e commerce
TRANSCRIPT
E - COMMERCE
Content
Introduction
Concept
Learning Outcomes
What is E-commerce?
History
Types of E-Commerce
Advantage and Disadvantage of Ecommerce
Benefits Of Ecommerce
E-Commerce Infrastructure
Center for E-Commerce Infrastructure Development
Business Models and e-Commerce
Business Models for Internet based e-commerce: An Anatomy Introduction
The emerging market structure
Business Models for Internet based e-commerce
Value streams in Internet based business
Revenue Streams in Internet based Business
Logistic streams for Internet based Business
Towards an appropriate business model
Conclusions
E-Commerce Strategy
Successful E-Commerce Strategies
Business To Business Ecommerce Strategies for Growth
Developing a Winning Ecommerce Strategy
Supply Chain Management and e-Commerce
Impact of E-Commerce on Supply Chain Management
The Role of Supply-Chain Management in E-commerce
E-Commerce will transform Supply Change Management
Marketing Strategies and e-Commerce
Marketing Strategy and E-Commerce Introduction
Strategic analysis - Understanding the Environment
Identifying the Strategic Options/SWOT analysis
The Strategy Hierarchy
Retailing in E-commerce
Conclusion
E-Commerce Security and Controls
Security Implications
Information Security
Security Policies and Procedures
Protecting the E-Commerce Environment
Data protection and E-commerce
Electronic Payment Systems
Electronic Payment Systems Hacker Definition
Requirements for Payment System
Payment Methods
Electronic Payment Schemes
Mobile Commerce and Pervasive Computing
Mobile Commerce
Evolution of Mobile Commerce Applications
Pervasive Computing
Some Personal and Business Uses of Pervasive Computing
Relation of Pervasive Commerce with E-Commerce
Relation of Pervasive Commerce with M-Commerce
The four major types of Wireless Telecommunications Networks
Legal and Ethical Issues in e-Commerce
Ethical & Morel Implications
Legal Implications
Legal Issues Involved in E-Commerce
Conclusion
Social and Other Issues in e-Commerce
Social Issues
Economic Issues
Privacy Issues
Conclusion
Introduction to e-Commerce
Introduction
Electronic commerce (e-commerce) is a growing aspect of the business
community. This formally is the use of digital transactions between and among
businesses and individuals. More commonly e-commerce is the use of the
Internet to conduct business. Initially emerging from the Electronic Data
Interchange (EDI) e-commerce has gone through several major steps to get to its
current point. Through these steps there has been an emergence of several
subsets of e-commerce and new technologies. As a result of these changes and
the growth of electronic commerce benefits and detriments have been brought to
society that can be generalized to all the subsets of e-commerce. Looking at
economic, privacy and social aspects of society we can see there are issues
facing electronic commerce development. It is also possible to see there are
some industries that e-commerce has had a greater impact on, such as the
culture and information industry. Overall, electronic commerce can be a benefit
to society especially if businesses adapt to their customers worries such as
privacy concerns. As these problems begin to be solved and technology
improves e-commerce will provide individuals with more choice and add further
depth to the economy.
Concepts
Anonymous remailer, B2B exchange, browser, checkout page, common gateway
interface, cookie, day trading, denial of service attack, design pattern,
disintermediation, distributed objects, dynamic pages, dynamic pricing, e-auction,
e-learning, email server, e-mall, e-procurement, e-shop, e-tailing, file transfer
protocol, framework, horizontal portal, hyperlink, hypertext mailer, Hypertext
Markup Language, information brokerage, Java, online trading, portal, posting,
procurement, query, rapid application development, search engine, Secure
Sockets Layers, Server Side Includes, Servlet, shopping cart, spam, spider,
stateless server, supply chain, third party marketplace, thread, trust brokerage,
vertical portal, virtual community. web page, web server, website, webmaster.
Learning Outcomes
Having studied this unit you should be able to:
detail what is meant by the term ‘e-commerce’;
examine some typical distributed applications;
detail some of the problems that are encountered when developing
distributed applications;
describe briefly some of the technologies that are used to support
distributed applications;
show how some of the technologies detailed in the unit are used in
concert to realise a typical commercial system;
describe some of the business models used in the internet.
What is E-commerce?
E-Commerce is the ability of a company to have a dynamic presence on the
Internet which allowed the company to conduct its business electronically, in
essence having an electronic shop. Products can be advertised, sold and paid for
all electronically without the need for it to be processed by a human being.
Due to the vastness of the internet advertising and the website can be exposed
to hundreds of people around the world for almost nil cost and with information
being able to be changed almost instantly the site can always be kept up to date
with all the latest products to match with consumers demands.
The biggest advantage of E-Commerce is the ability to provide secure shopping
transactions via the internet and coupled with almost instant verification and
validation of credit card transactions. This has caused E-Commerce sites to
explode as they cost much much less than a store front in a town and has the
ability to serve many more customers.
In the broad meaning electronic commerce (E-Commerce) is a means of
conducting business using one of many electronic methods, usually involving
telephones, computers (or both).
E-Commerce is not about the technology itself, it is about doing business using
the technology.
Electronic commerce, commonly known as 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 wide-spread Internet usage. A wide
variety 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.
History
There have been several key steps in the history of e-commerce. The first step
came from the development of the Electronic Data Interchange (EDI). EDI is a
set of standards developed in the 1960’s to exchange business information and
do electronic transactions. At first there was several different EDI formats that
business could use, so companies still might not be able to interact with each
other. However, in 1984 the ASC X12 standard became stable and reliable in
transferring large amounts of transactions. The next major step occurred in 1992
when the Mosaic web-browser was made available, it was the first ‘point and
click’ browser. The Mosaic browser was quickly adapted into a downloadable
browser, Netscape, which allowed easier access to electronic commerce. The
development of DSL was another key moment in the development to of e-
commerce. DSL allowed quicker access and a persistent connection to the
Internet. Christmas of 1998 was another major step in the development of e-
commerce. AOL had sales of 1.2 billion over the 10 week holiday season from
online sales. The development of Red Hat Linux was also another major step in
electronic commerce growth. Linux gave users another choice in a platform
other then Windows that was reliable and open-source. Microsoft faced with this
competition needed to invest more in many things including electronic
commerce.
Napster was an online application used to share music files for free. This
application was yet another major step in e-commerce. Many consumers used
the site and were dictating what they wanted from the industry. A major merger,
in early 2000, between AOL and Time Warner was another major push for
electronic commerce. The merger, worth $350 million, brought together a major
online company with a traditional company. In February 2000 hackers attacked
some major players of e-commerce, including Yahoo, e-bay and Amazon. In
light of these attacks the need for improved security came to the forefront in the
development of electronic commerce.
It is predicted that that revenues, up until 2006, will grow 40% to 50% yearly.
Expectations of higher prices as well as larger profits for e-commerce business
are also present. Also, we will see a larger presence by experienced traditional
companies, such as Wal-Mart, on the Internet. It is believed companies in
general will take this mixed strategy of having stores online and offline in order to
be successful. It can be seen that there will be a large growth in Business-to-
Consumer (B2C) e-commerce, which is online businesses selling to individuals.
However, even though B2C electronic commerce may be the most recognizable
there are different varieties.
Today the largest electronic commerce is Business-to-Business (B2B).
Businesses involved in B2B sell their goods to other businesses. In 2001, this
form of e-commerce had around $700 billion in transactions. Other varieties
growing today include Consumer-to-Consumer (C2C) where consumers sell to
each other, for example through auction sites. Peer-to-Peer (P2P) is another
form of e-commerce that allows users to share resources and files directly
Types of E-Commerce
E-commerce is the use of Internet and the web to transact business but when we
focus on digitally enabled commercial transactions between and among
organizations and individuals involving information systems under the control of
the firm it takes the form of e-business. Nowadays, 'e' is gaining momentum and
most of the things if not everything is getting digitally enabled. Thus, it becomes
very important to clearly draw the line between different types of commerce or
business integrated with the 'e' factor.
There are mainly five types of e-commerce models:
1. Business to Consumer (B2C) - As the name suggests, it is the model
involving businesses and consumers. This is the most common e-commerce
segment. In this model, online businesses sell to individual consumers. When
B2C started, it had a small share in the market but after 1995 its growth was
exponential. The basic concept behind this type is that the online retailers and
marketers can sell their products to the online consumer by using crystal clear
data which is made available via various online marketing tools. E.g. An online
pharmacy giving free medical consultation and selling medicines to patients is
following B2C model.
2. Business to Business (B2B) - It is the largest form of e-commerce involving
business of trillions of dollars. In this form, the buyers and sellers are both
business entities and do not involve an individual consumer. It is like the
manufacturer supplying goods to the retailer or wholesaler. E.g. Dell sells
computers and other related accessories online but it is does not manufacture all
those products. So, in order to sell those products, it first purchases them from
different businesses i.e. the manufacturers of those products.
3. Consumer to Consumer (C2C) - It facilitates the online transaction of goods
or services between two people. Though there is no visible intermediary involved
but the parties cannot carry out the transactions without the platform which is
provided by the online market maker such as eBay.
4. Peer to Peer (P2P) - Though it is an e-commerce model but it is more than
that. It is a technology in itself which helps people to directly share computer files
and computer resources without having to go through a central web server. To
use this, both sides need to install the required software so that they can
communicate on the common platform. This type of e-commerce has quite low
revenue generation as from the beginning it has been inclined to the free usage
due to which it sometimes got entangled in cyber laws.
5. M -Commerce - It refers to the use of mobile devices for conducting the
transactions. The mobile device holders can contact each other and can conduct
the business. Even the web design and development companies optimize the
websites to be viewed correctly on mobile devices.
There are other types of e-commerce business models too like Business to
Employee (B2E), Government to Business (G2B) and Government to Citizen
(G2C) but in essence they are similar to the above mentioned types. Moreover, it
is not necessary that these models are dedicatedly followed in all the online
business types. It may be the case that a business is using all the models or only
one of them or some of them as per its needs.
Advantage and Disadvantage of Ecommerce
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.
E-commerce advantages
An E-Commerce website offers many advantages to most types of businesses of
all types and sizes. The main advantages are:
Access to A Global Market
The internet allows companies to have access to a global market rather than just
the potential customers in the surrounding area of there physical location. Due to
the fact that the website is open 24-hours a day (more below) time differences
between countries are no longer a problem, you wouldn't have to get up early in
America to order something in England anymore.
Cutting Out the Middleman
Businesses can sell direct to the consumer rather than having to sell to a supplier
and then them sell it on, this means the company can usually offer the product at
a discount compared to there retailers because only one company has to make
profit rather than two or more.
A Level Playing Field
A small business can compete and show itself as a professional company as
much as large ones as budgets for setting up a professional site are relatively
cheap to the amount of return you can get on them.
Open 24 Hours a Day
With fully automated payment and order processing systems your site need
never be closed even if your office/warehouse is. Orders can be dispatched
during opening hours while orders can be taken 24 hours a day, this has great
advantages for people who might be at work or busy during normal working
hours of some shops.
Greater Customer Satisfaction
An E-Commerce website can be a powerful tool for building customer loyalty if it
is effective enough, a well designed website puts the customer in charge of the
relationship, they can buy, browse, ask for help or track the progress of order
they have placed where they want and when they want.
Reduced Marketing Costs
Word of mouth can be incredibly powerful on the Web through e-mail
recommendations and search engine rankings. You can achieve a great deal
through growth by treating customers well, keeping them informed about your
activities and benchmarking yourself against competitors. Also with the internet
advertisement being relatively cheap you can reach many more people at a
cheaper cost than using convential advertising methods.
Better Customer Information
You can quickly and easy analyze your customers by location and area as well
as the products they buy as you will have to request a customers name and
address from them when processing a transaction. As well as you being more
informed about your customers, your customers are also more informed as
generally on E-Commerce sites there is more information on a product including
reviews etc to help customers choose the right product for them. This works in
the best interest for the site as it cuts down on the amount of returned goods.
Security
Most E-Commerce suits offered by companies come with built in security in the
software and with the purchase of a dent SSL certificate and some good server
configurations you can safely know that all the details of your customers will be
safe and secure. You can get approved certificates to show that your site is
secure and meets up the certain standards; this lets your customers know that
they are safe to shop at your site and the data will not end up in the wrong
hands.
Also sensitive information such as credit card numbers are usually automatically
processed so do not require any staff at the company to see them, making
purchasing online even more secure.
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.
Marketspace. 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
organization 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,
organizing, 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.
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 specialized 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.
Some business processes are difficult to be implemented through
electronic commerce.
Return-on-investment is difficult to apply to electronic commerce.
Businesses face cultural and legal obstacles to conducting electronic
commerce.
Benefits Of Ecommerce
E Commerce is one of the most important facets of the Internet to have emerged
in the recent times. Ecommerce or electronic commerce involves carrying out
business over the Internet with the assistance of computers, which are linked to
each other forming a network. To be specific ecommerce would be buying and
selling of goods and services and transfer of funds through digital
communications.
The benefits of Ecommerce:
Ecommerce allows people to carry out businesses without the barriers of
time or distance. One can log on to the Internet at any point of time, be it
day or night and purchase or sell anything one desires at a single click of
the mouse.
The direct cost-of-sale for an order taken from a web site is lower than
through traditional means (retail, paper based), as there is no human
interaction during the on-line electronic purchase order process. Also,
electronic selling virtually eliminates processing errors, as well as being
faster and more convenient for the visitor.
Ecommerce is ideal for niche products. Customers for such products are
usually few. But in the vast market place i.e. the Internet, even niche
products could generate viable volumes.
Another important benefit of Ecommerce is that it is the cheapest means
of doing business.
The day-to-day pressures of the marketplace have played their part in
reducing the opportunities for companies to invest in improving their
competitive position. A mature market, increased competitions have all
reduced the amount of money available to invest. If the selling price
cannot be increased and the manufactured cost cannot be decreased then
the difference can be in the way the business is carried out. Ecommerce
has provided the solution by decimating the costs, which are incurred.
From the buyer’s perspective also ecommerce offers a lot of tangible
advantages.
1. Reduction in buyer’s sorting out time.
2. Better buyer decisions
3. Less time is spent in resolving invoice and order discrepancies.
4. Increased opportunities for buying alternative products.
The strategic benefit of making a business ‘ecommerce enabled’, is that it
helps reduce the delivery time, labor cost and the cost incurred in the
following areas:
1. Document preparation
2. Error detection and correction
3. Reconciliation
4. Mail preparation
5. Telephone calling
6. Data entry
7. Overtime
8. Supervision expenses
Operational benefits of e commerce include reducing both the time and
personnel required to complete business processes, and reducing strain
on other resources. It’s because of all these advantages that one can
harness the power of ecommerce and convert a business to e-business by
using powerful turnkey ecommerce solutions made available by e-
business solution providers.
E-Commerce Infrastructure
Clients and partners, using computers, telephones, etc., can connect to the
Internet through dial-up lines to the public switched telephone network (PSTN).
Through the PSTN Internet Service Providers (ISPs) can be reached. The ISPs
can also be reached through dedicated lines that generally offer higher bit-rates,
such as digital subscriber lines (DSLs), as well as T1, T4 and other links.
Connections can also be established from LANs, routers, hubs and PBX and
other switches on the Customer Premises, i.e. the premises of the clients,
partners, etc. In addition to the plain old telephone system (POTS) other
operators offer connections to the Internet. These include cable television
operators, electric power companies, etc.
Most are integrated with other networks, including packet switched public data
networks (PSPDNs) that use routers and similar switching/directing devices.
On the other side of these networks you will find the host computers of the
product/service provider or seller. These people may have co-located or
outsourced storage facilities. The latter are data warehouses containing
information on products, services, clients, partners, suppliers, billing, payments,
etc.
Security is of a major concern. This includes concerns about the following,
among many other security problems:
Credit card numbers, expiration dates, and owner information getting in
the wrong hands.
Orders being accepted from the wrong clients.
Payments being made to the wrong sources or goods and services being
delivered to the wrong people.
Viruses being allowed to pass through the system.
To prevent some of these security problems firewalls are installed at critical
interfaces. The firewalls are supposed to filter the traffic, inhibit transmission of
unwanted information (including viruses), and prevent malicious or criminal
actions by outside persons. However, a firewall cannot by itself prevent misuse of
credit card numbers or identity fraud.
Encryption is a way of improving security. You as a user can encrypt your
messages in an end-to-end fashion and having your correspondent at the other
end convert the message back into the original clear-text. Encryption can also be
used on individual links in the transmission chain.
There has always been a competition between users and "authorities." Users
want secure encryption end-to-end, and government (law enforcement) agencies
want to be able to read your messages and in particular illegal ones. These
agencies may be part of your own government or foreign governments. We all
agree that the traffic of drug dealers, terrorists and similar persons should be
controlled. Some countries make all encryption illegal, and others, like the U.S.
Government, put restrictions on the complexity of the encryption permitted.
Severe problems in the conflict between users and government arise when the
users are conducting businesses in the multimillion dollar range with
governments. Examples of such users are manufacturers of telecommunications
networks, airplanes, as well as construction companies, etc. You hear all of them
talking about cases where their messages with their local agents regarding terms
and prices end up in clear-text on the desks of their (government) customers
even before their agents receive the messages. This may mean that the
capabilities of government security agencies (like the U.S. National Security
Agency) have been used to intercept and decrypt messages. Since national
security agencies lost most of their "jobs" after the end of the cold war, some
countries are considering using the security capabilities of these agencies to
promote civil business.
Center for E-Commerce Infrastructure Development
Founded in January 2002, the Center for E-Commerce Infrastructure
Development (CECID) is a research and development center in the University of
Hong Kong committed to promoting e-commerce infrastructure development and
standardization. A member of OASIS, W3C, RosettaNet, and the ebXML Asia
Committee, CECID actively takes part in the development and implementation of
international standards, such as Universal Business Language, Web Services,
and RosettaNet. Through participation in these international and regional
standards bodies, CECID follows closely the latest developments in e-commerce
technology standards and promotes Hong Kong's e-commerce technology to
technical communities overseas.
CECID's operation is primarily financed by R&D grants from the Innovation and
Technology Commission of the Hong Kong Government for its two flagship
research projects, namely Project Phoenix and Project Pyxis. In its completed
Project Phoenix, CECID has produced several software packages that implement
major ebXML specifications. These software packages include Hermes Message
Service Handler, eb-Mail, and ebXMLRR Registry/Repository and are currently
released under open source licenses on the freebXML.org website that CECID
established in 2002. Commenced in 2004, Project Pyxis targets to develop
enabling technology for e-business interoperability between trading partners and
within large enterprises using various complementary and competing Web
Services standards.
From the Internet to the WWW-:
Internet: the vast collection of interconnected networks that all use the TCP/IP
protocols. Internet is a network of computers connected to each other which are
not part of the Internet as they don’t use a TCP/IP protocol.
Intranet: a private network inside a company or organization that may use the
same kinds of software applications that you could find on the Internet, but it is
only for internal use. An intranet may be on the Internet (though gateways) or
may simply be a network.
World Wide Web (WWW):
System of Internet servers that support documents formatted in a markup
language called HTML (Hypertext Markup Language). This language supports
linking a document to other documents, as well as linking to graphics, audio, and
video files.
The WWW is an information-sharing model that is built on top of the
Internet. The WWW uses the HTTP protocol to transmit data.
E-commerce services, which use HTTP to allow applications to
communicate in order to exchange business logic, use the Web to share
information.
