Sony 2011 Playstation Network Hack

Sony 2011 Playstation Network Hack

(Rubin, 2014)

Background:

Many people around the world have access to computers.  According to 2013 reports from the U.S. Census, 83.4 percent of U.S. households own computers and 73.4 percent of households reported having access to high-speed internet (“Computer and Internet Use”, 2014).  Most internet users and individuals who keep up with current news have heard of the term “hacking.”  Hacking is defined as “the obsessive use of computers or the unauthorized access and use of networked computer systems” (O’Brien & Marakas, 2011, p.535).  Sony Corporation and their customers have had plenty of experience the chaos that that these unauthorized users can inflict.

What Happened?

In 2011, Sony experienced a very challenging year. Throughout a four month period, the company experienced six data breaches which dates back to a decision they made the previous year. In 2010, Sony removed the ability to install third-party operating systems on their PlayStation 3 (PS3) consoles; however, by January 2011, hacker George Hotz was able to jailbreak the system and posted online instructions for others to follow (IGN, 2011). Within two weeks, Mr. Hotz and others were sued by Sony for circumventing the PS3 security system. By early April, the Sony drama caught the attention of hacker group Anonymous. Anonymous launched #OpSony in retaliation of the lawsuit against Mr. Hotz (Takashi, 2011). By April 11, the Hotz lawsuit was settled, and Hotz removed his website and the jailbreak information. Anonymous was not satisfied and with the settlement and continued their pursuit of Sony.

(“Largest Data Breaches of All Time”, n.d.)

On April 16 and April 17th hackers compromised the PlayStation Network (PSN) and Sony Online Entertainment which exposed personal details, account information, and European Credit and Debit Card numbers (IGN 2011). PSN is an online network created by Sony where users have access to online gaming, music, television and movie streaming services through their PS3 gaming consoles. Sony first became aware of the breach on April 19th, at that point they launched an investigation to discover what the security breach entailed. Sony shut down the network on April 20th in order to prevent any additional data from being stolen while they tried to repair the network. With the help of third party computer security and consulting firms, Sony was finally able to restore the PSN after 24 days of being shut down. (Takahashi, 2011) During this breach hackers gained access to 77 million users names, addresses, logins, birthdates, and email addresses of PSN users making it one of the biggest privacy breaches of all time. It is also believed that vulnerabilities exposed during this breach lead to later attacks including the attack on Sony Online Entertainment (SOE) network. (Stuart & Arthur, 2011) During this attack, the personal account information of 25 million SOE users was stolen along with possibly over 12 thousand credit and debit card numbers. (Ogg, 2011) There are many people that believe it was Sony's lack of security safeguards that made this breach possible and claimed it could have easily been prevented. (Stuart & Arthur, 2011) Sony also received a great deal of criticism for how long it took them to make the public aware of the attack. Although Sony became aware of the breach on April 19th, they did not admit the breach to the public until April 26th; originally Sony claimed the network outage was simply due to technical issues. (IGN, 2011) The following video illustrates what prompted the initial attack on the Sony Playstation Network.

(IGN, 2011)

Why Did Sony Wait?

Sony received a great deal of public criticism as a result of these breaches, not just the flaws in their security systems, but also in how Sony initially reacted and subsequently handled the situation. One of the main questions from users was why Sony did not make them aware of the breach until a full week after it was discovered. This delay put users at further risk by providing hackers with time to use the stolen personal information and credit card numbers for identity theft or fraud. If Sony had notified these users as soon as the attack was discovered, these consumers could have canceled these credit cards or taken other measures to prevent hackers from exploiting their personal information. Sony later released a statement claiming that the reason for the delay in revealing the breach to the public was due to "a difference in timing between when we identified there was an intrusion and when we learned consumers' data being compromised." Sony claimed that once the breach was discovered, it took several days of analysis by outside experts before they were able to determine that customer's data had been stolen. (Stuart & Arthur, 2011) Many argue that even though Sony was not initially sure that user data had been stolen, that the company still had an ethical responsibility to inform customers that their personal data may be at risk. There are others that believe Sony's neglect for their user's privacy went beyond an ethical responsibility and was actually a violation of internet privacy laws. Privacy laws are regulations many countries have put in place to help enforce the privacy of computer files and communications.(O’Brien & Marakas, 2011) In the weeks following the breach, Sony was investigated by several governments for these privacy law violations. Customers from the United States filed a class-action lawsuit against Sony claiming that the company was negligent pertaining to the protection of personal data and failed to inform customers of the breach in a timely manner. In 2014, Sony settled with the plaintiffs in this class-action lawsuit to the tune $15 million. Sony claimed that the settlement was reached to in order to “avoid the costs associated with lengthy litigation.” (Walker, 2014) The Information Commissioner's Office in the United Kingdom later fined Sony 250,000 pounds (around $400,000) for violating the U.K.'s Data Protection Act. (Yap, 2013)

(Network World, 2011)

What was the fallout?

