather than making profits at this early stage.

They are also keen to expand beyond the region. Line’s strongest markets are in Indonesia, Japan, Taiwan and Thailand but the app also has 10m users in Spain.

And the revenues are starting to flow, through sales of ‘stickers’ – stylised icons for user profiles – and add-ons for free games.

Line reported revenue of Y5.82bn ($58.9m) in the first quarter of 2013 in its first public results, while KakaoTalk had its first profitable year last year, reporting revenue of $42m and a net profit of $6.5m.

Asian mobile chat apps challenge Western dominance By Ben Bland in Jakarta, Nguyen Phuong Linh in Hanoi and Simon Mundy in Seoul

CASE STUDY 5.3

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Whichever companies survive and thrive, VNG’s Mr Minh believes the rapid success of KakaoTalk, Line and WeChat presages the emergence of Asian internet

companies that will challenge the dominance of the US online pioneers.

1. Computer networks are built on different scales, from those limited to a single location (LAN) to national or international wide-area networks known as WAN. Table 5.6 summarises the different types.

2. Most PC-based networks are based on a client/server architecture in which there are a number of PC clients that share resources and communicate via a more powerful server computer. Client/ server networks can be arranged in a number of different topologies, such as bus, star and ring.

Table 5.6 Summary of the applications of different scales of network

Scale of network Description Business application

Peer-to-peer A simple network enabling sharing of files and devices

Small company or local workgroups in a single department

Local-area network One or several servers accessed by client computers and used for sharing peripheral devices such as printers

Network at a single company site

Wide-area network LANs at different sites are linked via leased lines which will often use microwave or satellite transmission

National company with several offices or multinational company; company wanting to perform EDI with its suppliers

Internet A global arrangement of wide area networks

Companies needing to communicate with many other companies via e-mail or accessing web servers

3. The main components of a network are the server and client computers which are linked to peripheral devices such as printers. The hardware is connected by guided media such as cables or, on a larger scale, unguided satellite and microwave. Telecommunications processors or gateways are required to translate information as it is passed from the hardware devices to the media. A network operating system such as UNIX, Windows NT or Novell Netware is necessary to control the hardware and provide facilities such as security and file and printer sharing.

4. Through using networks, companies can exchange information more rapidly and reduce costs by removing the need for human resources. The advantages of faster communication are not only internal, but extend to improving links with customers, suppliers, collaborators and even competitors.

5. The Internet is a global communications network that is used to transmit the information published on the World Wide Web (WWW) in a standard format based on Hypertext Markup Language (HTML) using different standard protocols such as HTTP and TCP/IP.

6. Companies deliver e-business services to employees and partners through web servers which are often hosted at third-party companies known as Internet service providers (ISP). Web servers will be linked to applications servers, database servers and legacy applications to deliver these services.

7. Consumers and business use these e-business services through web browser software with connections to the Internet also managed by an ISP through which they can access web servers.

SUMMARY

QUESTION

Discuss the challenges for companies such as Facebook of operating in a global market for mobile phone services.

Source: Bland, B. et al. (2013) Asian mobile chat apps challenge Western dominance. Financial Times. 1 August. © The Financial Times Limited 2013. All Rights Reserved.

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8. Intranets are private networks used inside companies to share information. Internet-based tools such as e-mail, FTP and the World Wide Web are all used as the method of sharing this information. Not all Internet users can access intranets since access is restricted by firewalls and password controls. Extranets are similar to intranets, but they are extended beyond the company to third parties such as suppliers, distributors or selected customers.

9. Standards to enable delivery of information include:

■ communications standards such as TCP/IP and HTTP; ■ text information standards such as HTML, XML and WML; ■ graphical information standards such as GIF and JPEG; ■ multimedia standards such as Shockwave, Flash and streaming audio and video.

1. Specify the components required for a client/server-based LAN for a company of 10 people.

2. Distinguish between a local-area network (LAN) and a wide-area network (WAN).

3. What are the main business benefits delivered by a local-area computer network?

4. What are the main components of a telecommunications system?

5. What is the purpose of a network operating system?

6. What is the difference between the Internet and the World Wide Web?

7. Describe the two main functions of an Internet service provider (ISP). How do ISPs differ from applications service providers?

8. Distinguish between intranets, extranets and the Internet.

9. Describe the standards involved when a web page is served from a web server to a user’s web browser.

EXERCISES

Self-assessment exercises

1. Do you think that the introduction of client/server systems has been worthwhile to businesses?

2. There are many possible benefits of company-wide networks. Is it possible for them to be achieved without changing working practices?

