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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 electronicsystems such as the Internet and other computer networks. The amount of tradeconducted electronically has grown extraordinarily with widespread Internet usage. Theuse of commerce is conducted in this way, spurring and drawing on innovations inelectronic funds transfer, supply chain management, Internet marketing, onlinetransaction processing, electronic data interchange (EDI), inventory managementsystems, and automated data collection systems. Modern electronic commerce typicallyuses the World Wide Web at least at some point in the transaction's lifecycle, although itcan encompass a wider range of technologies such as e-mail as well.

A large percentage of electronic commerce is conducted entirely electronically for virtualitems such as access to premium content on a website, but most electronic commerceinvolves the transportation of physical items in some way. Online retailers are sometimesknown as e-tailers and online retail is sometimes known as e-tail. Almost all big retailershave 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). Electroniccommerce 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 commerceconducted by companies such as Amazon.com.

Electronic commerce is generally considered to be the sales aspect of e-business. It alsoconsists of the exchange of data to facilitate the financing and payment aspects of thebusiness 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 FundsTransfer (EFT). These were both introduced in the late 1970s, allowing businesses tosend commercial documents like purchase orders or invoices electronically. The growthand acceptance of credit cards, automated teller machines (ATM) and telephone bankingin the 1980s were also forms of electronic commerce. Another form of e-commerce wasthe airline reservation system typified by Sabre in the USA and Travicom in the UK.


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Online shopping, an important component of electronic commerce, was invented byMichael Aldrich in the UK in 1979. The world's first recorded B2B was ThomsonHolidays in 1981 [1] The first recorded B2C was Gateshead SIS/Tesco in 1984 [2] Theworld'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 theseorganizations and others used the Aldrich systems. The systems used the switched publictelephone network in dial-up and leased line modes. There was no broadband capability.

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

An early example of many-to-many electronic commerce in physical goods was theBoston Computer Exchange, a marketplace for used computers launched in 1982. Anearly online information marketplace, including online consulting, was the AmericanInformation Exchange, another pre Internet[clarification needed] online system

introduced in 1991.In 1990 Tim Berners-Lee invented the World Wide Web and transformed an academictelecommunication network into a worldwide everyman everyday communication systemcalled internet/www. Commercial enterprise on the Internet was strictly prohibited until1991 .[5] Although the Internet became popular worldwide around 1994 when the firstinternet online shopping started, it took about five years to introduce security protocolsand DSL allowing continual connection to the Internet. By the end of 2000, manyEuropean and American business companies offered their services through the WorldWide Web. Since then people began to associate a word "ecommerce" with the ability of purchasing various goods through the Internet using secure protocols and electronicpayment 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 usedfor online ordering.1984: World's first recorded B2C online home shopper. Mrs Jane Snowball usesthe 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 aNeXT computer.1992: J.H. Snider and Terra Ziporyn publish Future Shop: How NewTechnologies Will Change the Way We Shop and What We Buy. St. Martin'sPress. ISBN 0312063598.1994: Netscape releases the Navigator browser in October under the code nameMozilla. Pizza Hut offers pizza ordering on its Web page. The first online bank


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opens. Attempts to offer flower delivery and magazine subscriptions online. Adultmaterials also become commercially available, as do cars and bikes. Netscape 1.0is 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 isfounded by computer programmer Pierre Omidyar as AuctionWeb.1998: Electronic postal stamps can be purchased and downloaded for printingfrom the Web.1999: Business.com sold for US $7.5 million to eCompanies, which waspurchased in 1997 for US $149,000. The peer-to-peer filesharing softwareNapster launches. ATG Stores launches to sell decorative items for the homeonline.2000: The dot-com bust.2002: eBay acquires PayPal for $1.5 billion. Niche retail companies CSN Storesand 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 $204billion, 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 conductingbusiness 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 operateall 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. Simplelocal businesses such as specialist record stores are able to market and sell their offerings internationally using e-commerce. This global opportunity is assisted by thefact that, unlike traditional communications methods, users are not charged accordingto the distance over which they are communicating. Speed. Electronic communications allow messages to traverse the world almostinstantaneously. There is no need to wait weeks for a catalogue to arrive by post: thatcommunications delay is not a part of the Internet / e-commerce world.