This security breach negatively affected Sony's business in a number of different ways. The of the most obvious negative effects felt by Sony was the financial loss they experienced. The company addressed the breach in a revision to their financial forecast for 2011 and estimated that it would cost the company a total of 14 billion yen (about $171 million). Among these costs were the customer support costs, the cost of the free products offered to customers as an apology from Sony for the breach, the legal costs of the various lawsuits Sony faced in different parts of the world, the cost to restore their networks and the costs of new security enhancements to prevent further attacks. (Sony Corporation, 2011) Another negative effect felt by Sony was in regard to their reputation. As breaches kept occurring, it continued to cause more and more customers to doubt Sony's abilities in providing them with a secure network. These consumers began to see having an account with Sony as a privacy risk which likely discouraged many of them from purchasing Sony products. Sony's reputation was also damaged by customers losing trust in their company because of how they handled the whole situation. Not only did Sony know about the vulnerability and fail to correct it, but they also kept the breach from users. (Stuart & Arthur, 2011) Many saw this as a dishonest and unethical move by Sony that completely disregarded the privacy of its customers. If customers no longer think a business is concerned about their rights and experience, those customers are not going to have trust in that business. This diminishment in Sony's reputation also has indirect financial costs from the loss of business of current customers as well as potential future customers. In the past, Sony has always had a great reputation among consumers, and that reputation helped provide them with long term sustainability over the years. The damage this security failure has caused to Sony's reputation will likely take years and cost a great deal of additional money to overcome.

Who Was Responsible?

Although hacker group Anonymous publically voiced their displeasure with Sony and threatened a boycott, within a week of the breach, the group denied responsibility for the network outage. (IGN, 2011) George Hotz also denied any involvement in the security breach. (Takashi, 2011) Sony turned to the FBI and experts in consulting and digital forensics to hunt down the individuals responsible for the security breach. (Smith, 2011) There were numerous arrests made around the globe, many of the individuals arrested had ties to the Anonymous splinter group LulzSec. On June 10, 2011, three men from Spain with ties to Anonymous were arrested in connection to the PSN Hack. (Woolls, 2011) In 2013, four British men associated with LulzSec, pleaded guilty to charges related to attacks on UK crime agencies and the CIA while also admitting their guilt in the 2011 PSN hack. (Hide, 2013) The UK men received sentences between 16 and 24 months for their various computer crimes. (Graziano, 2013) Later in 2013, a U.S. man with ties to LulzSec, Raynaldo Rivera and his colleague Cody Kretsinger, were both sentenced to 366 days in prison, followed by house arrest, 1000 hours of community service, and $605,663 each in restitutions in relation to the Sony security breach. (“LulzSec Member”, 2013)

Analysis:

It is clear that this security breach in Sony's networks was made possible by Sony's lack of commitment to maintaining the integrity of their information security system. Sony admits that the vulnerability used to gain access to these networks was a vulnerability that they already knew about and failed to fix. (Network World, 2011) The integrity of Sony's security system was already being questioned before these breaches even occurred. In January of 2011, a group of hackers known as Failoverflow announced at a conference in Berlin just how inept Sony's PSN was. They claimed that they were able to use "simple algebra" to exploit a weakness in the Playstation network in order to gain access to it. This vulnerability is thought to be the same one later used by George Hotz to jailbreak the PS3 and subsequently used to initiate the breach on Sony's PSN and SOE. (Stuart, 2011a) According to the Information Commissioner's Office in the U.K. "An ICO investigation found that the attack could have been prevented if the software had been up to date, while technical developments also meant passwords were not secure" (Yap, 2013). The reason that this personal information was not secure and easily accessed once the hackers made it past the network firewalls was because it was not encrypted. Encryption is a process that uses special algorithms to scramble data so that only authorized users can gain access to and read it. (O’Brien & Marakas, 2011) Encryption has become a very important and common means of security that even small online businesses know to use. Although Sony did keep credit card number in an encrypted file, they should have added encryption to all personal information files in order to provide added protection, especially if they were aware that there was an existing vulnerability in their security system. Another obvious problem with Sony's security system was its lack of a proper security auditing process. It is through these audits that companies are made aware of vulnerabilities so that they can correct them. Control logs, which consists of the networks programming are audited daily in order to detect any changes that may indicate a breach. If this process were being done correctly, it would not have taken Sony two days to discover the breach and they could have begun responding to it sooner. Overall, Sony definitely needed to revamp their entire information security network. This example shows just how important information security is for organizations and how disastrous it can be for those that do not have the necessary systems in place.