The WWW is just one of the ways that information can be disseminated
over the Internet. The Internet, not the Web, is also used for e-mail, which
relies on SMTP and FTP.
Packets, Routing and Addressing:
Four key rules have contributed to the success of the Internet:
Independent networks should not require any internal changes to be
connected to the network.
Packets that do not arrive at their destinations must be retransmitted from
their source network.
Router computers act as receive-and-forward devices; they do not retain
information about the packets that they handle.
No global control exists over the network.
The Internet uses packet switching:
Files are broken down into packets that are labeled with their origin,
sequence, and destination addresses.
This fact has very important consequences for both the performance and
the security of e-commerce systems.
The programs on routers use ‘routing algorithms’ that call upon their
‘routing tables’ to determine the best path to send each packet.
When packets leave a network to travel on the Internet, they are
translated into a standard format by the router.
These routers and the telecommunication lines connecting them are
referred to as ‘the Internet backbone’.
Between seller and customer there are several other actors who have a
role to play.
Internet Protocols:
Common language’.
rules governing data exchange between: two communicating entities,
layers in a station, from station to station, or network to network
3 key elements to consider:
Syntax includes data format, signal levels.
Semantics includes control information, e.g. coordination and error handling
Timing includes speed matching, sequencing
TCP/IP:
protocol of internet
Transmission Control Protocol / Internet Protocol
simple and effective
most types of network
but does not include many security features
TCP:
•Controls disassembly of a message or a file into packets before transmission
over Internet
•Controls reassembly of packets into their original formats when they reach their
destinations.
IP:
Specifies addressing details for each packet
Hypertext Transfer Protocol:
Hypertext Transfer Protocol (HTTP) is the set of rules for delivering Web
pages over the Internet.
HTTP uses the client/server model - The client opens an HTTP session
and sends a request to a server. The server returns an HTTP response
message which contains data.
After this, they forget about each other – this has very significant
implications for Web (and ecommerce) application development.
IP addressing:32-bit number to identify the computers connected to the
internet (232 ˜ 4billion)
Base 2 (binary) number system: Used by computers to perform internal
calculations
Sub-netting: Use of reserved private IP addresses within LANs and WANs
to provide additional address space
Private IP addresses: Series of IP numbers not permitted on packets that
travel on the Internet
Network Address Translation (NAT) device: Used in sub-netting to convert
private IP addresses into normal IP addresses.
Email:
Electronic mail (e-mail): Must also be formatted according to common set
of rules.
E-mail server: Computer devoted to handling e-mail
E-mail client software: Used to read and send email; Example: Microsoft
Outlook, Netscape Messenger
Mail Protocols: Simple Mail Transfer Protocol (SMTP)- Specifies format
of a mail message; Post Office Protocol (POP): POP message can tell the
e-mail server to send mail to user’s computer and delete it from e-mail
server, or send mail to user’s computer and not delete it, or simply ask
whether new mail has arrived.
Markup Languages and the Web:
Text markup language: Specifies set of tags that are inserted into text
Standard Generalized Markup Language (SGML): Older and complex text
markup language, A meta language.
World Wide Web Consortium (W3C): Not-for-profit group that maintains
standards for the Web
Hypertext Markup Language (HTML): markup language used to create
documents on the Web today
HTML tags: Interpreted by Web browser and used by it to format the
display of the text
HTML Links: Linear hyperlink structure, Hierarchical hyperlink structure.
Scripting languages and style sheets:
Most common scripting languages: JavaScript, JScript, Perl, and VBScript
Cascading Style Sheets (CSS): Sets of instructions that give Web
developers more control over the format of displayed pages, Style sheet:
Usually stored in a separate file, Referenced using the HTML style tag
Extensible Markup Language (XML) : Uses paired start and stop tags
Includes data management capabilities that HTML cannot provide
Differences between XML and HTML: XML is not a markup language with
defined tags, XML tags do not specify how text appears on a Web page.
Intranets and Extranets:
Intranet:
An intranet is an interconnected network (or internet – small “i”) that does
not extend beyond the organization that created it
Intranets are an extremely popular and low-cost way to distribute
corporate information
An intranet uses Web browsers and Internet-based protocols (including
TCP/IP, FTP, Telnet, HTML, and HTTP) and often includes a firewall.
Extranet
Extranets are intranets that have been extended to include specific entities
outside the boundaries of the organization (business partners, suppliers,
etc.)
An extranet can be a public network, a secure (private) network, or a
virtual private network (VPN).
Intranets and Extranets:
A public network is any computer or telecommunications network that is
available to the public.
A private network is a private, leased-line connection between two
companies that physically connects their intranets to one another
A VPN extranet is a network that uses public networks and their protocols
to send sensitive data to partners, customers, suppliers, and employees
using a system called ‘IP tunneling’ or ‘encapsulation’.
Connectivity:
Large firms that provide Internet access to other businesses are called
Internet Access Providers (IAPs) or Internet Service Providers (ISPs).
The most common connection options that ISPs offer to the Internet are
telephone, broadband, leased-line, and wireless.
Bandwidth is the amount of data that can travel through a communication
line per unit of time
Bandwidth can differ for data traveling to or from the ISP.
The Semantic Web:
“The Semantic Web provides a common framework that allows data to be shared
and reused across application, enterprise, and community boundaries. It is a
collaborative effort led by W3C with participation from a large number of
researchers and industrial partners. It is based on the Resource Description
Framework (RDF), which integrates a variety of applications using XML for
syntax and URIs for naming.” [W3C 2004]
"The Semantic Web is an extension of the current web in which information is
given well-defined meaning, better enabling computers and people to work in
cooperation."
The Resource Description Framework (RDF) integrates a variety of applications
from library catalogues and world-wide directories to syndication and aggregation
of news, software, and content to personal collections of music, photos, and
events using XML as an interchange syntax. The RDF specifications provide a
lightweight ontology system to support the exchange of knowledge on the Web.
Semantic Web: Project by Tim Berners-Lee , If successful - Would result
in words on Web pages being tagged (using XML) with their meanings
Resource description framework (RDF): Set of standards for XML syntax
Ontology: Set of a standard that defines relationships among RDF
standards and specific XML tags.
Summary:
Packet-switched networks
TCP/IP: Protocol suite used to create and transport information packets
across the Internet
IP addressing and domain names
POP, SMTP, and IMAP: Protocols that help manage e-mail
Markup Languages and the Web: Hypertext Markup Language (HTML);
Extensible Markup Language (XML)
The Web and the Semantic Web.
Business Models and e-Commerce
Business Models for Internet based E-Commerce: An Anatomy
Introduction
The growth of Internet based businesses; popularly known as dot coms is
anything but meteoric. It has dwarfed the historical growth patterns of other
sectors of the industry.
Over years, several organizations doing business through the Internet have
come out with their own set of unique propositions to succeed in the business.
For instance Amazon.com demonstrated how it is possible to "dis-intermediate"
the supply chain and create new value out of it. Companies such as Hotmail, and
Netscape made business sense out of providing free products and services. On
the other hand companies such as AOL and Yahoo identified new revenue
streams for their businesses. It is increasingly becoming clearer that the
propositions that these organizations employed in their business could
collectively form the building blocks of a business model for an Internet based
business. Several variations of these early initiatives as well as some new ones
being innovated by recent Internet ventures have underscored the need for some
theory building in this area.
A good theory is a statement of relations among concepts with in a set of
assumptions and constraints. The purpose of theory is two fold: to organize
(parsimoniously) and to communicate (clearly). Wallace outlined a systematic
approach to theory building, which broadly consists of observation, induction and
deduction. Theory building in a new area often begins with individual
observations that are highly specific and essentially unique items of information.
By careful measurement, sample summarization and parameter estimation, it is
possible to synthesize empirical generalizations. The next stage in theory
building involves concept formation, proposition formation and proposition
arrangement. Using sampling the hypothesis that occasioned the construction of
the proposition could be tested. Eventually, the results of hypothesis testing
enables confirmation, modification or rejection of the theory. In this paper we
focus on observation and induction aspects of theory building.
Another key aspect of theory building is the use of alternative classification
schemes often employing typologies and taxonomies. Typological classification
has a twofold function: codification and prediction. A typology creates order out of
the potential chaos of discrete and heterogeneous observations. But in so
codifying the phenomena, it also permits the observer to seek and predict
relationship between phenomena that do not seem to be connected in any
obvious way. This is because a good typology is not a collection of
undifferentiated entities but is composed of a cluster of traits, which in reality
hang together. Indeed systematic classification and the explication of rationale
for classification are tantamount to the codification of the existing state of
knowledge in a discipline.
The Internet infrastructure layer addresses the issue of backbone infrastructure
required for conducting business via the net. Expectedly, it is largely made up of
telecommunication companies and other hardware manufacturers such as
computer and networking equipment. The Internet applications layer provides
support systems for the Internet economy through a variety of software
applications that enable organizations to commercially exploit the backbone
infrastructure. Over years, several applications addressing a range of issues from
web page design to providing security and trust in conducting various business
transactions over the net have been developed. The Internet intermediary layer
includes a host of companies that participate in the market making process in
several ways. Finally, the Internet commerce layer covers companies that
conduct business in an over all ambience provided by the other three layers. the
four layers. The Internet infrastructure layer and the applications layer play a
crucial role in moderating and trend setting the growth of Internet economy.
The focus on the last two layers stems from several reasons:
(a) The growth of the intermediary and the commerce layer is significantly higher
than that of the other two layers. Barua and Whinston reported a 127% growth in
the commerce layer during the first quarter of 1999 over the corresponding
period in 1998. Furthermore, one in three of 3400 companies that they studied
did not even exist before 1996. They also reported that 2000 new secure sites
are added to the web every month indicating the creation of new companies and
migration of existing brick and mortar businesses.
(b) The extensive customer interaction in these two layers has offered more
scope for creating unconventional business models and hence offers more scope
for identifying certain typologies Moreover there has been no attempt to provide a
consistent definition for a business model in the Internet context. On the other
hand, consultants and practitioners have often resorted to using the term
business model to describe a unique aspect of a particular Internet business
venture. This has resulted in considerable confusion. Before we elaborate on the
theme, we clarify the scope of the term "Internet based Ecommerce".
Our definition of this term does not include organizations that have merely set up
some web sites displaying information on the products that they sell in the
physical world. On the other hand, only those organizations that conduct
commercial transactions with their business partners and buyers over the net
(either exclusively or in addition to their brick and mortar operations) are
considered. Henceforth, our reference to the term "Internet Economy" is limited
by the scope as we have identified here.
Our purpose extends beyond providing a formal definition and an anatomy to the
business model. We use the proposed framework to relate to the market
structure in the Internet economy. We begin with a broad classification of
emerging market structures in Internet based business. We provide a definition
for a business model and elaborate on the idea by identifying its various facets in
the context of Internet. Finally, we identify certain dimensions that could
potentially influence organizations in their choice of an appropriate business
model out of the building blocks that we have identified.
The Emerging Market Structure
The Internet economy has divided the overall market space into three broad
structures: Portals, Market Makers, and Product/Service providers. A portal
(POR) engages primarily in building a community of consumers of information
about products and services. Increasingly, portals emerge as the focal points for
influencing the channel traffic into web sites managed by Product/Service
providers and other intermediaries. They primarily play the role of funneling
customer attention or "eyeballs" into these web sites in a targeted fashion.
Companies such as AOL and Yahoo largely cater to the Business to Customer
(B2C) segment. However, it is not uncommon to find portals in the Business to
Business (B2B) segment also. Ariba.com and MarketSite.net (promoted by
Commerce One) are portals serving B2B segment.
Market Maker9 (MMK) is another emerging structure in the Internet market
space. A market maker plays a similar role of a portal in building a community of
customers and/or a community of suppliers of products and services. However, it
differs from portals in several ways. Firstly, market makers invariably participate
in a variety of ways to facilitate the business transaction that takes place between
the buyer and the supplier. Consequently, often a market maker is expected to
have a high degree of domain knowledge. For instance, a portal such as Yahoo
can funnel the traffic of prospective computer and software buyers into web sites
that provide services related to selling these. However, a market maker such as
Beyond.com require a higher domain knowledge related to buying and selling of
computer and software products to add value to the business. Lastly, unlike a
portal, a market maker endeavors to provide value to suppliers and customers
through a system of implicit or explicit guarantee of security and trust in the
business transaction. Auction sites such as e-bay are the early market makers in
the B2C segment. On the other hand a large number of market makers are
evolving in the B2B segment. Some examples include Chemdex (Chemicals),
HoustonStreet.com (Electricity), FastParts (Electronic components),
BizBuyer.com (small business products) and Arbinet (Telecommunication
minutes and bandwidth).
B2B segment has several characteristics that promote a bigger role for market
makers. These include huge financial transactions, greater scope for reducing
product search costs and transaction costs. Since B2B e-commerce application
is poised for a spectacular growth, the role of market makers will be increasingly
felt. There will be wide scope for catering to either a vertical or a horizontal
market hub. The predominant forms the market makers take in B2B segment
include organizing auctions and reverse auctions, setting up exchanges and
product and service catalogue aggregation.
The third market structure will comprise the product/service providers (PSP)
dealing directly with their customers when it ultimately comes to the business
transaction. The suppliers will conduct their business with their partners directly
over the net. This will call for extensive customization of their information system
and business processes to accommodate customer requirements on line.
Notable examples in this category of market structure include companies such as
Amazon.com and Landsend.com in the B2C segment and companies such as
Cisco and Dell Computers in the B2Bsegment.
The emerging market structure indicates a few characteristics of the Internet
based ecommerce business applications. Firstly, each of these addresses a key
constituent of the business that is carried out over the net. Secondly, the three
market structures exist in both B2B and B2C segment. Thus they cover the
whole gamut of the Internet economy. Furthermore, there is a high level of
overlap and inter-dependency among the players in the three market structures.
For instance players in the PSP market will succeed in marketing their products
and services only when they catch the attention of prospective customers outside
their web site. In order to do this they may often need the support of a POR. As
we know, the revenue stream of a POR or a MMK depends to a large extent on
its relationship with PSP. Finally, since the fundamental purpose of the three
market structures are very different, one would expect different approaches to
the value that they offer to their business partners and customers and the
manner in which they organize their revenue stream.
Portals lay more emphasis on building a community of customers and channeling
the customer eyeball traffic. On the other hand, market makers are more
interested in building a community of both suppliers and buyers. Organizations in
the PSP market structure will however, focus more on building a community of
buyers. The other two dimensions are of less importance to this group. It will
therefore be interesting to understand how existing organizations in these
segments have carved out business models. We turn our attention to this aspect
by developing a notion of a business model.
Business Models for Internet based e-commerce
Understandably, for the sector of the industry that is hardly a decade old, a
formal definition of a business model is non-existent. There have been scanty
attempts in the past to formally define and classify business models in the
Internet context. In our understanding these attempts are neither complete nor
robust. However, we present a brief over view of these for the sake of
completeness.
Schlachter identified five possible revenue streams for a web site. These included
subscriptions, shopping mall operations, advertising, computer services and
ancillary business. The emphasis was to show how revenue models existing in
the brick and mortar scenario would be exploited in a web based business.
Fedwa identified seven revenue generating business models. In addition to the
revenue streams identified by Schlachter, Fedwa added timed usage and
sponsorship and public support as possible revenue sreams. Based on a
qualitative analysis of the Internet based models pertaining to grocery and
delivery of customer packages Parkinson stressed the role of business affinities
such as logistic providers in creating the value proposition.
These models were too narrow in their scope and do not cover the gamut of
alternatives employed by today's Internet-based businesses. Perhaps a better
description of the business model was provided by Timmers. Timmers identified
eleven business models that currently exist and classified them on the basis of
degree of innovation and functional integration required. These business models
describe a particular unique aspect of doing business over the net and ignore
other aspects. A good theory should ensure that the factors considered as part of
the explanation of the phenomena of interest should possess
comprehensiveness and parsimony. Previous attempts to define business
models for Internet based business do not satisfy these requirements. For
instance, the example of Amazon.com for building a virtual community does not
bring out another unique feature, viz., disintermediation of supply chain.
We argue that a business model is a unique blend of three streams that are
critical to the business. These include the value stream for the business partners
and the buyers, the revenue stream and the logistical stream. Value stream
identifies the value proposition for the buyers, sellers and the market makers and
portals in an Internet context. The revenue stream is a plan for assuring revenue
generation for the business and the logistical stream addresses various issues
related to the design of the supply chain for the business. The long-term viability
of a business largely stems from the robustness of the value stream.
Furthermore, the value stream in turn influences the revenue stream and choices
with respect to the logistical stream.
Value Streams in Internet Based Business
Often, buyers perceive value arising out of reduced product search cost and
transaction costs. Further the inherent benefits of the richness and reach of the
Internet provides an improvised shopping experience and convenience. It is not
uncommon for the buyers to have benefits that spill over to other domains. For
example, a market maker offering air line tickets may provide, in addition, hotel
and car rental services for the buyer when he purchases a ticket to her holiday
destination. Furthermore the buyer will also have access to the views of a
community of people who visited the same place previously at the same time of
the year. The value these online communities provide to buyers is hard to
replicate in the physical world.
Suppliers often perceive value arising out of reduction in customer search costs,
cost of product promotion, business transaction costs and lead time for business
transactions. These benefits are likely to be substantial in the B2B segment. For
instance, Siebel and House reported that car dealers spend on an average about
$ 25 to close business with a buyer referred by autobytel.com as opposed to
several hundreds of dollars in the brick and mortar operation. There is virtually
zero customer search costs in such referrals.
The introduction of a market maker or a portal is likely to increase the value for
both the buyers and the customers in addition to its own. This sets in a virtuous
cycle for all the three players. As more suppliers join in the market making
process, the buyers begin to see more choices for them. As more buyers join, the
suppliers will begin to experience the beneficial effects of a wide customer base
and lower customer search costs. The buyers themselves will benefit from the
growing community of buyers. Finally, both the buyers and the suppliers begin to
rely on the market maker/portal. This ensures a robust revenue stream for the
market maker/portal.
The above example shows that there is potential for identifying alternative value
streams based on the market structure in which the Internet based business is
set up. We identify four possible value streams in an Internet based business:
Virtual Communities (V1): Virtual communities offer a multitude of values to the
buyers, sellers and the market makers and portals. Communities have a
distinctive focus that brings together people with common interests.
Ethnicgrocer.com is a business venture that caters to the grocery requirements
of Asians and Hispanics. However, the community building effort extends beyond
just providing groceries. Hagel observed that it is extremely difficult to replicate
the value proposition of virtual communities because much of the value of these
communities is member generated. Moreover, communities induce a high
switching cost for the members of the community and thereby provide first mover
advantage for the organizations that host these communities.
Dramatic reduction in transaction costs (V2): An electronic market place is an
inter-organizational information system that allows a buyer or a seller, an
independent third party or a multi-firm consortium to exchange information about
prices and product offerings. Moreover the costs of product and price
comparisons become negligible. A major impact is that they typically reduce
search costs for both the buyers and the sellers. Bakos argued that as search
costs come down, the prices come down both in a commodity and in a
differentiated market. Furthermore, as more and more participate in this process,
the benefits increase due to what is known as network externalities in
economics18. This reduction in costs could form a value proposition in terms of
increased margin or lowering of product prices. The recent experiences of dot
coms in the B2C segment have adequately demonstrated this phenomenon.
However, the benefits of this value proposition are inversely proportional to the
number players conducting business online. As more and more competitors
switch to electronic markets, this will cease to differentiate between them.
