E-Commerce

E-commerce is usually associated with conducting any transaction involving the transfer of
ownership or rights to use goods or services through a computer-mediated network. E-commerce
can be formally defined as technology-mediated exchanges between parties (individuals,
organizations, or both) as well as the electronically-based intra or inter-organizational activities
that facilitate such exchanges. A more complete definition is : “E-commerce is the use of
electronic communications and digital information processing technology in business
transactions to create, transform, and redefine relationships for value creation between or among
organizations, and between organizations and individuals.”

Definition of E-Commerce from Different Perspective :

1. Communications Perspective
 EC is the delivery of information, products/services, or payments over the telephone
lines, computer networks or any other electronic means.
2. Business Process Perspective
 EC is the application of technology toward the automation of business transactions
and work flow.
3. Online Perspective
 EC provides the capability of buying and selling products and information on the
internet and other online services.

UK government gave a broad definition explaining the scope of e-commerce to industry : “E-
commerce is the exchange of information across electronic networks, at any stage in the
supply chain, whether within an organization, between businesses, between businesses and
consumers, or between the public and private sector, whether paid or unpaid.”

Brief History of E-Commerce

The Internet was designed more than 30 years ago to serve the needs of the U.S Department of
Defense and other organizations and individuals working on defense-related research projects.
The Department of Defense eventually opened its network to educational institutions and then to
commercial users. The table given below shows a rough timeline of how e-commerce has
evolved from a single exchange of information between government agencies to the World Wide
Web of today :
 From 1969 to 2010

1969 ARPANET established

Early 1970s Other Nets
1970s Electronic Fund Transfer (EFT)
1974 Electronic Data Interchange (EDI)
1989 Presentation of E-Commerce model
1992 Introduction of WWW
2000 E-Commerce Expansion

In 1969, the U.S Department of Defense established “The Advanced Research Projects Network”
(ARPANET). ARPANET was the first really viable inert-organizational network or Internet.

In the early 1970s, other networks such as Bitnet and Usenet sprang up as the technology
became more public.

In 1970s, banks began to use Electronic Fund Transfer (EFT) over secure private networks to
move money quickly and accurately. EFT made e-payments possible and led to direct deposit.

In 1974, Electronic Data Interchange (EDI) was formally introduced. As many as 380
organizations world wide adopted this technology and investment reached a level of around 4
billion dollars at that time.

In 1989, Johnstew and American Professor presented e-commerce model at consortium of

industries at Chicago, USA.

In 1992, the World Wide Web arrived. The Web made the Internet graphical and relatively easy
to use. The Web made e-commerce cheaper because small businesses could now reach large and
new audiences easily.

In 2000, internet-based e-commerce account for as much as 2% of all commercial transactions in

industrialized nations which was to increase by 20% in the coming 5 years.

E-Business

Electronic business, commonly referred to as "eBusiness" or "e-business", may be defined as the

application of information and communication technologies (ICT) in support of all the activities
of business. Commerce constitutes the exchange of products and services between businesses,
groups and individuals and can be seen as one of the essential activities of any business.

E-business involves business processes spanning the entire value chain : e-purchasing, e-supply
chain management, processing orders electronically, handling customer service, and cooperating
with business partners. E-business software solutions allow the integration of intra and inter firm
business processes. E-business can be conducted using the Web, the Internet, intranets, extranets,
or some combination of these.

Relationship Between E-business & E-commerce

In practice, e-business is more than just e-commerce. E-commerce seeks to add revenue streams
using the World Wide Web or the Internet to build and enhance relationships with clients and
partners and to improve efficiency. Electronic commerce focuses on the use of ICT to enable the
external activities and relationships of the business with individuals, groups and other businesses.

Electronic Commerce (EC) has some degree of overlap with Electronic Business (EB) or
Broadly t it can be said that Electronic Commerce is equivalent to Electronic Business

EC EB

EC=EB
EC is often confused with e-business but E-commerce is the subset of e-business that focuses
specifically on commerce. While e-business refers to more strategic focus with an emphasis on
the functions that occur using electronic capabilities, e-commerce is a subset of an overall e-
business strategy. Electronic Commerce is a subset of Electronic Business.