Works Cited:

Computer Internet Use (2014, November). United States Census Bureau. Retrieved from: http://www.census.gov/content/dam/Census/library/publications/2014/acs/acs-28.pdf

Graziano, D.  (2013, May 16).  LulzSec hackers sentenced for attacking Sony, News Corp and the CIA. Retrieved from: http://news.yahoo.com/lulzsec-hackers-sentenced-attacking-sony-news-corp-cia-223053837.html

Hide, N. (2013, April 9).  Four UK LulzSec members plead guilty to attacking CIA, Sony. Retrieved from: http://www.cnet.com/uk/news/four-uk-lulzsec-members-plead-guilty-to-attacking-cia-sony/

IGN. (2011, May 6). PSN Hack Attack Summary. Retrieved from [video file]: https://www.youtube.com/watch?v=QVU6v53ow8k

Largest Data Breaches of All Time (n.d.). Retrieved from: http://flowingdata.com/2011/06/13/largest-data-breaches-of-all-time/

Lulzsec Member Who Helped Hack Sony Gets Prison Time.  (2013, August 9). Retrieved from: http://www.dailydot.com/crime/reynaldo-rivera-sony-hack-lulzsec-prison-sentence/

Network World. (2011, May 1). Sony Apologized for PlayStation Network Attack, Outage. Retrieved from [video file]: https://www.youtube.com/watch?v=_SDCV00ErEs

O’Brien, J. & Marakas, G. (2011). Chapter 13: Security and Ethical Challenges.  Management Information Systems (10 ed.). McGraw - Hill Irwin.

Ogg, E. (2011, May 3). The PlayStation Network Breach (FAQ). Retrieved from: http://www.cnet.com/news/the-playstation-network-breach-faq/

Rubin, B. (2014, August 25). Sony Says PlayStation Network Back Online. Retrieved from: http://www.cnet.com/au/news/sony-says-playstation-network-back-online/

Smith, C (2011, May 4).  Sony PlayStation Network Hacker Hunt Taps Top Cyber-Sleuths. Retrieved from: http://www.huffingtonpost.com/2011/05/04/sony-playstation-network-hacker-hunt_n_857387.html

Sony Corporation. (2011, May 23). REG-Sony Corporation Media/Investor Briefings Regarding The Revision of Consolidated Results Forecast for the Fiscal Year Ended March 31, 2011. Retrieved from Reuters: http://www.reuters.com/article/2011/05/23/idUS160972+23-May-2011+BW20110523

Stuart, K. (2011a, January 7). PlayStation 3 Hack - How it Happened and What it Means. Retrieved from: http://www.theguardian.com/technology/gamesblog/2011/jan/07/playstation-3-hack-ps3

Stuart, K., & Arthur, C. (2011b, April 27). PlayStation Network Hack: Why it Took Sony Seven Days to Tell the World. Retrieved from: http://www.theguardian.com/technology/gamesblog/2011/apr/27/playstation-network-hack-sony

Takahashi, D. (2011, May 4). Chronology of the Attack on Sony's PlayStation Network. Retrieved from: http://venturebeat.com/2011/05/04/chronology-of-the-attack-on-sonys-playstation-network/

Walker, D. (2014, July 24). Sony to Shell Out $15M in PSN Breach Settlement. Retrieved from: http://www.scmagazine.com/sony-to-shell-out-15m-in-psn-breach-settlement/article/362720/

Woolls, D. (2011, June 10).  'Anonymous' PlayStation Hackers Arrested.  Retrieved from: http://www.huffingtonpost.com/2011/06/10/spain-anonymous-hackers-arrest_n_874677.html

Yap, J. (2013, January 24). Sony Fined $395K for 2011 PlayStation Network Hack. Retrieved from: http://www.cnet.com/news/sony-fined-395k-for-2011-playstation-network-hack/

IT Strategies For Transnational Organizations

IT Strategies for Transnational Organizations

(Internet World Stats, 2014)

It is no secret that advancements in information technology and the internet has greatly altered many aspects of our lives, including the way companies do business. According to data from internetworldstats.com, worldwide internet usage has increased by 741% between 2000 and 2014. (Internet World Stats, 2014) This rapid spread of the internet and other forms of information technology has opened up countless new opportunities for companies by providing organizations of all sizes the ability to take their business global. The chart below shows just how rapidly companies are beginning to make the push into globalization. One of the ways that companies operate in the global marketplace is by becoming a transnational company. Transnational companies are global enterprises that conduct business in more than one country. These companies operate many facilities and can provide local responsiveness to their markets. (Business Dictionary, n.d.)  In order to operate competitively in these international markets, organizations must use efficient global business and IT strategies to properly manage their worldwide business operations. The information technology strategy that a company selects will largely depend on their ability to address global business drivers combined with the company’s experience and current expertise in IT.  (O'Brien & Marakas, 2011)