Gainful exploitation of information asymmetry (V3): The effects of
asymmetric information on market equilibrium have been studied in a multitude of
economic situations and models proposed to address these issues. The models
can be differentiated as search models and bargaining models. These models
provide the basis for a role for intermediaries who seek to bring the price - quality
combinations close to informationally efficient combinations. Coupled with the
effect of network externalities, the ubiquitous nature of Internet business
operations have opened up new value streams that can exploit information
asymmetry existing in several business transactions.
In situations that involve numerous buyers of products and services spread over
large geographical area and sellers who have perishable products and services it
is possible to exploit the benefits of information economy into a value proposition.
In travel, hotel and tourism industry there are a variety of product offerings and
high levels of uncertainty of patronage. Since the services are perishable in
nature, it is possible to buy out these left over services at a competitive price and
re-sell it at a higher value. The sellers do not have perfect information on
demand. Similarly, the buyers do not have perfect information on the supply.
Therefore an intermediary can create value arising out of this information
asymmetry. Priceline.com is an illustrative example for such a value stream in a
B2C segment. Even in the case of non-perishable items, it is possible to exploit
the information asymmetry by the setting up online bids and reverse auctions.
In the B2B segment, information asymmetry often exists when there are several
potential suppliers for an industrial bid. By enabling an online real time bidding
and negotiation process it is possible to obtain substantial reductions in the final
bid value. An intermediary who enables this process usually creates a value
proposition and a revenue stream that is linked to the value of the reduction
obtained for the buyer. Free Markets Online Inc., a Pittsburgh based intermediary
is an example of this category.
Free Markets assists industrial buyers in posting requests for proposal (RFPs)
and holding Internet based reverse auctions for their products. By automating the
flow of information, a large number of suppliers can be effectively included in the
RFP process, resulting in more competition and lower costs for the buyer.
Value added market making process (V4): Our previous discussions on value
streams in the Internet context are sometimes augmented by some additional
value propositions. These could be the main value generating streams in some
cases. Security and Trust, for instance, are major concerns in Internet based e-
commerce. Hence, it is possible to invent a value proposition with this theme.
When the market maker vouchsafes the transactions that take place under its
domain it is a significant value to buyers and sellers. The seafood industry often
brings small buyers and sellers together who don't know each other. By providing
its trusted third party credit rating information, Seafax imparts to buyers and
sellers the confidence to trade with unknown trading partners, thereby improving
the market liquidity. A similar role in the B2C segment is played by ebay.
Providing financial instruments and establishing credible guarantee for the
transactions are potential application domains. In a similar fashion addressing
privacy and delivery reliability concerns will also have the potential for identifying
new value streams.
The quantum of transactions and the financial value are quite high in B2B
segment.
Moreover, the process of selling often involves a few third party service providers
such as logistics. Such applications offer more scope for creating these value
streams in B2B segment. The potential value propositions offered could include a
combination of several of the following:
Credit verification
Buying guides
Risk management
Procurement management
Quality Assurance
Order fulfillment
Credit verification
Security & Trust
Financial Instruments (Cyber Cash)
Escrow
The value streams identified above are not mutually exclusive. For instance,
organizations creating a value stream on the basis of online communities will
also be able to exploit the benefits of reduced transaction costs or some
additional value through providing enhanced security. However, we argue that
organizations often build their model on the basis of one dominant value stream.
The value derived from others is incidental and supplementary to the main value
stream.
Revenue Streams in Internet based Business
Value stream addresses the long-term sustainability of the business proposition
and often sets the context for identifying revenue streams for an organization.
The revenue steam is nothing but the realization of the value proposition in a
short-term, usually on a yearly basis. In addition to the traditional modes of
revenue generation, the Internet economy has allowed organizations to exploit
new revenue streams that are hard to replicate in a brick and mortar operation.
We discuss here six such revenue streams.
Increased margins over brick & mortar operation (R1): Internet based
businesses will invariably have increased margins on account of several factors.
As we have already pointed out, the prominent among them include reduction in
transaction costs and customer search costs. Furthermore, cost reduction could
also be achieved through dis-intermediation of the supply chain. The classic
example of amazon.com offering as much as 50% discount on New York Times
best sellers and 30% discount on other titles is a result of dis-intermediation of
the supply chain. The increase in margins on account of these could be further
compounded by an increase in sales turnover.
The cost reduction attained in this fashion is likely to be partly off set by the
additional costs incurred in hosting banner ads on other sites in order to funnel
customer attention into one's own web site. However, it appears that the net
effect of these is an increase in margins.
Revenue from online seller communities (R2): By providing free membership
market makers build a community of buyers and get access to a host of
information of their interest. It builds certain features that help buyers perceive
value in associating with the market maker. For instance, compare.com provides
a potential buyer of entertainment electronics such as camcorders with all
information on price, products and allows for a variety of comparisons. Over a
period of time, the market maker could induce high switching costs for the
buyers.
Similarly by promising an untapped source of buying community, they build a
community of suppliers. The suppliers experience a reduction in customer search
costs by entering into such markets. Once the community of suppliers and
buyers are in place, the market maker can build a revenue stream out of
charging the suppliers a one time membership fee and a variable transaction fee
linked to the quantum of business performed through the market maker. There
are several examples of these in both the B2C and B2B.
Advertising (R3): The ubiquitous nature of the Internet operations and the ability
of certain organizations to build a community of buyers have allowed these
organizations to look towards advertising as the main source of revenues. Portals
(including the search engines) and large community sites such as Yahoo, AOL,
MSN and Hotmail play a crucial role in funneling the customer eyeballs into the
target web sites. It is natural for these web sites to host banner ads and generate
huge revenue to support their operations.
Variable pricing strategies (R4): Organizations that are in the business of
selling electronically delivered products have unique characteristics of the
information economy to exploit. High initial cost and nearly zero marginal cost
often characterize information production and dissemination. Hence a pricing
scheme based on marginal costs is not applicable for this class of products.
However it is possible to use a range of alternatives involving variable pricing and
bundle and option pricing.
Different consumers have different valuations for one particular piece of
information indicating a different willingness to pay. Varian argued that if the
willingness to pay is correlated to some observable characteristics of the
consumers such as demographic profile, then it could be linked to the pricing
strategy. Student and University versions of software are examples of this
category. Another strategy could be bundling of goods to sell to a market with
heterogeneous willingness to pay.
Revenue streams linked to exploiting information asymmetry (R5): As we
have already pointed out, an intermediary exploiting the information asymmetry
between the buyer and the supplier generates a revenue stream often linked to
the quantum of savings accruing to the buyer. Several variations of the auction
formats are being used.
Free offerings (R6): The notion of providing free products and services is not a
recent phenomenon. During world war, Gillette was reported to have supplied US
marines with shaving razors with replaceable blades. Every user of such a razor
could potentially expand the market for blades later. The fundamental philosophy
behind free services has been one of giving away today's revenues in return for
assured future revenues. The case of Adobe Systems in giving away Acrobat
readers free exploits a similar idea. As more and more users read documents
with Acrobat readers, they feel the urge to create documents using Acrobat. They
will eventually end up buying the full version of Acrobat. In both the above cases,
the organizations gave away free only part of their product/services.
However, organizations such as Hotmail and Netscape identified several other
revenue streams arising out of totally giving away free products/services. In an
Internet context, the following exciting possibilities open up once an organization
adopts this aspect:
Free offerings dramatically catalyses the process of building a community
of consumers. When Hotmail provided free e-mail service, it built a huge
online community of consumers waiting to be channeled into a multitude
of web sites of products and services.
Such a large community attracts the attention of potential sellers of
products and services. The community of sellers will be willing to pay for
advertising.
If the organization decides to build a community of suppliers, the
suppliers will be willing to pay a membership fee and a variable
transaction fee.
Sometimes, the free option results in global spread of customers and
results in free customer feedback and product improvement initiatives.
The success of Netscape browser and the Linux operating system is
attributed to this phenomenon.
We believe that although the notion of free offerings as a revenue stream sounds
paradoxical it is by far radical. Moreover, it has numerous spin-offs leading to
other revenue streams as we have demonstrated. We would expect this to
occupy a central role in providing a formidable revenue stream as it has the first
mover advantage.
Logistic Streams for Internet Based Business
The Internet economy allows an organization to position itself at an appropriate
level of the supply chain depending on the nature of its business. Three
distinctive logistical streams exist in the Internet economy and all the three
streams have evolved out of the need for creating the maximum value for the
customers. Dis-intermediation is the process by which the logistical stream is
shortened leading to better responsiveness and lower costs. On the other hand,
Internet based business also calls for new forms of intermediation. Infomediaries
and meta-mediaries seek to add value to the logistical stream by addressing
certain problems arising out of information overload and transaction cost
inefficiencies.
Dis-intermediation (L1): Due to the nature of certain products and services
offered, Internet has made it possible to shrink the supply chain by a process of
dis-intermediation. Consequently, transaction costs have reduced and
responsiveness to customer requirements has improved considerably. These
improvements often lead to price reduction and or increased margin and sales
turnover. The success of Amazon.com over Barnes & Nobles and that of Encarta
over Encyclopedia Britannica have adequately demonstrated the benefits of this
logistical stream. In the B2B segment, the success of Dell Computers and that of
Cisco are largely attributed to this phenomenon. The success of companies
selling information data bases consisting of a large number of journals in
electronic form in bringing down the cost of maintaining libraries is also related to
this phenomenon.
Infomediation (L2): In the market for information the number of sources and
suppliers of information as well as the amount of information is much higher than
a single information seeker can handle. This is primarily due to a spectacular
growth of Internet sites. Individual information seekers can not contact every
possible source of information, nor can they estimate the accuracy and true value
of the information offered. This has necessitated a crucial role for an intermediary
to address information requirements of the users. This often involves storage and
dissemination of meta-information, for example, references to information
concerning a particular topic. Examples of information intermediaries offering this
meta-information as a service in Internet based business are primarily portals
comprising of search engines and electronic product catalogue aggregators.
Hagel and Rayport argued that infomediaries in the future would act as
custodians, agents and brokers of customer information and market it to
businesses on customers' behalf while protecting their privacy at the same time.
Meta-mediation (L3): Metamediation is a process that goes beyond aggregating
vendors and products and includes additional services required for facilitating
transactions. Certain markets (in the B2B segment) are characterized by
fragmented supply chain leading to high vendor search costs, high information
search costs, high product comparison costs, large market size and huge work
flow costs. Under these conditions, meta-mediation will add value to the buyers,
sellers and the intermediary.
It may be noted that our classification of the emerging market structure closely
follows that of the above logistical streams. The Portals utilize the infomediation
stream and the market makers utilize the meta-mediation stream. Some players
in PSP will be able to exploit the dis-intermediation stream for their business
model.
Towards an Appropriate Business Model
The alternatives that we have presented under each stream merely indicate the
possible options available to an organization. However, the process of arriving at
an appropriate business model involves picking up the right mix of alternatives. A
few aspects that are peculiar to its business often guide an organization. In
particular the following factors have a bearing on the choice of the business
model:
Assumed role in the market structure:
Organizations will be able to narrow down their choices by an understanding of
the role that they play in the Internet economy. For instance, the logistical stream
sharply divides the three market structures. Similarly, while a market maker will
be able to utilize all the four value streams, streams such as reducing transaction
costs and exploiting information asymmetry are not of much use to a portal.
The information presented in the table is a useful beginning to the process of
arriving at an appropriate business model. However, it is abstract and can at best
offer some broad guidelines. Within each market structure there are significant
variations in the nature of the activities that organizations perform. For instance,
the PSP segment includes organizations such as Amazon.com, which sells
books and music and furniture manufacturers such as Ethen Allen. Can Ethen
Allen replicate the disintermediation model of Amazon and hope to achieve the
same degree of success? Perhaps the answer is no. There are significant
aspects that ultimately influence an organization towards its choice of an
appropriate business model. This leads us to other factors.
Physical attributes of the goods traded:
Goods traded over the net could be either informational goods (soft goods, that
could be transported electronically) or physical goods (hard goods that need
physical transportation by a logistics provider). This differentiation influences the
choice of an appropriate revenue stream. For instance, variable pricing
strategies, free offerings, and a combination of a one time fee and a variable
transaction based fee are potential options for organizations trading soft goods.
Organizations trading hard goods will often have to resort to unique options that
provides increased margins and/or premium over the brick and mortar
operations. In the case of other organizations engaged in providing a variety of
services for Internet based businesses it is possible to employ a combination of
the proposed revenue streams.
The choices with respect to logistical streams are obvious for an organization
trading soft goods. Such organizations will eventually gravitate towards dis-
intermediation. However, in the case of hard goods there are other factors that
govern an appropriate choice of the logistical stream.
Personal involvement required in buying - selling process:
The choice of the logistical stream for hard goods is significantly affected by this
factor. Goods traded over the net broadly fall into two categories: experience
goods and economy goods. Experience goods require greater personal
involvement in the buying process. This could be in the form of making an
assessment of the suitability of the buy by physically handling and examining the
good to be purchased. Attributes such as color, texture and the experience of
using it on a test basis are crucial determinants of the buying decision. Dis-
intermediation of the supply chain is a risky strategy for such goods. On the other
hand, the use of infomediaries and metamediaries will greatly enhance the value
by facilitating the process. Moreover they can also play a significant role in
reducing search costs and transaction cost inefficiencies.
A case in point is the role played by Autobytel.com, a portal that assists potential
buyers of automobiles. A potential buyer uses Autobytel in three ways. Initially,
the buyer understands the options available for her and the comparative aspects
of one manufacturer/model over the other. This drastically reduces the product
search costs for the buyer. In the second stage, the nearest dealer who is an
affiliate of Autobytel contacts the buyer. The dealer helps the buyer in
discovering her experience of using a vehicle. Once the buyer makes up her
mind, she returns to Autobytel for price and loan negotiations. The customer
search costs are drastically reduced for the dealer and the buyer gets better price
as a result of this process.
On the other hand, economy goods are ideal candidates for dis-intermediation.
The driving force in this case is to reduce the costs by eliminating portions of the
value chain that do not seem to add any value. Many goods traded in the B2B
segment will fall in this category.
Conclusions
The unprecedented growth in Internet based business in a short period of time
has underscored the need for understanding the mechanisms and theorizing the
business models adopted by successful organizations. We have begun this
process by providing a framework to understand how business models are
designed for organizations comprising the Internet economy. The process has
one been of making certain empirical generalizations. However, it allows for
theory building in several ways. For instance, it is possible to develop several
propositions and constructs using this framework for further empirical testing.
These could relate to the market structure, the three streams or the specifics of
the business as applicable to this framework.
Specifically, we envisage more efforts in empirically verifying our framework and
the variables constituting the business model. We propose that a deeper
understanding of the relationship between the market structure and the choice of
the business model be investigated by specific case studies. Furthermore, it will
be a useful addition to the theory if we could establish the variables that drive
organizations to specific choices in the three streams over the other.
Ecommerce Strategies
Ecommerce Strategies provides performance-based online marketing services
and technologies for leading multi-channel marketers. Clients benefit from
Ecommerce Strategies custom approach to online marketing and lead generation
programs. Ecommerce Strategies proprietary tracking and reporting technology
platform, advanced market expertise, and active account management enable
clients to acquire and reacquire online customers.
Most importantly, advertisers and publishers alike work intimately with
Ecommerce Strategies to obtain the best results for all those involved. Past
history proves the most effective customer acquisition campaigns are achieved
by companies who can bridge the gap between advertisers and publishers with a
common goal, and Ecommerce Strategies is the unchallenged leader in
accomplishing this.
No one leverages the power of digital marketing services and technologies to
drive measurable results for our clients like Ecommerce Strategies.
Ecommerce strategies are plan intended to increase the ecommerce trade
mechanism and implement this strategy to all sectors of the business. Since
internet is the fastest growing mechanism of the world more companies are using
e-commerce for trade and selling purposes. The ecommerce mechanism has
developed it self as a powerful business. There are several online businesses
that are making use of ecommerce to increase their income and earn profits.
However several e-commerce strategies should be deployed to ensure this
mechanism is used properly and bring the desire result to the business:
The foremost ecommerce strategy is to implement a proper secure
ecommerce website. The best way to achieve this is to protect the websites
with security protocols and digital certificates. More clients are attracted to
ecommerce sites which provide the best security and transaction
mechanism. Getting ecommerce web site certified from the leading online
security agencies is also a good way to promote ecommerce and provide the
mechanism more authenticity and credibility.
To ensure that the ecommerce operational specifications are carried out
promptly tables and data bases are developed using strong programming
skills which list down all the data entry in a queue. Maintaining the record of
all the transactions which are carried out using the ecommerce mechanism
help the system to keep track of all the details in a more convenient and
timely manner.
The ecommerce site design also play a great role in its effectiveness. The
user interface of such sites are specially design to be user friendly and easily
operational by the clients so that they can make the online purchase more
easily and in a manner which is very open and clear to the clients.
Ecommerce strategies are built to address customers' issues. All the
factors that could enhance the point of view of online clients are incorporated
in ecommerce's web designs. The major contribution to ecommerce is
achieved by the involvement of the online clients therefore their comfort and
ease is kept in mind while building and promoting ecommerce.
The basic strategy of ecommerce is to categorize it to a specific trade. It is
not feasible to use the same mechanism for different trade mechanism as it
may impose complexity issues. Therefore for a particular trade a separate
ecommerce forum is created and deployed.
To bring in more customers it is very necessary that the websites through
which the ecommerce is being operated is eye-catching and attracts the
clients. A strategy deployed to expand ecommerce includes providing
additional features to the customers online such as free consultancy
information on various products etc.
Another strategy is to introduce eye-catching shopping carts as the feature
of the ecommerce internet trade mechanism. Shopping carts are particularly
designed software that is used in ecommerce to improve a customer online
shopping practice. This software keeps the track of customer's orders and
upholds tables and queues keeping the documentation of the orders.
Successful E-Commerce Strategies
By harnessing the power of the worldwide web, small businesses are now able to
reach beyond local markets to sell their products to customers around the world.
But just like your local market, the world of e-commerce is highly competitive. To
be successful you’re going to need to stay one step ahead of the competition.
Here are some strategies that will help you gain – and maintain – a competitive
advantage over your very real competitors in the virtual world of e-commerce.
Develop a Highly Quality Virtual Catalog:
To truly succeed in e-commerce, you’ll need to invest in the development of a
first-rate virtual catalog. Similar to a mail catalog, a virtual catalog displays
photos and information about your products, and provides a method for
customers to place orders. But instead of sending the catalog to the customer,
the customer comes to the catalog by visiting your company’s website.
Virtual catalogs have a number of distinct advantages over traditional mailed
ones. The nature of a website makes it easier to display your product in a variety
of options and to include additional product information that there may not be
room for in a mail catalog. Also, unlike a mail catalog, virtual catalogs can be
easily changed to add or remove products and to update product availability
information.
Having a poorly constructed virtual catalog can sometimes be worse than having
no catalog at all. Since creating quality internet catalogs requires a certain
amount of expertise, you should probably outsource this task to a dependable
web designer.
Advertise on Search Engines:
Your website and virtual catalog will only be as effective as the amount of traffic
(potential customers) that visits the site. To increase traffic, you’ll need to explore
the possibility of advertising on search engines, e.g. Google and Yahoo.
Most search engines sell space for ads that will appear alongside or around the
list of websites that appear when an internet surfer types in a set of search
words. Under the right conditions, these ads can be a great way to direct people
who may already have an interest in your product to your website.
