Information Systems in

Business Today
 System
• Set of related activities that are joined together
to achieve a common goal.
• Open – constantly interacts with the environment
• Closed – does not interact with the environment
• Cybernetic system – when feedback is applied to a
system
 SYSTEM
A set of elements or components that works together
and interacts to accomplish goals

INPUT PROCESS OUTPUT

FEEDBACK
Input
Input Captures or collects raw data from within organization
or from its external environment.

Processing
Processing converts this raw input into a more meaningful form.

Output
Output transfers from processed information to the people
who will use it or to the activities for which it will be used.

Feedback
Feedback is output that is returned to appropriate members of
the organization to help them evaluate or correct the input
stage.
Data
 A stream of raw facts about anything

 Examples:
 Record of all the players in one day cricket
matches.

 Detailed Marks of all students in a class.

 Business data as obtained from various business

houses.

5
Information
 processed data, which is useful to the
recipient.
 Examples:
 Profit of the company in the current year
 The highest ever score in one day cricket
 First ten toppers in a class
 The top 50 business houses of India.

6
 Then Information is……
WHICH
• Tells something the receiver did not know
• Reduces uncertainty

7
 Perspectives on Information Systems

Data and Information

Figure 1.3 Raw data from a supermarket checkout counter can be processed and organized to produce
meaningful information, such as the total unit sales of dish detergent or the total sales revenue
from dish detergent for a specific store or sales territory.
 Information System: why?

• Organisations changed from static to dynamic.

• Well defined business processes in organisations.
• For making accurate decisions.
• Huge Data as the organization grows.
• To scan and filter relevant information and retract the redundant
information.
 WHAT IS AN INFORMATION
SYSTEM?
Organized combination of
• Hardware
• Software
• Communications Networks
• Data
• People

• An Information system can be defined technically as a set of interrelated

components that collect or retrieve, process, store and distribute
information to support decision making, coordination and control in an
organization. They also help managers to analyze problems, visualize
complex subjects and create new products.
 What are Information Systems?

- A combination of technical components

- Built and used by people to collect, create, and distribute useful
data
- Helps in Decision making
 Management
• Functions are –
• Planning : Formulating goals and objectives and
then making strategies to achieve these goals.
• Organizing : Different information systems for
finance, marketing, inventory or HR.
• Staffing : Having the right person at the right
place, So that right information at right time.
• Directing : Manager is also known as
troubleshooter.Give right direction/Energy to the staff.
• Controlling : With the help of information system, a
manager can acquire information regarding the staff
even when (s)he is not physically present.
Management Information System
MIS has 3 sub-parts -
• Management
• Information
• System
Management Information System
• MIS is a system, which provides information support
for decision making in an organization.

OR

• MIS is an interrelated computer-based hardware,

software, and telecommunications system that
collects, processes, stores & distributes information to
support decision making, control, analysis, planning,
and learning in an organization.
Perspectives on Information Systems

• Information system:
Set of interrelated components
Collect, process, store, and distribute information
Support decision making, coordination, and control
 Perspectives on Information Systems

Functions of an
Information System
An information system contains
information about an
organization and its surrounding
environment. Three basic
activities—input, processing, and
output—produce the information
organizations need. Feedback is
output returned to appropriate
people or activities in the
organization to evaluate and
refine the input. Environmental
actors, such as customers,
suppliers, competitors,
stockholders, and regulatory
agencies, interact with the
organization and its information
systems.

Figure 1.4
 Perspectives on Information Systems

Organizational dimension of information systems

Hierarchy of authority, responsibility

 Senior management
 Middle management (Knowledge workers/ Analyst)
 Operational management (Data workers, Production or service
workers)

Contd…
 Perspectives on Information Systems

Levels in a Firm
Business organizations are
hierarchies consisting of three
principal levels: senior
management, middle
management, and operational
management. Information
systems serve each of these
levels. Scientists and
knowledge workers often work
with middle management.

Figure 1.6
Types of Information Systems

Executive Level-I
Support
Systems

Decision Support Systems Level- II

Management Information Systems

Level- III
Transaction Processing Systems

19
 Business Processes and
Information Systems
• Business processes:
 Workflows of material/information/knowledge
 Sets/steps of activities

• Examples of functional business processes

Manufacturing and production
 Assembling the product
Sales and marketing
 Identifying customers
Finance and accounting
 Creating financial statements
Human resources
 Hiring employees
 Business Processes and
Information Systems
The Order Fulfillment Process

Figure 2-1 Fulfilling a customer order involves a complex set of steps that requires the close coordination of
the sales, accounting, and manufacturing functions.
 Types of Information Systems

Transaction processing systems: supporting operational level employees

Management information systems and decision-support systems:

supporting managers

Executive support systems: supporting executives

 Types of Information Systems

• Transaction processing systems (TPS)

Serve operational levels.
Perform and record daily routine transactions necessary to conduct
business, such as sales order entry, payroll, shipping, new employee
detail etc.
Allow managers to monitor status of operations and relations with
external environment
The purpose of these system is to answer routine questions about the
flow of transactions through the organization.
 Types of Information Systems

A Payroll TPS
A TPS for payroll
processing captures
employee payment
transaction data (such
as a time card). System
outputs include online
and hard-copy reports
for management and
employee paychecks.

Figure 2-2
 Types of Information Systems

• Management information systems

Serve middle management

Provide reports on firm’s current performance, based on data from

TPS

Provide answers to routine questions with predefined procedure.

Typically have little analytic capability.

 Types of Information Systems

How Management Information Systems Obtain Their Data from the Organization’s
TPS

In the system illustrated by this diagram, three TPS supply summarized transaction data to the MIS
reporting system at the end of the time period. Managers gain access to the organizational data
through the MIS, which provides them with the appropriate reports.
 Types of Information Systems

Sample MIS Report

This report, showing summarized annual sales data, was produced by MIS.
 Types of Information Systems

• Decision support systems

Serve middle management
Support non-routine decision making
 Example:
 What is impact on production schedule if December sales doubled?
 Power Failure

Often use external information as well from TPS and MIS

 Types of Information Systems

• Executive support systems

Support senior management
Address non-routine decisions
 Requiring judgment, evaluation, and insight

Incorporate data about external events (e.g. new tax laws or

competitors) as well as summarized information from internal MIS
and DSS
Example: Digital dashboard with real-time view of firm’s financial
performance: working capital, accounts receivable, accounts payable,
cash flow, and inventory
 Types of Information Systems

• Relationship of systems to one another

TPS: Major source of data for other systems

MIS & DSS : Mediator between TPS & ESS

ESS: Recipient of data from lower-level systems

Data may be exchanged between systems

 Types of Information Systems

• Enterprise applications : are used to ensure that TPS, MIS, DSS, and
ESS work together smoothly.
Four major applications:
 Enterprise systems
 Supply chain management systems
 Customer relationship management systems
 Knowledge management systems

© Prentice Hall 2011

 Types of Information Systems
Enterprise Application
Architecture

The triangle represents the

organization, with different
colors for the four main
business functions.