3. Discuss the merits and disadvantages of locating company e-business services inside a company, in comparison with outsourcing to an ISP or ASP.

Discussion questions

Essay questions

1. You are a newly installed IT manager in a company with 100 staff. You want to convince the directors of the benefits of adopting a local-area network across the whole company. How would you present your case?

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2. Explain the benefits that a company deciding to downsize to a client/server architecture as part of its IT strategy could derive. What management initiatives will be necessary to ensure that the introduction of the new system is a success?

3. You are consultant to a small retailer interested in setting up a transactional e-commerce site. Create a summary guide for the company about the stages that are necessary in the creation of a web site and the management issues involved.

Examination questions

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1. Name three ways in which installing a local-area network can reduce costs. Explain how this is achieved.

2. Which features would you need to specify for a company network for a company of 100 people working at a single site?

3. Computer networks exist on different scales. Distinguish between the following types:

(a) local-area network; (b) wide-area network; (c) metropolitan-area network; (d) value-added network.

4. Explain, with the aid of diagrams, the difference between the following network topologies:

(a) star; (b) bus; (c) ring.

5. Distinguish between the following different types of servers:

(a) network; (b) applications; (c) database.

6. What are the advantages of the following types of media? Is each more likely to be found in a local- or wide-area network?

(a) copper cable; (b) fibre-optic; (c) satellite; (d) microwave.

7. Networked communications in business occur through wide-area networks and local-area networks.

(a) How do the two types of network differ? (b) What is the difference between a local-area network and an intranet?

8. You have been tasked with arranging Internet access for other employees in your company. Summarise the hardware and software needed.

9. How would you explain to a friend what they need to purchase to access the World Wide Web using the Internet? Explain the hardware and software needed.

10. Explain the term ‘electronic data interchange’. What is its relevance to companies now that the Internet is widely used for data exchange?

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Berners Lee, T. (2000) Weaving the Web. The Past, Present and Future of the World Wide Web by its Inventor, orion Publishing, london. a fascinating, readable description of how the concept of the web was developed by the author.

Gillies, J. and Cailliau, R. (2000) How the Web Was Born, oxford university Press, new york. another readable book on the whole history of the Internet.

Krotoski, A. (2013) Untangling the Web: What the Internet is doing to you, faber and faber, london. discussion of the effect of the internet on our social world.

Laudon, K. and Laudon, J. (2007) Essentials of Business Information Systems, 7th edition, Prentice hall International, london. a summary of how telecommunications are used in business is given in chapter 9.

Berners Lee, T. (2000) Weaving the Web. The Past, Present and Future of the World Wide Web by its Inventor, orion Publishing, london

Clarke, R. (1998) electronic data Interchange (edI): an Introduction, http://www.rogerclarke. com/ec/edIIntro.html

DTI (2000) Business in the Information Age – International Benchmarking Study 2000, department of trade and Industry, uk

Gillies, J. and Cailliau, R. (2000) How the Web Was Born, oxford university Press, new york

Kampas, P.J. (2000) ‘road map to the e-revolution’, Information Systems Management Journal, 17, 2, march, 8–22

Leiner, B., Cerf, V., Clark, D., Kahn, R., Kleinrock, L., Lynch, D., Postel, J., Roberts, J. and Wolff, S. (2003) A Brief History of the Internet. Published by the Internet society at www.isoc.org/ internet/history/brief.shtml continuously updated document)

References

Further reading

Web links

www.gartner.com reports on aspects such as total cost of ownership.

www.internet2.edu Information on the Internet2 project.

www.isoc.org/internet/history/brief.shtml a brief history of the Internet. updated history by key players in its design – Barry m. leiner, Vinton G. cerf, david d. clark.

http://networking.ittoolbox.com Guidelines, articles on developments in networking technology.

www.rosettanet.org organisation promoting exchange of B2B data.

www.howstuffworks.com Good explanations with diagrams of many Internet and networking technologies.

http://searchnetworking.techtarget.com Part of the whatis.com service, specifically providing definitions and explanations of networking technology.

www.xml.com Xml resources.

Wireless media

www.bluetooth.com Information on the Bluetooth standard.

www.totaltele.com Industry news and the latest adoption levels for wireless and telecoms.

www.text.it Promotion of text messaging services for business and consumers.

www.wi-fi.org the trade body with information on wi-fi.

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