FUNDAMENTALS OF E-COMMERCE

 

Structure

1.0 Introduction

1.1 Objectives

1.2 What is E-Commerce?

1.3 Information Superhighway (I-Way)

1.4 Consumer oriented E-Commerce Applications

1.5 Building blocks in the infrastructure of E-Commerce Applications

1.6 Pillars supporting the E-Commerce Applications

1.7 Benefits of E-Commerce

1.8 Multimedia content for E-Commerce Applications

1.9 Client-Sever architecture in E-commerce

1.10 Types of E-Commerce

1.10.1 Business-to-business E-commerce

1.10.2 Business-to-consumer E-commerce

1.10.3 Intra-company E-commerce

1.11 Technologies of E-commerce

1.12 Determining technological feasibility

1.13 E-Commerce versus other forms of commerce

1.14 Implementation of E-commerce: A life cycle approach

1.15 Electronic Shopping cart

1.16 Is E-Commerce safe?

1.17 Systems of payments in E-commerce

1.17.1 Credit card-based

1.17.2 Smart cards

1.17.3 Digital or electronic cash

1.17.4 Electronic checks

1.17.5 Micropayments

    1. Summary
    2. Glossary

1.20 Further Readings

1.0 INTRODUCTION

The cutting edge for business today is Electronic Commerce (E-commerce). Most people think E-commerce means online shopping. But Web shopping is only a small part of the E-commerce picture. The term also refers to online stock, bond transactions, buying and downloading software without ever going to a store. In addition, E-commerce includes business-to-business connections that make purchasing easier for big corporations. While there is no one correct definition of E-commerce, it is generally described as a method of buying and selling products and services electronically. The main vehicles of E-commerce remain the Internet and the World Wide Web, but use of email, fax, and telephone orders are also prevalent.

1.1 OBJECTIVES

After going through this unit, you will be able to

1.2 WHAT IS E-COMMERCE?

Electronic commerce is the application of communication and information sharing technologies among trading partners to the pursuit of business objectives. E-Commerce can be defined as a modern business methodology that addresses the needs of organizations, merchants, and consumers to cut costs while improving the quality of goods and services and increasing the speed of service delivery. E-commerce is associated with the buying and selling of information, products and services via computer networks. Key element of e-commerce is information processing. The effects of e-commerce are already appearing in all areas of business, from customer service to new product design. It facilitates new types of information based business processes for reaching and interacting with customers – online advertising and marketing, online-order taking and on-line customer service etc. It can also reduce costs in managing orders and interacting with a wide range of suppliers and trading partners, areas that typically add significant overhead to the cost of products and services. Also E-commerce enables the formation of new types of information-based products such as interactive games, electronic books, and information-on demand that can be very profitable for content providers and useful for consumers. Virtual enterprises are business arrangements in which trading partners separated by geography and expertise are able to engage in complex joint business activities, as if they were a single enterprise. One example would be true supply chain integration, where planning and forecast data are transmitted quickly and accurately throughout a multi-tier supply chain. Another example would be non-competing suppliers with a common customer using E-commerce to allow that customer to do "one stop shopping" with the assurance that a single phone call will bring the right materials to the right location at the right time.

1.3 INFORMATION SUPERHIGHWAY (I-Way)

Any successful E-commerce application will require the I-Way infrastructure in the same way that regular commerce needs the interstate highway network to carry goods from point to point. A myriad of computers, communications networks, and communication software forms the nascent Information Superhighway (I-Way). The I-Way is not a U.S phenomenon but a global one, as reflected by its various labels worldwide. For instance, it is also called the National Information Infrastructure (NII) in the United States, Data-Dori in Japan and Jaring, which is Malay for "net" in Malaysia. The I-Way and yet-to-be developed technologies will be key elements in the business transformation. And while earlier resulted in small gains in productivity and efficiency, integrating them into the I-Way will fundamentally change the way business is done. These new ideas demand radical changes in the design of the entire business process. I-Way is not one monolithic data highway designed according to long-standing, well-defined rules and regulations based on well-known needs. The I-Way will be a mesh of interconnected data highways of many forms: telephone wires, cable TV wires, radio-based wireless-cellular and satellite. The I-Way is quickly acquiring new on-ramps and even small highway systems.

