T5L5
Electronic Commerce
Introduction
During the mid-to-late 1990’s, a business revolution emerged. Known as Electronic
Commerce, or E-commerce, its most visible component was the online store. Pioneers
such as Amazon Books, CD-Now and FTD helped win customer acceptance for shopping
on the Internet. According to Andover News Network, the US Internet economy reached
$507 billion by late 1999, 3 years ahead of projections.
By the end of this lesson you should be able to:






Define E-commerce and provide some examples.
Describe some of the enabling technologies for E-Commerce.
Describe some of the different forms that E-commerce can take.
Describe Electronic Data Interchange and explain why it can be beneficial
for a business.
Describe the five components for basic E-commerce.
Describe domain names and explain the process for registering one.
NOTE: In this lesson a number of company web sites are provided for illustration. These
are not to be taken as endorsements of the company or their services.
Start your explorations of this area by reading the following:





What is Electronic Commerce?
Different Forms of Electronic Commerce
Enabling Technologies for Electronic Commerce
Components for Basic Electronic Commerce
Domain Names
Additional Resources
This is only a small sample of the better online resources for further E-Commerce study.
http://ecommerce.about.com
This is an excellent resource with lots of articles, tutorials, news, links to
services and providers, and more.
http://www.builder.com/Business/EcomSpot/?tag=st.it.9562.dirlinkbl.ecomspot
1
T5L5
C/Net Spotlight on E-commerce is a large resource of articles, industry
news, links to services and providers, software downloads, reviews, and
more.
http://www.zdnet.com/ebusiness/
ZDNet E-commerce site links to hundreds of resources, including
tutorials, news, tips, downloads, research, job bank and more
http://ecommerce.internet.com/
The Electronic Commerce Guide site, from Internet.com, is much like a
daily trade journal with articles, news items and links to resources
2
T5L5
What is Electronic Commerce?
Mention E-commerce to the average person and you will evoke thoughts of online stores
and promotional web sites for companies such as Nike and Barnes and Noble. However,
that is only part of the picture. In reality E-commerce is much broader, encompassing
many business activities. (Some writers have used the term 'E-business' to refer to this
larger set, to distinguish it from the popular narrow view of E-commerce.)
A current definition:
E-commerce is the conduct of commerce in goods and services, with the
assistance of telecommunications and telecommunications-based tools.
Another way of looking at E-commerce is to say it is the merger of commerce and
communication technologies. Although this may seem a new occurrence, it has actually
been happening for many years. For example, banks have been using point-to-point
networks for electronic funds transfers (aka, 'wire transfers') for decades.
Many businesses have also been engaged for years in electronic data interchange
(EDI), in which data files are exchanged with suppliers or customers to facilitate greater
business coordination. As an example, the order processing and inventory system of a
retail chain might share data with a supplier, enabling the supplier to better plan
production. The result is greater efficiency, and cost savings, for both businesses. Current
estimates project that EDI activity on the Internet alone could exceed $300 billion by
2003.
3
T5L5
Different Forms of Electronic Commerce
E-commerce encompasses a wide range of business approaches. A few are described
below.
Retail sites
The online store or online shopping malls are examples of E-commerce retail sites. At the
simplest extreme is the small business web page that advertises products or services and
provides a telephone number or E-mail address for further information and ordering. This
minimal approach is so inexpensive and effective that it has revolutionized mail-order
business, providing global reach at a fraction of the former cost.
More complete E-commerce retail solutions might also include online ordering, a method
for a customer to check on the status of an order, and an information center. The
information center could provide product-related information to give customers a reason
to keep returning to the site -- where they may be informed of special offers or new
products. An example of a retail site is www.vitamins.com , a vitamin and herbal
supplements retailer.
Auction sites
An online descendent of the consignment store is the auction site. This is an online
business that allows customers (sellers) to place 'for sale' ads for merchandise. The seller
may set a minimum price and an asking price. They may also set a time limit for the
auction. Other customers (buyers) may then bid on the merchandise. Once a seller has
accepted a bid it is between them and the buyer to arrange to complete the sale. The
auction site then receives a percentage of the sale price. One very popular auction site is
www.ebay.com .