EC

EB

E-Commerce : Architectural Framework

E-Commerce applications require a reliable network infrastructure to move the information and
execute a transaction in a distributed environment. Thus, in the framework network infrastructure
forms the very foundation while publication and distribution technologies are the 2 pillars that
support the creation of distributed electronic commerce applications. Elements of E-Commerce
Framework are as follows :

• Network Multimedia and Content Publishing : Currently the most prevalent

architecture that enables network publishing is WWW. It allows small businesses and
individuals to develop content in the form of HTML and publish on the web server.
• Information Distribution Technology : It provide a transparent mechanism for
transferring information content. It is accomplished through software systems that
implement File Transfer Protocol (FTP), Hypertext Transfer Protocol (HTTP), and
Simple Message Transfer Protocol(SMTP) for exchanging multimedia contents
consisting of text, graphics, video and audio data.
• Security and Encryption Technology : For e-commerce to be viable, the two
important issues need to be addressed – protection of the source of information that is
being made available online, and protection of the transaction that travels over the
network. The confidentiality or privacy of the transaction data can be addressed by
using various encryption techniques. Public / Private key pair based encryption
techniques can be used for this purpose.
 • Secure Payment Protocols & Online Payment Infrastructure : Banks have been
supporting the electronic payment mechanism through the Electronic Fund Transfer
(EFT) channel. Several scalable and flexible electronic payment mechanisms are
credit cards, debit cards, etc. These systems also offer the confidentiality, integrity
and privacy over traditional payment systems.
• Business Service Infrastructure : It includes directories, search engines and
catalogues. These are essential for identifying and locating business that meet
customer requirements. Search engines and directory service providers like AltaVista,
Google and Yahoo identified and capitalized on the need by providing the service.
• Public Policy & Legal Infrastructure : Establishing e-commerce related laws and
recognized certification authorities provides the legal framework for e-commerce.

How E-Commerce Works ?

The consumer first moves through the internet to the merchant’s web site. At the web site, the
consumer is briefly given an introduction to the product or services the merchant offers. After
choosing to visit the web store, the consumer is typically connected to an online transaction
server located somewhere else on the internet which runs software commonly referred to as a
shopping cart application. The shopping cart application has been setup by the merchant to
display all products and services offered, as well as calculate pricing, taxes, shipping charges,
etc.
Now, the consumer enters all pertinent credit card information and a sales order is produced.
Depending on the ecommerce implementation, the sales order can now take two totally different
paths for confirming to the consumer that the order is officially placed.

Scenario 1 : The consumer’s credit card information goes directly through a private gateway to a
processing network, where the issuing and acquiring banks complete or deny the transaction.
This generally takes place in no more than 5-7 seconds and the consumer is then informed that
the order was received, the credit card was authorized, and that the product will ultimately be
shipped.

Scenario 2 : The consumer’s entire order and credit card information is electronically submitted
back to the merchant’s server (usually via email, FTP, or SSL connection) where the order can
be reviewed first and then approved for credit card authorization through a processing network.
The consumer then receives an email shortly afterwards, confirming the order being received, the
credit card being authorized, and status on when the product will exactly be shipped.

In both scenarios, the process is transparent to the consumer and appears virtually the same.
However, the first scenario is a more simplistic method of setting up a shopping cart application
and does not take into consideration any back office issues that may delay shipment. The second
scenario keeps the consumer accurately informed throughout the entire ordering process.

Forces Behind E-Commerce / Factors Affecting E-Commerce

1) Economic Forces : To remain in competition the organizations are under relentless

pressure to reduce costs, firms are attracted to the economic efficiencies offered by e-
commerce. These economic efficiencies include low cost technological infrastructure that
reduce the cost burden to technology upgrades and obsolescence, low cost and electronic
transactions with suppliers, the low cost of global information sharing and advertising
ability for firms to provide low cost customers services alternatives.

The economic forces motivating the shift to e-commerce are internal as well as external.
External integration molds the vast network of suppliers, government agencies, and
large corporations into a single community with ability to communicate across any
computer platform. In Internal integration, incoming orders are received electronically
and the information is automatically sent not only to production but to shipping, billing
and inventory systems also. Internal integration also ensures that critical data is stored in
media formats that permits instantaneous retrieval and electronic transmission.
 2) Marketing & Customer Interaction Forces : Companies also employ e-commerce to
provide marketing channels, to target micro segments, and to improve post-sales
customer satisfaction by creating new channels of customer service and support.

In order to be competitive, marketing executives must employ technology to develop

low-cost customer-prospecting methods, establish close relationships with customer and
develop customer loyalty.

3) Technology Interaction & Digital Convergence : Digital technology has made it

possible to convert characters, sounds, pictures and motion video into a bit stream that
can be combined, stored, manipulated and transmitted quickly, efficiently and in large
volumes without loss of quality.

The relentless advance of technology, the emergence of multimedia standards, and the
shift to distributed, computing and inter-networking are providing the raw power for the
“digital convergence”.

4) Implication of various other Forces : Economic and marketing forces and digital
convergence have influenced how industries re-positioning themselves to take advantage
of new opportunities, including the creation of newly service delivery channels, the
development of new-markets for existing products, and development of new information-
based products for the online environment.