1.4 CONSUMER ORIENTED E-COMMERCE APPLICATIONS

The wide range of applications for the consumer marketplace can be broadly classified into

    1. BUILDING BLOCKS IN THE INFRASTRUCTURE OF E-COMMERCE APPLICATIONS

None of the applications would be possible without each of the building blocks in the infrastructure which are given as follows:

    1. PILLARS SUPPORTING THE E-COMMERCE APPLICATIONS

There are two pillars supporting all E-commerce applications and infrastructure. They are:

Public policy – To govern such issues as Universal access, privacy and information pricing

Technical standards – To dictate the nature of information publishing, user interfaces, and transport in the interest of compatibility across the entire network.

1.7 BENEFITS OF E-COMMERCE

Electronic Commerce can offer both short term and long-term benefits to the companies. Not only can it open new markets, enabling you to reach new customers, but it can also make it easier and faster for you to do business with your existing customer base. Moving business practices, Such as ordering, invoicing and customer support, to network-based system can also reduce the paperwork involved in business-to-business transactions. When more of the information is digital, one can better focus on meeting your customer’s needs. Tracking customer satisfaction, requesting more customer feedback, and presenting custom solutions for the clients are just some of the opportunities that can stem from E-commerce.

 

1.8 MULTIMEDIA CONTENT FOR E-COMMERCE APPLICATIONS

Multimedia content can be considered both fuel and traffic for E-commerce applications. The technical definition of Multimedia is the use of digital data in more than one format, such as the combination of text, audio, video and graphics in a computer file/document. Its purpose is to combine the interactivity of a user-friendly interface with multiple forms of content. The success of E-commerce applications also depends on the variety and innovativeness of multimedia content and packaging. E-commerce requires robust servers to store and distribute large amounts of digital content to consumers. These multimedia storage servers are large information warehouses capable of handling various content. Theses servers must handle large-scale distribution, guarantee security and complete reliability.

1.9 CLIENT-SERVER ARCHITECTURE IN E-COMMERCE

All E-commerce applications follow the client-server model. Clients are the devices plus software that request information from servers. Servers are the computers which server information upon the request by the clients. Client devices handle the user interface. The server manages application tasks, handles storage and security and provides scalability (ability to add more clients as needed for serving more customers). The client-server architecture links PC’s to a storage (or database) server, where most of the computing is done on the client.

The client-server model allows the client to interact with the server through a request-reply sequence governed by a paradigm known as message passing. Commercial users have only recently begun downsizing their applications to run on client-server networks, a trend that E-commerce is expected to accelerate.

1.10 TYPES OF E-COMMERCE

The following three strategies are the focal points for E-Commerce

1.10.1 Business-to-business E-commerce: The Internet can connect all businesses to each other, regardless of their location or position in the supply chain. This ability presents a huge threat to traditional intermediaries like wholesalers and brokers. Internet connections facilitate businesses’ ability to bargain directly with a range of suppliers -- thereby eliminating the need for such intermediaries.

      1. Business-to-consumer E-commerce: One-way marketing. Corporate web sites are still prominent distribution mechanisms for corporate brochures, the push, one-way marketing strategy.

Purchasing over the Web: Availability of secure web transactions is enabling companies to allow consumers to purchase products directly over the web. Electronic catalogs and virtual malls are becoming commonplace.

Relationship Marketing: The most prominent of these new paradigms is that of relationship marketing. Because consumer actions can be tracked on the web, companies are experimenting with this commerce methodology as a tool for market research and relationship marketing:

      1. Intra-company E-commerce: Companies are embracing intranets at a phenomenal growth rate because they achieve the following benefits:

Reducing cost - lowers print-intensive production processes, such as employee handbooks, phone books, and policies and procedures

Enhancing communications - effective communication and training of employees using web browsers builds a sense of belonging and community.

Distributing software - upgrades and new software can be directly distributed over the web to employees.

Sharing intellectual property - provides a platform for sharing expertise and ideas as well as creating and updating content - "Knowledge webs". This is common in organizations that value their intellectual capital as their competitive advantage.

Testing products - allows experimentation for applications that will be provided to customers on the external web.

1.11 TECHNOLOGIES OF E-COMMERCE

While many technologies can fit within the definition of "Electronic commerce," the most important are:

Electronic Data Interchange (EDI)

EDI is the computer-to-computer exchange of structured business information in a standard electronic format. Information stored on one computer is translated by software programs into standard EDI format for transmission to one or more trading partners. The trading partners’ computers, in turn, translate the information using software programs into a form they can understand.

Bar Codes

Bar codes are used for automatic product identification by a computer. They are a rectangular pattern of lines of varying widths and spaces. Specific characters (e.g. numbers 0-9) are assigned unique patterns, thus creating a "font" which computers can recognize based on light reflected from a laser.

