“A modern business methodology ... to cut costs whileWhat’s improving the quality of goods andElectronic services and increasing the speed of service delivery.”Commerce? Frontiers of Electronic Commerce Ravi Kalakota, and Andrew B. Whinston
Evolution of Electronic Commerce From VANS to Internet Electronic Commerce has, so far, meant electronic data interchange (EDI) over Value added Networks (VANS) used by corporate organisations. That was computer-to-computer exchange of routine business documents in a standard format. Now, it has the scope to use the Internet too as the medium. The Internet enables customers, partners and users to access a company’s EDI network, which earlier was closed to smaller companies, simply because of the costs involved.
Evolution of Electronic CommerceFrom VANS to Internet While the Internet speeds up transaction times, another advantage it has over EDI transactions conducted over a private network is the connect charges applicable. Traditionally, VAN providers charge for EDI on a per-transaction basis. Organisations that use EDI therefore tend to send transactions in a batch to their customers once a day. Over the Internet where all connect charges are fixed, Organisations can well afford to send transactions at any time they want to, thus enabling real time commerce.
How can E-commerce be used? Community-based services: Payment of utility bills, traffic fines, donations to charity etc. Shopping: Buying and selling goods and services Communication: E-mail, Net telephony products can be commerce-enabled and serviced via the Net. Biz-to-Biz applications where the purchase orders are generated and seamlessly integrated with EDI systems.
Electronic Trade A recent report by the Organisation for Economic Co-operation and Development (OECD) predicts Internet trading will grow from today’s estimated $500 million to $5 billion by 2001. In keeping with the trend worldwide, India has entered into over 50 tax treaties to follow the flow of the increasingly seamless worldwide electronic trade. With emerging payments standards such as the Secure Electronic Transaction (SET) protocol, E-Commerce practises are reportedly reaching the end of usefulness rapidly.
Trends in Electronic Commerce Even though fewer than one in five of the largest retailers in the U.S. sell their wares on the Internet, consumers managed to spend more than $10 billion shopping on the Web in 1997. Over 10% of that was spent at a single Website--NetMarket, an online discount service created for its dues- paying members by CUC International. NetMarket handled over $1.2 billion in sales last year.
NEW CAPABILITIES THE INTERNETBRINGS TO COMMERCEThe Internet will augment electronic commercealready being conducted between businesses--at amuch lower cost--as well as will dramatically increaseelectronic commerce conducted with consumers.Critical issues such as how to handle electronicpayment, security, privacy, and fraud prevention arebeing addressed with reliable commercial software,and businesses are beginning to use informationtechnology on the Internet to exploit the advantages ofconducting business electronically. Increasingly,business people are discovering important bottom-linebenefits on the Web, including:
NEW CAPABILITIES THE INTERNET BRINGS TO COMMERCESpeedier, more accurate transactionsthrough customer self-serviceThe Internet can save time and money and improveaccuracy by eliminating middlemen who offer little addedvalue. We will eventually see complex, multipartytransactions conducted over the Internet with no humaninteraction at intermediate levels whatsoever. As a resultof one click by the end-consumer, the order will be placed,paid for, the product depleted from inventory, theshipment arranged, replacement components orderedfrom suppliers, and a replenishment order initiated. As anexample, an airlines Web site may perform the simplestduties of a travel agent--provide access to timetables andfares, and make single-provider reservations--thusremoving the agent as an intermediary.
NEW CAPABILITIES THE INTERNET BRINGS TO COMMERCEBroader reach, larger potentialcustomer baseRetailers who embrace the Web enjoy the potential--andchallenge--of selling to an ever-growing community of well-informed shoppers. Geographic boundaries become all butirrelevant (although state taxes and import duty can still apply)and operating hours are limited only by the software andhardware behind the Web site. As has often been observed, theWeb is a great equalizer for businesses just starting up andfacing very large competitors. For example, in the case of anon-line bookstore like www.amazon.com, the vastly largerpopulation of potential customers on the Web renders itfeasible for that single "store" to house a physical inventory nototherwise practical for a startup operation, and thus offers whatpreviously only the "big guys" could.