For instance, the digital convergence is reshaping the competitive environment for tele-
communications services around the globe. In response to the intensified competition and
reduced margins on basic telephone services in telecom markets, network operators are
building new Computer-Driven intelligent networks in order to offer wide range of value-
added services like home shopping, on demand audio-video.

Hurdles/Barriers in Implementing E-Commerce

Several major hurdles in implementing e-commerce are summarized as below :

1) Security Issues : When an organization uses Internet to engage in commerce, it exposes

itself to security risk.
2) Connection : Cost of Internet facility.
3) Hardware / Software : Cost of hardware / software is high.
 4) Set-up : Cost involved in setting up systems and employee working hours that is set-up
cost and running cost.
5) Maintenance : Employee training and system maintenance processes for managers are
costly and there is a hitch among top level managers to learn some new things.
6) Legal Issues : It is uncertain what the possible legal issues that will start to pop up as
business on the Internet progresses.
7) Lack of skilled Personnel : Skilled developers and administrators need to be searched to
manage and maintain a customer online. However, the issue of finding and retaining
Personnel is a critical one.
8) Uncertainty & Lack of Information : For company, which has never used any
electronic means of communication with customers, Internet is an unknown mode.
9) Insufficient government guidance.
10) Difficulty faced by business in integrating IT systems.

E-Commerce Advantages

E-Commerce is one of the most important facets of the Internet to have emerged in the recent
times. Some advantages that can be achieved from e-commerce include :

• Being able to conduct business 24 X 7 X 365 : E-commerce systems can operate all day
every day while the physical storefront is not open all the day round.
• Access the global marketplace : The Internet spans the world, and it is possible to do
business with any business or person who is connected to the Internet. Simple local
businesses such as specialist record stores are able to market and sell their offerings
internationally using e-commerce.
• Market space : The market in which web-based businesses operate is the global market.
• Computer platform-independent : Customers are not limited by existing hardware
systems.
• Allowing customer self service and ‘customer outsourcing’ : People can interact with
businesses at any hour of the day that it is convenient to them, and because these
interactions are initiated by customers, the customers also provide a lot of the data for the
transaction that may otherwise need to be entered by business staff. This means that some
of the work and costs are effectively shifted to customers; this is referred to as ‘customer
outsourcing’.
• Cost of acquiring, serving and retaining customers : It is relatively cheaper to acquire
new customers, over the net because of its 24 X 7 operation and its global reach.
 • Disintermediation : Using the Internet, one can directly approach the customers and
suppliers, cutting down on the number of levels and in the process, cutting down the
costs.
• An extended enterprise is easy to build : The Internet provides an effective (less
expensive) way to extend your enterprise beyond the narrow confines of your own
organization. Tools like Enterprise Resource Planning (ERP), Supply Chain Management
(SCM) and Customer Relationship Management (CRM), can easily be deployed over the
Internet, permitting amazing efficiency in time needed to market, customer loyalty, on-
tile delivery and eventually profitability.

E-Commerce Disadvantages and Constraints

Some disadvantages and constraints of e-commerce include the following :

• Time for delivery of physical products : E-commerce is often used to buy goods that
are not available locally from businesses all over the world, meaning that physical goods
need to be delivered, which takes time and costs money. In some cases there are ways
around this, for example, with electronic files of the music or books being accessed
across the Internet, but then these are not physical goods.
• Physical product, supplier & delivery uncertainty : e-commerce purchases are made
on trust. This is because, firstly, not having had physical access to the product, a purchase
is made on an expectation of what that product is and its condition. Secondly, because
supplying businesses can be conducted across the world, it can be uncertain whether or
not they are legitimate businesses and are not just going to take your money.
• Perishable goods : Goods bought and sold via the Internet tend to be durable and non-
perishable that is they need to survive the trip from the supplier to the purchasing
business or consumer. This shifts the bias for perishable and/or non-durable goods back
towards traditional supply chain arrangements.
• Limited and selected sensory information : The Internet is an effective conduit for
visual and auditory information : seeing pictures, hearing sounds and reading text. If we
were looking at buying a car on the Internet, we would see the pictures the seller had
chosen for us to see but not the things we might look for if we were able to see it in real.
And, taking into account our other senses, we can’t test the car to hear the sound of the
engine as it changes gears or sense the smell and feel of the leather seats.
• Returning goods : Returning goods online can be an area of difficulty. The uncertainties
surrounding the initial payment and delivery of goods can be exacerbated in this process.
 Will the goods get back to their source? Who pays for the return postage? Will the refund
be paid?
• Privacy, security, payment, identity, contract : Many issues arise – privacy of
information, security of that information and payment details, whether or not payment
details (eg. credit card details) will be misused, identity theft, contract, and, whether we
have one or not, what laws and legal jurisdiction apply.
• Defined services & the unexpected : E-commerce is an effective means for managing
the transaction of known and established services. It is not suitable for dealing with the
new or unexpected.
• Size and number of transactions. E-commerce is most often conducted using credit
card facilities for payments, and as a result very small and very large transactions tend
not to be conducted online. The size of transactions is also impacted by the economics of
transporting physical goods.