Negotiate Links with Other Websites:
Another way to increase traffic is to negotiate links to your site with other high
traffic websites. For either a fee or a reciprocal linking agreement, other
companies may be willing to include an ad for your business on their website.
While it’s highly unlikely that you’ll convince the competition to participate in this
kind of arrangement, it is very possible to negotiate links with companies that sell
complementary or non-competing products.
Another benefit of links: One of the variables most search engines use to rank
websites is the number of links that exist to your site from other sites. The more
links there are to your website, the more likely it is that your site will appear
ahead of the competition in keyword search.
Business To Business Ecommerce Strategies for Growth
Business to business ecommerce is the area of business where the gains and
profits are much more rewarding due to the fact that you work directly with a
company in order to service that business. The advantage of providing great
business service while virtually going across the globe has become more reputed
because of business to business ecommerce. Listed below are 5 strategies to
accelerate business to business ecommerce growth.
The first step or strategy you must implement into your business is to have
a web platform or property to project and brand your business image from.
In other words, utilize a web site and a blog to attain that promotional
platform.
The second thing you must do in order to foster business to business
ecommerce growth, is to make sure your business content flows within the
guidelines and rules of the search engines. This will assist you in receiving
a good search engine ranking for your business.
The third step, which is really a priority, is to determine what type of
service or services that you want to provide for other businesses. Do your
research and gather information about business to business services that
you can provide. If you have knowledge in search engine optimization, you
can provide that service for companies. If you have a decent technical
background, you can offer the service of providing technical support for a
company’s website.
The fourth step, which is really an alternative for the third step, is to see if
you can come up with a special product or tool that will be of great use to
a business or company. You can have companies purchase this business
to business ecommerce software or tool from you in order to optimize their
business process.
The fifth and final step is to aggressively market your business to business
ecommerce service. Your goal in this step is to make your company as
visible as you can to its target client base. You must make use of the
search engines, rss feeds, pod casts, and articles in order to really get
your business out there.
Developing a Winning Ecommerce Strategy
One bright spot on the economic horizons around the world seems to be
continued consumer spending and ecommerce is clearly a part of this, with sales
estimated to be in excess of $9.9 Billion in the next three months according to
ACNielsen. But, there is a dark cloud hovering over this sunny ecommerce
landscape called poor web site design. Let’s explore some of the reasons why
consumers are not reaching for their credit cards after perusing an ecommerce
web site.
There is a huge knowledge gap about how the web is really driving online and
offline commerce. A recent e-Commerce Pulse survey of more than 33,000
surfers conducted by Nielsen/Net ratings and Harris Interactive indicates
ecommerce sites are driving more purchases offline (phone, catalogue, retail
store sales) than online. Many consumers are using the web to effortlessly
compare features and pricing – then, calling the company or visiting their local
retail store to make a purchase. Clearly many companies need to factor this
information in when analyzing their online and offline marketing expenditures and
related ROI.
According to a recent Zona Research and Keynote Systems Report released
earlier this summer over $25 Billion (USD) was lost in ecommerce due to users
abandoning the web site prior to a purchase being made or during the process.
The users just gave up because the load times (the amount of time it takes a
page to be displayed in a browser) were painfully slow. Today’s online shoppers
aren’t a real patient group, they want information presented in 12-18 seconds, or
they are off to another site that works
Unfortunately many firms have allocated a disproportionate amount of resources
for advertising and not enough on good web site design and back end
infrastructure. It’s critical to make the market aware of a site, but if the potential
customers are not presented with the right navigation and menus (read
information architecture) they will not buy. Case in point, according to recent
Dataquest surveys (and others) between 20-40% of most users don’t purchase
because they can’t figure out how to easily move around the web site.
Many firms fail to properly integrate their ecommerce components with the
overall site design. The in-house developers or outside design firm concentrate
on the sexy parts of the web site design process (the graphics, branding, look
and feel) and only focus on the ecommerce process after the primary web site
design is completed – making ecommerce an afterthought.
A large number of ecommerce web sites don’t even list a phone number,
arbitrarily forcing people to contact the company electronically – this is a real
problem, as many people don’t want to use e-mail or forms as their primary
means of communicating, they want the immediacy of the telephone.
It’s very surprising, but approx 30% of ecommerce sites don’t have a search
capability that actually works – in many cases it just returns gobblygook. This is a
real irritant for many online shoppers who want to find goods and services quickly
and efficiently – the need for speed should be the ecommerce merchants
marketing mantra and a good search capability gives users a way to quickly find
products.
One of the most important parts of any web site is the home or index page, as it
aggregates the design elements and information architecture. So many index
page are cluttered and poorly designed, loaded with poor graphics, bad menu
structures, oddball words or my absolute least favorite, 30-60 second Flash
animation sequences which force the user to sit and stare at a blank screen while
the animation loads.
Privacy statements are about as exciting as filing taxes (unless you know your
getting a refund) – they are out of necessity filled with legal terminology that
needs to be addressed succinctly and in a way that makes a consumer feel
comfortable about doing business with an ecommerce web site. Unfortunately,
many ecommerce web site privacy statements look like an afterthought, or, are
so “attorney driven” (three pages – who has time to read this?) people are turned
off by them. It’s very important that a privacy statement be a compromise doc
brokered between legal and marketing.
Supply Chain Management and e-Commerce
Supply chain management (SCM) is the management of a network of
interconnected businesses involved in the ultimate provision of product and
service packages required by end customers (Harland, 1996). Supply Chain
Management spans all movement and storage of raw materials, work-in-process
inventory, and finished goods from point-of-origin to point-of-consumption (supply
chain).
Impact of E-Commerce on Supply Chain Management
A production supply chain refers to the flow of physical goods and associated
information from the source to the consumer. Key supply chain activities include:
Production planning
Purchasing
Materials management
Distribution
Customer service
Sales forecasting
These processes are critical to the success of any operation whether they’re
manufacturers, wholesalers, or service providers.
Electronic commerce and the Internet are fundamentally changing the nature of
supply chains, and redefining how consumers learn about, select, purchase, and
use products and services. The result has been the emergence of new business-
to business supply chains that are consumer-focused rather than product-
focused. They also provide customized products and services.
E-commerce impacts supply chain management in a variety of keyways. These
include:
Cost efficiency: E-commerce allows transportation companies of all sizes
to exchange cargo documents electronically over the Internet. E-
commerce enables shippers, freight forwarders and trucking firms to
streamline document handling without the monetary and time investment
required by the traditional document delivery systems.
By using e-commerce, companies can reduce costs, improve data
accuracy, streamline business processes, accelerate business cycles, and
enhance customer service. Ocean carriers and their trading partners can
exchange bill of lading instructions, freight invoices, container status
messages, motor carrier shipment instructions, and other documents with
increased accuracy and efficiency by eliminating the need to re-key or
reformat documents. The only tools needed to take advantage of this
solution are a personal computer and an Internet browser.
Changes in the distribution system: E-commerce will give businesses
more flexibility in managing the increasingly complex movement of
products and information between businesses, their suppliers and
customers. E-commerce will close the link between customers and
distribution centers. Customers can manage the increasingly complex
movement of products and information through the supply chain.
Customer orientation: E-commerce is a vital link in the support of
logistics and transportation services for both internal and external
customers. E-commerce will help companies deliver better services to
their customers, accelerate the growth of the e-commerce initiatives that
are critical to their business, and lower their operating costs. Using the
Internet for e-commerce will allow customers to access rate information,
place delivery orders, track shipments and pay freight bills.
E-commerce makes it easier for customers to do business with companies:
Anything that simplifies the process of arranging transportation services will help
build companies' business and enhance shareholder value. By making more
information available about the commercial side of companies, businesses will
make their web site a place where customers will not only get detailed
information about the services the company offers, but also where they can
actually conduct business with the company.
Ultimately, web sites can provide a universal, self-service system for customers.
Shippers can order any service and access the information they need to conduct
business with transportation companies exclusively online. E-commerce
functions are taking companies a substantial step forward by providing
customers with a faster and easier way to do business with them.
Shipment tracking: E-commerce will allow users to establish an
account and obtain real-time information about cargo shipments. They
may also create and submit bills of lading, place a cargo order, analyze
charges, submit a freight claim, and carry out many other functions. In
addition, e-commerce allows customers to track shipments down to the
individual product and perform other supply chain management and
decision support functions. The application uses encryption technology
to secure business transactions.
Shipping notice: E-commerce can help automate the receiving
process by electronically transmitting a packing list ahead of the
shipment. It also allows companies to record the relevant details of
each pallet, parcel, and item being shipped.
Freight auditing: This will ensure that each freight bill is efficiently
reviewed for accuracy. The result is a greatly reduced risk of
overpayment, and the elimination of countless hours of paperwork, or
the need for a third-party auditing firm. By intercepting duplicate billings
and incorrect charges, a significant percent of shipping costs will be
recovered. In addition, carrier comparison and assignment allows for
instant access to a database containing the latest rates, discounts, and
allowances for most major carriers, thus eliminating the need for
unwieldy charts and tables.
Shipping Documentation and Labeling: There will be less need for
manual intervention because standard bills of lading, shipping labels,
and carrier manifests will be automatically produced; this includes even
the specialized export documentation required for overseas shipments.
Paperwork is significantly reduced and the shipping department will
therefore be more efficient.
Online Shipping Inquiry: This gives instant shipping information
access to anyone in the company, from any location. Parcel shipments
can be tracked and proof of delivery quickly confirmed. A customer's
transportation costs and performance can be analyzed, thus helping
the customer negotiate rates and improve service.
The Role of Supply-Chain Management in E-commerce
E-commerce does not just mean trading and shopping on the Internet. It means
business efficiency at all operation levels. Executives know it is critical to
effective business operations, but until now quantifiable performance measures
have been as scarce as the number of corporate executives of China who heard
of the phrase "supply chain management" (SCM). Supply Chain Management
means coordinating, scheduling and controlling procurement, production,
inventories and deliveries of products and services to customers. The SCM is the
backbone of Ecommerce, a very critical component of E-commerce. Supply
Chain Efficiency means having the right product at the right place at the right
time, can save money/reduce costs, and can enhance cash utilization. A
significant number of companies in the United States have implemented their
Internet platform for Supply Chain Efficiency in the past 2 to 3 years, and the
large of them will follow in the next few years. We will briefly review how the SCM
can bring the benefits to the western corporations and Chinese corporations.
Some case studies and B2B standard proposal will be presented to illustrate the
benefits and bottleneck of E-commerce implementation in China.
Competition in the 21st century will be across supply chains, not individual
companies. A supply chain is a network of facilities and distribution options for
the entire network of companies to work together to design, produce, deliver, and
service products. Since its inception about 10 years ago, the field of supply chain
management has become tremendously important to companies in an
increasingly competitive global marketplace.
People are a kind of forgetting what efficiency and tools mean for the past
industrialization process. Tools or automation have played a significant role in
production quality and efficiency. Modern transportation tools have advanced
delivery efficiency in a tremendous way. Money as a financial instrument is an
obvious tool to facilitate product exchange efficiency. How does Internet help to
transform and shape today’s companies in this information era? The answer is
“e-business”. E-business infrastructure is an information tool for optimizing the
entire business management and operation processes. In his article, “Executive
Overview: Managing Real World B2B Integration”, Peter Linkin, a senior
manager of product marketing of Vitria Corporation stated what is required in
order to gain full benefit from e-business as follows:
Integrated, automatic system-to-system interaction with all trading
partners
The ability to integrate those interactions seamlessly with your in-house
applications and processes to provide true end-to-end visibility and control
Accommodation of the individual nuances of each partner's mode of
interaction
A high-quality and reliable means of exchanging messages over the
Internet, which provides business-level guarantees of delivery and
integrity
Intelligent management of those interactions, allowing control and ability to
change them dynamically
The ability to adapt to change, by quickly and easily locating new services
or partners, learning their specific capabilities, and forming a rapid
"electronic bond" with them.
In a simple phrase, an integrated supply chain management (SCM) system is the
backbone to achieve the above e-business objectives. Although the phrase
“SCM” conjures up different meanings to different people but one fact is clear:
businesses have been striving to achieve efficiency in their "sourcing," "making"
and "delivering" for nearly 20 years, according to Bill Hakanson from the Supply-
Chain Council organization. He also gave a couple of definitions of SCM as
follows when he gave a brief description of Supply-Chain Operations Reference-
model proposed by the organization: “Supply Chain means all inter-linked
resources and activities needed to create and deliver products and services to
customers. In the truest sense, the supply-chain spans from the point where
natural resources are removed from the earth to the point where they are
replaced in the earth: "from dirt to dirt." Supply Chain Management means
coordinating, scheduling and controlling procurement, production, inventories
and deliveries of products and services to customers. Supply Chain Management
includes all the steps you do everyday in your administration, operations,
logistics, and information processing from your customers to suppliers.”
Supply Chain Efficiency can improve customer service - having the right product
at the right place at the right time. Supply Chain Efficiency can save
money/reduce costs.
E-Commerce will transform Supply Change Management
In the early 1980s, IBM faced a critical problem. The company had installed
its mainframe computers at customers’ facilities all over the world, and it
needed to manage its inventory of computer parts in a way that would let
engineers fix malfunctioning machines as rapidly as possible. That was a
mind-boggling logistical exercise. It involved hundreds of thousands of parts
stocked in thousands of locations worldwide.
Even as IBM executives wrestled with the issue, Morris Cohen, a Wharton
professor of operations and information management, stepped up to help. As
the principal scientist working on the problem, he and a group of colleagues
from Wharton helped IBM develop Optimizer, a decision-support system that
let the computer giant map out a global parts supply chain. Result: IBM was
able to cut inventory investment by $250 million, while reducing annual
operating costs by 10% and increasing the level of customer service.
IBM was hardly an isolated case. During the past two decades or more, Cohen
has continued to study how companies use supply chains to support after-sales
service operations in industries ranging from computers to automobiles. In the
process, he says, he has learned fundamental lessons about the way such
supply chains should be set up and managed. Among them: It would be a
mistake for a company to set up a parts supply chain in the same way that it
does its production supply chain. "These logistics problems are very different
than planning production," Cohen explains.
"They are like high-stakes gambling problems, or like portfolio management
problems. You have to solve them by understanding the risk tradeoffs involved."
What exactly does that mean for companies? According to Cohen, one
implication is that parts supply chains must be designed in a way that takes into
account the criticality of a company’s products, and the cost to the consumer if
the product fails. Consider, for example, a component in a computer system
used by air traffic controllers. If the air-traffic control system were to go on the
blink, the results could be devastating. Ideally, the system should be repaired in
minutes, if not seconds. Similarly, a stalled machine in a semiconductor
fabrication plant could bring the entire manufacturing process to a standstill.
Cohen explains that components for such critical products or services must be
served by supply chains that differ dramatically from parts supply chains for
non-critical products. Example: if a home hair dryer doesn’t work, the worst
result for the user would probably be a bad hair day.
Another key issue, according to Cohen, is determining the locations in the
supply chain where a company should stock the parts. Should parts be stocked
in a centralized fashion—say, a single warehouse or a small number of central
warehouses? Or should the company have a far-flung network with multiple
stocking points? The answer, Cohen notes, depends on the criticality factor. In
the case of computer systems for air traffic controllers, it makes sense to have
critical components stocked over a wide network, so that plenty of points in the
supply chain can back up one another when the parts are urgently needed. In
contrast, a busted hair dryer could probably wait an extra day for parts to be
shipped from a distant central warehouse or disposed of altogether by providing
the customer with a replacement product
Cohen, who has overseen research by several Ph.D. students over the years
on such issues, developed many of these principles while studying parts
availability in the automobile industry. Between 1985 and 1987, Cohen and his
colleagues worked with General Motors to study the company’s parts supply
chain network—at a time when the company was setting up Saturn as an
independent firm. Cohen says that many of the recommendations that he and
his colleagues made showed up as part of Saturn’s service-support system.
Today Saturn has the highest off-the-shelf availability rate for parts of any car
maker, according to Parts Monitor, a trade publication. In a paper published this
year in the Sloan Management Review, Cohen and three colleagues—two of
whom worked for GM and Saturn—point out that Saturn’s performance was
based on two key factors: Matching the company’s supply chain strategy to the
criticality of its customers’ needs, and involving dealers (or "retailers") in its
supply chain strategy.
Where is parts supply-chain management headed in the future? Cohen believes
that with the coming of e-commerce, the field is moving towards a revolution.
The main reason is that "technology has reached a point where large-scale
optimization has become possible in real time," Cohen says. As a result of the
Internet, it has now become possible for companies to create vast networks
connecting their operations with those of their suppliers and customers. In the
past, the hurdles to setting up such networks were so enormous that companies
developed their own proprietary supply chains at enormous costs in time and
money. As web-based technology takes off, however, the process of setting up
such supply chains will become both faster and less expensive.
Cohen believes that it is now possible for him to commercialize some of his
research. With a view to doing that he last year launched MCA Solutions, an
application service provider that offers supply chain services to clients.
According to William C. Ross, the company’s director of software engineering,
the company’s products give users a global bird’s eye view of optimal inventory.
In a recent article written for the Financial Times Mastering Management series,
Cohen and Vipul Agrawal, chief operating officer of MCA Solutions and a former
professor at the Stern business school in New York City, explain how e-
commerce will transform supply-chain management. Cohen and Agrawal
believe that as companies’ access to sources of supply increases as a result of
web-based exchanges, "the dream of always providing the right product to the
right customer at the right time and place and at the right price will very likely
become a reality."
A good example of a company that is using the Internet to manage its supply
chain is Dell Computer. According to Cohen and Agrawal, the company’s web
site allows customers to specify the configurations of their computers. This
means that Dell can procure and assemble components at lower cost and with
shorter lead times. Dell’s supplier network can provide components to the
company’s assembly plant in Austin within hours of an order being placed.
Dell’s sales over the Internet now amount to more than $30 million a day.
Over time, more companies will migrate to such web-based supply chain
management systems. This may not happen as rapidly as some people hope,
considering the setbacks this year to the Internet economy, but the supply chain
revolution is on its way—and there’s no turning back.
Marketing Strategies and E-Commerce
A marketing strategy serves as the foundation of a marketing plan. A marketing
plan contains a list of specific actions required to successfully implement a
specific marketing strategy. An example of marketing strategy is as follows: "Use
a low cost product to attract consumers. Once our organization, via our low cost
product, has established a relationship with consumers, our organization will sell
additional, higher-margin products and services that enhance the consumer's
interaction with the low-cost product or service."
A strategy is different than a tactic. While it is possible to write a tactical
marketing plan without a sound, well-considered strategy, it is not recommended.
Without a sound marketing strategy, a marketing plan has no foundation.
Marketing strategies serve as the fundamental underpinning of marketing plans
designed to reach marketing objectives. It is important that these objectives have
measurable results.
A good marketing strategy should integrate an organization's marketing goals,
policies, and action sequences (tactics) into a cohesive whole. The objective of a
marketing strategy is to provide a foundation from which a tactical plan is
developed. This allows the organization to carry out its mission effectively and
efficiently.
A marketing strategy is a process that can allow an organization to concentrate
its limited resources on the greatest opportunities to increase sales and achieve
a sustainable competitive advantage. A marketing strategy should be centered
around the key concept that customer satisfaction is the main goal.