A curious offshoot of the auction site is the 'reverse auction' site. This is a site where the
buyer places a 'wanted' ad, specifying the item wanted, price wanted, and possibly a time
limit. Originally developed to help travelers bid on airfare rates, the concept has extended
to consumer goods and even groceries. One very popular reverse auction site is
www.priceline.com .
B2B E-Commerce
B2B E-commerce refers to the use of E-commerce technologies to support commerce in
products and services between businesses. B2B E-commerce includes EDI as a subset.
B2B catalog sites provide wholesale catalogs and other product information online. This
allows businesses to electronically shop around for the best deals in materials or services.
4
T5L5
Because the catalog is online, the supplier can change information and have it
immediately available to customers.
B2B exchange sites are similar to financial exchanges. They are used to trade commodity
items, such as electricity, copier paper, or raw materials. An example is
www.corporategear.com/ -- this site offers exchange services for the promotions
industry. B2B auction sites function in the same way as consumer auction sites. They
can be used to sell off excess inventory or materials. An example is
www.sonicauction.com/ .
A new type of B2B E-commerce is the B2B community site. This is a site that supports a
given industry or region and serves as a communication and information nexus for its
members. The site may report on legislative issues, it may help coordinate lobbying or
other political activities; it may provide industry-specific information on emerging
technologies or practices. An example is www.fiberopticsonline.com -- this site provides
a community for the fiber optics industry.
B2B E-commerce began with electronic data interchange (EDI), involving simple data
file transfers between businesses. This was done because large businesses realized that
they needed information faster in order to remain competitive. In the early 1970's, large
companies such as Kmart Corporation and Sears, Roebuck & Company pioneered the use
of telecommunications for data interchange. Due to their size and geographic expanse,
these companies typically generated mountains of paper forms. The use of EDI reduced
the need for paper forms, allowed data to be transferred immediately, and eliminated the
cost and errors associated with multiple data entry. In 1978, the United States Electronic
Data Interchange (EDI) Standard known as Xl2 was developed.
The 1970’s and 1980’s saw the development of value-added networks (VANs),
independent firms that provide trading partners with telecommunications and EDI
forwarding services. Two examples are General Electric Information Services
(www.geis.com ), and IBM Global Services (www.ibm.com/services/globalnetwork/ ).
VANs permitted many more companies to develop EDI, but the costs were such that EDI
was still only affordable for fairly large companies. An additional problem was that a
given company might need to subscribe to multiple VANs, to reach all of their intended
business partners.
The Internet changed this by providing businesses with a standard, reliable, and
somewhat secure, worldwide communications network. Tunneling technologies, which
allow private information exchange over the Internet, have allowed the development of
virtual-private networks (VPN). These work similar to VANs, but at a much reduced
cost since the physical network is already provided.
Today, through the application of EDI and other E-commerce technologies, it is possible
for the information systems of two companies to be directly linked – providing (if
desired) real-time data flow. The result is that production, purchasing, inventory and sales
can be coordinated and fine-tuned to reach maximum efficiency.
5
T5L5
According to the Gartner Group (a leader in IT consulting), B2B e-commerce overall is
expected to reach $7.29 trillion by 2004.
Public Relations Sites
Whether or not a company elects to get involved in online sales, or B2B it may still want
a web presence to support its public relations and marketing.
In the mid 1990’s, a few companies had web sites available to provide information on its
products. Television advertisements for those companies would quietly display the URL
of the site at the end of the advertisement. This was done ‘quietly’ (and without fanfare)
so as not to insult viewers who were not Internet savvy.
As of mid-2000 the approach has become more brazen, with many companies now
offering promotions, contests and other special deals ONLY through their web sites. The
URL’s are now prominently announced throughout the advertisement. One cable
television network (Oxygen) displays banners across the bottom of the screen showing
the web site addresses of all of its advertisers.
A public relations site may offer the following kinds of services to customers

Information about the product and related subjects

Information to help you better use the product, such as assistance and
support, conferences where you can communicate with other customers,
tips, etc.