Scope / Application Areas of E-Commerce

The role of e-commerce in daily life is becoming very important. E-commerce can be used in the
following ways :

1. Online Education : Different types of interactive tutorials, textual and multimedia contents
are available on the Internet. The students can browse these online books and tutorials or can
download them after purchasing. Some websites provide online lectures for the students.

2. Electronic Banking : Using computer, user can connect to the bank’s computer system via
the Internet and control the daily financial dealing from home. It reduces the staff and building of
banks. Many customers pay their bills from their bank accounts using this facility.

3. Electronic Shopping : People can browse the website, place an order and even make a
payment using credit card. It has made shopping very easy.

4. Job Search : Internet is used to search different types of jobs all over the world. Many
websites are developed that provide information to the people about job vacancies.

5. Conducting Auctions : Many websites provide the facility of auction. People participate in
the auction to purchase a product. They can also pay the price using their credit cards etc.
6. Collaboration with Partners : Businessmen can collaborate with their partners using the
Internet. They can discuss ideas, exchange views and make strategies in collaboration with all of
their business partners in the world.

7. Providing Customer Services : Businessmen can interact with their customers using the
Internet. They can discuss different issues about their products and also deal with their
complaints and provide different services to them.

9. Online Travel Reservations : Online travel reservation is a popular use of e-commerce.

People can reserve seats in airline flights, hotels or car using the Internet.

10. Online Trading : The stockbrokers can do all trading activities electronically. They can
submit and receive bids using computers. It reduces the cost as no paper or special building is
required to conduct these activities.

E-commerce Opportunities for Industries

Following are some of the areas where e-commerce is witnessing rapid growth in the global
markets. Indian software and services companies need to tap into some of these vertical
segments to gain the maximum advantage in the e-commerce solution sector.
1. Financial services : A large number of users use the Internet for some form of financial
guidance.
2. Stock Trading : Online Stock trading is nowadays one of the most demanding e-
commerce utilities.
3. Banking : Internet Banking is now growing. Many banks like ICICI and HDFC are
making roads inroads into this area.
4. Legal & Professional Services : In terms of opportunities for Indian legal services
providers, the requirement for professional. Legal and regulatory advice is expected to
increase as the number of e-commerce users increase.
5. Tour & Travel : The travel industry has readily adapted to e-commerce. These sectors
have adapted well because of their online reservation systems.
6. Healthcare : It represents one of the biggest expenditures of government worldwide. The
Internet has the potential to enhance communications by providing high-quality
administrative services and integrating information systems.
Classification of E-Commerce

E-Commerce utilizes information and communication technologies to carry out market

transactions among two or more parties – usually business and consumers. Based upon the
entities involved in a transaction, electronic commerce has been classified in these categories :
Business-to-Business (B2B) / Inter-Organizational E-Commerce, Business-to-Consumer (B2C),
Consumer-to-Business (C2B), Consumer-to-Consumer (C2C), Business-to-Government (B2G).
Electronic commerce technology can also be used for streamlining the internal processes of an
organization to derive all the same benefits that are likely to accrue in any inter-organizational
(B2B) system. The application of integration ability of electronic commerce within an
organization to streamline processes, reduce friction and internal overheads cost is referred to as
the intra-organizational electronic commerce. A common application of intra-organizational
electronic commerce is the dissemination of information to employees in order to improve
management-employee relationships. These applications of intra-organizational electronic
commerce are also referred to as Business-to-Employee (B2E) applications.

E-Commerce Models Description Examples

B2C Sells products or services directly to consumers amazon.com
B2B Sells products or services to other businesses or MetalSite.com
brings multiple buyers and sellers together in a VerticalNet.com
central e-marketplace SHOP2gether.com
B2G Businesses selling to local, state and federal iGov.com
agencies.
C2C Consumers sell directly to other consumers ebay.com
C2B Consumers fix price on their own, which Priceline.com
businesses accept or decline.

Traditional Commerce Vs E-commerce

Traditional Commerce E-commerce

Sales Channel Enterprise – Internet – Consumer Manufacturer – Wholesaler – Retailer –

Customer

Sales Region Entire world Restricted area

Sales hour 24 X 7 Restricted sales hour

Customer Real-time support for customer Delayed support for customer

support dissatisfaction & real-time dissatisfaction & time different for
acquisition of customer needs catching customer needs

Customer Any time acquisition through Market survey & through salesman
information internet
acquisition