The most obvious example of bar codes is on consumer products such as packaged foods. These codes allow the products to be scanned at the check out counter. As the product is identified the price is entered in the cash register, while internal systems such as inventory and accounting are automatically updated.

The special value of a bar code is that objects can be identified at any point where a stationary or hand held laser scanner could be employed. Thus the technology carries tremendous potential to improve any process requiring tight control of material flow. Good examples would be shipping, inventory management, and work flow in discrete parts manufacturing.

Electronic Mail

Messages composed by an individual and sent in digital form to other recipients via the Internet.

Internet

The Internet is a decentralized global network of millions of diverse computers and computer networks. These networks can all "talk" to each other because they have agreed to use a common communications protocol called TCP/IP. The Internet is a tool for communications between people and businesses. The network is growing very, very fast and as more and more people are gaining access to the Internet, it is becoming more and more useful.

World Wide Web

The World Wide Web is a collection of documents written and encoded with the Hypertext Markup Language (HTML). With the aid of a relatively small piece of software (called a "browser"), a user can ask for these documents and display them on the user’s local computer, although the document can be on a computer on a totally different network elsewhere in the world. HTML documents (or "pages," as they are called) can contain many different kinds of information such as text, pictures, video, sound, and pointers, which take users immediately to other web pages. Because Web pages are continually available through the Internet, these pointers may call up pages from anywhere in the world. It is this ability to jump from site to site that gave rise to the term "World Wide Web." Browsing the Web (or "surfing the Net") can be a fascinating activity, especially to people new to the Internet. The World Wide Web is by far the most heavily used application on the Internet.

Product Data Exchange

Product data refers to any data that is needed to describe a product. Sometimes that data is in graphical form, as in the case of pictures, drawings and CAD files. In other cases the data may be character based (numbers and letters), as in the case of specifications, bills of material, manufacturing instructions, engineering change notices and test results.

Product data exchange differs from other types of business communications in two important ways. First, because graphics are involved users must contend with large computer files and with problems of compatibility between software applications. (The difficulty of exchanging CAD files from one system to another is legendary.) Second, version control very quickly gets very complicated. Product designs, even late in the development cycle, are subject to a great deal of change, and because manufacturing processes are involved, even small product changes can have major consequences for getting a product into production.

Electronic Forms

Electronic forms is a technology that combines the familiarity of paper forms with the power of storing information in digital form. Imagine an ordinary paper form, a piece of paper with lines, boxes, check-off lists, and places for signatures. To the user an electronic form is simply a digital analogue of such a paper form, an image, which looks like a form but which appears on a computer screen and is filled out via mouse, and keyboard. Behind the screen, however, lie numerous functions that paper and pencil cannot provide. Those extra functions come about because the data from electronic forms are captured in digital form, thus allowing storage in data bases, automatic information routing, and integration into other applications.

1.12 DETERMINING TECHNOLOGICAL FEASIBILITY

As business needs are determined, it is necessary to establish the technological feasibility of various E-commerce plans that could meet the needs. The starting point should be a clear sense of what functions each E-commerce technology can provide to improve business functioning. We summarize these in the below given table :

Most Powerful Functions of Each E-commerce Technology

Technology

Business Value

EDI

  1. Integration of incoming and outgoing structured data into other applications (e.g., use of customer orders to schedule production)
  2. Lowers cost when transaction volume is high
  3. Eases communication with many different trading partners (customers, suppliers, vendors)

Bar Code

  1. Locate and identify material
  2. Integrate location and identification information with other applications and data bases (e.g., bar codes inserted at loading dock can be integrated into an advance ship notice EDI transaction).

Electronic mail

  1. Free-text queries to individuals or groups
  2. Share information via simple messages
  3. Share complex information (via attachments)
  4. Collaboration across distance (by making it easier to communicate and share information)

World Wide Web

  1. Present information about company
  2. Search for information from a large number of sources
  3. Electronic commerce -- buy/sell products and services
  4. Collaboration, information sharing among selected users within or without a company

Product Data Exchange

  1. Accurate product details transmitted to trading partners
  2. Oversight of trading partners design work
  3. Collaborative engineering across distance

Electronic Forms

  1. Managing processes when human oversight, approvals, or information input needs to be combined with standard elements of information (e.g., catalogue data)
  2. Tracking progress in a process where many people are involved doing different activities
  3. Integrating human input data with automated data bases or applications
  4. Electronic commerce (through integration with the WWW and internal systems)

 

1.13 ELECTRONIC COMMERCE VERSUS OTHER FORMS OF COMMERCE

The methods of doing business differ from traditional commerce to the extent to which electronic commerce combines information technology, telecommunications technology, and business processes to make it practical to do business in ways that could not otherwise be done. To illustrate, let’s draw on some examples. In each of these cases technology and business process must work together if EC is to be successful.

