Litrature review:

E-commerce definition What is the Internet? The Internet is the framework for the ever talked about information superhighway. The biggest technological advancement since the personal computer and the primary technological force causing all corporations to rethink their business model, the Internet is a system of millions of interconnected networks that spans to the earth (Wilson, 1996). Young (1999) argues that the Internet is the most cost-efficient medium for business-to-consumer dealings. What is the World Wide Web? The Word Wide Web is a subset of the Internet. It was developed several years ago and credits its success to a software product known as MOSAIC. MOSAIC gave users the ability to experience pictures, sound, video, graphics, etc. in an easy to use, point and click environment. The client/server architecture forms the basis implementation platform of the WWW. As this product gained popularity throughout the world, corporations began to envision the power of the Internet and specifically the Web
Source: Aurel Voiculescu http://www.aurelvoiculescu.com MBA http://www.aurelvoiculescu.com/mba

.
12

As with many new services, simply defining what constitutes electronic commerce is not clear and differs significantly according to the source. The broadest definition includes all electronic transactions including electronic funds transfers and credit card transactions, then the infrastructure needed to support electronic commerce (e.g. equipment, access providers, special electronic commerce intermediary services). Businesses communicate with customers and partners through channels. Internet is one of the newest and, for many purposes, best business communications channel. Electronic commerce is doing business on line. It is about using the power of digital information to understand the needs and the preferences of each customer and each partner; to customize products and services for them; and then to deliver the products and services as quickly as possible. Personalized, automated services offer businesses the potential to increase revenues, lower costs, and establish and strengthen customer and partner relationships. To achieve these benefits, many companies today engage in electronic commerce for direct marketing, selling, and customer service; online banking and billing; secure distribution of information; value chain trading; and corporate purchasing. Electronic commerce is the carrying out of business activities that lead to an exchange of value across telecommunications networks. (EITO, 1997) Electronic commerce refers generally to all forms of transactions relating to commercial activities, including both organizations and individuals, that are based upon the processing and transmission of digitized data, including text, sound and visual images. (OECD, 1997)
13

Electronic commerce is about doing business electronically. It is based on the electronic processing and transmission of data, including text, sound and video. It encompasses many diverse activities including electronic trading of goods and services, online delivery of digital content, electronic fund transfers, electronic share trading, electronic bills of lading, commercial auctions, collaborative design and engineering, on-line sourcing, public procurement, direct consumer marketing, and aftersales service. It involves both products (e.g. consumer goods, specialized medical equipment) and services (e.g. information services, financial and legal services); traditional activities (e.g. healthcare, education) and new activities (e.g. virtual malls). (European Commission, 1997) Electronic 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 sectors, whether paid or unpaid (Cabinet Office Report, 1999) Every one of the definitions is quite expansive, including not only the actual commercial transaction between buyer and seller but also the upstream and downstream activities that made that transaction possible. The need for such an expansive definition is a reflection of the embryonic state of electronic commerce today, where it is difficult to quantify the contribution of electronic commerce totally separated from the traditional activities. Most analysts include only transactions actually carried out on the Internet; but many consumers research their purchases online and then buy in some other way.
14

As a result of different definitions of electronic commerce, the forecasts presented by various analysts are very widely spread. Only 3% of business-to-business Web sites are designed for direct sales, rather than for marketing and customer service, says Forrester Research (1997). Even for consumer businesses, only 9% of sites offer online transactions. Another survey carried out by CommerceNet/ Nielsen (1997) found that whereas 53% of Internet users in the United States and Canada had used the Internet to reach a decision on a purchase, just 15% carried out the final transaction on the Internet
Figure 9: Forecasts of electronic commerce turnover related to various way of defining it Source: Economist, 1997, Electronic commerce: In search for the perfect market

15

Critical success factors Seybold (1998) identifies 8 critical success factors for electronic commerce: Target the right customers Own the customers total experience Streamline business processes that impact the customer Provide a 360-degree view of customer relationship Let customers help themselves Help customers do their job Deliver personalized service Foster community
16

