MODULE I

1. e Commerce
1.1 An Overview / Definition

Electronic commerce, commonly known as (electronic marketing) e-commerce or

eCommerce, consists of the buying and selling of products or services over electronic
systems such as the Internet and other computer networks. The amount of trade
conducted electronically has grown extraordinarily with widespread Internet usage. The
use of commerce is conducted in this way, spurring and drawing on innovations in
electronic funds transfer, supply chain management, Internet marketing, online
transaction processing, electronic data interchange (EDI), inventory management
systems, and automated data collection systems. Modern electronic commerce typically
uses the World Wide Web at least at some point in the transaction's lifecycle, although it
can encompass a wider range of technologies such as e-mail as well.

A large percentage of electronic commerce is conducted entirely electronically for virtual

items such as access to premium content on a website, but most electronic commerce
involves the transportation of physical items in some way. Online retailers are sometimes
known as e-tailers and online retail is sometimes known as e-tail. Almost all big retailers
have electronic commerce presence on the World Wide Web.

Electronic commerce that is conducted between businesses is referred to as business-to-

business or B2B. B2B can be open to all interested parties (e.g. commodity exchange) or
limited to specific, pre-qualified participants (private electronic market). Electronic
commerce that is conducted between businesses and consumers, on the other hand, is
referred to as business-to-consumer or B2C. This is the type of electronic commerce
conducted by companies such as Amazon.com.

Electronic commerce is generally considered to be the sales aspect of e-business. It also

consists of the exchange of data to facilitate the financing and payment aspects of the
business transactions.

Early development

The meaning of electronic commerce has changed over the last 30 years. Originally,
electronic commerce meant the facilitation of commercial transactions electronically,
using technology such as Electronic Data Interchange (EDI) and Electronic Funds
Transfer (EFT). These were both introduced in the late 1970s, allowing businesses to
send commercial documents like purchase orders or invoices electronically. The growth
and acceptance of credit cards, automated teller machines (ATM) and telephone banking
in the 1980s were also forms of electronic commerce. Another form of e-commerce was
the airline reservation system typified by Sabre in the USA and Travicom in the UK.
Online shopping, an important component of electronic commerce, was invented by
Michael Aldrich in the UK in 1979. The world's first recorded B2B was Thomson
Holidays in 1981 [1] The first recorded B2C was Gateshead SIS/Tesco in 1984 [2] The
world's first recorded online shopper was Mrs Jane Snowball of Gateshead, England [3]
During the 1980s, online shopping was also used extensively in the UK by auto
manufacturers such as Ford, Peugeot-Talbot, General Motors and Nissan.[4] All these
organizations and others used the Aldrich systems. The systems used the switched public
telephone network in dial-up and leased line modes. There was no broadband capability.

From the 1990s onwards, electronic commerce would additionally include enterprise
resource planning systems (ERP), data mining and data warehousing.

An early example of many-to-many electronic commerce in physical goods was the

Boston Computer Exchange, a marketplace for used computers launched in 1982. An
early online information marketplace, including online consulting, was the American
Information Exchange, another pre Internet[clarification needed] online system
introduced in 1991.

In 1990 Tim Berners-Lee invented the World Wide Web and transformed an academic
telecommunication network into a worldwide everyman everyday communication system
called internet/www. Commercial enterprise on the Internet was strictly prohibited until
1991 .[5] Although the Internet became popular worldwide around 1994 when the first
internet online shopping started, it took about five years to introduce security protocols
and DSL allowing continual connection to the Internet. By the end of 2000, many
European and American business companies offered their services through the World
Wide Web. Since then people began to associate a word "ecommerce" with the ability of
purchasing various goods through the Internet using secure protocols and electronic
payment services.

Timeline

 1979: Online shopping was invented in the UK by Michael Aldrich.