(Chamot, 2010)

Global Business Drivers

Global business drivers are business requirements that are dependent upon the company’s industry and its environmental and competitive forces. The typical global business drivers that companies must consider when selecting their strategy include global customers, global products, global operations, global resources, and global collaboration. All of these drivers influence the type of IT strategies that companies pursue in the global market. (O'Brien & Marakas, 2011) The table below provides some examples of how selecting the proper IT strategy can help support these drivers in the global market.

(O'Brien & Marakas, 2011)

Past Global Strategies

There are two global strategies that businesses have commonly utilized over the years: international strategies and global strategies. An international strategy uses global subsidiaries that operate separately from the main organization; however, the subsidiaries receive new processes, products, and ideas from headquarters. In a global strategy, all of a company’s operations around the world are managed closely by a corporate headquarters. Each of these strategies open a business to a number of issues. International strategies present coordination issues within the company due to that amount of decentralization.  The opposite problem exists for global strategies.  Because subsidiaries are controlled by a corporate headquarters, the subsidiaries might not understand the varying needs of different regions where the company operates. It is because of these issues that companies have begun moving away from these two strategies. In recent years more and more businesses have been replacing these old strategies with a newer type of strategy that better utilizes information technology: the transnational strategy. (O'Brien & Marakas, 2011)

Transnational IT Strategy

A transnational strategy is a combination of international and global strategies.  A transnational strategy relies heavily on information systems and internet technologies to help integrate a company’s global business activities.  A transnational company’s  IT platform utilizes integrated worldwide software, hardware, and Internet-based architecture.  A few examples of transnational strategies include global alliances, global e-commerce, and global supply chain and logistics (O'Brien & Marakas, 2011)

Global Alliances

One of the major components of a transnational IT strategy is creating a virtual business through global alliances. A virtual business is one that utilizes business technology to connect people, organizations, assets, and ideas. When entering a new international market, companies often do not have the means to develop their own production and distribution infrastructure in that region. By forming a global alliance with manufacturers in the area, they can achieve their sales functions while limiting the amount of risk that they shoulder for that particular venture. An example of this can be seen in the alliances that existed between some of the top airlines back in 2002. These alliances allowed airlines to add to their flight coverage around the world without the added costs typically incurred through expansion.(Ireland, Hoskisson, & Hitt, 2006) Another benefit of global alliances is to help address cultural differences. When a business decides to enter into a new transnational venture, cultural differences in that region can create numerous challenges for the foreign company. Cultural barriers are particularly prominent in the infant stages of an international venture. Developing business alliances requires flexibility on the part of the incoming corporation to avoid cultural shock of their new target clients. Geert Hofstede defined "culture" as “the collective programming of the mind which distinguishes the members of one group or category of people from another.” (Peng, 2014, p. 65) Culture is more than just an individual’s nationality; culture is the subdivision within societies such as ethnicity, religion, or regional affiliations that compose who people inherently are and what characteristics they display in society. Michael E. Porter discussed the importance of clusters when selecting countries for transnational business. Clusters are geographical centers of collaborating and competing suppliers and service providers. Developing countries should encourage incoming transnational companies to build relationships with the clusters and become consumers of local goods and services. Additionally, transnational companies willing to invest in the development of skills within the cluster and in the emerging infrastructure provide an added bonus when trying to form alliances. (Basu, n.d.) When businesses draft alliances, money might not be the most important factor in determining what the new foreign partner deems important. In many societies, a business between partners built with respect will garner stronger and more trustful relationships than those built on financials alone.

Political stability also influences the success of transnational business ventures and alliances. Michael Peng defines "political risk" as the “risk associated with political changes that may negatively impact domestic and foreign firms.” (Peng, 2014, p. 41) For businesses, democracy governments are more favorable to business than totalitarian governments, but unfortunately, a democratic government does not necessarily promote a stable business atmosphere. Nearly every nation makes an attempt to attract international business in order to promote a better quality of life for their citizens; however, without the proper infrastructure, not every nation can provide the needed framework to invite a transnational organization to come in. Before a company enters a foreign market, they must first check the rules and regulations of that market with respect to IT. Many governments limit public internet access which could prevent transnational companies from having success in those areas.