The ovals show that an

enterprise systems used in
sales and marketing, enabling
these to communicate with
each other and externally, with
suppliers and customers.

It also incorporates
information supplied by
knowledge management
systems, manufacturing and
finance systems, and other
enterprise systems
 Types of Information Systems

• Enterprise systems

Collects data from different firm functions and stores data in single
central data repository
Resolves problem of fragmented, redundant data sets and systems
Enable:
 Coordination of daily activities
 Efficient response to customer orders (production, inventory)
 Provide valuable information for improving management decision
making
 Types of Information Systems

• Supply chain management (SCM) systems

Manage firm’s relationships with suppliers

Share information about
 Orders, production, inventory levels, delivery of products and
services
Goal:
 Right amount of products to destination with least amount of time
and lowest cost
 Types of Information Systems

• Customer relationship management systems:

Provide information to coordinate all of the business processes that

deal with customers in sales, marketing, and service to optimize
revenue, customer satisfaction, and customer retention
The CRM strategy allows you to following:
• Understand the customer
• Retain customers through better customer experience
• Attract new customers
• Win new clients and contracts
• Increase profitably
• Decrease customer management costs
 Types of Information Systems

• Knowledge management systems (KMS)

Support processes for acquiring, creating, storing, distributing,

applying, integrating knowledge
 How to create, produce, distribute products and services

Collect internal knowledge and experience within firm and make it

available to employees

Link to external sources of knowledge

 Objectives of Managing
Knowledge
• The overall objective is
– to create value and
– to leverage, improve, and refine the firm's competences and knowledge
assets
– to meet organizational goals and targets.
 Defining Knowledge, Information, Data
• Data: Facts and figures which relay something specific, but which are
not organized in any way and which provide no further information
regarding patterns, context, etc.
• "unstructured facts and figures that have the least impact on the
typical manager."
• Information: For data to become information, it must be
• contextualized, categorized, calculated and
• Information thus paints a bigger picture;
• it is data with relevance and purpose
• Essentially information is found "in answers to questions that
begin with such words as who, what, where, when, and how
many".
Knowledge: Knowledge is
•The knowledge possessed by each individual is a product
of his experience, and
•encompasses the norms by which he evaluates new inputs
from his surroundings.
•"Knowledge is a fluid mix of framed experience, values,
contextual information, expert insight, and grounded
intuition that provides an environment and framework for
evaluating and incorporating new experiences and
information. It originates and is applied in the mind of the
knowers. In organizations it often becomes embedded not
only in documents or repositories, but also in
organizational routines, practices and norms."
 The Different Types of Knowledge
• Within business and KM,
two types of knowledge
are usually defined,
namely
– Explicit: refers to
codified knowledge,
such as that found in
documents,
– tacit knowledge: refers
to non codified and
often
personal/experience-
based knowledge.
Expert Systems
 Expert Systems (Definition)

 Expert Systems (ES) are an attempt to mimic human experts.

 Expert systems can either support decision makers or completely

replace them.

 Expert systems are the most widely applied & commercially successful
AI technology.
 Transferring Expertise
 Objective of an expert system
– To transfer expertise from an expert to a computer system and
– Then on to other humans (non-experts)

 The transfer of expertise from an expert to a

computer and then to the user involves four
activities:
– knowledge acquisition from experts or other sources.
– knowledge representation in the computer.
– knowledge inferencing, resulting in a recommendation for
novices.
– knowledge transfer to the user.
 Benefits of Expert Systems

• Increased output and productivity

• Increased quality
• Operation in hazardous enivronments
• Accessibility to knowledge and help desks
• Reliability
• Enhancement of decision-making and problem-solving
capabilities
• Decreased decision-making time
• Reduced downtime
Problems and Limitations of
Expert Systems
• Knowledge is not always readily available
• Expertise can be hard to extract from humans
• Expert system users have natural cognitive limits
• ES work well only in a narrow domain of knowledge
• Knowledge engineers are rare and expensive
• Lack of trust by end-users
• ES may not be able to arrive at valid conclusions
• ES sometimes produce incorrect recommendations
Enterprise Resource Planning
 Enterprise Systems

• Enterprise Systems
Also called “enterprise resource planning (ERP) systems”
Integrated software modules and a common central database
Better Coordination among its functional Areas and improve overall
business efficiency.
Collects data from many divisions of firm
Information entered in one process is immediately available for other
processes
 Enterprise Systems

• Enterprise Software
Built around hundreds of predefined business processes that reflect best
practices
 Finance/accounting: General ledger, accounts payable, etc.
 Human resources: Personnel administration, payroll, training, etc.
 Manufacturing/production: Purchasing, shipping, etc.
 Sales/marketing: Order processing, billing, sales planning, etc.
To implement, firms:
 Select functions of system they wish to use
 Map business processes to software processes
– Use software’s configuration tables for customizing
 Enterprise Systems

HOW ENTERPRISE
SYSTEMS WORK

Enterprise systems feature

a set of integrated
software modules and a
central database that
enables data to be shared
by many different business
processes and functional
areas throughout the
enterprise.
 Enterprise Systems

• Business value of enterprise systems

Increase operational efficiency
Provide firm wide information to support decision making
Enable rapid responses to customer requests for information or
products
Include analytical tools to evaluate overall organizational performance
 Characteristics of an ERP System
1. Real Time operations: ERP system operate in real time environment. E.g.
The placed order immediately processed by application,
entry would be made in the database,
inventory would be decreased by the value equal to the amount of the order,
information sent to production and marketing department,
invoice for the customer generated.
2. Integration of All Business Activities: The main aim of ERP should be to integrate
and automate the business process to achieve business targets on time.
3. Flexibility : An ERP system should be flexible to respond to the changing needs of
an enterprise.
4. Modular & Open : ERP system has to have open system architecture. This means
that any module can be interfaced or detached whenever required without
affecting the other modules.
5. Beyond The Company : It should not be confined to the organizational
boundaries, rather support the on-line connectivity to the other business entities
of the organization.
6. Flow of information : Flow of information should be not only within the
organization but also beyond it. This is done through Internets, emails, satellites.
 Role of Manager in implementing ERP System

• Commitment and support : Top management commitment is most

important to the success of ERP Implementation. They have to allocate
the responsibility, resources, and timely support to the organization to
achieve the targets.
• Change Management : Another important consideration is change
management. After ERP Implementation, all departments integrated to
each other , now they should cooperate with each other without any
negative aspect.
• Cost Considerations: Cost depends on size of organization and
implementation approach. The management should select the right type
of ERP Package according to their requirements.
 Continued…..