 1981: World's first recorded B2B online shopping system. Thomson Holidays UK
 1982: Minitel was introduced nationwide in France by France Telecom and used
for online ordering.
 1984: World's first recorded B2C online home shopper. Mrs Jane Snowball uses
the Gateshead SIS/Tesco system to buy groceries.
 1987: Swreg begins to provide software and shareware authors means to sell their
products online through an electronic Merchant account.
 1990: Tim Berners-Lee writes the first web browser, WorldWideWeb, using a
NeXT computer.
 1992: J.H. Snider and Terra Ziporyn publish Future Shop: How New
Technologies Will Change the Way We Shop and What We Buy. St. Martin's
Press. ISBN 0312063598.
 1994: Netscape releases the Navigator browser in October under the code name
Mozilla. Pizza Hut offers pizza ordering on its Web page. The first online bank
 opens. Attempts to offer flower delivery and magazine subscriptions online. Adult
materials also become commercially available, as do cars and bikes. Netscape 1.0
is introduced in late 1994 SSL encryption that made transactions secure.
 1995: Jeff Bezos launches Amazon.com and the first commercial-free 24 hour,
internet-only radio stations, Radio HK and NetRadio start broadcasting. Dell and
Cisco begin to aggressively use Internet for commercial transactions. eBay is
founded by computer programmer Pierre Omidyar as AuctionWeb.
 1998: Electronic postal stamps can be purchased and downloaded for printing
from the Web.
 1999: Business.com sold for US $7.5 million to eCompanies, which was
purchased in 1997 for US $149,000. The peer-to-peer filesharing software
Napster launches. ATG Stores launches to sell decorative items for the home
online.
 2000: The dot-com bust.
 2002: eBay acquires PayPal for $1.5 billion. Niche retail companies CSN Stores
and NetShops are founded with the concept of selling products through several
targeted domains, rather than a central portal.
 2003: Amazon.com posts first yearly profit.
 2007: Business.com acquired by R.H. Donnelley for $345 million.
 2008: US eCommerce and Online Retail sales projected to have reached $204
billion, an increase of 17 percent over 2007.

1.2 E-commerce advantages and disadvantages

E-commerce provides many new ways for businesses and consumers to communicate and
conduct business. There are a number of advantages and disadvantages of conducting
business in this manner.

1.2.1 E-commerce advantages

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. Your physical storefront does not need to be open in order for
customers and suppliers to be doing business with you electronically.
• 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. This global opportunity is assisted by the
fact that, unlike traditional communications methods, users are not charged according
to the distance over which they are communicating.
• Speed. Electronic communications allow messages to traverse the world almost
instantaneously. There is no need to wait weeks for a catalogue to arrive by post: that
communications delay is not a part of the Internet / e-commerce world.
 • Market Space. The market in which web-based businesses operate is the global
market. It may not be evident to them, but many businesses are already facing
international competition from web-enabled businesses.
• Opportunity to reduce costs. The Internet makes it very easy to 'shop around' for
products and services that may be cheaper or more effective than we might otherwise
settle for. It is sometimes possible to, through some online research, identify original
manufacturers for some goods - thereby bypassing wholesalers and achieving a
cheaper price.
• Computer platform-independent. 'Many, if not most, computers have the ability
to communicate via the Internet independent of operating systems and hardware.
Customers are not limited by existing hardware systems' (Gascoyne & Ozcubukcu,
1997:87).
• Efficient applications development environment - 'In many respects,
applications can be more efficiently developed and distributed because the can be
built without regard to the customer's or the business partner's technology platform.
Application updates do not have to be manually installed on computers. Rather,
Internet-related technologies provide this capability inherently through automatic
deployment of software updates' (Gascoyne & Ozcubukcu, 1997:87).
• 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'.
• Stepping beyond borders to a global view. Using aspects of e-commerce
technology can mean your business can source and use products and services
provided by other businesses in other countries. This seems obvious enough to say,
but people do not always consider the implications of e-commerce. For example, in
many ways it can be easier and cheaper to host and operate some e-commerce
activities outside Australia. Further, because many e-commerce transactions involve
credit cards, many businesses in Australia need to make arrangements for accepting
online payments. However a number of major Australian banks have tended to be
unhelpful laggards on this front, charging a lot of money and making it difficult to
establish these arrangements - particularly for smaller businesses and/or businesses
that don't fit into a traditional-economy understanding of business. In some cases,
therefore, it can be easier and cheaper to set up arrangements which bypass this
aspect of the Australian banking system. Admittedly, this can create some grey areas
for legal and taxation purposes, but these can be dealt with. And yes these
circumstances do have implications for Australia's national competitiveness and the
competitiveness of our industries and businesses.