    

Global e-commerce and resource management

Companies are constantly seeking different ways to expand their footprint and create a greater and more permanent presence in their respective industry. When revenues level out in existing markets, companies look to international developing markets to access new clients. Instead of creating a presence in the developing markets by using traditional brick and mortar approach, companies use global e-commerce. Global e-commerce is a low-risk venture that can be used to test the acceptance and viability of a new market.  While this venture is low-risk, it must still be approached with thorough research and business strategies that are focused on the target market’s e-commerce potential and their online market challenges. The true prospect for global e-commerce success in a developing country is directly tied to the number of people who have access to the internet and how many are comfortable with making online purchases. As infrastructure, laws, and consumer preference continue to progress in developing markets, added outside transnational companies must compete with domestic companies to gain market share in global. As the graph below shows, global online sales increased 13% each year between 2006 and 2011, the potential for global e-commerce has yet to reach its pinnacle.  (ATKearney, 2012)

(ATKearney, 2012)

There are several factors that companies who are seeking to expand operations through global e-commerce must take into account. First, the company must be willing to adapt to the local market by developing a customized value proposition. One-size does not fit all markets, and success depends on the ability of an organization to adjust the focus of its websites to the locals.  Companies must also accept local payment methods and provide reliable shipping to consumers. A second means of success is managing the customer experience. Being able to order items by simply clicking a button and having them delivered to your home is the main convenience of e-commerce. Constant communication with customers throughout the processes of purchasing, delivery, and returns is paramount to managing expectations and building trust. Success also cannot be obtained if a company underestimates the local competition. Domestic companies understand the local preferences of consumers and the challenges of e-commerce in these developing markets. Finally, a long-term focus centered on patience and continuing education about local markets and preferences is key to achieving a successful footprint in a developing market. (ATKearney, 2012) Companies must ensure that these factors are considered before selecting the global IT strategy they will utilize.

Global Supply Chain and Logistics

The first step in transnational production logistics is ensuring that a company has the means to secure and process the needed raw materials in the most timely and cost efficient manner. A business may also require the use of various types of transportation methods. The company must also consider the expenses associated with transportation and logistics when deciding where to locate factories. The final aspect of ensuring timely product delivery is getting internationally made products through customs. If products are not moved properly through customs, it could result in lengthy and costly delays. (Cross, 2012)

Benetton Group, a global fashion brand, uses the product life cycle management company Dassault Systèmes for the company’s global development and sourcing.  Dassault Systèmes’ provides Benetton with “domain specific apparel design and production capabilities and industry-leading global sourcing management” (Business Wire, 2011). This IT strategy allows Benetton to reduce lead times, optimize sourcing operations, and create a global, collaborative environment. Benetton has developed an advantage because they can differentiate their products and respond more quickly to changing fashion trends. The company has used its transnational approach to build production facilities in Europe, Africa, and Asia.  (Business Wire, 2011)

Quality control can also be considered a means of logistic management in transnational business. Overseas factory and environmental standards may be lower, thus causing problems once products are imported. For instance, in recent years Chinese based products were finished with lead-based paint, and it was not discovered until the products had already been sold to consumers in foreign markets. In 2007, the toy company Mattel had to recall over ten million products manufactured in China due to concerns over lead-based paints and tiny magnets. (Associated Press, 2007) Quality control, if implemented properly, will provide consumers with a consistent product or service that meets all regulations and improve user satisfaction through continual improvement. Acceptable quality control can be reached by implementing goals for achieving customer satisfaction, designating responsibilities to determine what processes need to be developed that are essential for improving product quality, and incorporating the processes into a value beneficial to the customer. “Quality Control, when used in conjunction with monitoring and evaluation, leads to a formalization of the quality process.” (LOG, 1994, p.2) Improving logistics and quality can be achieved by addressing cross-cultural differences. Basing support structures, such as call and service centers, located within the transnational organization’s target market, and staffing the support structures by the local culture can help bridge the gap between logistic and quality barriers.

   

Pros & Cons of Transnational Organizations

One of the most obvious benefits that a business can experience from establishing a transnational IT strategy are the added economic opportunities. Not only are these companies able to access entirely new markets, but IT allows them to do this at a fraction of the cost of traditional international expansion. (Ahmed, 2015) Another advantage is the ability to successfully manage subsidiaries across the globe while still providing them with the flexibility to function in the way that their particular region dictates. This flexibility provides a middle ground between the two extremes associated with global and international strategies. A third benefit of a transnational IT strategy is the level of continuity it provides a business. The business is no longer reliant on one central location for all of its data storage and processing. This separation is beneficial because it limits the damage to the company if a fire or natural disaster occurs at a location.  A catastrophe that occurs at one location will not incapacitate the IT network for the entire organization. The company can restore the data from a backup at another location.