• Communication : For successful integration of all business functions, a

communication plan should be made by management in the following
manner:
– Create awareness and justify need of ERP implementation
– Provide step by step demonstration of software modules
– Decide communication points to address queries.
– Provide periodic updates.
• Training : The end users at all levels of the organization should be trained
as per their needs.
• IT Infrastructure :The management should ensure the allocation of
sufficient resources (human, S/W, H/W Infrastructure) at all stages of
ERP Implementation.
• Vendor Relationship : For successful Software implementation, vendor
and organization should be positively associated. The management
should select software vendor carefully.
 Issues in ERP Implementation.
• Pre implementation Issues : Lack of knowledge in pre implementing phase
can reduce the efficiency and effectiveness of the proposed system. Therefore
collection of exact required information is main task to avoid these type of issues.

• Complexity of ERP Systems : Various ERP Packages are available in the

market. So First to understand the organizational requirements and then select the
appropriate package within your budget.

• Hiring and Managing Consulting firm: To implement significant changes to

business processes and structure, generally organization hires consultant/third
party vendor for consultation, customization, support. The hired consultant should
be skilled in ERP technology and business practices and also should be aware of
micro business environment such as government regulations.

• Knowledge Constraints : small manufacturing companies lag behind ERP using

firms. This does not imply that the companies are not growing but that the rate of
growth is slow. Sometimes firms are afraid of ERP failure and sometimes due to
past experience. Even many large companies with resources to implement ERP do
not upgrade because they believe that the existing system satisfies their needs or
there are no useful feature in the ERP package. So, proper knowledge of ERP
System is very important because it will not only help large organizations but small
organizations also.
Strategic Information System Framework
 Characteristics of Strategic Information
Systems

• Significantly change business performance

• Contribute to attaining a strategic goal
• Fundamentally change the way a company does business, or the way
it competes, or the way it deals with its customers or suppliers.
 Strategic Role of Information System
Following are the strategic roles of Information System
• Analyze competitive forces – Competitive force model to
identify potential areas where IT can be used to gain a
competitive advantage.

• Study the value chain - It is a process where a firm identifies its

primary objectives and support activities that add value to its
final product and then analyze these activities to reduce costs or
increase differentiation.
 STRATEGIC BUSINESS OBJECTIVES
OF INFORMATION SYSTEMS
• Operational Excellence
Businesses continuously seek to improve the efficiency of their operations in order
to achieve higher profitability. Information systems and technologies are some of
the most important tools available to managers for achieving higher levels of
efficiency and productivity in business operations, especially when coupled with
changes in business practices and management behavior.
• New Products, Services, and Business Models
Information systems and technologies are a major enabling tool for firms to create
new products and services, as well as entirely new business models. A business
model describes how a company produces, delivers, and sells a product or service
to create wealth
• Customer and Supplier Intimacy
When a business really knows its customers, and serves them well, the way they
want to be served, the customers generally respond by returning and purchasing
more. This raises revenues and profits. Likewise with suppliers: the more a
business engages its suppliers, the better the suppliers can provide vital inputs.
This lower costs
• Improved Decision Making
Information systems and technologies have made it possible for managers to use
real-time data from the marketplace when making decisions. Previously, managers
did not have access to accurate and current data and as such relied on forecasts,
best guesses, and luck. The inability to make informed decision resulted in raising
costs and lost customers.

• Competitive Advantage
Doing things better than your competitors, charging less for superior products, and
responding to customers and suppliers in real time all add up to higher sales and
higher profits that your competitors cannot match. Dell Computers and Wal-Mart
are prime examples of how these companies used information systems and
technologies to separate themselves from their competition.

• Survival
Firms also invest in information systems and technologies because they are
necessities of doing business. Information systems is not a luxury. In most
businesses, information systems and technology is the core to survival.
 Value chain analysis (VCA)
It is a process where a firm identifies its primary and support activities that
add value to its final product and then analyze these activities to reduce costs
or increase differentiation.
Value chain represents the internal activities a firm engages in when
transforming inputs into outputs.
Electronic Business Concepts

61
Traditional Business
• Traditionally, business is exchange of articles,
goods and food items, a need based..

• Further, a businessman travelling to places for

selling goods / individuals going to shops to buy
any item

• Later, many layers / middlemen came in to play

62
Traditional Business to e-business
Steps for transition of existing traditional
business to e-business are

• Document existing business process

• Select technology to support business
process
• Roll out deployment plan

E-Business
 Objectives of e-business
• E-business objectives can be listed as –
– Primary objective :
• to use internet and electronic communication system to
deliver business value by its effective use in business
transactions

– Information analysis and access (Comparison)

– Market Penetration
– Addressing particular customer segment
– Improving user/customer satisfaction
 E- Business and E-Commerce
• e-business, not limited to only monetary and outward
business transactions
• Involves internal and external communication to
improve pace, efficiency, performance, customer
satisfaction.

• e-commerce, function of creating financial exchange

with the use of digital medium
• Instruments and methods like, credit cards, electronic
fund transfer etc. have become commonplace
 Difference Between e-commerce / e-
business
e-business e-commerce
Superset of e-commerce Subset of e-business
Deals with all aspects of business and not More about monetary
limited to just business transactions transactions, buying &
selling
Internal processes such as production, Focuses on the outward
inventory management, product facing processes and not
development, risk management, related to internal
finance, etc., are also part of e-business processes
Other aspects of business like contacting Does not include other
the customer on-line, providing services, business aspects like in e-
and product related information, that all business
constitute e-business
TOWARD THE DIGITAL FIRM
E-business Framework
 Features of E-Business Technology
Some of the major features of e-commerce are –

• Ubiquity – easy access and always present

• Global Reach – reaches everywhere
• Universal Standards – universal standards transaction
• Richness – richness of information(required information)
• Interactivity – interactivity, dynamic
• Information Density – knowledge richness & transparency
• Personalisation/Customisation – customer specific information
(extract information independently)
 Advantages of E-business
1. Provides flexibility
2. No need for physical presence
3. Cost reduction
4. Transparency
5. Saves time
6. Improved communication with customers, suppliers
7. Online publishing (Promotion)
E-Business Models

71
 E-Business Models
E-business model –
• A framework with all business components to create value and
meet business objectives
or
• A set of business processes through planned activities to
achieve business objectives
 Revenue Model of web based Companies