Forces fueling electronic commerce Kalakota and Whinston (1997) argue that electronic commerce is being fueled by economic forces, customer interaction forces, and technology-driven digital convergence. Economic forces Under relentless pressure to reduce costs and stay competitive, firms are attracted to the economic efficiencies offered by electronic commerce. These economic efficiencies include low-cost technological infrastructure that reduce the cost burden of technology upgrades and obsolescence, low cost and accurate electronic transactions with suppliers, the low cost of global information sharing and advertising, and the ability for firms to provide low cost customer service alternatives to expensive retail bank branches and telephone call centers. The economic forces motivating the shift to electronic commerce are internal as well as external. The immediate application of electronic commerce is the internal integration of firms operations. External integration molds the vast network of suppliers, government agencies, large corporations and independent contractors into a single community with the ability to communicate across any computer platform.
17

Marketing and customer interaction forces Because consumer Web traffic is fragmented across millions of Web sites, commercial sites must compete intensely for even small share of consumer visits (Meeker 1997). This is despite the exponential growth in number of Web users and time spent online (GVU WWW User Surveys 1998). Publisher's ad-supported Web sites aggregate consumers and help advertisers attract some of the publisher site's traffic. Web advertisers want consumers visiting the publisher's site to view their ads, and click on them to interact with advertising information. However they are reluctant to commit advertising budgets because of the unpredictability and the lack of measurability of consumer response to their ads at publisher's Web sites. Kalakota and Whinston (1997) state that the message for marketers is clear: the purchasing climate and the products change quickly. In order to be competitive, marketing executives must employ technology to develop low-cost customer-prospecting methods, establish close relationships with customers, and develop customer loyalty. Technology and digital convergence The relentless advance of technology, the emergence of multimedia standards, and the shift to distribute computing and internetworking are providing the raw power for the digital convergence.
18

Evaluating the implications of various forces upon electronic commerce Economic and marketing forces and digital convergence have influenced how industries are repositioning themselves to take advantage of new opportunities, including the creation of entirely new service delivery channels, the developments of new markets for existing products and the development of new information-based products for on-line environment. Digital convergence is reshaping the competitive environment for telecommunication services around the globe. But before companies can exploit the capabilities of electronic commerce and make it an industrial-strength toll for business, they need to understand the technological framework better.
19

Competitive environment The explosive growth of the Internet promises a new age of perfectly competitive markets. With perfect information about prices and products at their fingertips, consumers can quickly and easily find the best deals. In this brave new world, retailers profit margins will be competed away, as they are forced to price at cost. The real revolution in e-commerce may lie in something not immediately obvious. Never mind the new retailers, the lower prices, or huge changes in logistics and delivery. What is truly new about the Internet is its ability to generate different pricing mechanism, and in particular to allow price and product comparisons to be made and various kinds of auctions and exchanges to take place.(Economist, 2000) Evaluating the implications of the new medium, two things are making these possible: One is that the Internet provides a perfect medium for aggregating buyers and sellers from around the world The second is that the Internet offers an excellent way of comparing prices and collecting information
20

Despite all these, Economist (1999) argues that the price dispersion (the spread between the highest and the lowest prices) is often as wide on the Internet as it is in the shopping mal, or even wider. Such price dispersion is usually a sign of inefficiency. There are many reasons for this price dispersion: Many sites have loyalty programs Many sites are customized to suit customer needs for instance through one-click shopping Convenience can also explain the price dispersion But the biggest reason for price dispersion is that consumers are prepared to pay premium prices for the sites they trust As a result of these, the Internet and the competition on the Internet are still in their infancy.
Source: Aurel Voiculescu http://www.aurelvoiculescu.com MBA http://www.aurelvoiculescu.com/mba