Marketing Strategy and E-Commerce Introduction
With the rapidly advancing technologies that are occurring in modern business,
organizations are required to be ready, and able to adapt within their ever-
changing environment. It is true across all diverse industries that in order to stay
competitive, organizations must be able to utilize the various tools that
technology has to offer. Technological factors have been of growing
importance, particularly in recent years. A major factor involved in these
technology issues is the use of the Internet as a major issue to modern
organizations. The Internet has been rapidly growing since its inception and is
now commonly used in all sectors of societies, in all corners of the globe. The
Internet has quickly become one of the most valuable assets in modern
technology, and as such, is developing as an integral part of modern
commerce. As with past technologies, the Internet will have future technological
advances develop from its own growth. The task the organizations of in the new
century? Realized future opportunities and threats, and base a strategy
accordingly. Is it cliché to say that 'the Internet changes everything': the
challenge now is to say what, how and how
quickly?
The Internet has lead to the birth and evolution of electronic commerce or E-
commerce. E-commerce has now become a key component of many
organizations in the daily running of their business. Simply defined, electronic
commerce is a system of online shopping and information retrieval accessed
through networks of personal computers. E-commerce challenges traditional
organisational practices, and opens ups a vast array of issues that the
organizations must address. By focusing on the varying levels of an
organisation, it soon become apparent the effects that E-commerce can have.
An understanding of the implication E-commerce has on such organisational
divisions can help businesses gain understanding hence plan for it's inevitable
continuing evolution. In terms of marketing, the modern organisation must be
critically aware of the development of E-commerce, and the implications that it
entails. Marketers develop their own recipe of promotional tactics to fit the
product lines or industries in which they compete. Now electronic
communications tools are and will continue to be an important ingredient in the
promotional mix.
In assessing the implications of E-commerce in terms of marketing, it is
important to understand its impact in respect to marketing strategy formulation.
As the Internet, and in turn E-commerce has developed, and continues to
evolve and grow, it is vital that any organisation, in any particular industry, must
base it's strategic planning around such a rapidly growing medium. The growth
of the Internet is an environmental influence that must be embraced and
understood so to successfully plan for future marketing implementation. In order
to successful realise the impact that E-commerce has in terms of marketing, it is
important to break the area of interest into some key areas. As most of the
issues that arise in terms of E-commerce represent organizations entering the
environment, it seems natural to base discussion around this. Therefore, the
bulk of the literature review relates existing organizations entering into the E-
commerce market environment.
In successfully identifying the relationship between E-commerce and strategy,
the issues are categorized as follows:
1. Strategic analysis · Understanding the environment 2. Identifying the
strategic options/SWOT analysis · Strategic Advantages/Disadvantages ·
Advertising · Electronic cost cutting/publishing/Process 3. Corporate level,
Business level, d Marketing level 4. Retailing in E-commerce · Implementation
Issues · Financial · Performance monitoring 5. Conclusion · Based on current
knowledge state.
To gain a clearer understanding of the implication of E-Commerce in the
formulation of marketing strategy, it is imperative to gain a clear understanding
of the environment and its relevant effects. This helps in understanding the
rationale in a developing marketing strategy, particularly the influences of E-
Commerce on its make-up. The next crucial element is to gain an
understanding of E-commerce itself, as well as the current and possible future
developments. In understanding E-commerce's impact on strategic foundations,
an organization’s strategies can be more clearly focused. Once the organization
and E-commerce's respective environments are clear it is then possible to
understand E-commerce's implications in regards to fundamental marketing
strategies. By focusing on tools such as the competitive strategy framework we
can gain a better understanding of strategy formulation. By now it is easy to link
E-commerce ideals directly into the strategic planning sequence, and hence
understand its impact to the marketer.
By reviewing these traditional marketing theories and practices, it's possible to
see where, if at all E-commerce fit into current frameworks. This will provide
relevant conclusions that can be made based on the strategic implications of E-
commerce, and it's attributes in the marketing process. In doing so, this adds a
vital dimension to the marketer in an ever-growing technology based society, of
which must be clearly understood.
Strategic analysis - Understanding the Environment
In order to gain an understanding of E-commerce's impact to the modern
organization it is imperative that the environmental issues are analyzed and
understood. The understanding of the environment in which an organization is
involved is a fundamental element of its strategic plan. In order to be successful
in any industry the organization must have a sound understanding of influences
that effect its product or service offer. When conducting an environmental
analysis in regards to the Internet, it may seem that many of its attributes are
present in traditional consumer markets. However, E-commerce provides
organizations with a unique medium to analyze, requiring information relating
specifically to it's environment. E-commerce ideals place particular emphasis on
environmental factors, due to the high rate of change and development it
constantly undergoes. An understanding of both environmental influence on the
Internet and E-commerce, and that of a particular organization is imperative
basing any strategic formulation.
Strauss, J. Frost, R. (1999) includes these macro and micro environmental
factor as key issues, and they are extremely useful in constructing a basic for
strategic planning.
Macro Environment Technology: Obviously technology is a key
environmental issues that must be addressed when analyzing and understand
E-commerce. Technology is ever-changing, and as such E-commerce is
absolutely influenced by it's evolution. Rapid changes in recent technological
advances have bought about the Internet and in turn E-commerce, and such
dramatic evolution is likely to continue. In terms of strategic formulation,
technology is a huge issue that any organization must be aware of when
realizing E-commerce’s strategic implications. For example, an organization
thinking of developing a Web site must be strongly aware of technological
issues that pertain to such initiations. The decision to develop a web-site
internally or externally would be a key issue for any organization. Internal web-
site development would require a vast understanding of technology and require
this environmental factor to be constantly reviewed and analyzed. In any case,
awareness of technology is vital in planning marketing and business strategies,
and should be closely followed.
World Economies: Another key environmental influence is an awareness and
understanding of global activity such as world economies. As the Internet
provide a basis for global communication, the awareness of world economies
must be understood in regards to E-commerce. The linking of the Internet
world-wide, in turn affects the way in which E-commerce behaves, and
therefore makes an understanding of world economies imperative.
Legal/Political: As with the need to understand world economies, global
integration of E-commerce highlights fundamental environment issues such as
legal and political influences. As independent countries operate different legal
and politic systems, it is obvious that an understanding of such ideals is also
important in addressing E-commerce.
Micro Environment Market environment: The growth of E-commerce has
transformed the way in which consumers purchase products as well as how
organizations operate. The Internet provides the necessary tools; easy
operation and exchange of information; and therefore effects all diverse
industries and organizations. The Internet has become a useful tool for selling,
buying and distributing goods and services globally in a rapidly growing supply
chain. The potential market that the Internet provides has little or no restrictions
by either geography or time, and therefore poses a huge impact on any
organisation considering E-commerce in it's strategic marketing formulation.
Opportunities in E-commerce are enormous, as present growth and
development have proved.
User trends: The trends of Internet users and in fact the use of E-commerce in
general is extremely valuable information that the organisation must be aware
of. By knowing how the advances of the Internet are being used, a marketing
strategy can be focused keeping these ideals in mind. As E-commerce provides
different uses to varying companies or industries, user trends and their relative
importance differ. For example business to business electronic communication
would represent different characteristic than communication relating directly to
the end-consumer. Ideals such as customer tracking can be found as an
integral advantage in the use of Internet based marketing. Information regarding
users use of resources can be tracked reasonably easily on the Internet, and is
a direct result of the information-based platform the Internet provides. For
example Amazon.com provide e-mail announcements when a new product or
service become available to its customers.
The Graphics, Visualisation, and Usability (GVU) Centre conducted the
research of this information that was found in on an information-based Web
site. Such information may be particularly useful when implementing strategic
formulation, however should not be treated as sacred. Because of the limited
nature in which this research is presented, it is hard to gauge its validity as a
neutral and independent source. Organisation must be aware of such
information's credibility, and clear of its context and meaning. Without doing so,
an organisation risks initiating a strategy that is based on inaccurate
information. In keeping in mind the limitations of various consumer analysis
information, it should be understood that there is still a place for its use in
strategic formulation and planning. Having an awareness of the varying user
trends aids in strategy formulation in a number of ways.
Consumer analysis: Possibly the major factor in understanding the effects of
E-commerce towards marketing within an organisation is the awareness of who
in fact has access to such resources. By having an understanding of users of
the Internet and E-commerce resources, the marketing strategy can be further
advanced, and tailored in a favourable direction to the organisation. Various
factors make-up the analysis of the consumer when addressing both E-
commerce and the more tradition means of commerce. Ideals such as
demographics and cultural influences must be identified when assessing the
characteristic of any market. It is important that the users of Internet technology
are identified, and the relevant consumer attributes understood. In terms of E-
commerce, this aspect of the environment provides a basis for how an
organisation would structure their marketing strategies based on the attributes
that make up the general Internet consumer. It is important to get some idea of
the degree to which the marketing approach will be accepted by potential
customers
It is also imperative that awareness of the consumer does not limit
organizations to just the end-consumer. Business-to-business relationships
must also be taken into account when planning strategy based around the E-
commerce framework. By being aware of how industries and organizations
utilise tools such as the Internet, a marketing strategy can be further guided in
the right direction.
Identifying the Strategic Options/SWOT Analysis:
Having provided a situation analysis and environmental analysis, an
organisation must use the information, in order to implement its strategic plan.
In implementing a strategic plan is it appropriate to identify the four key
elements in an organisation's environment. They are: the internal strengths and
weaknesses; and the external opportunities and threats. (Or SWOT analysis).
By matching the organizations resources, and any apparent opportunities it may
be possible to conclude an effective match, and hence, a favourable outcome.
These four major environmental factors are important for the organisation, and
are vital in assessing its strategy in an E-commerce situation. For example a
farming supplier whom currently possesses an e-mail ordering system may be
thinking about developing a web-site. As they currently already operate basic E-
commerce facilities, they may identify this as a strength in their business.
Hence, in doing so, their strategic formulation has been based around the
fundamental practice of SWOT analysis. These ideals keep with common
literature and practice, however they can be further explored by looking at some
of the external forces that E-commerce poses. As such, E-commerce provides
strategic advantages and disadvantages that have been widely discussed and
challenge. As opportunities and threats can often be rather blurred, these E-
commerce or Internet advantages or disadvantage pose some interesting
question.
Strategic Advantages/Disadvantages:
In having a comprehensive analysis of the environment in which the
organisation is face with when dealing with E-commerce, the task is now rather
simple. The organisation must identify how to use the Internet towards a useful
business advantage.
There are huge amount of interesting approaches to achieving such an ideal,
and the basic ideals varying across different industries and organizations. For
example, CD Now and Amazon.com are building businesses based on
immediate availability and ordering of, respectively, any CD or book. While this
may be an ideal medium for companies such as Amazon.com it may prove
rather less successful for different organizations. Unless clearly define
objectives are set when approaching E-commerce, strategic ideals may prove
derogatory to an organisation.
While it is obvious that dynamic organisation possess varying attributes, there
are some general advantages and disadvantages that E-commerce offers
across all different industries. As E-commerce advances at it rapid rate, it is
clear that no industry will be exempt from its impact. Therefore key issues in its
possible uses must be address across all diverse industries.
Advertising: Advertising on the Internet presents a significant opportunity for
an organisation to enter the world of E-commerce. As part of strategic planning
any organisation must be ready to develop it's brand image and as such, the
Internet offers a wide range of opportunities. Such as the use of billboards in
the real world, the Internet can provide ideal locations to further developing their
offer. Obviously the information received on site hits and relevant user data
acquired, helps to focus such ideals towards the appropriate target market.
There are, however many views that Internet advertising will not gain distinctive
popularity because of the difficulty in assessing it effectiveness.
While Strauss, J. Frost, R. (1999) believes that advertising on the Internet helps
reach its revenue objectives, Johns, R. (1996) suggests that Internet advertising
is full of clutter, and therefore proves difficult to gain the attention of the target
market. Virtual stores are another significant ideal in which strategic planning
can base significant interest in, when addressing E-commerce. Virtual store can
provide an inexpensive form of direct sales or help to supplement existing sales
channels. By using the Internet, manufacturers are possible to reach the end-
consumer without going through intermediaries. Successful exponents of such
strategies are organizations such as Amazon.com, and their success in the
distribution of books. When aligning a strategic plan based around the
development of a virtual store, there are some key issues that must be
addressed. As with any strategic development, there are usually threats, and
virtual stores pose considerable threats due to intense competition. In a
marketplace such as the Internet, other company can apply huge pressure,
perhaps due to a sustainable competitive advantage.
Electronic Cost-cutting: By replacing existing print and publishing cost,
organisation can use E-commerce for their electronic publishing. Distribution on
the Web, as opposed to mail, for example can have a huge impact on cost, and
may be a strategic driver. The initial strategy might be for lowered cost of the
product offer, and hence lowering cost in documentation distribution may help in
the financial control of such a strategy
The Strategy Hierarchy:
As a vital aspect of understanding the implications of E-commerce to marketing
strategy, it's vital to look at all levels of the strategic hierarchy. The strategy
hierarchy identifies the: · corporate strategy · business strategy · And at a
functional level, the marketing strategy. It is imperative that when addressing
the strategic implication of E-commerce, that all three areas of the organisation
must be addressed. In doing so, the marketing role within the organisation is
not isolated, and is in keeping with the overall organizations core objectives.
The first step is to address the corporate strategy and define the its link to the
strategic development of E-commerce. The basis for the corporate strategy
identifies where the business wants to focus its attention in regards to the scope
of the organisation. In doing so bases it's mission and vision to align with key
objectives.
Paxton, B. Baker, T. (1997) suggests that it is essential that the Internet
planning process is not divorced from the corporate strategic management
process but is integrated into each stage of your company's existing process.
The focus of the corporate strategy is to develop synergy between the various
Strategic Business Units (SBUs). This is a vital element to any organisation that
is evolving its strategies into new domains, particularly as a result of
environment shifts. Therefore when formulated a strategy based around the use
of E-commerce, it is imperative that the SBU planning is in synergy with the
core corporate objectives. In doing so, the other relevant SBUs will follow the
corporate strategies lead. As the varying SBUs are aligned within the corporate
strategy, they too have influence over their relative functional levels. The
business strategy possesses more defined objectives as well as a clearly
defined competitive strategy. Because the SBUs operate in their relevant
markets, such clearer focused goals are possible. At this level the focus is on
building, defending and maintaining competitive positions through the
development and implementation of competitive marketing strategies.
The role of the SBU strategy is clear, and is also highly relevant to E-commerce
issues. This drive to maintain competitiveness in a SBU's market may be the
foundation for a move into E-commerce development. As the core goals are to
sustain a competitive position, an organisation may decide that E-commerce
provide this and inherits it's use in their strategic planning. However, some
organizations may find that E-commerce provide them with no significant
competitive offering, and hence chooses to ignore it as part of their strategic
formulation. The decisions must follow a well prepared business plan and
require a thorough understanding of the impact of the bottom line.
The marketing strategy level of strategic planning identifies some key functional
issues that the organisation must implement. This identifies the relevant
marketing objectives that the organisation wishes to implement as well as the
product market strategies. This level gains a clearer focus on the consumer in
each particular target market. This integrates many key marketing ideals, and is
used to co-ordinate marketing resource and the marketing mix to reach the
desired markets in which are targeted. The Marketing strategy is by far the most
relevant in measuring the impact of E-commerce on the marketing strategy
formula. While the upper levels in the hierarchy shapes the direction in which
various marketing strategies are planned; it is this level that develops the
functional elements of this strategy.
Retailing in E-commerce:
A major shift in the evolution of E-commerce is it's impact on the traditional
retailing system, in particular the shift of intermediaries from the distribution
channel. In theory, the Internet allows manufacturers to sell directly to the
consumer, cutting out the traditional ideals of a middleman or intermediary.
The evolution of the second phenomenon is commonly believe to the basis for
future E-commerce practices. Hutchinson, A. (1997) suggests that this
middleman effect with combine with global integration and widespread network
connections. Once again Amazon.com provides are useful example of a strong
electronic intermediary. When devising a marketing strategy an organisation
must be aware of this shift in E-commerce structures. The awareness of how
intermediaries in the distribution channel is absolutely vital to marketing
strategy, and the implications of how this is changing could have a profound
effect on marketing strategy formulation
Disintermediation and Reintermediation, Implementation Issues,
Financial: The development of Web site is fundamentally used to result in
some level of revenue or a decrease in the cost. Revenue is typically based
around increase sales, and decrease cost could arise due to elimination of
intermediary forces.
Therefore the basis for integration into E-commerce has an effect on financial
issues, and may perhaps be the basis for the strategic formulation. As with
almost any strategic plan, there are associated costs that derive, and this is
reflected also in E-commerce. Such cost could be identified as follows: ·
Connecting to the Internet (The Internet Service Provider) · Hardware and
software · Web site and advertising designers · Staff to maintain the Web sites
and manage e-mail with stakeholders. Performance monitoring As with any
strategic formulation, E-commerce requires appropriate performance monitoring
to ensure that is place in the organisation continues to be in sync with the
functional goal and objectives put in place. This includes ensuring that any
adaptation to E-commerce is monitored, including staff training and awareness.
The use of E-commerce in an organisation must be carefully monitored to
ensure that it remains productive, and that they generate some sort of gain. As
well as these functional aspects, it is imperative that the actual strategies that
are formulated as constantly review, and future developments are adapted into
such strategies.
Conclusion:
E-commerce is revolutionising the way in which an organisation thinks, and in
particular how an organisation bases it's future goals and objective. An
understanding of the critical make up of organizations, and how they develop
their strategies, helps to close the gap between E-commerce and strategic
marketing. An organizations strategic planning process helps to cover the vital
issues that any new paradigm may invoke. This structure helps provide a basis
for assessing the impact of E-commerce and it's relationship with marketing
strategy. By understanding the organisation as a whole, it becomes clear what
initiates strategic development, and hence provides clear reasons why E-
commerce may become prevalent in strategy formulation. Such an understand
allows the organisation to develop E-commerce strategy that is in sync with the
organizations corporate strategies. Such fundamental comparisons help to
gauge the effect E-commerce has and will have on modern organizations. If
Organizations gain an understanding of E-commerce and its relationship to
marketing and operational strategies, they will be better ready for future
development and technological change.
In order to be competitive in modern business it is imperative that the
organisation's corporate strategies are constantly review, and environmental
influences addressed. One of the major shifts in recent years is the
technological shift towards the Internet, and as a result E-commerce. E-
commerce has developed into an enormous aspect of the Internet and as such,
organizations have been required to address this in their strategic planning. For
example, the University of Otago's strategic plans would be to look forward to
technological changes, and be ready to adapt to these.
As such, perhaps the introduction of an E-commerce Degree may be a resultant
of their strategic plans. Organizations that are looking towards E-commerce as
a strategic option are met with numerous issues that must be addressed.
Analysing theories and thoughts on E-Commerce helps to gain a better
understanding of how an organisation would approach such a strategy. As with
any strategy, many attributes must be considered, and carefully evaluated. As a
fundamental component of strategic planning is to envision future development,
perhaps these ideals could be advanced further. While E-commerce does and
will have a profound effect on marketing strategy formulation, what will the
future of E-commerce hold? As organizations implement their strategic plans in
respect to E-Commerce, it must be realised how this will effect other part of the
organizations. It is also important to understand how society is impacted as a
result of their strategic plan. Is promoting a greater number of Internet users
irresponsible? Perhaps promoting regular use of computers is affecting the
general health of the consumer. While such suggestion seen rather extreme, it
is feasible to assume that such ideals warrant further investigation. In keeping
with these future ideals, research may be sought on developments in
technology and the potential for total media packages and what they would
mean to the advertiser. Perhaps the next step in the Internet, is total home
entertainment, and identification of this early, could lead to a sustainable
competitive advantage in E-commerce. Such forward thinking epitomises the
fundamentals of formulating a successful.