Web Based company Revenue Model

Google & Yahoo Advertising Based

Sports Clothing Company/ Subscriptions Based/

Magazine Membership Based

eBay & E-trade Transaction Based

Transaction based e-business Models
• e-business models are classified based on parties taking
part in transaction
• Properties of business transactions like purpose of
transactions and parties involved, are used while deciding
the type of e-business model
1. Business to business, B2B model
2. Businesses to consumer, B2C
3. Business to government, B2G
4. Consumer to consumer, C2C
5. Consumer to business, C2B
 B2B e-business Models
• Most common type of business transactions, 75 to 80% of
transactions are of this type
• Various companies and transactions coming under this model are
-
– Transactions among providers, distributors, players,
manufacturers and other ancillary organizations
– Various logistics related transactions, distribution of material,
storage or warehousing
– Organizations providing software as a service (SAAS),
Outsourcing of activities related to e-transactions including
project development, web-hosting, security services etc. ,
KPOs, BPOs, inter bank transfers, security companies etc.
B2B Transactions
 B2C e-business Model
• Second most popular e-business model after B2B is B2C
• Uses a concept of on-line distribution / selling of services, products
or information from organizations to actual consumers
• Advantages of B2C model –
– Reduces the transaction costs
– Increases the information space available to consumers
– Saves cost needed for setting up shops and physical distribution
channels
• Manufactures, distributors, information providers, and publishers use
B2C model extensively
• Includes different transactions between companies and consumers
like:
– Customer buying various articles like books, computers,
computer accessories, etc.
– Customer accessing information, analysing information, and in
some cases buying information or information centric articles
B2C Transactions
 B2G e-business model
• Transactions between private contractors and government
agencies are part of this model
• Commercial enterprises selling product, services and
information to government agencies
• Connects government and private sector
• Increases transparency in different operations
• E.g. energy providing companies and government energy
distribution companies, infrastructure building companies,
government infrastructure authorities etc.
 C2C e-business model
• About individuals doing business in online environment
• Allows individual auctions, individuals trying to sell old/ new
articles, cars, etc. through electronic means/ website
• Slowly becoming popular
• Major hurdle in accepting C2C model is the trust factor
• The peers interact with each other by various means like-
– Direct transaction between individuals
– Individuals interacting through some well-known portal or the
auction site
– The individuals advertise their product through some site
using classifieds or advertisement
C2C Transactions
 Strength Analysis of E-business
strengths of e-business include:
1. Organization / company can reach to very specific target
group
2. Can have very specific instructions and services for the said
target group
3. Low investments within the traditional sector
4. E-business is easily expandable compared to traditional
businesses
5. Minimizes dependence on physical resources
6. Available 24 hours a day
Opportunity analysis of E-business
Creates opportunities for businesses like:
1. Promote brands and take those brands to global level
2. Selling well-known brands very easily, as the
customers cannot see the actual product, they prefer
branded
3. Delivers different kinds of services for different prices
to different customer groups.
Electronic Data Interchange
(EDI)

84
 e-business transactions / communications
• Three types of networks used for e-business transactions /
communications - Internet, Intranet and Extranet
• Internet is used globally to have communication with various
stakeholders of e-business
• Intranet is used by the people within an organization to
support organizational communication
• Extranet is used to maintain distributed communication
among various business partners(Authorised) such as
suppliers and buyers, to ease communication and coordination
of regular activities
 Electronic Data Interchange
• EDI Developed in 1980s
• EDI Allows structured business documents to be routed
electronically.
• EDI is mainly used to electronically transmit business
documents, such as invoices, purchase orders, shipping
notices, financial information, payment, and other standard
business correspondences among various business partners
• When EDI is used for payments, it is commonly referred to as
financial EDI or electronic funds transfer (EFT).
• Reasons for implementing EDI:
– To eliminate duplicate data entry
– To eliminate errors
– To reduce fixed replenishment costs
– To reduce the replenishment lead time
– To improve communication along supply chain
 Electronic Data Interchange
Examples of Documents Exchanged

Request for Quote

Quote

Purchase Order
PO Acknowledgement

Vendor Delivery Docket Customer

PRODUCT
Signed Delivery Docket

Invoice
CASH
Remittance Advice
EDI Documents
Following are few important documents used in EDI −

1. Invoices
2. Purchase orders
3. Shipping Requests
4. Acknowledgement
5. Business Correspondence letters
6. Financial information letters

88
EDI Applications
EDI, applied to the different business processes, allows more streamlined and
efficient operations of your commercial, purchasing and administrative
departments with companies both supplying and receiving goods.

As a working system, “Electronic Data Interchange” is designed to automatically

integrate your business documents into your ERP or Internal Management System.
The higher the number of trading partners (customers, suppliers, majestic
operators, etc.) and EDI transactions interchanged with them, the greater the
benefits to be obtained through EDI implantation.

These benefits translate as important reductions in costs which, depending on the

level of rollout, may reach 90% compared with the same process carried out with
business documents managed by other means such as post, fax or mail.

Order Dispatch Invoice E-Air

Integration Advice Integration waybill
Integration
89
Benefits/Advantages of EDI
Following are the advantages of an EDI System.

Reduction in data entry errors. − Chances of errors are much less being use of computer in
data entry.

Shorter processing life cycle − As orders can be processed as soon as they are entered into the
system. This reduced the processing time of the transfer documents.

Electronic form of data − It is quite easy to transfer or share data being in electronic format.

Reduction in paperwork − As lot of paper documents are replaced with electronic documents
there is huge reduction in paperwork.

Cost Effective − As time is saved and orders are processed very effectively, EDI proves to be
higly cost effective.

Standard Means of communication − EDI enforces standards on the content of data and its
format which leads to clearer communication.

90
EFT, NEFT, RTGS, IMPS, EMT

91
Electronic Funds Transfer (EFT) is the electronic transfer of money from one
bank account to another, either within a single financial institution or across
multiple institutions, through computer-based systems and without the direct
intervention of bank staff. EFTs are known by a number of names.

In the United States, they may be referred to as electronic checks or e-checks.

For example, when you use your debit card to make a purchase at a store or
online, the transaction is processed using an EFT system. The transaction is
very similar to an ATM withdrawal, with near-instantaneous payment to the
merchant and deduction from your checking account.
Direct deposit is another form of an electronic fund transfer. In this case, funds
from your employer’s bank account are transferred electronically to your bank
account, with no need for paper-based payment systems.

The growing popularity of EFT for online bill payment is paving the way for a
paperless universe where checks, stamps, envelopes, and paper bills are
obsolete.
The benefits of EFT include reduced administrative costs, increased efficiency,
simplified bookkeeping, and greater security. However, the number of
companies who send and receive bills through the Internet is still relatively
small. 92
How do you transfer funds?
Transferring funds via electronic gateway is much simpler than the conventional
methods. You can choose to:-

1. Transfer funds into your own linked accounts of the same bank network.
2. Transfer funds into different account of the same bank.
3. Transfer funds into different bank’s accounts using NEFT.
4. Transfer funds into other bank accounts using RTGS
5. Transfer funds into various accounts using IMPS.

Types of electronic funds transfer?

1. NEFT or National Electronics Funds Transfer
2. RTGS or Real Time Gross Settlement
3. IMPS or Immediate Payment Service.