Transnational IT strategies also have their drawbacks. The main disadvantage is its complexity. It is extremely difficult to design a system that meets the requirements of stakeholders across the globe, especially since each of these stakeholders needs can differ greatly. Top management may not even understand the specific needs of certain regions, which just adds to the complexity of the decision-making process. (Davoren, n.d.) Another disadvantage comes from the limitations in the technological infrastructures of certain areas. A company may see value in a specific region, but this does not necessarily mean they have the capabilities required to operate on the company’s specific IT system.

Sources

Ahmed, I. (2015, January 2). Transnational IT Organizations. Retrieved from http://www.experthelpme.com/transnational-it-organizations/

Associated Press. (2007, August 14). Mattel Issues New Massive China Toy Recall. Retrieved from NBC News: http://www.nbcnews.com/id/20254745/ns/business-consumer_news/t/mattel-issues-new-massive-china-toy-recall/#.VD8xOhb0WT4

ATKearney. (2012, June). E-Commerce Is the Next Frontier in Global Expansion. Retrieved from ATKearney: http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/e-commerce-is-the-next-frontier-in-global-expansion/10192

Basu, C. (n.d.). What Is a Transnational Business Strategy? Retrieved from Chron: http://smallbusiness.chron.com/transnational-business-strategy-20950.html

Businesswire. (2011, May 2010).  Global Fashion Brand Benetton Group Selects Dassault Systèmes to Increase Efficiency of Product Development and Sourcing.  Retrieved from Businesswire http://www.businesswire.com/news/home/20110509007326/en/Global-Fashion-Brand-Benetton-Group-Selects-Dassault#.VSmp6JM8VGZ

Business Dictionary (n.d.). Transnational Company. Retrieved from Business Dictionary http://www.businessdictionary.com/definition/transnational-company.html

Chamot, M. (2010, October 9). Jobs Won't Be Back. Retrieved from http://marcchamot.blogspot.com/2010/10/jobs-wont-be-back-wall-street.html

Cross, V. (2012, September 16). Importance of International Logistics. Retrieved from az central: http://yourbusiness.azcentral.com/importance-international-logistics-12916.html

Davoren, J. (n.d.). Transnational Organization Structure. Retrieved from http://smallbusiness.chron.com/transnational-organization-structure-60691.html

Internet World Stats. (2014, June 30). Internet Usage Statistics - The Internet Big Picture. Retrieved from http://www.internetworldstats.com/stats.htm

Ireland, D., Hoskisson, R., & Hitt, M. (2006). Understanding Business Strategy: Concepts and Cases. Mason: Thomson South-Western.

Linton, I. (n.d.). Transnational IT Operations as a Strategy. Retrieved from http://yourbusiness.azcentral.com/transnational-operations-strategy-4238.html#

LOG. (1994). Quality Control. Retrieved from Logistics Operation Guide: http://log.logcluster.org/mobile/response/quality-control/index.html

O'Brien, J. A., & Marakas, G. M. (2011). Management Information Systems (10th Edition). New York: McGraw-Hill / Irwin.

Peng, M. W. (2014). Global Business, Third Edition. Mason, OH: South-Western.

Apps as a Modern Business Model

Today, mobile devices have become an item that nearly everyone owns, and very few  people leave their home without their phone in hand. As the capabilities of mobile devices have increased over the years, so has our dependence on these devices. Many people have become so dependent on mobile devices that they keep their cell phones on them at all times.   A poll done by TIME Magazine in 2012 showed that 84% of people surveyed around the world said they couldn’t go a single day without their phones. (Duerson, 2012) Constant access to cellphones and other mobile devices have caused users to grow accustomed to being able to retrieve information or perform transactions any time they want, no matter where they are. Having this capability has caused more and more users to utilize mobile devices for functions that they would have previously completed on a computer. The increased utilization of mobile devices for online activities has caused companies to begin focusing more on mobile commerce and developing ways to benefit from it. Companies quickly found that mobile commerce did not fit into their typical online business models and in order to properly utilize this new type of commerce they would have to develop new business strategies that differed from the traditional e-commerce strategies. (Clarke III)

Apps as a Business Model

Just as using data through mobile connectivity is becoming more popular, more technologically advanced, and more powerful, business apps are following the same trend. Entrepreneurs and businesses of all sizes are becoming more reliant on apps as tools to help grow their businesses and customer base.  The business world today is mobile, and there is no question about if a business should invest in developing a mobile app; applications are a company’s “own proactive mobile presence.” (AB Mobile Apps, 2012) A majority of people use the internet to communicate, search for answers, or research any number of topics. Most successful companies could not operate without a website and attempting to do so is nothing short of risky. With the aforementioned mobile connectivity advancement and availability, not having an application to further a business would not be taking advantage of available resources. Businesses need mobile applications to stay competitive and to ensure they are remaining relevant to their respective market. (AB Mobile Apps, 2012)