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Market Space. The market in which web-based businesses operate is the globalmarket. It may not be evident to them, but many businesses are already facinginternational 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 originalmanufacturers for some goods - thereby bypassing wholesalers and achieving acheaper price. Computer platform-independent . 'Many, if not most, computers have the abilityto 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 bebuilt 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 automaticdeployment of software updates' (Gascoyne & Ozcubukcu, 1997:87). Allowing customer self service and 'customer outsourcing'. People can interactwith businesses at any hour of the day that it is convenient to them, and because theseinteractions 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 meansthat some of the work and costs are effectively shifted to customers; this is referred toas 'customer outsourcing'. Stepping beyond borders to a global view. Using aspects of e-commercetechnology can mean your business can source and use products and servicesprovided 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, inmany ways it can be easier and cheaper to host and operate some e-commerceactivities outside Australia. Further, because many e-commerce transactions involvecredit cards, many businesses in Australia need to make arrangements for acceptingonline payments. However a number of major Australian banks have tended to beunhelpful laggards on this front, charging a lot of money and making it difficult toestablish these arrangements - particularly for smaller businesses and/or businessesthat 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 thisaspect of the Australian banking system. Admittedly, this can create some grey areasfor legal and taxation purposes, but these can be dealt with. And yes thesecircumstances do have implications for Australia's national competitiveness and thecompetitiveness of our industries and businesses.

As a further thought, many businesses find it easier to buy and sell in U.S. dollars: it iseffectively the major currency of the Internet. In this context, global online customers canfind the concept of peculiar and unfamiliar currencies disconcerting. Some businessesfind they can achieve higher prices online and in US dollars than they would achieveselling locally or nationally. Given that banks often charge fees for converting currencies,


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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 tosell to consumers. Peterson et al. (1999) suggest that, as a marketing channel, theInternet has the following characteristics: the ability to inexpensively store vast amounts of information at different virtuallocations the availability of powerful and inexpensive means of searching, organising, anddisseminating such information interactivity and the ability to provide information on demand the ability to provide perceptual experiences that are far superior to a printedcatalogue, 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 storeand walk out with a compact disc, or a bookstore and leave with a book. E-commerceis often used to buy goods that are not available locally from businesses all over theworld, meaning that physical goods need to be delivered, which takes time and costsmoney. 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 physicalgoods. Physical product, supplier & delivery uncertainty . When you walk out of ashop 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 anexpectation of what that product is and its condition. Secondly, because supplyingbusinesses can be conducted across the world, it can be uncertain whether or not theyare legitimate businesses and are not just going to take your money. It's pretty hard toknock on their door to complain or seek legal recourse! Thirdly, even if the item issent, it is easy to start wondering whether or not it will ever arrive.


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Perishable goods . Forget about ordering a single gelato ice cream from a shop inRome! Though specialised or refrigerated transport can be used, goods bought andsold via the Internet tend to be durable and non-perishable: they need to survive thetrip 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, salesand distribution. In contrast, durable goods can be traded from almost anyone toalmost anyone else, sparking competition for lower prices. In some cases this leads todisintermediation in which intermediary people and businesses are bypassed byconsumers and by other businesses that are seeking to purchase more directly frommanufacturers. Limited and selected sensory information. The Internet is an effective conduitfor 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 theflowers, but not smell their fragrance; we can see pictures of a hammer, but not feelits 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 werelooking at buying a car on the Internet, we would see the pictures the seller hadchosen for us to see but not the things we might look for if we were able to see it inperson. And, taking into account our other senses, we can't test the car to hear thesound 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 areoften much more comfortable buying via the Internet generic goods - things that theyhave seen or experienced before and about which there is little ambiguity, rather thanunique or complex things. Returning goods. Returning goods online can be an area of difficulty. Theuncertainties surrounding the initial payment and delivery of goods can beexacerbated in this process. Will the goods get back to their source? Who pays for thereturn postage? Will the refund be paid? Will I be left with nothing? How long will ittake? 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 paymentdetails (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 areeveryday. It is not suitable for dealing with the new or unexpected. For example, atransport company used to dealing with simple packages being asked if it cantransport a hippopotamus, or a customer asking for a book order to be wrapped inblue and white polka dot paper with a bow. Such requests need human intervention toinvestigate and resolve. Personal service . Although some human interaction can be facilitated via theweb, e-commerce can not provide the richness of interaction provided by personalservice. For most businesses, e-commerce methods provide the equivalent of aninformation-rich counter attendant rather than a salesperson. This also means that


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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 inmaritime 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 longway 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 aseCommerce simplifies transactions, it is occasionally plagued by serious concerns thatjeopardize 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 bymoney. This attracts hackers, crackers and everyone with the knowledge of exploitingloopholes in a system. Once a kink in the armor is discovered, they feed the system(andusers) 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. Cleverlycrafted strategies can sift a part or the entire amount being transferred from the user to theonline 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 theprivileges 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 deliveredto an address other than the one listed on the records. One can easily see how those orderscould 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


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Viruses, worms, Trojans are very deceptive methods of stealing information. Unless asound virus-protection strategy is used by the eCommere Solutions firm, these maliciousagents can compromise the credibility of all eCommerce web solution services. Oftenplanted by individuals for reasons known best to them alone, viruses breed within thesystems 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 eCommerceservices - 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 securityquestions, encrypted passwords(Encryption), biometrics and others to confirm theidentity 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 programmerswho 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 alsoturned 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 genuineusers of the perils of publishing their confidential information to unauthorizedinformation seekers.

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