93
94
NEFT
The National Electronic Funds Transfer is a nation-wide money transfer system
which allows customers with the facility to electronically transfer funds from their
respective bank accounts to any other account of the same bank or of any other
bank network. Not just individuals but also firms and corporate organizations may
use the NEFT system to transfer funds to and fro.
Funds transfer through NEFT requires a transferring bank and a destination bank.
With the RBI organizing the records of all the bank branches at a centralized
database, almost all the banks are enabled to carry out an NEFT transaction. Before
transferring funds via NEFT you register the beneficiary, receiving funds. For this
you must possess information such as name of the recipient, recipient’s bank name,
a valid account number belonging to the recipient and his respective bank’s IFSC
code. These fields are mandatory for a funds transfer to be authorized and
processed.
Any sum of money can be transferred using the NEFT system with a maximum cap
of Rs. 10, 00, 000.
NEFT transactions can be ordered anytime you want, even on holidays except for
Sundays which are designated bank holidays. However, the transactions are settled
in batches defined by the Reserve Bank of India depending upon specific time slots.
95
RTGS
Real Time Gross Settlement as the name suggests is a real time funds transfer
system which facilitates you to transfer funds from one bank to another in real
time or on a gross basis. The transaction isn’t put on a waiting list and cleared
out instantly. RTGS payment gateway, maintained by the Reserve Bank of India
makes transactions between banks electronically. The transferred amount is
instantly deducted from the account of one banks and credited to the other
bank’s account.
Users such as individuals, companies or firms can transfer large sums using the
RTGS system. The minimum value that can be transferred using RTGS is Rs. 2
Lakhs and above. However there is no upper cap on the amount that can be
transacted.
The remitting customer needs to add the beneficiary and his bank account
details prior to transacting funds via RTGS. A beneficiary can be registered
through your internet banking portal. The details required while transferring
funds would be the beneficiary’s name; his/her account number, receiver’s bank
address and the IFSC code of the respective bank.
On successful transfer the Reserve Bank of India acknowledges the receiver
bank and based on this the both the remitting bank as well as the receiving
bank may/ may not notify the customers.
96
IMPS
Majority of the funds transferred using electronic channels are processed via NEFT
or RTGS. But as the funds could only be cleared in batches using these transfer
gateways, the National Payments Corporation of India introduced a pilot mobile
payment project also known as the Immediate Payment Service (IMPS).

Available to Indian public, IMPS offers instant electronic transfer service using
mobile phones. IMPS interbank transfer service is available 24X7 and allows you to
use your mobile phones to access your account and to authorize transfer of funds
between accounts and banks. The IMPS service also features a secure transfer
gateway and an immediate confirmation on fulfilled orders.
IMPS is offered on all the cellular devices via Mobile Banking or through SMS
facility.

To be able to transfer money via IMPS route you must first register for the
immediate payment services with your bank. On obtaining the Mobile Money
Identifier (MMID) and MPIN from the bank you can login or make a request via
SMS to transfer a certain amount to a beneficiary.
97
Email Money Transfer – EMT
A retail banking service that allows users to transfer funds between personal
accounts using email and their online banking service. Email money transfers are
considered secure because only the notification of transfer is done through email.
The actual funds are settled through the existing funds transfer networks that banks
have used for years.

The email money transfer is most commonly used by clients of the "big five" banks
in Canada: the Royal Bank of Canada, TD Canada Trust, the Canadian Imperial Bank
of Commerce, the Bank of Montreal and the Bank of Nova Scotia. Because email is
used, however, this service is susceptible to phishing scams. Care must be taken by
both parties to ensure the safety of both the sender and receiver.

It is a good practice to not accept transfers from unknown parties, and to contact
the sender directly when notified of a transfer that is not expected.

98
Online Shopping

99
Online shopping is one of the most popular ways to make
purchases, but it's not something that everyone is
comfortable doing. As with most things, there are positives
and negatives associated with this approach to shopping.
Consider the advantages and disadvantages carefully so you
can make an informed decision about what's best for you.

100
101
102
Advantages

• Access - Online shopping allows you to shop from any vendor, at any
time, anywhere in the world. Virtual window shopping enables all users
to shop at their leisure and across multiple marketplaces.

• Time Saver - You no longer have to get in your car and have to drive to
the mall to shop. There are no lines and you can come back to your cart
whenever you want.

• Online Deals and Promotions - Before you checkout, you can scour
the Internet for online coupon codes or special discounts. Many
companies send coupons to their customers who have opted into their
email marketing campaigns, delivering them with the latest product or
service information and what current promotions they are currently
holding.

103
Disadvantages

• Shipping Rates - Though some companies offer free flat rate

shipping, it still may come at a cost. For instance, a clothing store
may offer free shipping but at a minimum of a Rs. 500 purchase.

• Waiting - If you're an impatient person, waiting for your product to

be delivered can be a pain. There is a lack of instant gratification and
even possibilities of delay when it comes to receiving your items.

• Refunds/Returns Disputes - If an item comes damaged or not as

described, you will want to return the item or be refunded your
money. Depending on where you purchased your item, there can be
different policies for refunds and returns; this process is tedious and
is prolonged since you would have to ship back the item and wait on
the buyer to refund your payment.

104
 Launching a Successful
Online website
Or
Steps involved in Web Site Building
 Building or Acquiring a Web Site

• Classification of Web Sites

informational Web site
A Web site that does little more than provide
information about the business and its products
and services
interactive Web site
A Web site that provides opportunities for the
customers and the business to communicate and
share information
 Building or Acquiring a Web Site

– Step 1—Select a Web host

– Step 2—Register a domain name
– Step 3—Create and manage content
– Step 4—Design the Web site
– Step 5—Construct the Web site and test
– Step 6—Market and promote the Web site
How to choose Web Hosting Service

Analyze your list of hosts with respect to the following parameters:

1 - Assess You Own Requirements

2 - Disc Space
3 - Bandwidth
4 - Reliability, Speed & Security
5 - Customer Service & Technical Support
6 - Price of Hosting Packages
7 - Site Builder, FTP Access & Control Panel
8 - Hardware
9 - Email, Mailing list
10 - Other Features
11 - Experience, Popularity and Client Base
12 - Client Review
108
Web Site Hosting and Obtaining a Domain Name
1. Dedicated/VPS/Shared web Hosting Service
A dedicated/shared/VPS Web site hosting company that offers a
wide range of hosting services and functionality to businesses
of all sizes (economicalhost.com, godaddy.com, bigrock.com)
2. Registering a Domain Name
domain name
A name-based address that identifies an Internet-connected server
(xyz.com)
domain name registrar
A business that assists prospective Web site owners with finding
and registering the domain name of their choice (Godaddy.com)
 3.1 Content Creation, Delivery, and Management
Content
The text, images, sound, and video that make up a Web page
Secondary Content
cross-selling
Offering similar or related products and services to increase sales
up-selling
Offering an upgraded version of the product in order to boost sales and
profit
Promotion e.g., coupon, rebate, discount
Comment e.g., reviews, testimonials, expert advice
Creating Content:
Content is usually created by the site’s owners and developers

Buying Content:
Content that is acquired from outside sources should be supplemental
content, not primary content
 3.2 Content Management