According to AB Mobile Apps, statistics show that the first 3 or 4 websites listed by a search engine receives 85 percent of internet business, which means that the thousands of other sites listed are generally unnecessary and unseen surplus websites. Mobile apps are no different. If a business is slow in developing their app and providing customers with a mobile experience, customers have no qualms is going elsewhere. (AB Mobile Apps, 2012)

Mobile devices and consumer changes

According to a report completed by Forrester Research, retail sales completed on mobile devices are expected to see a steady increase in the next few years.  While mobile retail revenues are only a fraction of total e-commerce, sales are expected to be $31 million by 2017. (Ingram, 2013)

    

(Ingram, 2013)

Convenience is enticing consumers to use their mobile phones or tablets to shop for products and services.  Mobile apps can leave users logged in and save the buyer’s credit card information, which makes shopping even easier.  Shoppers not only avoid having to drive to stores to make purchases, but they also no longer need to boot up their computers.  Shoppers now have the option to buy whatever they want from nearly anywhere with just a few simple clicks.  (Demo, 2013)

According to a 2013 survey conducted by Adobe, 49% of mobile phone users and 45% of tablet users were interested in using apps, as opposed to a browser, to make mobile purchases.  The same survey showed that 42% of smartphone shoppers and 38% of tablet shoppers claimed that mobile apps strengthened their connection with a particular brand.  The following statistics indicate that mobile apps are changing the way that consumers make purchases and view companies.  Mobile apps help improve both the customer experience and the company’s ROI. (Ingram, 2013)

                (Ingram, 2013)                              (“Mobile Shopping”, n.d.)

What is M-commerce?

With most cellular companies’ adoption of 3G and 4G networks, the popularity of mobile-orientated sites has progressed extremely quickly. Other technological advances in cell phones, such as higher resolution screens and faster processors, give consumers a small computer at their fingertips and the ability to shop whenever and wherever they wish. Companies which provide m-commerce capabilities give their customers the ability to research, compare, and purchase items while they are not at a stationary home or office computer.  This mobility allows commuters to become a new target customer. (Bull, 2014)  

Mobile commerce, or m-commerce, allows individuals to conduct transactions online using wireless handheld devices. (“Mobile Commerce”, n.d.)  These transactions include the buying of goods and services, selling of goods and services, bill payment, online banking, and information services such as news. (“Mobile Commerce”, n.d.) (Rouse, n.d.)

M-commerce’s Effects on Traditional Forms of Business

Traditional business models for e-commerce could not be directly duplicated for m-commerce due to the different ways that the computer user consumes online data in comparison to mobile data users. For e-commerce, the focus has been on providing the customer with an aesthetically pleasing virtual storefront with different kinds of helpful features integrated into the website while still maintaining a high level of security for customer information. This technology-focused business model needed adjustments in order to become more of a customer-oriented model that aligned with the capabilities of mobile devices and how consumers utilized these devices. (Clarke III) The value of m-commerce comes from providing consumers with a convenient way to access goods and services anytime and anywhere; a benefit which allows consumers to use m-commerce applications to complete shopping tasks while they are in line at the store or even stuck in traffic. (Relander, 2015)  The accessibility of m-commerce also allows individuals to respond quickly to time-sensitive business information such as stock market changes, betting, and auctions. Mobile business models needed to be able to maximize this value-for-time attribute and account for the varying behavior patterns of mobile consumers. The new customer-oriented strategies that are being implemented by e-businesses are centered around the value propositions created by the ubiquity, convenience, localization, and personalization of mobile devices. (Clarke III)

With the shift in strategy, e-businesses are required to focus more on developing simplified web pages that integrate seamlessly with any mobile device and create easier ways for consumers to quickly access information. (Felicitta & Jayanthi, 2009) The simplification of the commerce site is more than convenient; it is a necessity since users are not willing to spend long periods of time waiting for full sized web pages to load on their mobile devices. Additionally, smaller web pages are necessary since mobile data is bought by the gigabyte, and extra data is charged at a premium by the megabyte. Consumers want an application that allows them to take care of their online shopping in the time they have between their everyday activities. Busy consumers want to locate and purchase what they need with a few quick taps of their finger. Customers would rather have a reliable application that they can quickly navigate instead of an unstable application which tries to integrate the additional features typically found in standard websites. Being able to quickly provide consumers with the right information whenever and wherever they need it is essential for a company to have success with m-commerce. (Clarke III)