E-Commerce Security and Controls:
Security Implications
There are a few security implications that come about when setting an E-
Commerce website, especially when handling sensitive information such as
credit card information and personal details such as address. Many parts will
have to be protected well including communication between the customer and
the website server and the server itself from any hacker trying to intercept
information or from trying to retrieve existing information from databases.
Customer & Server:
To secure data between the customer and the webserver there is a system
called SSL (Secure Socket Layer) which encrypts the information between them
so no one else can read it. The theory of it is quite basic and uses the following
steps:
User want to send data to the server, before it leaves it is encrypted with a
unique key for the session.
The server recieves this information then encrypts the information one
more time this time using its own unique session, this is completly different
from the users unique key. It then sends back the data.
The users computer now unlocks the data with the key it locked it with
earlier, the data is still encrypted but now only with the servers key. The
users computer then sends the data back.
The server then recieves this information and unlocks it with its key and
now has the unencrypted data of what the user was sending to the server.
This type of encryption comes in different streghs depending on the SSL
certificate you purchae for your server, you can get certificates from 40-bit
encryption up to 256-bit encryption.
Server Security:
As well as security between the consumer and server there is also security
needed on the server(s) as well, especially if sensitive information is stored under
customers accounts, such as credit card information and other personal
information.
Servers will have to be protected to withstand any hack attempts to retrieve the
information that is stored. Prevention measures such as firewalls, checking for
root kits, antivirus systems and others should be put in place, as well as
encryption of the data if possible so should a hacker gain entry the information he
see's is useless to him or her.
Information Security:
Information has been valuable since the dawn of mankind: e.g. where to find
food, how to build shelter, etc. As access to computer stored data has increased,
information security has become correspondingly important. In the past, most
corporate assets were "hard" or physical, such as factories, buildings, land and
raw materials. Today far more assets are computer-stored information such as
customer lists, proprietary formulas, marketing and sales information, and
financial data. Some financial assets only exist as bits stored in various
computers. Many businesses are solely based on information -- the data IS the
business.
Information Security is a Process:
Information Security is very simply the process of protecting information
availability, data integrity, and privacy.
No collection of products or technologies alone can solve every information
security problem faced by an organization. Effective information security requires
the successful integration of:
security products such as firewalls, intrusion detection systems, and
vulnerability scanners
technologies such as authentication and encryption
security policies and procedures
Security Policies and Procedures:
An information system security policy is a well-defined and documented set of
guidelines that describes how an organization manages and protects its
information assets, and how it makes future decisions about its information
system security infrastructure.
Security procedures document precisely how to accomplish a specific task. For
example, a policy may specify that virus checking software is updated on a daily
basis, and a procedure will state exactly how this is to be done -- a list of steps.
Security is Everyone's Responsibility:
Although some individuals may have "Security" in their title or may deal directly
with security on a daily basis, security is everyone's responsibility. As the old
saying goes, a chain is only as strong as its weakest link. A workplace may have
otherwise excellent security, but if a help desk worker readily gives out or resets
lost passwords, or employees let others tailgate on their opening secure doors
with their keycard, security can be horribly compromised. Despite the robustness
of a firewall, if a single user has hardware (e.g. a modem) or software (e.g. some
file sharing software) that allows bypassing the firewall, a hacker may gain
access with catastrophic results. There are examples where a single firewall,
misconfigured for only a few minutes, allowed a hacker to gain entrance with
disastrous results.
Security is an issue during an application's entire lifecycle. Applications must be
designed to be secure, they must be developed with security issues in mind, and
they must be deployed securely. Security cannot be an afterthought and be
effective. System analysts, architects, and programmers must all understand the
information security issues and techniques that are germane to their work. For
example:
programmers must understand how to avoid race conditions and how to
implement proper input filtering
system architects must understand concepts such as defense in depth
and security through obscurity shortcomings.
Computer user awareness is critical, as hackers often directly target them. Users
should be familiar with security policies and should know where the most recent
copies can be obtained. Users must know what is expected and required of
them. Typically this information should be imparted to users initially as part of the
new hire process and refreshed as needed.
Information Protection Involves a Tradeoff between Security and Usability:
There is no such thing as a totally secure system -- except perhaps one that is
entirely unusable by anyone!
Corporate information security's goal is to provide an appropriate level of
protection, based on the value of an organization's information and its business
needs. The more secure a system is, the more inconvenience legitimate users
experience in accessing it.
Protecting the E-Commerce Environment:
Security issues and threats in an e-commerce environment are varied and can
be caused
intentionally and unintentionally by both insiders and outsiders. Many experts
believe that insiders create the majority of the security threats and issues. At the
same time experts believe that security concerns are one of the major reasons
that many individuals are reluctant in doing online transactions and conducting e-
commerce activities. Security issues and threats related to an e-commerce
environment can be categorized as controllable, partially controllable, and
uncontrollable.
Creating security awareness, employees and key decision-makers first should
understand what security is and why is it important to create and implement a
comprehensive security program in an e-commerce environment. Also, the
consequences of not having such a plan should be explained.
Conducting risk analysis, information should be considered as a commodity
with a value attached to it. This means more/less financial analysis and capital
budgeting techniques could be applied to this process.
Formation of the security task force, key employees and decision-makers
have to be involved in the design and implementation of a security program. A
buy-in process and sense of ownership have to be created at the early stages of
the security program design and implementation.
Identification of basic security safeguards, Uninterruptible Power Supply
(UPS), redundant arrays of independent disks (RAID), and mirror disks are the
most basic security safeguards that have to be in place in any security program
development.
Identification of general security threats, natural and human created disasters
as they apply to an e-commerce environment have to be identified.
Identification of intentional threats, computer viruses, worms, Trojan horse
programs, and other intentional threats must be identified.
Identification of security measures and enforcements, as a part of an e-
commerce security program biometric, nonbiometric, physical,software, and
electronic transaction securities must be identified and be integrated into the
security program.
Identification of computer emergency response team services, network
administrators,
webmasters, and e-commerce site managers should always review the latest
information
provided by CERT (Computer Emergency Response Team). This information
may assist in protecting vital e-commerce and network resources.
Formation of a comprehensive security plan, a security plan should include
hardware,
software, and policy measures that collectively protect the information resources
of an ecommerce site.
Preparing for a disaster, an organization must be prepared to respond to a
disaster if it occurs. One of the best security measures is to plan for disaster. The
response process known as the disaster recovery planning or contingency
planning system can play a major role in putting the organization back on its feet.
Data protection and E-commerce:
Data protection is not in itself a new concept, (footnote) but has become an
increasingly important issue in the digital age. Previously a jurisprudence interest
data protection has increasingly become part of the mainstream of the legal
debate in part due to e-commerce. Data protection can be defined as
safeguards to protect the integrity, privacy and security of data. The focal point of
Data protection is that of individual autonomy, the ability to control. However
private companies have seen the ease of collecting, collating, manipulating and
using data become increasingly easy due to technological
advances. E-commerce itself is perhaps the ideal medium to collect the most
information in the most cost efficient way about consumers. It is the claims of e-
tailers and telecommunication companies (footnote) that this ability to gain
information will help these companies to greater understanding of the consumer's
needs.
Many people including those involved in e-commerce and those looking in from
the outside say the key to increasing the number of people using e-commerce is
a matter of trust. Therefore if e-tailers increase the protection of your everyday
data e.g. your e-mail address you are more likely to trust them with your credit
card details. Thus an e-tailer which has a very strict data-protection regime may
see their orders increase. Likewise a business with an ineffective data-protection
programme may see their business suffer Businesses instead of being anti data-
protection should instead be embracing it, however for this to happen the case in
favour of data-protection needs to be made once more.
Data Protection:
Data protection/privacy should in principle be based around the maximum control
for the individual (information self-determination). Data protection is an ideal idea,
and it is unclear what it is. It indicates a direction rather than a specific level. Data
protection can not be fixed but rath r alters as society values change. The
integrity perspective interacts with a protected private sphere, the closer you get
to this private sphere the stricter the law should be.
Data protection is used as the basis for decisions, not only formal decisions but
also other decisions. This can include video surveillance in a shopping mall,
where young people could be asked to leave due to bad conduct. The basis for
these decisions is very important, and the use of technology has the power the
change the classical structure between business and consumers. Thus due to
the information imbalance the consumer may be tricked into buying a product.
The business may have a detailed customer profile built up and either use that
themselves, or alternatively sell to other businesses who can target you as a
consumer. This leads to an imbalance of power.
Data protection and E-commerce; compatible ideas?:
One of the main issues concerning E-commerce, is that of trust. In this respect
data protection has an important role to play. Strong data protection should
increase consumers trust in the Internet and as such lead to an increase in e-
commerce.
This is reflected in a survey, which Harris International carried out with 3,000
customers for IBM in the USA, Great Britain and Germany. (Hoping to arrange a
meeting with IBM to discuss the survey and future impact on e-commerce.) In all
three countries customers felt that their data should have the highest degree of
protection when shopping on-line. Thus the expense of providing a strong data
protection could be off set by the increased demand in business which would be
achieved.
The IBM multinational consumer privacy study was able to show that companies
which clearly formulated their privacy policy and, made it transparent enjoy
advantages with customers. Furthermore on-line customers with a good
education, technical knowledge and a higher income saw data protection as very
important.The group of people which many e-commerce businesses want to
attract. Around 50 percent of British and American people questioned requested
an explanation on the website about the use of their personal data. 63 percent of
the people questioned would not be willing to disclose their personal data on a
website that does not guarantee data protection. Perhaps the most important
statistic for e-commerce is that 40 percent declared that they would not purchase
an item from that e-tailer if they had fears about the misuse of data for online
purchasers.
IBM draws the conclusion that customers have less trust in the handling oftheir
data than the providers of online services realise. If this survey hadonly been
conducted in Germany and Europe, I would not have been surprised atthe
results, however the use of the UK and the USA, in part reflect the changein
public opinion and their attitude towards data protection. It would seemfrom these
results that an e-commerce firm would have an advantage over theircompetitors
if they reflected the consumer's desire of stronger data protectionof their data.
Whilst the cost of implementing stronger data protection(especially in Europe
following Directive 95/46) (footnote on cost so far
ofimplementing the directive) may be a worry, it would seem that the increase
inbusiness would off set any additional costs.
Electronic Payment Systems:
An electronic payment system is needed for compensation for information,
goods and services provided through the Internet - such as access to
copyrighted materials, database searches or consumption of system resources
- or as a convenient form of payment for external goods and services - such as
merchandise and services provided outside the Internet. it helps to automate
sales activities, extends the potential number of customers and may reduce the
amount of paperwork.
Electronic Payment Systems Hacker Definition:
Today, many users make payments electronically rather than in person.
Hundreds of electronic payment systems have been developed to provide secure
Internet transactions. Electronic payment systems are generally classified into
four categories: credit card and debit cards; electronic cash; micropayment
systems; and session-level protocols for secure communications.
A secure electronic financial transaction has to meet the following four
requirements: ensure that communications are private; verify that the
communications have not been changed in transmission; ensure that the client
and server are who each claims to be; and ensure that the data to be transferred
was, in fact, generated by the signed author.
To meet these objectives, every electronic payment system developed depends
on some type of encryption and/or utilization of digital certificates. Using an
encryption algorithm, the plaintext (also known as the original text) is changed
into ciphertext, which is decrypted by the receiver and transformed into clear-text.
The encryption algorithm utilizes a key, a binary number often ranging in length
from 40 to 128 bits. After being encrypted, the information is considered to be
coded and therefore locked. The recipient uses another key to unlock the coded
information, restoring it to its original binary form.
Two cryptographic methods used in electronic payment systems include the
secret key (which uses the same key to encrypt and decrypt and is the fastest
method; however, in the initial transmission to the recipient, the secret key is not
secure) and the public key (which uses both a private and a public key).
In the latter, each receiver owns a secret private key and a publishable public
key. In public-key cryptography, the sender finds the receivers public key and
uses it to encrypt the message, whereas the receiver uses the private key to
decrypt the message. The important point here is that because key holders do
not need to send their private keys to anyone else to have their messages
decrypted, the private keys are not in circulation and therefore are not vulnerable
to crack attacks. In short, the security of a cryptographic system rests with the
secrecy of the key rather than with the secrecy of the algorithm.
Theoretically, any cryptographic technique using a key can be broken, just as
doors on a house can be broken into if someone finds a key compatible with the
doors key core. In virtual space, a cracker can break the cryptographic method
by trying all possible keys in sequence. As an aside, using brute-force to attempt
all keys requires computing resources that grow exponentially with the keys
length. In short, cryptographic keys of 80 bits and 128 bits in length those
commonly used in electronic payment systems will likely stay unbreakable by
brute-force for quite some time.
Requirements for Payment System:
Security:
1. Information services are provided today on relatively
open networks.
2. Payments involve actual money; such systems will be
a target for criminals.
3. The infrastructures supporting electronic commerce
must be usable on open networks and resistant to
attack.
Reliability:
1. Commerce will depend on the availability of the
billing infrastructure.
2. The infrastructures may be a target of attack
for vandals.
3. The infrastructure must be highly available and
should not present a single point of failure.
Flexibility:
1. Different models for different situations: credit card, cash, check.
2. Different assurances are provided: accountability, anonymity, risk
3. There is a need for a common framework.
4. Convertibility is needed across models.
Scalability:
1. The payment infrastructure should support multiple independent
accounting servers and should avoid central bottlenecks.
2. Users of different accounting servers must be able to transact business
with one another and the funds must be automatically cleared between
servers.
Computational Efficiency:
1. Frequent payments for small amounts must be supported
(micropayments).
2. Performance must be acceptable, even when multiple payments are
required.
3. Merchants and payment servers must be able to handle the load.
Economic Efficiency:
1. Frequent payments for small amounts must be supported
(micropayments).
2. Per-transaction cost must be small enough that it is insignificant.
Unobstrusiveness:
1. The payment system should blend into the background.
2. Users should not be constantly interrupted to provide payment
information.
3. However, users do want to control when, to whom, and how much is paid.
4. Users must be able to monitor their spending.
Payment Methods:
secure (or non-secure) presentation: the customer provides credit card
information over a secure (or even clear) transportation means.
customer registration: the customer gets a password or digital signature
based on a credit card (hides the credit card information from the
merchant, but still clears through the credit card).
credit-debit instruments: similar to customer registration but only one bill
per month either through credit card or debit check.
electronic currency: this method has potential for anonymity but requires
tamper resistant hardware.
server scrip: the customer gets a kind of coupons from an agent that can
be spend only with one particular merchant. this reduces the risk of double
spending and allows off-line transactions.
direct transfer: the customer initiates the transfer of funds to the account
of the merchant. this method provides no anonymity.
collection agent: the merchant refers the customer to a third party who
collects payment using one of the methods mentioned above.
Electronic Payment Schemes:
A Layered Protocol Model:
A three layer model is used to compare payments schemes.
Policy: The semantics of the payment scheme. This includes refunds policies,
and the liabilities incurred by customers, merchants and financial institutions.
Data flow: The requirements for storage of data by and communications
between the parties. This includes not only the data flows for payments
themselves but also for refunds, account enquiries and settlement.
Mechanism: The methods by which the necessary security requirements for
messages and stored data are achieved.
All three abstraction levels are tightly coupled since policy makes requirements of
data flow and data flow makes requirements of mechanism.
Payment Protocol Models:
Cash: Cash consists of a token which may be authenticated independently of the
issuer. This is commonly achieved through use of self authenticating tokens or
tamper proof hardware.
Cheque: Cheques are payment instruments whose validity requires reference to
the issuer.
Card: Card payment schemes provide a payment mechanism through the
existing credit card payment infrastructure. Such schemes have many structural
similarities to cheque models except that solutions are constrained by that
structure. A key feature of card payment systems is that every transaction carries
insurance.
Mobile Commerce and Pervasive Computing:
Mobile Commerce:
Mobile Commerce (also known as M-Commerce, m-Commerce or U-Commerce,
owing to the ubiquitous nature of its services) is the ability to conduct commerce,
using a mobile device e.g. a mobile phone (cell phone), a PDA, a smartphone
and other emerging mobile equipment such as dashtop mobile devices. Mobile
Commerce has been defined as follows:
"Mobile Commerce is any transaction, involving the transfer of ownership or
rights to use goods and services, which is initiated and/or completed by using
mobile access to computer-mediated networks with the help of an electronic
device."
M-commerce (mobile commerce) is the buying and selling of goods and services
through wireless handheld devices such as cellular telephone and personal
digital assistants (PDAs). Known as next-generation e-commerce, m-commerce
enables users to access the Internet without needing to find a place to plug in.
The emerging technology behind m-commerce, which is based on the Wireless
Application Protocol (WAP), has made far greater strides in Europe, where
mobile devices equipped with Web-ready micro-browsers are much more
common than in the United States.
In order to exploit the m-commerce market potential, handset manufacturers
such as Nokia, Ericsson, Motorola, and Qualcomm are working with carriers such
as AT&T Wireless and Sprint to develop WAP-enabled smart phones, the
industry's answer to the Swiss Army Knife, and ways to reach them. Using
Bluetooth technology, smart phones offer fax, e-mail, and phone capabilities all in
one, paving the way for m-commerce to be accepted by an increasingly mobile
workforce.
As content delivery over wireless devices becomes faster, more secure, and
scalable, there is wide speculation that m-commerce will surpass wireline e-
commerce as the method of choice for digital commerce transactions. The
industries affected by m-commerce include:
Financial services, which includes mobile banking (when customers use
their handheld devices to access their accounts and pay their bills) as well
as brokerage services, in which stock quotes can be displayed and trading
conducted from the same handheld device
Telecommunications, in which service changes, bill payment and account
reviews can all be conducted from the same handheld device
Service/retail, as consumers are given the ability to place and pay for
orders on-the-fly
Information services, which include the delivery of financial news, sports
figures and traffic updates to a single mobile device
IBM and other companies are experimenting with speech recognition software as
a way to ensure security for m-commerce transactions.
Evolution of Mobile Commerce Applications:
Factors and Risks:
The development of advanced m-commerce applications, in combination with the
evolution of key infrastructure components such as always-on high-speed
wireless data networks (e.g., 2.5G, 3G, etc.) and mobile phones with multi-
functionality (e.g., built-in-camera, music player, etc.) is stimulating the growth of
m-commerce. Other key drivers of m-commerce are ease-of-use, convenience,
and anytime-anywhere availability. On the other hand, a customer’s fear of fraud
is a major barrier. The nature of m-commerce requires a degree of trust and
cooperation among member nodes in networks that can be exploited by
malicious entities to deny service, as well as collect confidential information and
disseminate false information. Another obvious risk is loss or theft of mobile
devices. Security, therefore, is absolutely necessary for the spreading of m-
commerce transactions with two main enablers
A payment authentication to verify that the authorized user is making the
transaction; and
Wireless payment-processing systems that make it possible to use
wireless phones as point-of-sale terminals.
These elements of security are fundamental in order to gain consumer trust.
Mobile phones can implement payment authentication through different solutions:
single chip (authentication functionality and communication functionality
integrated in one chip—SIM [Subscriber Identification Module]); dual chip
(separate chips for authentication and communication); and dual slot
(authentication function is built in a carrier card separate from the mobile device,
and an external or internal card reader intermediates the communication of the
card and the mobile device.