• content management
The process of adding, revising, and removing
content from a Web site to keep content fresh,
accurate, compelling, and credible
– Content Testing
– Measuring Content Quality
– Content Removal
– Content Management Software (CMS)
 4. Web Site Design
Information architecture
How the site and its Web pages are organized, labeled, and
navigated to support browsing and searching throughout the Web
site
Deep linking
Entry into a Web site via the site’s interior pages, not the
homepage, typically through search engines or external links
Site navigation
Aids that help visitors find the information they need quickly and
easily
Colors and Graphics
The key to effective use of color and graphics is to design the site to
match the expectations of the target audience
A Simple Hierarchical Web Site Structure
 Web Site Design

• Site Map and Navigation

frame
An HTML element that divides the browser window
into two or more separate windows

A Generic Navigation Bar

A Web Page Layout Grid
5. Publishing the website (e Publication)
e-publishing (EP) refers to the application of computing
software by a publisher to information content created and packaged
for a specific audience, and the distribution of the final product
through electronic means. As such, publishing is an integrated process
aimed at providing information in different quantities and with
different qualities to different categories of end-users.

Initially, e-Publications were stand-alone publications

distributed through storage media such as diskettes and CD-ROM.
Later, e-Publications became multi-dimensional when multimedia
technologies enabled sounds, moving images.

e-publishing uses communication networks such as the

Internet, intranets and extranets as the delivery platforms. Many types
of ePublications exist. These include all kinds of information resources,
116
educational aids, games and other kinds of entertainment products.
ePulishing have its own set of distinguishing characteristics and
features/functions. Such as
Digital content
eBooks
eNewspapers
Email
Database
Courseware

The Advantages of Electronic Publishing

Electronic documents can contain live links:
Electronic documents can be available to
Electronic publishing ensures that everybody is using the
most up-to-date copy
Documents are more secure
Electronic documents are parallel; paper is serial
Electronic documents are never misfiled or lost 117
 6. Providing EC Support Services
Web Site Promotion
search engine optimization (SEO)
The application of strategies intended to position a Web site at the top
of Web search engines
• Customer Relationship Management
– Listening to Customers
e-mail discussion list
A group of people who share a common interest and who
communicate with each other via e-mail messages managed by e-
mail list software
electronic discussion (e-forum)
A portion of the Web site where visitors can post questions,
comments, and answers
chat group
A portion of the Web site where visitors can communicate
synchronously
E Commerce Payment System

119
 Types of Payment Systems
 Stored value payments systems(Internet Banking) are accounts
created by depositing funds into an account and from which
funds are paid out or withdrawn as needed
 Debit cards immediately debit a checking or other demand
deposit account. Smart cards(Debit Card) as store value
systems are based on credit-card-sized plastic cards that have
embedded chips that store personal information
 Digital Wallet : Authenticates the consumer through the use of
digital certificates or other encryption methods, stores and
transfers value, and secures the payment process from the
consumer to the merchant. payumoney, paytm, mobikwik,
freecharge, citrus, airtelmoney, etc.
 Online store value systems(Wallet in a website) rely on
prepayments, debit cards, or checking accounts to create value
in an account that can be used for e-commerce shopping
 Types of Payment Systems
 Credit card represent an account that extends credit to
consumers, permits consumers to purchase items while
deferring payment, and allows consumers to make payments
to multiple vendors at one time
 Credit card associations are nonprofit organizations that set
standards for issuing banks
 Issuing banks actually issue credit cards and process
transactions
 Processing centers or clearing houses handle verification of
accounts and balances
How an Online Credit Card
Transaction Works
 Limitations of Online Credit Card
Payment Systems
 Security
 Neither the merchant not the consumer can be fully
authenticated
 Merchant Risk
 Consumers can repudiate(Reject) charges
 Cost
 Roughly 3.5% of purchase plus transaction fee
 Social Equity
 Young adults do not have credit cards
 Almost 100 million adult cannot afford cards or are
considered poor risks
Web Server & Web Browser

124
Web Browser:
web browser is a software application which enables a user to display and interact
with text, images, videos, music and other information typically located on a Web
page at a website on the World Wide Web or a local area network.

Some of the Web browsers currently available for personal computers include
Mozilla Firefox, Avant Browser, Safari, Google Chrome, Konqueror, Opera, Flock,
Internet Explorer, Epiphany, K-Meleon and AOL Explorer

The browser broke the URL into three parts:

The protocol ("http")
The server name ("www.abc.com")
The file name ("web-server.htm")

125
Web Server:
The term web server can mean one of two things:
computer program that is responsible for accepting HTTP requests from web clients, which
are known as web browsers, and serving them HTTP responses along with optional data
contents, which usually are web pages such as HTML documents and linked objects
(images, etc.).

Main web Servers are :-

Apache, IIS, GWS, nginx, lighttpd, oversee

126
Cryptography

slide 127
 Cryptography

There are two kinds of cryptosystems:

• Symmetric Cryptography
• Asymmetric Cryptography

slide 128
Symmetric Cryptography or Private Key Encryption or
Secret Key Encryption:
use one key (public key) to encrypt a message. Symmetric cryptosystems use
the same key (secret key) to encrypt and decrypt a message. It is also called
Private (secret) Key Cryptography. It is most widely used symmetric key
encryption. It uses 128-, 192-, and 256-bit encryption keys

slide 129
Asymmetric Cryptography or Public Key Encryption:
Asymmetric cryptosystems use one key (the public key) to encrypt a message
and a different key (the private key) to decrypt it. Asymmetric cryptosystems are
also called public key cryptography.

slide 130
Digital Certificate

131
 Digital Certificate
• Digital certificate includes:
– Name of subject/company
– Subject’s public key
– Digital certificate serial number
– Expiration date, issuance date
– Digital signature of CA(Certifying Authorities)
Digital Certificates and Certification
Authorities
 2. Example Certificate (1)
 Certificate Summary
 2. Example Certificate (2)
• Certificate Attribute details : Key Usage
 2. Example Certificate (3)
• Certificate Attribute details : Subject
Digital Signature

137
 What is a digital signature?
It is an electronic signature that can be used to authenticate the identity
of the sender of a message or the signer of a document, and possibly to
ensure that the original content of the message or document that has
been sent is unchanged.

The use of digital signatures usually involves two processes, one performed by
the signer and the other by the receiver of the digital signature:
• Digital signature creation
• Digital signature verification

There are two benefits of Digital Signature

• Authenticity
• Integrity
Digital Signature

139
FTP

140
Why do we need a FTP Service?

Purpose: To Transfer files between two computers

• Promote sharing of files (programs and/or data)
• Encourage indirect/implicit use of remote computers
• Transfer data reliably and efficiently
• FTP has 2 connections
Control connection (Require Port 20)
Data connection (Require Port 21)
HTTP

142
HyperText Transfer Protocol (HTTP)

• HTTP is the protocol that supports

communication between web browsers and
web servers.