A fun or entertaining feature, such as a trivia contest, sweepstakes, etc.
The point of all of these services is to develop a happy customer who is likely to return to
the site periodically. An example is the Kraft Interactive Kitchen (www.kraftfoods.com ).
This site provides consumers with recipes, family fun suggestions, tips, meal planners,
and, of course, lots of information about Kraft foods. What it does not provide is a way to
purchase Kraft products, for that you must still go to your friendly local grocer.
6
T5L5
Enabling Technologies for Electronic Commerce
The development of E-commerce came as a result of the development of certain enabling
technologies. Following is an abridged list of these technologies and their impact.

The Internet
When the Internet was declassified during the mid 1980’s, part of the intent was
to make it available for industry. Its focus shifted from one of supporting research
and development to being the ‘National Information Infrastructure’ supporting the
national economy.
Indeed, the rapid growth of inexpensive Internet service providers (ISPs), webhosting services and E-commerce solutions providers have extended the range of
E-commerce to include even small part-time ‘Mom and Pop’ stores.

Electronic mail
A major part of the information flow related to business is in the form of basic
communications. The postal system and telephone network provided for most of
this communication flow among businesses and between businesses and
customers. The rapid expansion of electronic mail, based on the Internet SMTP
protocol, has provided a convenient alternate medium for basic communication.
Two major advantages to electronic mail are its near-immediacy and its
asyncronicity. Near-immediacy means that E-mail is very fast. In some situations
(when network traffic is low) it can be almost instantaneous. Even at its worse, it
is much faster than the postal service. Asyncronicity refers to the fact that the
sender and recipient of E-mail do not have to be online and connected at the same
time in order to communicate. With a telephone call, the caller has to plan the
timing of the call to when the business is open. This can be a problem if the
business is in a different time zone.

World Wide Web
The World Wide Web did two major things to enable modern E-commerce. First,
it was the so-called ‘killer application’ that prompted many families and
individuals to acquire personal computers with Internet access. By 1999,
according to Robert Samuelson (Newsweek, April 5, 1999), over 50% of US
homes had at least one personal computer, and 64% of those had Internet
accounts.
Second, the Web provided a standard for information exchange that is simple and
extensible. Simple in the sense that people with little or no technical training
could use it effectively. Also, the Web is based on fairly simple technology; it
requires little technical training to create and publish a basic Web page. The Web
7
T5L5
is extensible because it can modified, through the use of plug-ins and viewers, to
deliver and display virtually any kind of data file.

Personal computer and LANs
The personal computer and local-area networks are the hardware behind much of
E-commerce today. Before the personal computer, many large businesses used
minicomputers and mainframes, but no homes and few schools had computers.
After the PC explosion of the late 1980’s and early 1990’s virtually every
business has a computer on every desk. Most schools and libraries contain PC
laboratories with Internet connections. Many homes have at least one PC.