Furthermore, several industry standards have been developed: WAP, WTLS
(Wireless Transport Layer Security), WIM (Wireless Identity Module), and so
forth. In particular, as far as authentication is concerned, many security
companies have increased their development efforts in wireless security
solutions such as Public Key Infrastructure (PKI), security software (Mobile PKI),
digital signatures, digital certificates, and smart-card technology (Centeno, 2002).
PKI works the same way in a wireless environment as it does in the wireline
world, with more efficient usage of available resources (especially bandwidth and
processing power) due to existing limitations of wireless technology. Smart-card
technology allows network administrators to identify users positively and confirm
a user’s network access and privileges. Today, mobile consumers are using
smart cards for a variety of activities ranging from buying groceries to purchasing
movie tickets. These cards have made it easier for consumers to store
information securely, and they are now being used in mobile banking, health
care, telecommuting, and corporate network security. An example of a security
mechanism is the Mobile 3-D Secure Specification developed by Visa
International (Cellular Online, Visa Mobile, 2004; Visa International, 2003).
New advanced mobile devices have tracking abilities that can be used to deliver
location-specific targeted advertisements or advanced services (e.g., directions
for traveling, information about location of the nearest store, etc.). This additional
convenience, however, has its risks due to its intrusive nature, since tracking
technology may be seen as an invasion of privacy and a hindrance to an
individual’s ability to move freely (the “Big Brother” syndrome).
The existence of many different solutions for m-commerce leads to a need for
standardization, which can result from market-based competition, voluntary
cooperation, and coercive regulation.
Voluntary Cooperation
Some significant forums for the development of m-commerce are the following:
Mobile Payment Forum (http://www.mobilepaymentforum.org/): A
global, cross-industry organization aiming to develop a framework for
secure, standardized, and authenticated mobile payment that
encompasses remote and proximity transactions, as well as micro-
payments. It also is taking a comprehensive approach to the mobile
payments process and creating standards and best practice for every
phase of a payment transaction, including the setup and configuration of
the mobile payment devices, payment initiation, authentication, and
completion of a transaction. Members include American Express, Master
Card, Visa, Japan Card Bureau, Nokia, TIM, and so forth.
MeT—Mobile Electronic Transaction
(http://www.mobiletransaction.org/): It was founded to establish a
common technology framework for secure mobile transactions, ensuring a
consistent user experience independent of device, service, and networks,
and building on existing industry security standards such as evolving
WAP, WTLS, and local connectivity standards such as Bluetooth.
Members include Ericsson, Motorola, Nokia, Siemens, Sony, Wells Fargo
Bank, Verisign, Telia, and so forth.
Mobey Forum (http://www.mobeyforum.org/): A financial industry-
driven forum, whose mission is to encourage the use of mobile technology
in financial services. Activities include consolidation of business and
security requirements, evaluation of potential business models, technical
solutions, and recommendations to key-players in order to speed up the
implementation of solutions. Members include ABN AMRO Bank,
Deutsche Bank, Ericsson, Nokia, Siemens, Accenture, NCR, and so forth.
Open Mobile Alliance (OMA) (http://www.openmobilealliance.org/):
The mission of OMA is to deliver high-quality, open technical
specifications based upon market requirements that drive modularity,
extensibility, and consistency among enablers, in order to guide industry
implementation efforts and provide interoperability across different
devices, geographies, service providers, operators, and networks.
Members include Bell Canada, British Telecommunications, Cisco
Systems, NTT DoCoMo, Orange, Lucent Technologies, Microsoft
Corporation, Nokia, and so forth.
Simpay (http://www.simpay.com/): In order to facilitate mobile payments
and deal with the lack of a single technical standard open to all carriers,
four incumbent carriers (Orange, Telefonica Moviles, T-Mobile, and
Vodafone) founded a consortium called Simpay (formerly known as Mobile
Services Payment Association [MPSA]). Simpay was created to drive m-
commerce through the development of an open and interoperable mobile
payment solution, providing clearance and settlement services and a
payment scheme that allow customers to make purchases through mobile-
operator-managed accounts
The mobile merchant acquirer (MA), after signing an agreement with Simpay,
aggregates merchants (e-commerce sites that sell goods or services to the
customer [in Figure1, retailers/content providers]) by signing them up and
integrating them with the scheme. Any industry player (i.e., mobile operators,
financial institutions, portals, etc.) can become an MA, provided that they have
passed the certification and agree on the terms and conditions contractually
defined by Simpay.
Membership in Simpay includes mobile operators and other issuers of SIM cards
such as service providers and Mobile Virtual Network Operators (MVNOs).
When the customer clicks the option to pay with Simpay, the mobile operator
provides details of the transaction to the customer’s mobile phone screen. The
customer clicks to send confirmation. Simpay then routes the payment details
(the payment request and the authorization) between the mobile operator (a
Simpay member) and the merchant acquirer who, in turn, interacts with the
merchant. Purchases will be charged to the customer’s mobile phone bill or to a
pre-paid account with the customer’s particular operator.
The technical launch for Simpay was expected at the end of 2004 and the
commercial one early in 2005 (Cellular Online, Simpay Mobile, 2004). At launch,
Simpay would focus on micropayments of under 10 euros for digital content (e.g.,
java games, ringtones, logos, video clips, and MP3 files). Higher-priced items
such as flights and cinema tickets with billing to credit or debit cards will follow.
Wireless Advertising Association (http://www.waaglobal.org/): An
independent body that evaluates and recommends standards for mobile
marketing and advertising, documents advertising effectiveness, and
educates the industry on effective and responsible methods. Members
include AT&T Wireless, Terra Lycos, Nokia, AOL Mobile, and so forth.
Pervasive Computing:
Pervasive computing may be defined as the smart computing environments in
which tiny, invisible, wireless and/or mobile computing devices are embedded in
objects like pens, clothing, toys, sunglasses, chairs, cars, electronic appliances,
and so forth; communicating and coordinating with each other anywhere and at
anytime to make human life easier. Although the applications of pervasive
computing are in the infant stage but are growing very fast with the technological
developments and improvements. The networked embedded devices are leaving
the concept of personal computers far behind. Devicesare now offering new
opportunities for businesses, hospitals, educational institutes, governments and
other organizations to avail and to offer to their stakeholders—(including
customers), suppliers, employees, students, patients, citizens, and so forth.
Opportunity starts with tracking traffic by means of a cell phone, a smart coffee
mug with
preferences, seamless mobile and car audio system integration, a robot that
moves on a ball, a tiny self-contained wireless memory chip, podcasting for
education or politics, e-ICUs, cell phones as study guides, a printing mailbox, and
microprocessor- based encryption for mobile devices; the list is endless. The
idea of pervasive computing is to use simple wearable and handheld devices
which need no manual to start like sub notebooks, PDAs, smart phones, screen
phones, and so forth, bring entertainment, education, shopping, politics,
preferences, work, friends, news and all controls near you—wherever you go and
whenever you need. These devices are intended to be very tiny, simple,
networked, and diffused in the environment.
The fortitude of the pervasive computing lies in the fact that people want an
environment in which technology is dissolved naturally and no one feels it exists.
“MIT’s Oxygen project also sees the future of computing to be human-centred. It
envisions computing to be freely available everywhere, like batteries and power
sockets, or oxygen in the air we breathe. Configurable generic devices, either
handheld or embedded in the environment, will respect human desires for
privacy and security in such an environment. People will not have to type, click,
or learn new computer jargon. Instead, they will communicate naturally, using
speech and gestures that describe their intent (“send this to Hari” or “print that
picture on the nearest colour printer”), and leave it to the computer to carry out
our will,” (MIT Project Oxygen, 2004). Wearable computing devices is not new.
People have been using these special-purpose wearable devices for more than
two decades. for example hearing aids, a pacemaker for stabilizing irregular
heartbeats, a pedometer for counting steps, or a noise-cancellation headset. Of
the recent wearable computing devices, like anoise-reducing Bluetooth headset,
an eye-glass mounted display for doctors and soldiers, virtual retinal displays to
scan an image on a viewer’s retina, wearable keyboard like twiddler; IBM’s Meta
Pads, ThinkPad, Vision Pad and Linux watch and so forth are becoming very
popular.
Pervasive computing is to improve user’s productivity and efficiency by making
location and exchange of information easy; by remembering their preferences
and repetitive tasks; by becoming available whenever required, without being
complex; and even acting like the users while communicating for them, doing
their jobs, and measuring their performances to make sure that they achieve their
quality and financial goals. There are another two technologies, called Grid
Computing and Ambient Intelligence, which can
be effectively integrated with pervasive computing in achieving its goals.
Pervasive computing is the trend towards increasingly ubiquitous (another name
for the movement is ubiquitous computing), connected computing devices in the
environment, a trend being brought about by a convergence of advanced
electronic - and particularly, wireless - technologies and the Internet. Pervasive
computing devices are not personal computers as we tend to think of them, but
very tiny - even invisible - devices, either mobile or embedded in almost any
type of object imaginable, including cars, tools, appliances, clothing and various
consumer goods - all communicating through increasingly interconnected
networks. According to Dan Russell, director of the User Sciences and
Experience Group at IBM's Almaden Research Center, by 2010 computing will
have become so naturalized within the environment that people will not even
realize that they are using computers. Russell and other researchers expect that
in the future smart devices all around us will maintain current information about
their locations, the contexts in which they are being used, and relevant data
about the users.
The goal of researchers is to create a system that is pervasively and
unobtrusively embedded in the environment, completely connected, intuitive,
effortlessly portable, and constantly available. Among the emerging technologies
expected to prevail in the pervasive computing environment of the future are
wearable computers, smart homes and smart buildings. Among the myriad of
tools expected to support these are: application-specific integrated circuitry
(ASIC); speech recognition; gesture recognition; system on a chip (SoC);
perceptive interfaces; smart matter; flexible transistors; reconfigurable
processors; field programmable logic gates (FPLG); and microelectromechanical
systems (MEMS).
A number of leading technological organizations are exploring pervasive
computing. Xerox's Palo Alto Research Center (PARC), for example, has been
working on pervasive computing applications since the 1980s. Although new
technologies are emerging, the most crucial objective is not, necessarily, to
develop new technologies. IBM's project Planet Blue, for example, is largely
focused on finding ways to integrate existing technologies with a wireless
infrastructure. Carnegie Mellon University's Human Computer Interaction
Institute (HCII) is working on similar research in their Project Aura, whose stated
goal is "to provide each user with an invisible halo of computing and information
services that persists regardless of location." The Massachusetts Institute of
Technology (MIT) has a project called Oxygen. MIT named their project after
that substance because they envision a future of ubiquitous computing devices
as freely available and easily accessible as oxygen is today.
Some Personal Uses of Pervasive Computing:
A. Personal Information: PDA with wireless connections to web,
broker, child's school, appointments, telephone numbers
B. Flight Schedules: Your phone rings. Its the computer at American
Airlines. Your flight departure is delayed by 20 minutes.
C. Networked coffee shop: Wi-Fi at StarBuck's and Schlosky's
D. Location: finding friends at the mall (or hiding from), texting
E. Home interaction: The networked coffee pot/an alarm clock sync'd
with Outlook / Electricity Peak Conservation/Thermostat/Hot Water
Heater connected via wireless network (security issues)
F. Car: schedule oil change seamlessly w/ garage; maps; traffic; kid
movies streamed to back seat ("Only if its quiet back there")
G. Finding Possessions: "Dude, where's my dog?"
H. Others?
Some Business Uses of Pervasive Computing:
A. Healthcare:
a. records, lab order entry and results reporting (MRIs on the
patient's TV)
b. prescription writing (mistakes, loss of paper copy, forgeries)
c. medications (what if every pill had a UPC code on it?)
d. billing and costs (why do I have to file my records?)
e. personnel scheduling
B. Mall interviewing with semi-connected TabletPCs
C. Vending: improved routing, re-supply, ordering; price changes
pushed to machines
D. Service Industry: "Cable guy will be at your home between 8am and
noon." / GPS
E. Distribution: "Where is my package?"
F. MicroPayments: with cell phone for vending, train tickets, ...
G. Micro/Nano devices Hitachi's Mu Chip 0.4mm square, 128 bit ROM,
Interrogated at 2.45GHz, useful for documents, currency, shopping,
preventing "shrinkage"
H. Military: Operation Anaconda
I. Others?
Relation of Pervasive Commerce with E-Commerce:
It is amazing to look at how the dimensions of commerce and business have
changed over last one decade. Internet has transformed all the commercial
transactions and business processes into digital transactions and processes.
E-commerce is the name given to the use of Internet technologies and private
networks for buying and selling products and services. Though e-commerce can
also be conducted through private networks such as local area networks, value-
added networks and direct-leased lines networks; Internet is considered to be the
backbone of e-commerce.
Features like cheapest alternative, global reach, increasing number of computer
hosts connected to Internet, and amazing growth in its security measures have
made Internet the most popular medium for communication and commerce. ”The
Internet is the result of some visionary thinking by people in the early 1960s who
saw great potential value in allowing computers to share information on research
and development in scientific and military fields. Originally the Internet was
funded by the government and it was limited to research, education, and
government uses. Commercial uses were prohibited unless
they directly served the goals of research and education. This policy continued
until the early 90s, when independent commercial networks began to grow. All
pretences of limitations on commercial use of Internet disappeared in May 1995,
when the National Science Foundation ended its sponsorship of the Internet and
all traffic relied on commercial networks,”
According to the Government of UK (1999), “E-commerce encompasses the
exchange of information across electronic networks, at any stage in the supply
chain, whether within an organisation, between businesses, between businesses
and consumers, or between the public and private sector, whether paid or
unpaid”. Awad (2004) has referred to e-commerce from a range of perspectives
like communications, interface,
business process, online, and market.
Communication: From communications perspective, e-commerce is the ability
to deliver
products, services, information, or payments via networks such as the Internet
and the World Wide Web. It is one of the cheapest means of communication.
Interface: From an interface perspective, ecommerce allows transaction
between different parties and accepts various information and transaction
exchanges through business-to-business, business-to-consumer, and business-
to-government e-commerce.
Business: From a business process perspective, e-commerce includes activities
that directly support commerce electronically by means of networked
connections. Within business processes (manufacturing, inventorying, and
operation) and business-to-business processes (supply-chain management) are
managed by the same networks
as business –to-consumer processes.
Online: From an online perspective, e-commerce is an electronic environment
that makes it possible to buy and sell products, services, and information on the
Internet. It is available 24/7.
Structural: From a structural perspective, ecommerce involves various media:
data, text, Web pages, Internet Telephony, and Internet desktop video, and so
forth.
Market: As a market, e-commerce is a world-wide network. A local store can
open a
Web storefront and find the world at its doorstep— customers, suppliers,
competitors, and payment services.
Relation of Pervasive Commerce with M-Commerce:
In e-business environments, the customers, employees, and other stakeholders
have to come to the computer, login, and work on it. For many people and
employees it is difficult to do that because the individuals are highly mobile(for
example customers who travel often, police, construction workers, drivers, sales
clerks, mountaineers, etc.). Globalisation has also created a trend towards more
and more fieldwork, remote collaboration, and geographic mobility of employees,
fast services, competition, and lack of time for decision-making. To facilitate the
people who are always on the move or in fields, needing a to make a quick
decision on site, e-commerce was extended into m-commerce and e-business
into m-business.
M-commerce is supported by mobile devices like mobile phones, laptops, PDAs,
pagers, enhanced alphanumeric communicators (such as Blackberry devices),
palm-tops, and other handheld devices which are smaller and lighter to carry.
Now people can download or upload their information from their desktops with
the help of synchronisation or they can use wireless technology to directly access
the Internet or intranet from out of office. Varshney and Vetter (2002) defined m-
commerce as, “all activities related to a potential) commercial transaction
conducted through communications networks that interface with wireless (or
mobile) devices. M-commerce is buying and selling with help of wireless and
network technologies including the Internet. It has become very popular in the
service industry such as share and stock trading, banking, and travel, and so
forth. Decreasing cost of mobile devices and increasing number of the users of
mobile devices, especially cell phones, are making m-commerce more feasible.
Mobility, small
size, Internet and telephone network connectivity, simplicity in using mobile
devices, low cost, powerful batteries, and global reach are some of the drivers of
m-commerce.’
Not just when buying and selling, but a large number of supply-chain
processescan be made more productive and effective using mobile technologies
(including inventory management, order-processing, sales force automation,
control, job dispatching, wireless office, marketing and advertising,
communicating with stakeholders, etc.).
This process is called m-business. By converging Internet and wireless
technologies, m-commerce and m-business are providing more opportunities for
businesses to expand their markets, reduce time required in supply-chain
processes, improve services, and reduce costs.
Growth of m-commerce does not mean closure of the chapter of e-commerce,
nor does the introduction of pervasive commerce lead to an end of m-commerce.
Research indicates strong growth at year-end in 2010 for U.S. households in
access-related services, including more than 80 million broadband households;
65 million bundled-services subscribers; 30 million bundled-VoIP subscribers;
more than 6.5 million residential Telco TV subscribers; and nearly $3 billion in
cable video-on-demand revenue (Scherf, 2007). This clearly implies shrill
prospects of e-commerce in coming years. Juniper Research estimates the
global market for mobile entertainment products
and services totaled US$17.3 billion in 2006 and will grow at a 35 % cumulative
annual growth rate, reaching $47 billion in 2009 and $76.9 billion in 2011(Regan,
2007). These are very optimistic assessments for the future of m-commerce.
Competitive e-businesses are adopting pervasive computing to benefit from
millions of autonomous tiny entities interacting with each other. They are inclined
to adopt the new technology and be the leaders. For them, it is high time
managing e-business harvest and sowing seeds of pervasive computing.
The four major types of Wireless Telecommunications
Networks:
Wireless PAN:
Wireless Personal Area Network (WPAN) is a type of wireless network that
interconnects devices within a relatively small area, generally within reach of a
person. For example, Bluetooth provides a WPAN for interconnecting a headset
to a laptop. ZigBee also supports WPAN applications.
Wireless LAN:
Wireless Local Area Network (WLAN) is a wireless alternative to a computer
Local Area Network (LAN) that uses radio instead of wires to transmit data back
and forth between computers in a small area such as a home, office, or school.
Wireless LANs are standardized under the IEEE 802.11 series.
Wi-Fi: Wi-Fi is a commonly used wireless network in computer systems to
enable connection to the internet or other devices that have Wi-Fi
functionalities. Wi-Fi networks broadcast radio waves that can be picked
up by Wi-Fi receivers attached to different computers or mobile phones.
Fixed Wireless Data: This implements point to point links between
computers or networks at two locations, often using dedicated microwave
or laser beams over line of sight paths. It is often used in cities to connect
networks in two or more buildings without physically wiring the buildings
together.
Wireless MAN:
Wireless Metropolitan area networks are a type of wireless network that connects
several Wireless LANs.
WiMAX is the term used to refer to wireless MANs and is covered in IEEE
802.16d/802.16e.
Mobile Devices networks:
In recent decades with the development of smart phones, cellular telephone
networks have been used to carry computer data in addition to telephone
conversations:
Global System for Mobile Communications (GSM): The GSM network is
divided into three major systems: the switching system, the base station
system, and the operation and support system. The cell phone connects
to the base system station which then connects to the operation and
support station; it then connects to the switching station where the call is
transferred to where it needs to go. GSM is the most common standard
and is used for a majority of cell phones.