• A “Web Server” is a HTTP server

• http:// www.xyz.com

143
 HTTP Proxy Server

HTTP
Browser Internet
Server

144
E Mail

145
Role of Email in Ecommerce::
What can email marketing do for your online business?

• Increase traffic and sales

• Promote products that are not selling
• Share new arrivals with customers
• Build a relationship with your customers
• Share news, promotions and relevant content

146
 SMTP
(Simple Mail Transfer Protocol)

147
 Simple Mail Transfer Protocol
• It is a Protocol originated in 1982
• Standard message format
• Goal: To transfer mail reliably and efficiently
• SMTP service runs on port 25.
 Format of an email
• Mail is a text file
• Envelope –
– sender address
– receiver address
– other information
• Message –
– Mail Header – defines
the sender, the receiver,
the subject of the
message, and other
information
– Mail Body – Contains the
actual information in the
message
Recipient ISP’s mail server

150
Post Office Protocol (POP) /
Internet Message Access
Protocol (IMAP)

151
 POP/IMAP

• Post Office Protocol (POP) or Internet Message

Access Protocol (IMAP) – Retrieve mail from mail
servers to email client
 POP vs. IMAP
POP3:

All Messages
Internet

IMAP:
Dr.Amer
Friends
….
Internet
 Post Office Protocol v3
• Simple
• Allows the user to obtain a list of their Emails
• Users can retrieve their emails
• Users can either delete or keep the email on
their system
• Minimizes server resources
 Internet Mail Access Protocol v4
• Has more features than POP3
• User can check the email header before downloading
• Emails can be accessed from any location
• Can search the email for a specific string of
characters before downloading
• User can download parts of an email
• User can create, delete, or rename mailboxes on a
server
Firewall

156
 What is a Firewall?
Effective means of protection local network of systems from
network-based security threats from outer world
– while providing (limited) access to the outside world (the Internet)

The firewall is inserted between the internal network and the

Internet (a choke point)
– Establish a controlled link and protect the network from Internet-based
attacks
• keeps unauthorized users away,
• only authorized traffic is allowed
Types of Firewalls
– Packet-filtering routers
– Application-level gateways
– Circuit-level gateways
 Firewall Limitations
• cannot protect against internal threats
– e.g. fired sysadmin
• cannot protect against transfer of all virus
infected programs or files
– because of heavy traffic and huge range of O/S & file
types
• cannot protect from attacks bypassing it
– best example: dial-in, dial-out
Securing the Business on
Internet
Securing the Business on Internet
Need to invest in security initiatives due to –
• Rise in electronic crime and
• behavior of e-businesses

Safeguarding online businesses -

• E-safety - awareness among the users of a system of their access
rights and restrictions, and adherence to them
• E-security - procedures that ensure the security of electronic data and
electronic systems
E-businesses are prone to risks of security breaches as –
• Theft of IP, Viruses
• Exchange of offensive material,
• Copyright theft etc.
 E-Business Security Policy
A typical e-business security policy should have -
• Clearly defined objectives and scope
• Details about the e-security infrastructure
• Security management programme
• Clear definitions and policies for privacy, censorship, and accountability.
• Technology and usage guidelines for access controls, firewalls, Internet usage,
and use of security technologies
• Security audit policies and Legal policies

The major dimensions of e-business security are

• Integrity
• Authenticity
• Non-repudiation (the assurance that someone cannot deny something)
• Privacy
• Availability
• Confidentiality
 Front end Security
Front end security is provided through –
• SSL/TLS(Secure socket layer/Transport layer security)
• Firewalls
• Cryptographic Protocols
• Web-Based Security Servers
• Intrusion Detection Systems (IDS)
• Integrity Verification Tools

The issues dealt with Frontend Security -

i. Authentication
ii. Authorization
iii. Availability
iv. confidentiality
 E-security Basics for Businesses
A business needs to define a trade-off between electronic security / cost, and quality
of service / privacy.
Policies to establish electronic security for business should consider factors such as -
• Legal framework and its enforcement
• Electronic security for financial transactions and payment systems
• Certification standard and established processes for secured transactions
• Education and training
Mobile Commerce
(M-Commerce)
 What is M-Commerce?
 M-commerce is the buying and selling of goods and
services through wireless handheld devices.
 M-Commerce is the process of paying for services
using a mobile phone or personal organizer.
 M-Commerce is the use of mobile devices to
communicate, inform transact and entertain using
text and data via a connection to public and private
networks.
 M-commerce benefit
Your Internet offerings are easier and more
convenient to access.
You get considerable flexibility while
conducting business.
Transaction and personnel costs are reduced
due to widespread automation of back-office
operations.
Field staff is more effective as they have
flexible access to back-office data.
M-Commerce Services and Applications available:

• Mobile ticketing
• Content purchase and delivery
• Information services
• Mobile banking
• Mobile Browsing
• Auctions
• Mobile Purchase
• Mobile marketing and advertising, etc.
Entertainment Communications
• Music • Short Messaging
• Games • Multimedia Messaging
• Graphics • Unified Messaging
• Video • e-mail
• Pornography • Chatrooms
• Video - conferencing
M- commerce
Information
Transactions
• News
• Banking
• City guides
• Broking
• Directory Services
• Shopping
• Maps
• Auctions
• Traffic and weather
• Betting
• Corporate information
• Booking & reservations
• Market data
• Mobile wallet
• Mobile purse
 Mobile Commerce Application

• Google • Apple
– Android – Apple store
• Google Android Market • The App Store is a
digital application
distribution platform
for iOS developed and
maintained by Apple.
 Mobile payment
• Is an alternative payment method. Instead
of paying with cash, cheque or credit cards,
• A consumer can use a mobile phone to pay
for a wide range of services and digital or
hard goods such as:
– Music, videos, ringtones, online game
– Transportation fare (bus, subway or train)
– Books, magazines, tickets
 Mobile Payment
Customer requirements:
 a larger selection of merchants with whom they can
trade
 a more consistent payment interface when making the
purchase with multiple payment schemes, like:
 Credit Card payment
 Bank Account/Debit Card Payment
Merchant benefits:
• brands to offer a wider variety of payment
• Easy-to-use payment interface development
• Advantages
 Offers many payment options
 Push advertising, direct marketing.
 More efficient and extensive service offered.
 The Internet is going mobile
 Can be easily setup

• Disadvantage
 Expensive cost
 Larger screens won’t be displayed is clear
 May be Slow speed
 Limited for longer message
 It hard way to fill the data.
 Security issue also
Cases / Case Studies