21

Electronic commerce as a unique medium Chatterjee and Narasimhan (1994) observe that as a distribution channel, the Web possesses: 1) extremely low entry and exit barriers for firms; 2) 2) increasing irrelevance of distribution intermediaries; 3) 3) the capability to not only keep pace with market change, but accelerate it. Because the Web increases the power of the consumer and decreases the power of the firm, compared to traditional channels of distribution, the consumer and the firm approach "symmetrical power" and the best communication efforts are likely to be "collaborative" rather than "autonomous" (Mohr & Nevin 1990). Glazer (1991) notes that in the presence of higher information intensity, channel power shifts in favor of consumers and a breakdown occurs in formal distinctions between producer and consumer. In the information intensive Web environment, the firm is no longer broadcasting a single communication to many consumers, but in effect tailoring its communications according to consumers' varied interests and needs. This is currently implemented through the unique process of network navigation in which the consumer chooses what information (if any) to receive from the firm. Thus, marketers must begin to examine the manner in which these more collaborative communication efforts should proceed.
22

These shifts in channel power hold important implications for consumer participation in the marketing process. For example, consumers may collaborate not only in idea generation and product design, but also in the marketing communication effort itself. This is because interactivity in the Web gives consumers much greater control of the message. Such control may manifest itself in startlingly new ways: for example, it is feasible for consumers interested in purchasing cars or appliances to broadcast their interest and solicit open bids from different firms (Cutler 1990). Such activities are possible because the process of network navigation in the Web is characterized by open access to information. The original motivation for developing an "internetwork" of computers, on which the Web is based, was to enable geographically dispersed computers representing diverse platforms to link and communicate so they could economically share costly resources (Hafner and Lyon 1996; Roberts 1988). The Internet thus developed in a rich and exciting atmosphere of intellectual curiosity fostered in an unconstrained and creative environment (Licklider 1988; Miya 1990). Source: Aurel Voiculescu http://www.aurelvoiculescu.com MBA http://www.aurelvoiculescu.com/mba
23

Increasing confidence in Electronic Commerce: Consumer Protection, Privacy and Security Privacy has become one of the most fought-over battlegrounds of the information economy. As databases proliferate and the use of the Internet expands considerably, the calls of consumer groups and privacy advocates for more protections have grown ever more strident, and the pledges of companies to respect the privacy of their customers ever more convoluted. At the heart of this struggle is a basic dilemma: most people want to retain some control over who knows what about them, and yet information about individuals is the life-blood of the new service businesses. The robust projections for the growth of electronic commerce are unlikely to hold true unless online consumers can shop on the web with confidence. Expanding the digital economy means assuring shoppers their communications are secure, their personal data is protected, they will get what they paid for, and the underlying infrastructure is stable no matter where they shop on the Internet. (U.S. Government Working Group on Electronic Commerce, 1999) According to the Economist (2000) 80% of Americans want government regulation of corporate use of personal information and web users spent $2.8 billion less online in 1999 than they would otherwise have done because of concerns about privacy.
24

The Economist (2000) states the Internets success has been so sudden and so unexpected that a founding myth emerged to explain it. This portrays the Internet as both the product and the agent of personal freedom, the spontaneous result of co-operation by growing numbers of people acting outside the control of the governments and big companies. These powers had not foreseen the potential, or even the possibility, of such a vast, globe-straddling communication network. This was so large, and so exhilarating, that it seemed like another world and even acquired the name of one cyberspace. This world began as a libertarian paradise, and it should be left to continue that way. Attempts by governments or big business to direct it are either doomed, or should be resisted to the last key stroke. Opposite to this opinion, Lessig (1999) and Shapiro (2000) argue that despite the undeniably liberating effect the Internet has had so far, what it now needs is precisely what most cyberenthusiasts fear most government regulation. As more transactions shift to the Internet, more aspects of peoples lives will become observable and recordable. Even when they are aware of this, individuals will not be able to do much to protect themselves without the help of governmentimposed rules. Unless people make collective decisions through the medium of democratic government about how the Internet is to develop, a combination of the market failures and company decisions made narrowly in their own interest, will leave everyone worse off: with less privacy, less free speech and less democracy. A more consumer-oriented information privacy model will lead to commercially valuable exchange relationships with important benefits for consumers and firms doing business
25

on the Internet (Wang, 1998). Consumers will be in control of their personal information - a notion consistent with the customization of customer needs in online environments. Firms will be rewarded with consumer trust, the willingness to disclose, and greater levels of loyalty.
Source: Aurel Voiculescu http://www.aurelvoiculescu.com MBA http://www.aurelvoiculescu.com/mba