Example of EC

Technology

Business Process

Information access

Manufacturer provides suppliers with access to data base on Electronic commerce networks

Customer

  1. Database with reliable information.
  2. Security fire-wall to control outsiders’ access

Supplier

  1. Computer with network access capability
  1. Customer commits that data are current.
  2. Customer commits to inform supplier that a change has been made.
  3. Supplier agrees to use database as source of ECN information.

Interpersonal communication services

Joint customer - supplier design

  1. Computer Aided Design systems which can understand each others’ files
  2. Version control applications
  1. Agreement that joint design will take place
  2. Adoption of compatible design methods
  3. Training of groups in collaborative design

Shopping services

Web to shop for commodities

Seller

  1. Web site capable of allowing on-line shopping
  2. Web site capable of secure transmission

Buyer

  1. Web browsing capability

Seller

  1. Ability to keep site current in an environment of rapidly changing availability and price.

 

Buyer

  1. Purchasing system that can commit to a purchase without paper.

Virtual enterprise

Integrated supply chain

  1. EDI
  2. MRP
  3. Email (for exceptions)
  1. Process reengineering of order entry and purchasing systems to allow integration of MRP and EDI.
  2. Staff assigned to resolving exceptions.

1.14 IMPLEMENTATION OF E-COMMERCE: A LIFE CYCLE APPROACH

Proper implementation requires deliberate attention to seven stages of technology life cycle :

  1. Awareness Training: Provides an understanding of what the technology is, a general sense of what it can do for a business, and how to begin implementation.
  2. Business Analysis: It is easy to jump immediately from "awareness" to the details of "requirements analysis", but doing so is a mistake. To assure maximum value from EC, there must be a thorough understanding of how the new technology can help the business.
  3. Requirements Analysis: Yields an understanding of what kind of EC functionality is needed to meet business requirements. As an example: business need equals to keep customers informed of changing product availability and price. Requirement equals to web based catalogue.
  4. Design: Sets out specifics, e.g. Who are my potential vendors? By when do I need different parts of the system up and running? What will the system cost?
  5. Implementation: The system becomes real. New technology comes in the door. Training is conducted. New business process begins to function. And so on.
  6. Integration and Validation: Make sure the system performs as per its specifications.
  7. Maintenance: Keeps the system running, deals with unforeseen circumstances, and plans for improvement.

The main reason to employ these stages is that failure to do so can result in wasted time, wasted money, and sub-optimal systems. While it is important to assure that all stages are invoked, the effort expended on each may vary greatly with circumstance. As an example, a company contemplating a Web based catalogue may have a critical mass of workers who have used the Web and who appreciate what it can do. In this case little awareness training is needed. It may be important to make sure that people involved have a specific appreciation of what Web catalogues can do, but certainly this situation does not require that great resources be invested in the Awareness stage. As a second example, a company may implement e-mail, a technology that draws on well proven off-the-shelf software, and which requires no complex system integration. While "integration and testing" must certainly be carried out, the resources invested in this life cycle stage should be relatively small.

1.15 ELECTRONIC SHOPPING CART

An electronic shopping cart works the same way a shopping cart does in the physical world. As you browse through an online store, you can place products in your virtual shopping cart, which keeps track of the products you have placed in it. When you're ready to leave the store, you click a "check out" link that shows you what you've placed in your virtual shopping cart. You can usually remove items that you're no longer interested in purchasing and then enter your shipping and payment information to process your order.

1.16 IS E-COMMERCE SAFE?

No e-commerce system can guarantee 100-percent protection for your credit card, but you're less likely to get your pocket picked online than in a real store. Although Internet security breaches have received a lot of press attention, most vendors and analysts argue that transactions are actually less dangerous in cyberspace than in the physical world. For merchants, E-commerce is actually safer than opening a store that could be looted, burned, or flooded. The difficulty is in getting customers to believe that E-commerce is safe for them. Consumers don't really believe it yet, but experts say E-commerce transactions are safer than ordinary credit card purchases. Ever since the 1.0 versions of Netscape Navigator and Microsoft Internet Explorer, transactions can be encrypted using Secure Sockets Layer, a protocol that creates a secure connection to the server, protecting the information as it travels over the Internet. SSL uses public key encryption, one of the strongest encryption methods around. A way to tell that a Web site is secured by SSL is when the URL begins with https instead of http.