173
E Business /MIS Cases
Case 1
The world GoldStar sells television sets, computers, laptop, CD drives, DVD players,
microwaves, refrigerators and the very recent – cosmetics.
Explain how GoldStar can use IT. Who are the users and how they are benefited? Explain
how Ecommerce model works? You as an external consultant, prepare a detail workout.
Case 2
A small scale Industry with an annual turnover of Rs. 3 crores wants to investigate the
possibility of IT and E- Commerce strategy. You as an external consultant, prepare a
detailed report highlighting the step by step approach for implementing IT tools and
Ecommerce strategy. Also highlight the major returns, unseen risks and the security issues
of E-Commerce.
Case 3
An Automobile Industry with an annual turnover of Rs. 100 crores wants to investigate the
possibility of IT and E- Commerce strategy. You as an external consultant, prepare a
detailed report highlighting the step by step approach for implementing IT tools and
Ecommerce strategy. Also highlight the major returns, unseen risks and the security issues
of E-Commerce.
174
Case 4
Founded in 1994, Exodus communications helped create the complex web hosting business and has
attained a market value of over $10 billion. The company offers sophisticated system and network
management, along with professional services to support performance for customers’ websites. Exodus
manages its network infrastructure via a worldwide network of Internet Data Centers (IDCs) located in
North America, Europe, and Asia pacific. Exodus has 22 data centres around the world and is building
another 14. Its customers include eBay, Yahoo!, Merrill Lynch, British Airways and Johnson & Johnson.
When Ellen Hancock, its CEO, joined the company before its IPO in 1998, 80% of its customer base was
internet start-ups and 20% were in the “enterprise” category. By 2000, 49% of the customer base was in
the enterprise category. In the same time frame,, it had grown from no consultants to 660 as managed
services increased from 8% to 34% of its business. During this transition, Exodus bought two computer
security companies and had moved into a number of new services.
An example of the type of service demands that Exodus encounters occurred when the Webmasters of
the RollingStone.com, the website of Rolling Stone magazine, had difficulty trying to solve a slow
response time problem just a day before the publication of a multimedia cover story on Britney Spears.
This would obviously cause a spike in demand that would exacerbate the response time problem. Since
Exodus was hosting and maintaining the site, its engineers helped in solving the problem, which involved
incorrect configurations data that caused server to use 10 to 15 seconds to refresh domain name data
every few minutes instead of daily.

175
Case 4 – Continued…
Approximately 400 of its customers( 12% of its customer base of 3300 companies) are application service providers
(ASPs) that run application software for other firms using remote servers linked to a WAN so that those first no longer
have to install and maintain the software. Exodus charges for service based on usage, and this fits well with an ASP
charging scheme. Its ASP customers range from start-ups to established software firms such as PeopleSoft and
Oracle’s Business Online. According to Ellen Hancock, “it’s very hard to say what you’re not doing, but we’ve spent a
lot of time trying to do that. We say we’re not going to know applications. We’re not in that business. We just support
the ASP……. We have no notion of competing with Oracle on E-commerce. We do not intend to ever understand HR
(human resources) apps. That’s a whole different skill base, and we don’t have it. Both Exodus and its rival Digex seem
to be evolving into “managed service providers” but using different paths. In late 2000, Digex unveiled a customer self
service portal called myDigex.com that gives them the ability to manage and provision their own services, such as
performance statistics, site/server layouts, asset management, billing and help desk issues. In addition, it gives access
to service-level agreements and Digex support staff. In contrast, the new but not yet named services Exodus
announced included remote monitoring, storage management and performance monitoring. According to one
industry analyst, “these guys are happy to host, and they’re willing to manage your servers, but they are unwilling to
raise the level of responsibility to something that is application-specific or customer specific.”
Questions:-
1. Why should a large, technically sophisticated company like Merrill Lynch buy Web hosting services from Exodus
Communications?
2. According to the case study, Exodus Communications is an ISP for ASPs, but currently says it is not interested in
moving into that market based on its current skills. What are the possible advantages and disadvantages of moving
into the ASP market as it learns more about how to support this type of activity?

176
Case 5

Founded in 1994, Exodus communications helped create the complex web

hosting business and has attained a market value of over $10 billion. The
company offers sophisticated system and network management, along with
professional services to support performance for customers’ websites. Exodus
manages its network infrastructure via a worldwide network of Internet Data
Centres (IDCs) located in North America, Europe, and Asia pacific. Exodus has
22 data centres around the world and is building another 14. Its customers
include eBay, Yahoo!, Merrill Lynch, British Airways and Johnson & Johnson.

When Ellen Hancock, its CEO, joined the company before its IPO in 1998, 80%
of its customer base was internet start-ups and 20% were in the “enterprise”
category. By 2000, 49% of the customer base was in the enterprise category. In
the same time frame,, it had grown from no consultants to 660 as managed
services increased from 8% to 34% of its business.

During this transition, Exodus bought two computer security companies and had
moved into a number of new services.
177
Case 5 – Continued…
An example of the type of service demands that Exodus encounters occurred when
the Webmasters of the RollingStone.com, the website of Rolling Stone magazine,
had difficulty trying to solve a slow response time problem just a day before the
publication of a multimedia cover story on Britney Spears. This would obviously
cause a spike in demand that would exacerbate the response time problem. Since
Exodus was hosting and maintaining the site, its engineers helped in solving the
problem, which involved incorrect configurations data that caused server to use 10
to 15 seconds to refresh domain name data every few minutes instead of daily.
Approximately 400 of its customers( 12% of its customer base of 3300 companies)
are application service providers (ASPs) that run application software for other
firms using remote servers linked to a WAN so that those firs no longer have to
install and maintain the software. Exodus charges for service based on usage, and
this fits well with an ASP charging scheme. Its ASP customers range from start-ups
to established software firms such as PeopleSoft and Oracle’s Business Online.

178
Case 5 --- Continued…
According to Ellen Hancock, “it’s very hard to say what you’re not doing, but
we’ve spent a lot of time trying to do that. We say we’re not going to know
applications. We’re not in that business. We just support the ASP……. We have
no notion of competing with Oracle on E-commerce. We do not intend to ever
understand HR (human resources) apps. That’s a whole different skill base, and
we don’t have it.
Both Exodus and its rival Digex seem to be evolving into “managed service
providers” but using different paths. In late 2000, Digex unveiled a customer
self-service portal called myDigex.com that gives them the ability to manage and
provision their own services, such as performance statistics, site/server layouts,
asset management, billing and help desk issues. In addition, it gives access to
service-level agreements and Digex support staff. In contrast, the new but not yet
named services Exodus announced included remote monitoring, storage
management and performance monitoring. According to one industry analyst,
“these guys are happy to host, and they’re willing to manage your servers, but
they are unwilling to raise the level of responsibility to something that is
application-specific or customer specific.”

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Questions:-

1. Why should a large, technically sophisticated company like Merrill Lynch buy
Web hosting services from Exodus Communications?

2. According to the case study, Exodus Communications is an ISP for

ASPs, but currently says it is not interested in moving into that market based on
its current skills. What are the possible advantages and disadvantages of moving
into the ASP market as it learns more about how to support this type of activity?

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