Personal Communications Service (PCS): PCS is a radio band that can be
used by mobile phones in North America. Sprint happened to be the first
service to set up a PCS.
D-AMPS: D-AMPS, which stands for Digital Advanced Mobile Phone
Service, is an upgraded version of AMPS but it is being phased out due to
advancement in technology. The newer GSM networks are replacing the
older system.
Legal and Ethical Issues in e-Commerce:
When using the Internet and E-Commerce is is important to remember that there
are many legal, moral and ethical issues to consider.
Ethical & Morel Implications:
Businesses entering the e-commerce world will be facing a new set of ethical
challenges. It is easy for businesses to become sidetracked in the technical
challenges of operating in this way and to pay little attention to the ethical
implications.
There are many ethical implications for businesses to run into that would
normally be addressed when doing business face to face, for example selling
tabacco and alcohol to an under age minor over the internet, this is impossible to
regulate easily and affectivly as it would be if the person walked into a store, not
only is this unethical but it is also illegal.
Another case of this was a case when a community pharmacy decided to start up
a E-Commerce site, of course here there was plenty of Morel and Ethical
decisions to be made here, as Pharmaceuticals are different from other items of
commerce, particularly in that they should only be used as and when they were
required.
Obviously there any a list of items that have Morel & Ethical decisions to be
made about them being sold online such as Weight Loss Pills, which could be
bought by a already underwright anerexic girl on eBay, Viagra, which could be
flown in from America and taken by someone with a high risk of heart attacks and
suffers from one. You could say that cases like these the person shouldn't be so
stupid, but then again isn't it unethical and immorel to sell these items on the
bases that you know that could happen?
Legal Implications:
The central issues of E-Commerce and the law include the development of E-
Commerce, the role of consumers and regulation of e-commerce in regards to
consumer protection.
E-commerce is a new way of conducting business that takes place on the
Internet, it has become an important way in which consumers purcchase goods
across the world as well as due to internet technology progesssing rapidly in the
last few years.
Although E-Commerce has a big effect on the global trade, goverments also
have a large effect on the growth of E-Commerce on the internet by regulating is
accordingly. As Governments set regulations for E-Commerce organizations
managers are starting to worry if the regulations will be to tight or may reduce the
market in the online trade.
Regulation of E-commerce is very important for the cyberspace market as it can
help or stop the organizations working with E-Commerce, as well as being able
to protect the consumers in the online market.
Legal Issues Involved in E-Commerce:
Approximately 100 countries now enjoy Internet access, and a recent survey
reported that there are approximately 20 million Internet hosts worldwide. The
number of Internet users is currently estimated to be in the region of 100 million
people.
The exponential growth of the Internet and online activity raise a number of new
regulatory issues and legal questions. How does copyright apply to digital
content? How can national laws apply to activities in cyberspace? Can privacy
and data protection exist on the Web? Can electronic commerce really be
secure? Should governments tax cyber trade? Can cyberspace be regulated by
one, or by many authorities? In seeking to apply the law to the Internet, problems
arise owing to the fact that most laws largely apply to the pre-cyberspace world.
In the modern era of electronic technology, many people want to get their work
done quickly with little effort. At times, people forget or do not consider the legal
and ethical values of their procedures. In traditional commerce, it's not easy to
start a business. You must implement strategies that follow rules and regulations
enforced by government. Electronic commerce makes it possible to do almost
any kind of business in a very simple way. What makes it simple? The reason is
that existing legal frameworks and enforcement mechanisms are not strong.
E-commerce presents a world of opportunity for doing businesses, reaching
global markets and purchasing without leaving the home or office. E-commerce
can provide opportunities to improve business processes, just as phones, faxes
and mobile communications have in the past. However, just as any new business
tool has associated issues and risks so does e-commerce. It's important to
understand the legal issues and potential risks to ensure a safe, secure
environment for trading with customers and other businesses.
The issue of law on the Internet is a complex one. Between the two all-or-nothing
extremes lies a broad spectrum of possibilities. Many people revel in the freedom
to express themselves and the freedom from prohibitions such as zoning
restrictions that the Internet apparently affords. With no law at all, however, the
Internet would be no place to conduct business or pleasure. Laws give people
certainties about their rights and responsibilities: they make life more predictable.
"Without predictability, business will not be able to act efficiently, or price services
effectively," said Thomas Vartanian, a Washington, D.C.-based lawyer.
Electronic Transaction:
Some federal, state and territory governments encourage the adoption of
electronic commerce by enacting and enabling legalisation. In Australia many
bills and acts have been passed to resolve legal issues and make electronic
transaction more authenticated, such as the Electronic Transaction Act (ETA)[3].
ETA enables contractual dealings, such as offers, acceptances and invitations, to
be conducted electronically, and also allows people to use an electronic
signature to satisfy any legal requirement. Even the electronic transfer of land is
covered, "Importantly, the Act is similar in all material respects to those operating
both in other States and at the Federal level, so people can be confident that
electronic transactions carry the same legal weight nationwide," states Jim
McGinty, Attorney General for Western Australia.
Moreover the bill is expected to boost electronic commerce as an effective tool
for businesses to increase their efficiency. This may reduce administrative duties,
storage and operational costs for businesses. In McGinty's words," This is why it
is crucial that we ensure the legal infrastructure around cyberspace is beyond
doubt".
Global companies have the responsibility to deal with some of the legal issues
such as how to form contracts, abide by consumer protection laws, create
privacy policies and protect databases. "As of now, there is no comprehensive
set of laws or regulations that exist for international electronic commerce," says
David D. Barr. He added that it is difficult to establish uniform worldwide laws for
e-commerce, but some building block legislation within individual countries is
necessary.
By applying laws and sketching boundaries around the borderless Internet do we
negate the term "freedom of information"? How will legal structure affect
international transactions on the Internet? Will it restrict the potential growth of
the Internet prematurely? Rapid changes in technology do not allow enforcement
of specific laws in cyberspace. For now many organizations are promoting global
coordination of legal structures.
Privacy & Security:
While shopping on the Internet, most people typically do not think about what is
happening in the background. Web shopping is generally very easy. We click on
a related site, go into that site, buy the required merchandise by adding it to our
cart, enter our credit card details and then expect delivery within a couple of
days. This entire process looks very simple but a developer or businessmen
knows exactly how many hurdles need to be jumped to complete the order.
Customer information has to pass through several hands so security and privacy
of the information are a major concern. The safety and security of a customer's
personal information lies within the hands of the business. Therefore businesses
have to give the customer first their guarantee, and second peace of mind, that
the information passed over is of no risk to any invading eyes.
In traditional and online trading environments, consumers are entitled to have
their privacy respected. Websites should provide the customers with choices
regarding the use of their personal information, and incorporate security
procedures to limit access to customer information by unauthorised parties.
Privacy policies and procedures should be clearly explained to customers.
Although respecting consumer privacy rights is a legal requirement, it also
represents good business practice. If customers trust a site and business then
they are more likely to trade with it.
Many people are not willing to disclose their personal information on the Web. It
is up to individuals to decide how much personal information they are willing to
disclose and how it might be used. Interestingly, one survey found that many
people who disclose personal information do so in hope of financial benefit, such
as winning a sweepstakes.
Copyright & Trademark:
Many attempts have been made to address the issues related to copyrights on
digital content. E-commerce has a tremendous impact on copyright and related
issues, and the scope of copyrights is affecting how e-commerce evolves. It is
essential that legal rules are set and applied appropriately to ensure that digital
technology does not undermine the basic doctrine of copyright and related rights.
From one perspective, the Internet has been described as "the world's biggest
copy machine". Older technologies such as photocopying, recording and taping
are bound by rules and regulations regarding quantity, content, quality and time
constraints. In contrast, on the Internet one person can send millions of copies all
over the world.
Generally, a trademark can be owned by an individual, a company, or any sort of
legal entity. When someone else tries to use that trademark (e.g., your distinctive
name or logo) without authorisation, it could be considered an illegal dilution of
the distinctive trademark. If someone uses a trademark in such a way as to dilute
the distinctive quality of the mark or trade on the owner's reputation, the
trademark owner may seek damages.
Some Web-based applications have enabled large-scale exploitation of music
samples and audio formats. Software that is available free of cost on the Net
allows the transfer of songs and videos without the authorization of rights holders
(e.g. Napster, MP3 Providers). Moreover, CD burners and portable MP3 players
allow copyright violations to occur rather easily.
A number of important recent developments have occurred in the field of
copyright and related issues that have far-reaching implications for the industry,
and are being addressed in legislatures, judiciaries and international forums.
During the last couple of years, new laws have passed in some countries to
ensure effective protection and enforcement of rights in the digital era. At the
same time, copyright industries are also adapting their business methods and
uses of technology to exploit digital opportunities, while guarding against new
risks.
A Pew Research Center survey, conducted among roughly 2,500 Americans
through March and May 2003, indicates that 35 million US adults download
music files online and about 26 million share files online. The downloading
population has grown by approximately 5 million users since February of
2001"Ultimately, the music industry's war on illegal downloading can never be
won" say Charles Shoniregun.
Online Terms, Conditions, Policies and Laws:
At the moment, most online privacy policies are produced by private businesses
for individual companies. Governments are developing legislation to support and
strengthen the privacy protection measures of many businesses. These
initiatives are aimed at regulating the storage, use and disclosure by businesses
of personal information.
Privacy legislation is designed to protect a person's personal information. The
privacy laws of their host country affect overseas companies. Every organisation
should be very careful while applying terms and conditions for the electronic
transaction for Internet users. Privacy and security policies not only reflect the
organizations practice but also the rules and regulations for doing business with
the company. Major issues regarding the legalization of electronic transactions
include the following.
— Ensure proper online contracts.
— Record retention obligations.
— Original documentation, in terms of TAX and VAT requirements.
— Import/export regulations.
— Exchange control regulation.
— Foreign data protection law.
Legislation Dilemma:
Electronic transactions separate e-business from traditional types of businesses.
When a transaction takes place, Who has jurisdiction? Who has the authority to
apply law over the transaction?
For example, if you buy a laptop in your local computer store, you know your
legal rights. If the computer does not work when you take it home, and the store
refuses to settle up, then you can probably take the dispute to your local small
claims court. But if you buy the same computer online, from a vendor on the
other side of the world, perhaps through a dealer based in yet a third country,
then your rights are a lot less clear. Which country's protection laws apply: yours,
those in the vendor's home country, or those of the intermediary? Without
knowing which particular set of laws apply, it's impossible to know whom to sue.
"Small claims courts don't work in cyberspace," according to Ron Presser of the
American Bar Association.
A little legislation can go a long way toward helping parties to establish better
boundaries to work within. When a transaction that takes place between two
different parties located in two different countries goes wrong then a number of
complex questions arise.
This is not the first time the question of extra-territorial jurisdiction over Web
content has been raised. In November of last year, Felix Somm, ex-manager of
CompuServe Deutschland, was cleared on appeal of pornography charges
brought against him in Germany after newsgroups carried on parent company
CompuServe's US servers were found to contain pornographic material. The
judge determined that it was technically impossible for Somm to close the illegal
newsgroups in question. Following in the footsteps of the CompuServe's case,
Yahoo is arguing that it would be technically impossible to block only French
citizens from access to its online auctions if should the auctions contain
objectionable items.
E-Business and Legal Issues:
The technological basis of e-commerce is basically Web client/server
middleware, or what is called three-tier architectures. The client tier is the Web
browser involving some type of form processing. The middle tier is the Web
server, often with transaction processing. The Web server in turn links to the third
tier, a database processing the order information. Some of the issues are strictly
Internet-related, such as domain names and trademarks, linking and framing,
clickware (and shrinkware), and metatag use. Others are traditional issues
applied to the Internet, such as copyright, contracts, consumer protection,
privacy, taxation, regulated industries and jurisdiction.
E-commerce site development, its advertising, electronic transaction, money
transactions and such involve many legal issues, which need to be taken into
account step by step. Before developing an e-commerce site a registered domain
and a registered trademark should be established. There must be some
copyright protection on the site. The business must ensure that it displays the
terms and condition/policies within its site. Security involving the privacy of a
user's data is always one of the main concerns while doing business online.
Defining rules and regulations for the advertisement of the site by placing
banners on other known sites is another. It is of great value when dealing with
such complex issues to consult an attorney who specializes in the issues of
cyberspace.
Conclusion:
Most of the legal issues surrounding electronic commerce are not new. Lawyers
should, however, be able to recognise the increased significance of certain legal
issues to the online environment. In understanding the technical, contractual,
intellectual property and regulatory issues, which have enhanced importance in
the new economy, the lawyer is well placed to assist clients in pro-actively
minimising their exposure to legal liability.
Before allocating resources to the initiative it must be determined whether it is
legally possible to perform the business process or transaction electronically. For
example, the Electronic Communication and Transaction (ECT) Act facilitates the
conclusion of most transactions and communications electronically by placing
such transactions on an equal footing with traditional transactions or
communications.
The popular view of the Internet as an unregulated medium is not true. The laws
of the world's jurisdiction still apply when you surf the Net: the only difference is
that the way they might apply. The colonisation of cyberspace is both technology
and opportunity driven. Indeed technology is at the same time both a threat as
well as a solution, because on the one hand it challenges existing legal and
regulatory infrastructures and yet offers the solution to many of those threats,
including security, integrity and authenticity.
Social and Other Issues in e-Commerce:
Social Issues:
As electronic commerce expands it has a greater social impact. In order for the
expansion of e-commerce to occur there will be a need to improve education
about the business side of e-commerce and the technical side. As rapidly as e-
commerce is growing changes are inevitable and in order to deal with these
changes people will have to have education available. Traditional educational
institutes will have to adapt to try and provide experience for the e-commerce
market and information technology in general. Also, there already been
expansion of learning about e-commerce into other forms of education rather
then through traditional institutes. Institutes solely based on learning information
technology, including e-commerce, have been opened and in addition to this
online training can also be found.
The health sector of society can also be affected by the development of e-
commerce. Electronic commerce applications can be developed for use by the
health care systems. In some cases the use of these e-commerce sites can be
help the system work more efficiently in turn be more cost effective. By reducing
costs using these methods more money can be made available to other areas of
the health sector.
Another aspect of society that is affected by electronic commerce is the sense of
community. Consumers can now belong to a more global community by being
able to buy goods from around the world, however this has its own societal
effects. There is a loss of direct physical interaction between individuals. Also
the sense of loyalty that can occur during traditional business can be harder to
develop due to the global aspect and the lack of physical interaction of e-
commerce. Companies have to deal with an entire global market and can face
difficulties in maintaining a focus on specific customers to gain loyalty. There are
also concerns that traditional businesses may begin to suffer significantly is
electronic commerce continues to grow.
As well, e-commerce plays a part increasing use and improving computer
technology that can be used by society. Electronic commerce can help the
expansion of computer technology to more people. As more people begin to use
e-commerce more companies will begin to take part. This will lead to better
infrastructure and easier access to the Internet in order to encourage an even
larger market. By expanding like this it will not only help companies make more
profit, but it should make the resources of the Internet easier to attain to more
people in society. Again, as companies look better methods to expand their
online-businesses new technologies may be developed. These new
technologies may not only help e-commerce, but may be useful in other parts of
society as well.
Economic Issues:
From an economic aspect there have been several advantages to electronic
commerce. In particular consumers have more suppliers, sometimes including
foreign suppliers. Searching the Internet can also be done to find the lowest
price. In general the market becomes larger and makes for more competition.
This increased competition can bring down prices for consumers and other
businesses. Further, the increase in information and choice available can help
increase the efficiency of a supply and demand equilibrium.
Also, with increased competition companies themselves will try to become more
efficient. This may be by new technologies or methods that reduce costs and
increase productivity. In turn from this lower prices may occur or the emergence
of new technology.
Electronic commerce does have some negative effects on the economy. The
availability of goods online should increase competition and in turn lower prices,
but this does not always occur. A good reputation may allow a retailer to hold
some control over their area of the market. Further, companies can also find with
ease the prices of their competitors allowing them to react immediately to
changes. In the worst-case scenario this monitoring may not involve any
changes to price. A price that is not advantageous to the consumer may be kept
because no company is willing to lower their price because it would not be
profitable. That is, a company may be willing to lower their price because the
increase in sales would offset the lower price. However, since other companies
can quickly change their price the original company would not make any extra
revenue from increased sales.
Also the increased competition may cause product differentiation. This involves
making similar products that have the same general purpose, but are still unique.
In this situation consumers will have a difficult time comparing different products.
As a result of the minimal information competition will not be as high and prices
may not be lower.
Privacy Issues :
Strategy to successfully run an e-commerce business requires that as much
consumer information as possible. The need for information often has great
effects on an individual’s privacy. There are many methods that businesses use
to collect this information often times this collection is unknown to the users. One
of these is offering a free service if the individual will fill in a questionnaire. Tools,
such as cookies and web bugs, are being used to monitor consumer’s web
behaviour. There are also companies whose sole purpose, DoubleClick, is to
collect Internet user information. These companies can use the data for
themselves and also provide it to other companies.
This collection of personal information has been found to be a concern to Internet
users. A Pew Internet survey found 84% of US web-users had this concern.
Another survey by IBM found 72% of people surveyed were troubled about
Internet privacy. Still many consumers are not completely against providing
information, they just would prefer to know when and what is being collected.
The majority, 86%, of those poled in the Pew Internet survey said they would
prefer websites use “opt-in” methods. This would make e-commerce businesses
ask for permission before collecting their consumer’s information. Regardless of
this preference by consumers few businesses implement the option.
There are also self-regulating methods that have been attempted to increase
consumer satisfaction. These include joining privacy seal programs such as
TRUSTe, members of these organizations agree to abide by the programs
privacy policy. Other methods simply involve putting up privacy policies on their
sites. Even though there are these options out there only 8% of all US electronic
commerce sites have a privacy seal.
In order for e-commerce to grow further the issue of privacy concerns must be
resolved. People will be wary to buy goods online if they cannot trust companies.
If companies exploit the information they collect not only their reputation will be
tarnished, but it has a detriment on the whole e-commerce world. By making the
effort to ensure customers feel secure about their privacy e-commerce business
will be more successful. Customers will be easier to retain and will most likely
return to the online store. Also, as customers become more comfortable with an
online store it will be easier to build consumer trust and loyalty. This trust and
loyalty can make it easier for an electronic commerce business to collect
consumer information willingly. As more companies become aware of the
importance of the customer’s privacy electronic commerce in general will be
more successful.
Conclusion:
Electronic commerce may be a new form of doing business, but it has developed
rapidly. Even though e-commerce has a short history there have been several
important turning points in its development. Further, as progress took place
more markets opened up for the use of electronic commerce. It became
apparent it could be used more then just for Consumer-to-Consumer, but also for
other markets such as Business-to-Business. Current research in e-commerce is
focusing on making the experience more natural and comfortable for the
customer, through such technology as virtual agents. As with other forms of
business, e-commerce has impacted some industries more then others, such as
the culture and information sector. Other industries, like banking, have the
potential for large future growth via electronic commerce. As this growth
continues this type of business has to face social, economic and privacy issues.
In each of these aspects of society we can see areas that e-commerce is being
successful, but there are also areas for improvement. A major are of concern is
the issue of privacy. Consumers are hesitant to use online business because
they often have limited guarantees about the privacy of their information. If
concerns like these can be reduced, electronic commerce can play a positive role
in helping improve the world of business.