Database technologies and standards
Last, but not least, the development of modern database technologies and
standards have enabled the growth of E-commerce. Many online storefronts, order
processing systems, and payment processing systems rely on database backends
to web sites. This provides an interaction that eliminates the need for a human
salesperson and allows the customer to work directly with the company
information system.
8
T5L5
Components for Basic Electronic Commerce
Putting a retail business online requires the consideration of five important factors. These
may be addressed in different ways, but all are important.
1. On-line storefront
The on-line storefront is the set of web pages that make up your customer
interface. The point is to provide information about your products and services, as
well as a way to submit orders. Careful attention must be given to the information
architecture, visual design and usability of the storefront. If your site is too flashy,
and takes long to download or requires special plug-ins, you will lose customers
and sales. A good online storefront would employ the tools of advertising and
marketing.
The ordering mechanism provided must be simple – one study shows that 60-70%
of online shoppers do not complete purchasing transactions, often because they
are overwhelmed by the complexity of the process. For example, it is better to
have a way to allow a customer to order an item by clicking on a button than by
requiring them to enter a product code. The latter approach is too much work and
will turn off customers.
One way ordering is achieved is through use of a web form. The data entered is
sent to the company’s ordering database, and the appropriate information
forwarded to the company’s order fulfillment system. One interesting strategy is
the use of a cookie to permit a customer to place items in a virtual ‘shopping cart’.
This allows them to browse through different pages in an online store, and
conveniently purchase all items at one time
2. Payment processing
There must be a way for the customer to pay for the product. Traditional mailorder approaches such as check. money order or COD are either inconvenient or
too slow. So, payment processing mainly boils down to two approaches: credit or
charge cards and electronic cash.
Credit or charge card transactions
For a business to accept credit or charge cards, they must set up an account with a
‘merchant bank’ this is a bank that provides credit or charge card processing
services to companies who wish to accept that form of payment. When a customer
presents a credit or charge card (or the appropriate account numbers), the
company transfers that information, electronically, to the merchant bank for
authorization.
9
T5L5
When the transaction is authorized (meaning the account is valid and has enough
credit to cover the transaction) the company will proceed to complete the
transaction and the merchant bank will have a record of it. The merchant bank
credits the company account with the appropriate amount of funds, (less any fees)
and receives payment from the customer.
There are also a number of companies that will take the hassle out of this - for a
fee. These companies provide the service of allowing you to accept credit cards
without opening a merchant account.
Electronic cash and derivatives
Electronic cash is still in its infancy, but becoming more popular, due to some
limitations of credit and charge cards. One such limitation results from the fee
charged to the company by the merchant bank. In addition to a percentage-based
fee there is also a minimum fee per transaction. This is often invisible to the
customer, but it is deducted from the amount of payment that actually goes to the
company. For this reason, many companies require a minimum purchase ($10 or
$15) if payment is to be made with a credit or charge card. (They lose money
otherwise)
The goal of electronic cash is to duplicate the flexibility of real cash by providing
two important features of real cash:

cash may be spent only once

cash may be spent anonymously
Electronic cash may be held online or off-line. If held online, cash is in an
account and the user provides amount and account information when making a
purchase. This is similar to using a bank debit card to purchase items with funds
held in a customer’s checking account. A third party (the bank) is involved to
verify that the account is valid and has enough funds.
If held offline, the amount of funds is recorded into a program (encrypted) or onto
a ‘smart card’. (Your Penn State ID card contains this capability.) Funds may be
added to the card by going to a specific location and depositing money. The
information is written onto the smart card. The customer may then need to use
special card-reading hardware (a card scanner or ‘swiper’) to make payment from
the card.
Online electronic cash is the most immediately promising method for ecommerce, because it does not require the customer to have special hardware on
their computer to complete the transaction. Offline electronic cash is most useful
for traditional purchasing – eliminating the need to carry money, write checks or
10
T5L5
use credit or charge cards. One very popular place for the use of smart card
electronic cash is at University and College campuses.
3. Shipping/order fulfillment
Once an order is received, the appropriate information must be transferred to the
company shipping and order fulfillment departments. In the traditional business
approach this is done through paper transfer, with the sales agent filling out the
proper forms and then mailing them (through company mail), or by having the
sales agent enter the information directly into the company order fulfillment
system. Both approaches introduce needless delays and inefficiencies.
The E-commerce approach is to have the order processing system transfer the
information automatically to the order fulfillment system. This eliminates
unnecessary delay resulting from duplicate data entry or paper transfer.
It also becomes possible to get additional efficiency by changing some systems
from a serial mode to a semi-parallel mode. For example, in a traditional business
the sales person may interact with the customer and take the order. They then pass
information to the order fulfillment department. When the order is ready for
shipping, the order fulfillment department sends the information to the shipping
department. When the information is transferred in this method (serially) it could
result in delays as the shipping department processes the information in
preparation for shipping.
However – the process can be made more efficient by having the order processing
system alert both the order fulfillment and shipping departments at the same time.
The processing of shipping information can be done ahead of time, so the product
is ready to ship as soon as it is available.
An ‘order tracking’ system can also be used to see the current status of any order.
Such systems have evolved to the point where, in some cases, a customer can
directly obtain the status of their order – without having to work through a
company representative. (Federal Express has such a system.)
4. Customer service
Shopping online has some advantages over traditional shopping, such as the
avoidance of long lines, the availability of more product, etc. However it has one
major drawback – the lack of any ‘people’ to help customers who have questions
or need assistance. One survey indicate that the lack of face-to-face contact is a
primary reason given by those who have been avoiding online shopping.
Therefore, customer service must be a part of any e-commerce site.
This can be achieved in a number of ways:
11
T5L5

Providing contact information for email or telephone inquiries. If email, it
must be answered promptly, Such as within one business day.