NEW CAPABILITIES THE INTERNET BRINGS TO COMMERCEBetter and richer information for the business,partners, suppliers, and consumer customersThe Web delivers text, images, voice, and video to WAN-andLAN-connected users, organized onto hyperlinked HTMLpages. This wide range of options enable the consumer orpurchasing agent to view and interact with the business in themost appropriate, polished, appealing, and information-richway. For example, a sophisticated Web server can personalizethe catalog a given inquirer sees. Better and more consistentlythan any user registration card can, a Web site can capture andanalyze the buyers behavior for future planning, dynamicpersonalized marketing, and loyalty schemes. It can involvecustomers, partners, and suppliers in ways previously thoughtto be difficult or impossible (e.g., accept customer-furnishedbook reviews, support chat and e-mail for user groups,dynamically and automatically launch a sale based on the past24-hours buying patterns, etc.). A net-connected consumer,business customer, or supplier can train the business Web siteto keep special interests in mind and proactively notify thebuyer via e-mail of relevant business changes.
E-Commerce and India While some blame the high cost of implementation, others worry about the lack of security. The systems needed to transact over the Net are in the early stages of development and are still costly and complicated for Indian Businesses to use. But it’s clear that E-Commerce is in, and the combination of the Internet and the EDI (Electronic Data Interchange) is the next step in building competitive advantage.
EXAMPLES OF ELECTRONIC COMMERCE TODAYIf we consider some of the goals of businesses withregards to electronic commerce: higher revenuesthrough exposure to additional customers; costreduction; lower product cycle times; faster customerresponse; and improved service quality, we see howdramatically a companys bottom line can beinfluenced with the addition of electronic commerce.A number of pioneering firms are implementingelectronic commerce solutions today and are findingnew ways to save and make money.
Success stories...Lucent TechnologiesBusiness-to-Consumer Electronic Commerce Lucent Technologies is using Oracle Universal Server and Oracle Web Application Server to power a high-traffic Internet commerce site for marketing and selling its business communications products. The site allows Lucent customers to browse up-to-the-minute information and images representing more than 1,000 Lucent products and place orders securely on-line.
Success stories...Lucent Technologies-2 Built in only six weeks, Lucent launched the site in July 1996 at www.lucentdirect.com and has been continually upgrading the site without any performance hits. Lucent product managers are able to easily make updates on-line, such as price increases or product description changes, by simply entering the system through their browser, using a password, and making changes instantaneously to Lucents electronic catalog in a word-processor format. The systems complexity is transparent to Lucent product managers who, with the proper security checks, can maintain their own content in a timely manner. This avoids involving an HTML programmer who would have to make those changes for the entire company.
Success stories...Lucent Technologies-3 "Our customers and employees dont need to know the technology behind the site. The consumer wants to know that the information they are getting is correct and they dont want to wait for it; otherwise, they will buy somewhere else. Because our product managers are able to maintain their own product content on the site, updates are made quickly and easily. That functionality helps to keep Lucents site successful and directly connects us with a whole new market, saving us considerable time and money." – Tom Catani, general manager of electronic commerce, Lucent Technologies
Success stories...In FocusBusiness-to-Consumer Electronic CommerceIn Focus® is the world-wide leader in manufacturingand developing multimedia projection products andservices that make it easy to project the power ofmultimedia in business and sales presentations,software demos, education and training, andinteractive workgroup meetings. The company usesOracle Applications (Financials and Manufacturing) asthe backbone of its business and uses the WebCustomers module to allow its distribution partners(resellers) to track the progress and status of orders. InFocus was able to install and customize WebCustomers in only eight weeks.
Success stories...Chrysler Corp.Chrysler Corp., by linking to its suppliers through aWeb-based network, reportedly saved more than$1billion in cost of materials in 1997. By 2000,Chrysler’s estimated annual average savings willamount to $2 billionThe Internet is a tempting channel for a Bank whichcan conduct an online transaction for five paiseversus RS 1.50 through a teller.The biggest challenge for companies involved inelectronic commerce isn’t the technology-it’schanging the corporate culture. “It requires anorganisation to be bold.”