26

Electronic Government Governments can have a profound effect on the growth of commerce on the Internet. By their actions, they can facilitate electronic trade or inhibit it. In order for this global medium to flourish, it is critical that the legal framework supporting commercial transactions over the Internet be governed by consistent principles across state, national and international borders. The White House Report (1997) -The Framework for Global Electronic Commerce articulates the Administrations vision for the emergence of the Global Information Infrastructure as a vibrant global marketplace by suggesting a set of principles, presenting a series of policies, and establishing a road map for international discussions and agreements to facilitate the growth of commerce on the Internet: For electronic commerce to flourish, the private sector must continue to lead. Governments should avoid undue restrictions on electronic commerce Where governmental involvement is needed, its aim should be to support and enforce a predictable, minimalist, consistent and simple legal environment for commerce Governments should recognize the unique qualities of the Internet Electronic commerce over the Internet should be facilitated on a global basis
27

The Economists (2000) states after e-commerce the next revolution will be e-government. The starting point for most e-government projects is the desire to reduce costs and make tax revenues go further. According to the Department of Trade and Industry (1998) governments are major players in the market for goods and services public purchases amounts to 11% of European GDP. If Governments want to encourage electronic commerce, they need to set an example. Ambitious targets have been set in the EU. The European Commission has set a target of 25% of public procurement transactions to take place electronically by 2003, while the UK Government has announced targets of procuring 90% (by volume) of routine goods electronically by 2000/2001 and making 25% of Government services available on-line by 2001. Evaluating the implications of E-Government The potential is enormous, but governments will need committed leadership, a full understanding of e-business principles and a clear strategy for overcoming the barriers to change: the department rivalries, the hostility of unions, the fears of individuals and reaching the critical mass.
Source: Aurel Voiculescu http://www.aurelvoiculescu.com MBA http://www.aurelvoiculescu.com/mba

28

Internet and the banking system The rapid growth of the Web creates a tremendous opportunity for new businesses, but also requires a new way of viewing the market place for the community banker. Experts estimates that consumer use of on-line banking services will increase over 20-fold by the end of the century. Geography and the number of branches become irrelevant and community banks are able to offer the same level of service and convenience to customers as the largest banks. In the past, over 60% of existing bank customers have cited their bank selection to be based on convenience of location. For the customers of today, convenience of location includes the availability of 24-hour access via the Internet. (Wilson, 1996) Seitz and Stickel (1999) considered that financial service companies are using the Internet as a new distribution channel. The goals are: complex products may be offered in an equivalent quality with lower costs to more potential customers there may be contacts from each place of earth at any time of day and night This means that financial institutions may enlarge their market area without building new offices or field services respectively. Because of its image as an innovative corporation, better interacting possibilities, the usage of rationalization potential, the improvement of its competitive situation by development of core competencies together with the
29 30

construction of market entry barriers, it may be possible to increase profits and market shares. Darby (1999) agrees that the current banking brands are facing a revolution in the way the customers are carrying out their transactions and states that traditional banks face up to their online challengers. A recent report from Fletcher Research said that around 200,000 people in the UK are already banking on line and predicted seven million would be by 2002. Also Vernon (1999) suggests that Internet will increase pressure on banks to compete with rivals eager to tempt away their best customers. By the year 2005 two billion people will be on the Internet, representing 90% of the buying power on the planet. Internet banking evaluation: Historically, every bank product was distributed through just one delivery channel - the branch. In the future, banks will be freed of the constraints of a single delivery channel. They will be able to create, package, market and deliver products for niche segments and, because f the price of the new technology is tumbling, they will be able to do so cost-effectively (Gates, 1999)
Source: Aurel Voiculescu http://www.aurelvoiculescu.com MBA http://www.aurelvoiculescu.com/mba