Providing an easy way for a customer to return product or get help with a
problem.

Some companies are providing chat rooms or bulletin-board conferences
staffed with a customer representative – for quick Q&A.

Providing automatic feedback to the customer
o A web page where a customer may see the current status of an
order.
o Having the order fulfillment/shipping system send e-mail to the
customer, telling them when the order has been shipped, by what
means, and the shipping number.

Providing a way that customers can indicate their product interests and
preferences, so friendly alerts about new products or specials can be sent
to them.

Asking for customer feedback after an order has been delivered. This
achieves the dual goals of gathering information to improve service, and
making the customer feel important.
5. Promotion/marketing
All of the capabilities mentioned above are for naught if your company has no
customers .For this reason, marketing has always been one of the most important
facets of any business. This is even more true with E-commerce, where you are
marketing not only product, but also technique.
Promotion may also involve making deals with companies that sell banner ads –
so that your product is advertised on the web pages of other sites. The targeting of
these sites and banner ads is important. If your company sells sporting goods
online, it makes more sense to have a banner ad on a sports news page than on a
page with information about vegetarian baby foods. One company that delivers
banner ads, using cookies to target sites at specific customer subgroups, is
www.doubleclick.com .
12
T5L5
Domain Names
The domain name for a E-commerce site can be as important as the company name and
trademarks. Although domain names are not required to have an online business
presence, it is far easier for customers to remember a URL like www.shopnow.com
than one like www.newprovider.com/users/commercial/arb1137/startpage.html .
Part of the process of registering a new domain name is to determine if the domain name
is already in use. One current issue is that there are so few top-level domains (EDU, MIL,
GOV, COM, NET and country domains like UK, IL and TO) that many of the good
names have already been taken. As a result, in early 2000 the Internet corporation for
assigned names and numbers (ICANN) agreed to allow the creation of new top-level
domains. You might expect to see top-level domains like .SHOP, .CAR and .BIZ in the
near future.
A number of online companies facilitate domain name registration. One example is
www.register.com . The basic process for registering a domain name are:
1. Check for domain name availability.
2. Register by filling information form.
3. Select payment method and submit.
An interesting practice resulting from online stores is intuitive domain branding. This is
when a company establishes a brand by registering culturally intuitive domain names.
Examples include names like petopia, ebay, etc.
13
T5L5
14
T5L5
Electronic Commerce Summary
This lesson is designed for you to gather information about basic text formatting. When
you finish this lesson, you should be able to:






Define E-commerce and provide some examples.
Describe some of the enabling technologies for E-Commerce.
Describe some of the different forms that E-commerce can take.
Describe Electronic Data Interchange and explain why it can be beneficial
for a business.
Describe the five components for basic E-commerce.
Describe domain names and explain the process for registering one.
A short summary of these topics are listed below. If you cannot do these things, you
should review the lesson at least once. If you are still having difficulty, you should
consider other sources of information that compliment this lesson, such as textbooks,
tutors, and instructors.
Introduction
E-commerce emerged in the mid-to-late 1990's. The US Internet economy reached $507
billion by late 1999.
What is Electronic Commerce?
E-commerce is the conduct of commerce in goods and services, with the
assistance of telecommunications and telecommunications-based tools
Different Forms of Electronic Commerce




Retail sites
Auction sites & Reverse Auction Sites
B2B E-Commerce
Public Relations Sites
Enabling Technologies for Electronic Commerce





The Internet
Electronic Mail
World Wide Web
Personal computer and LANs
Database Technologies and Standards
15
T5L5
Components for Basic Electronic Commerce





On-line Storefront
Payment Processing
Shipping/Order Fulfillment
Customer Service
Promotion/Marketing
Domain Names
The domain name for a E-commerce site can be as important as the company name and
trademarks.
A number of online companies facilitate domain name registration. One example is
www.register.com The basic process for registering a domain name are:
4. Check for domain name availability.
5. Register by filling information form.
6. Select payment method and submit.
16