As a further thought, many businesses find it easier to buy and sell in U.S. dollars: it is
effectively the major currency of the Internet. In this context, global online customers can
find the concept of peculiar and unfamiliar currencies disconcerting. Some businesses
find they can achieve higher prices online and in US dollars than they would achieve
selling locally or nationally. Given that banks often charge fees for converting currencies,
this is another reason to investigate all of your (national and international) options for
accepting and making online payments.

In brief, it is useful to take a global view with regard the potential and organisation of
your e-commerce activities, especially if you are targeting global customers.

• A new marketing channel. The Internet provides an important new channel to

sell to consumers. Peterson et al. (1999) suggest that, as a marketing channel, the
Internet has the following characteristics:
• the ability to inexpensively store vast amounts of information at different virtual
locations
• the availability of powerful and inexpensive means of searching, organising, and
disseminating such information
• interactivity and the ability to provide information on demand
• the ability to provide perceptual experiences that are far superior to a printed
catalogue, although not as rich as personal inspection
• the capability to serve as a transaction medium
• the ability to serve as a physical distribution medium for certain goods (e.g.,
software)
• relatively low entry and establishment costs for sellers
• no other existing marketing channel possesses all of these characteristics.

Some of these advantages and their surrounding issues are discussed below in further
detail.

1.2.1 e-commerce e - Commerce disadvantages and constraints

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

• Time for delivery of physical products . It is possible to visit a local music store
and walk out with a compact disc, or a bookstore and leave with a book. 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 . When you walk out of a
shop with an item, it's yours. You have it; you know what it is, where it is and how it
looks. In some respects 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. It's pretty hard to
knock on their door to complain or seek legal recourse! Thirdly, even if the item is
sent, it is easy to start wondering whether or not it will ever arrive.
• Perishable goods . Forget about ordering a single gelato ice cream from a shop in
Rome! Though specialised or refrigerated transport can be used, goods bought and
sold via the Internet tend to be durable and non-perishable: 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, or towards relatively more local e-commerce-based purchases, sales
and distribution. In contrast, durable goods can be traded from almost anyone to
almost anyone else, sparking competition for lower prices. In some cases this leads to
disintermediation in which intermediary people and businesses are bypassed by
consumers and by other businesses that are seeking to purchase more directly from
manufacturers.
• Limited and selected sensory information. The Internet is an effective conduit
for visual and auditory information: seeing pictures, hearing sounds and reading text.
However it does not allow full scope for our senses: we can see pictures of the
flowers, but not smell their fragrance; we can see pictures of a hammer, but not feel
its weight or balance. Further, when we pick up and inspect something, we choose
what we look at and how we look at it. This is not the case on the Internet. 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
person. 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.
There are many ways in which the Internet does not convey the richness of
experiences of the world. This lack of sensory information means that people are
often much more comfortable buying via the Internet generic goods - things that they
have seen or experienced before and about which there is little ambiguity, rather than
unique or complex things.
• 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? Will I be left with nothing? How long will it
take? Contrast this with the offline experience of returning goods to a shop.
• 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, that is, things that are
everyday. It is not suitable for dealing with the new or unexpected. For example, a
transport company used to dealing with simple packages being asked if it can
transport a hippopotamus, or a customer asking for a book order to be wrapped in
blue and white polka dot paper with a bow. Such requests need human intervention to
investigate and resolve.
• Personal service . Although some human interaction can be facilitated via the
web, e-commerce can not provide the richness of interaction provided by personal
service. For most businesses, e-commerce methods provide the equivalent of an
information-rich counter attendant rather than a salesperson. This also means that
 feedback about how people react to product and service offerings also tends to be
more granular or perhaps lost using e-commerce approaches. If your only feedback is
that people are (or are not) buying your products or services online, this is inadequate
for evaluating how to change or improve your e-commerce strategies and/or product
and service offerings. Successful business use of e-commerce typically involves
strategies for gaining and applying customer feedback. This helps businesses to
understand, anticipate and meet changing online customer needs and preferences,
which is critical because of the comparatively rapid rate of ongoing Internet-based
change.
• 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. For example, any benefits or
conveniences of buying a box of pens online from a US-based business tend to be
eclipsed by the cost of having to pay for them to be delivered to you in Australia. The
delivery costs also mean that buying individual items from a range of different
overseas businesses is significantly more expensive than buying all of the goods from
one overseas business because the goods can be packaged and shipped together.