Apps vs. Traditional Websites

The value-for-time benefits which have made m-commerce so popular have also led to the growing popularity of m-commerce apps for mobile devices. While apps are normally used to complete the same tasks that would typically be done through a standard website, they include a few additional features that can sometimes further improve the customer experience. One reason consumers may use an app over a standard website is for the increased speed of navigation that apps provide. Apps usually consist of a condensed version of the information and features available on websites. By eliminating the excess information and only including the essentials, apps allow the user to locate the information much faster. Take, for example, the Apple Store app, this interface presents the consumer with only the tools and information they need for purchasing Apple products and allows them to find and purchase the items they need without having to navigate through the additional content presented on Apple’s website. Another benefit of apps is the improved compatibility and functionality of the content with that specific mobile device. (Berry, 2014)

Compatibility allows the consumer to integrate information contained on their device such as their pictures or GPS location. (Berry, 2014) App stores typically verify mobile apps before they make them available for download; therefore, mobile apps are likely to be safer from malware compared to traditional online shopping. (Demo, 2013) Added security is a big reason consumers often utilize apps for online purchases, especially when buying more expensive items. Although these benefits can make apps the better choice at times, they also have shortcomings such as interface issues only containing a portion of the website information that can sometimes make the traditional website a better choice for consumers. These are things that users must consider when choosing between an app and a website. The choice is dependent on the specific task that the user is trying to complete and commonly comes down to the personal preferences of the consumer.

For a business to remain relevant in its industry, they must move forward step-in-step with advances in technology. Easing customer access, saving their time, and increasing the company’s visibility are all sound reasons for a company to invest in developing an app based business model, but the reality of the situation is without an app, modern businesses are at a disadvantage. Apps are a necessity in modern business, and the following video list ten valid reasons businesses need to keep pace. (Openxcell Technolabs, 2013)

(Openxcell Technolabs, 2013)

Works Cited:

AB Mobile Apps. (2012, December 31). Why Mobile Applications, and Why Businesses Need a Mobile App. Retrieved from AB Mobile Apps: http://www.abmobileapps.com/why-mobile-applications-for-business/

Berry, R. (2014, January 29). The Main Benefits of Native Apps over Web Apps. Retrieved from App Creatives: http://www.appcreatives.co.uk/articles/the-main-benefits-of-native-apps-over-web-apps#.VQyAnI7F98E

Bull, D. (2014, February 28). What is M-Commerce and What Does it Mean For Your Business? Retrieved from Sage: http://www.sage.co.uk/blog/index.php/2014/02/what-is-mcommerce-and-what-does-it-mean-for-your-business/

Clarke III, I. (n.d.). Emerging Value Propositions for M-commerce. Journal of Business Strategies, 41-57.

Demos, C. (2013, December 15). CBS Miami. More People Use Smartphone Apps To Do Shopping . Retrieved from http://miami.cbslocal.com/2013/12/15/more-people-use-smartphone-apps-to-do-shopping/

Duerson, M. H. (2012, August 16). We’re Addicted to Our Phones: 84% Worldwide Say They Couldn’t Go a Single Day Without Their Mobile Device in Their Hand. Retrieved from NY Deaily News: http://www.nydailynews.com/life-style/addicted-phones-84-worldwide-couldn-single-day-mobile-device-hand-article-1.1137811

Felicitta, J., & Jayanthi, G. (2009). The Impact of M-Commerce in Global Perspectives- A SWOT Analysis. 8th WSEAS Internation Conference, (pp. 76-80).

Ingram, K. (2013, May 28). CMS Wire. It’s an App World for E-Commerce and Online Shopping.  Retrieved from http://www.cmswire.com/cms/customer-experience/its-an-app-world-for-ecommerce-and-online-shopping-021024.php#null

Mobile Commerce (n.d.). Investopedia. Retrieved from http://www.investopedia.com/terms/m/mobile-commerce.asp

Mobile Shopping: Retail App Usage on the Rise (n.d.).  Adobe. Retrieved from http://www.adobe.com/aboutadobe/pressroom/pdfs/Mobile_Shopping_Retail_App_Usage_on_the_Rise_Infographic.pdf?PID=6151326 

Openxcell Technolabs. (2013, August 1). 10 Reasons Why Your Business Needs a Mobile App. Retrieved from Youtube: https://www.youtube.com/watch?v=qr4x_nCjIlY

Pew Research Center. (2014, January 26). Cell Phone and Smartphone Ownership Demographics. Retrieved from Pew Research Center: http://www.pewinternet.org/data-trend/mobile/cell-phone-and-smartphone-ownership-demographics/

Relander, B. (2015, February 3). Mobile Marketing Trends for 2015. Retrieved from Social Media Today: http://www.socialmediatoday.com/content/mobile-marketing-trends-2015-0