Browser makers and credit card companies are promoting an additional security standard called Secure Electronic Transactions (SET). SET encodes the credit card numbers that sit on vendors' servers so that only banks and credit card companies can read the numbers.

1.17 SYSTEMS OF PAYMENTS IN E-COMMERCE

E-commerce is rife with buzzwords and catchphrases. Here are some of the current terms people like to throw around:

1.17.1 Credit card-based: If consumers want to purchase a product or service, they simply send their credit card details to the service provider involved and the credit card organization will handle this payment like any other.

1.17.2 Smart cards: These are credit and debit cards and other card products enhanced with microprocessors capable of holding more information than the traditional magnetic stripe. The chip can store significantly greater amounts of data, estimated to be 80 times more than a magnetic stripe. Smart cards are basically of two types:

Relationship based smart credit cards: This is an enhancement of existing card services and/or the addition of new services that a financial institution delivers to its customers via a chip-based card or other device. These new services may include access to multiple financial accounts, value-added marketing programs, or other information cardholders may want to store on their card.

Electronic Purses: These are wallet-sized smart cards embedded with programmable microchips that store sums of money for people to use instead of cash for everything from buying food to paying subway fares.

1.17.3 Digital or electronic cash: Also called e-cash, these terms refer to any of several schemes that allow a person to pay for goods or services by transmitting a number from one computer to another. The numbers, just like those on a dollar bill, are issued by a bank and represent specified sums of real money. One of the key features of digital cash is that it's anonymous and reusable, just like real cash. This is a key difference between e-cash and credit card transactions over the Internet.

1.17.4 Electronic checks: Currently being tested by Cybercash, electronic checking systems such as PayNow take money from users' checking accounts to pay utility and phone bills.

1.17.5 Electronic wallet: This is a payment scheme, such as Cybercash’s Internet Wallet, that stores your credit card numbers on your hard drive in an encrypted form. You can then make purchases at Web sites that support that particular electronic wallet. When you go to a participating online store, you click a Pay button to initiate a credit card payment via a secure transaction enabled by the electronic wallet company's server. The major browser vendors have struck deals to include electronic wallet technology in their products.

 

1.17.6 : Transactions in amounts between 25 cents and $10, typically made in order to download or access graphics, games, and information, are known as micropayments. Pay-as-you-go micropayments were supposed to revolutionize the world of E-commerce..

1.18 SUMMARY

E-commerce is a new way of conducting, managing and executing business transactions using computer and telecommunications networks. As awareness of the Internet throughout the commercial world and general public increases, competitiveness will force lower entry barriers, continued rapid innovation and expansion of markets. The real key to making electronic commerce over the Internet a normal, everyday business activity is the convergence of the telecommunications, content/media and software industries. E-Commerce is expected to improve the productivity and competitiveness of participating businesses by unprecedented access to an on-line global market place with millions of customers and thousands of products and services.

1.19 GLOSSARY

CGI script: Common gateway Interface is a scripting system designed to work with HTTP Web Servers. The scripts, usually written in the Perl coding language, are ofter used to exchange data between a Web server and databases.

Digital Cash: An electronic replacement of cash.

Joint Electronic Payments Initiative (JEPI): This initiative, led by the World Wide Web Consortium and CommerceNet, is an attempt to standardize payment negotiations. On the buyer’s side (the client side), JEPI serves as an interface that enables a Web browser, and wallets, to use a variety of payment protocols. On the merchant’s side(the server side), JEPI acts between the network and transport layers to pass off the incoming transactions to the proper transport and payment protocols.

Microcash: Small denomination digital tokens.

Microtransactions: Low-cost, real-time transactions using microcash.

Smart cards: A credit card-sized plastic card with a special type of integrated circuit embedded in it. The integrated circuit holds information in electronic form and controls who uses this information and how.

Tokens: Strings of digits representing a certain amount of currency. The issuing bank validates each token with a digital stamp.

Value added networks: Networks that are maintained privately and dedicated to EDI between business parteners.

 

1.20 FURTHER READINGS:

1.Ravi Kalakota, Andrew b.Whinston, Frontiers of Electronic Commerce, Awl International

1.Bajaj KK and Nag Debjani, From EDI to Electronic Commerce, TataMcGraw-Hill

3.Bajaj and Nag, Electronic Commerce: The cutting edge of Business, Tata Mcgraw-Hill

4.Greg Holden, Starting An E-commerce Business For Dummies,2nd edition,IDG books India

5.David Kosiur, Understanding Electronic Commerce, Microsoft Press