Reflecting some of the comments above, the following chart (Figure 1.6) shows some of
the complaints made by Australian e-consumers.

Figure 1.6 Reasons for consumer complaints

Activity 1.2

• Consider each of the e-commerce advantages and disadvantages outlined above

and identify situations and strategies where these may not apply or can be
managed by standard business policies and procedures. For example, concerns
 about problems returning goods can be addressed by a clear 'returns policy' for
customers.
• Where would these issues most affect a business engaged in transport or in
maritime operations?
• What are the dangers for companies deploying e-commerce if they generate too
many complaints and dissatisfaction from customers?

1.3 Threats of E-Commerce

E-Commerce has forever revolutionized the way business is done. Retail has now a long
way from the days of physical transactions that were time consuming and prone to errors.
However, eCommerce has unavoidably invited its share of trouble makers. As much as
eCommerce simplifies transactions, it is occasionally plagued by serious concerns that
jeopardize its security as a medium of exchanging money and information.

Major threats to present day eCommerce include

1.3.1 Breach of Security / Money Thefts:

eCommerce services are about transactions, and transactions are very largely driven by
money. This attracts hackers, crackers and everyone with the knowledge of exploiting
loopholes in a system. Once a kink in the armor is discovered, they feed the system(and
users) with numerous bits of dubious information to extract confidential data(phishing).
This is particularly dangerous as the data extracted may be that of credit card numbers,
security passwords, transaction details etc.

Also, Payment gateways are vulnerable to interception by unethical users. Cleverly

crafted strategies can sift a part or the entire amount being transferred from the user to the
online vendor.

1.3.2 Identity thefts

Hackers often gain access to sensitive information like user accounts, user details,
addresses, confidential personal information etc. It is a significant threat in view of the
privileges one can avail with a false identity.

For instance, one can effortlessly login to an online shopping mart under a stolen identity
and make purchases worth thousands of dollars. He/she can then have the order delivered
to an address other than the one listed on the records. One can easily see how those orders
could be received by the impostor without arousing suspicion. While the fraudsters gains,
the original account holder continues to pay the price until the offender is nabbed.

1.3.3 Threats to the system

Viruses, worms, Trojans are very deceptive methods of stealing information. Unless a
sound virus-protection strategy is used by the eCommere Solutions firm, these malicious
agents can compromise the credibility of all eCommerce web solution services. Often
planted by individuals for reasons known best to them alone, viruses breed within the
systems and multiply at astonishing speeds. Unchecked, they can potentially cripple the
entire system.

1.3.4 Solutions

There is but one solution to all issues that at times dent the security of eCommerce
services - “Strict vigil on malicious intruders”. So is every preventive measure. However,
with online transactions, progress in security has been overwhelming.

1.3.5 Authentication

Most notable are the advances in identification and elimination of non-genuine users.
Ecommerce service designers now use multi-level identification protocols like security
questions, encrypted passwords(Encryption), biometrics and others to confirm the
identity of their customers. These steps have found wide favor all around due to their
effectiveness in weeding out unwelcome access.

1.3.6 Intrusion Check

The issue of tackling viruses and their like has also seen rapid development with anti-
virus vendors releasing strong anti-viruses. These are developed by expert programmers
who are a notch above the hackers and crackers themselves. Firewalls are another
common way of implementing security measures. These programs restrict access to and
from the system to pre-checked users/access points.

1.3.7 Educating Users

eCommerce is run primarily by users. Thus, eCommerce service providers have also
turned to educating users about safe practices that make the entire operation trouble free.
Recent issues like phishing have been tackled to a good extent by informing genuine
users of the perils of publishing their confidential information to unauthorized
information seekers.