Success stories...Cisco The Cisco Connection Web Site, now available in 14 languages and with 49 country pages, is claimed to be the largest Internet Commerce Site. John Chambers, President and CEO, Cisco Systems Inc., predicts that E-Commerce will be the primary means by which business will be conducted in the next 10 years. Cisco’s sale through the Web has touched $ of a total of $ billion.
Success stories... Dell Computers Dell Computers made waves in industry circles when they announced that they sold over a billion dollars worth of Personal Computers directly off the Web in 1997.
Lessons learnt from the Dell ExperienceIncreasing margins and revenues. Dellunderstood that the web could take theplace of their customer call center replacingsales representatives and technical supportstaff. Phone and material costs decreasedwhile also speeding up the sales process.
Lessons learnt from the Dell ExperienceValue-added for the customer heightenedthe web experience. The web also offerednew ways to help people choose computersand price them without sending faxes ofinformation. Pricing and comparingconfigurations became easier.
Lessons learnt from the Dell ExperienceSynergies with current business systems.Even if the user doesn’t buy over the web,the percentage of voice calls into Dell showthat a very high percentage did their pre-sales “shopping” by visiting their web site!Customers needed to spend less time withrepresentatives on the phone saving evenmore money.
Lessons learnt from the Dell ExperienceThe perfect target market for consumersales. The web demographics of youngprofessionals who already are computerliterate and disposed to a computer (bybeing on the web) was a marketing matchmade in heaven.
Lessons learnt from the Dell ExperienceThe perfect way emerged for businesssales. Business users can also find their wayonto Dell’s site and Dell is now providinginternal “virtual” web stores within largecorporate Intranets to aid the purchasingprocess. This is a new growth segment forDell’s web-based sales.
How do you Buy On-Line? World Avenue, IBM’s electronic shopping mall on the Web, being beta tested, has been used to generate 5,500 orders from 200,000 online customers, for some $275,000 worth of caps, mugs and other Olympics merchandise.
How do you buy Online? •As you browse through the store, that runs an ‘e-commerce server’, such as the HP domain commerce server or is part of an ‘electronic mall’, such as IBM’s Net.Commerce, the server helps you select an item (say an Olympic souvenir mug), and place an order. Such servers carry software to verify transactions, perform accounting duties, guarantee payments, and even create digital money.
How Do you pay Online? Wishing to pay for the item, you send an enciphered request for payment to your bank/third-party payment provider. Your bank will then remit to you, a secure packet of ‘e-cash’. Using Cybercash’s wallet application , you send an enciphered payment request to Cybercash’s server. Once the credit is authorised by Cybercash over secure lines to your bank, ‘money’ in Wallet is used to complete the purchase. (contd...)
How Do you pay Online?-2 You then send the exact amount of e- cash needed to buy the Olympic souvenir to the virtual store. The server at the store then sends that packet of cash to its bank. The merchant bank then sends a request for transfer of funds to your bank, which the latter, after verification, performs. This is where actual funds are transmitted from your bank to the merchant bank.
Buying Books OnlineAll you do is to select the books you want to buy, and place anorder for them. You could then either pay for them throughyour credit card, or pay for the books when you receive them.Buying books from Amazon.com is thus much like buyingitems from a catalogue. What’s more you can view the book,and maybe read part or whole of it.This Online Bookstore has become so popular, that not only isit the number one bookseller on the web, but the number threebookseller overall.As many as 2,260,000 surfers who visitedthe web site bought books this quarter, an increase of nearly50 percent from 1,510,000 customers account at the end of thefourth quarter 1997, and an increase of 564 percent from340,000 customers accounts at the end of the year ago firstquarter.
E-Commerce : How a Transaction Takes Place-1Here is an example of how an e-commerce transaction takes place. Consider the following case study Musba Book Suppliers has a large and good selection of computer books; reference and computer-based training materials. Sales are effected through the bookstore and an on-line virtual bookstore at www.books.com. Musba Book Suppliers wants to set up a web site in which everything, from the moment a customer placed an order to shipment of that order, was fully automated. The challenging aspect was that the company ships some 200 books a day, and numerous transactions are called for
E-Commerce :How a Transaction Takes Place-2 A customer order triggers a MS-Access stored query. The customer sees real-time stock status on a HTML page. As new titles arrive in the warehouse, a Microsoft Visual Basic module loads incoming stock to the websites’ database. Another Visual Basic module copies the order to the customer service database and removes the order information from the web, for security reasons. A separate Visual Basic Module processes the order; handles customer service needs, and exports the information to a system that calls the company’s credit card. This same application also prints a packing slip, which goes to the warehouse.
E-Commerce :How a Transaction Takes Place-3 Warehouse staff pull the books ordered and type the reference number into the shipping system, which is linked by an ODBC connection directly to the customer database. With the reference number, the shipping system knows who the customer is and where the books are going. The warehouse staff attaches shipping labels which goes to the shipping dock. A Visual Basic-based application recognizes that the order has been shipped and creates a “shipping confirmed” mail message that is automatically sent to the customer. The cycle is complete
1 Consumer finds 6 something she wants to Verification and buy at a “shop” on the remittance of actual Net funds Shop2 Consumer sends on enciphered request for payment to her bank The electronic bank Consumer’s Bank3 sends back a secure Consumer packet of e-cash Public Key Merchant The shop Server 5 sends the packet of cash to its bank Consumer sends the e- 4 cash to the shop Shop Merchant Bank
Agents and IntermediariesTo help organisations conduct business on the Web withouthaving to set up costly servers and devote dedicatedpersonnel to monitor orders and deliveries and othertransactions, a new breed of Agents or Internet E-commerceSolution providers have sprung up.
Agents and IntermediariesAnother similar service provider’s site looks like this:
Good News, Bad NewsLike any other technology, there’s good and bad news.The good news is that E-Commerce is a round the clockadvantage for the customer. It will eventually become standard.What’s more, e-commerce allows fast and flexible executionand response to market opportunities. The Web enables acompany to introduce a new product, get immediate customerreaction, refine and perfect it, all without incurring hugeinvestments in a physical distribution infrastructure. Companiesbetting on E-Commerce have begun to learn about theircustomer’s online buying habits.The bad news is that customer reaction may actually be injeopardy. Led to believe they’re transacting in real-time, theycould become disillusioned and take their business tocompetitors or back to the offline world if their order is notfulfilled quickly.
How do you pay Online How safe would it be to use your Credit Card OnlineWhile such a concern is shared by many users, the risk has nowbeen reduced. This has come about due to the development ofSecure Internet Protocols and Payment Systems, and Serversolutions that can handle electronic transactions.The Secure Electronic transaction (SET) initiative that majorCredit-Card issuers Visa International and Master Card arebacking is expected to solve such security risks. The SETproject, obtaining assistance from Microsoft Corp., IBM Corp.,Netscape Communications Corp., SAIC, GTE, Teresa Systemsand Verisign, aims to deliver a transparent encryption systemsuitable for all electronic transactions using PCs. The use ofPublic Key encryption may also go a long way in allaying usersfear of safety.
How do you pay OnlinePay Cash over the NetThe type of solutions available today include third-partypayment organizations and credit card payment system on theNet. Digicash, France, was the first third party paymentorganization, in 1994, to implement a virtual money system,with which clients and merchants could transact business inrelative safety. Digicash and later third-party paymentorganizations developed payment and merchant systems basedon the RSA security system for transmitting encrypted dataover the Internet. Taken in conjunction with the development ofsecure internet protocols (Netscape Secure Sockets Layer,Enterprise Integration Technologies’ Secure-HTTP, Master-Card and Visa International’s SET and the Joint ElectronicPayment Initiative), third-party organizations have attractedbanks and Credit Card Companies to the Internet.
How do you pay OnlineCyber-cashSome of the third party payment offerings now available areCyberCash, Ecash, First Virtual Payment System andClickshare.CyberCash is a realtime secure, digital signature-basedcredit card authentication service, developed by CyberCashInc. It acts as an intermediary between the consumer, themerchant and the credit card clearing house. Ecash on the other hand is digital money that is downloadedby an Ecash client from a participating bank and stored on acustomer’s local computer. Ecash can be spent at merchantsystems that accept it; accepting merchants, in turn, mustdeposit Ecash receipts at a participating bank.Of the credit card payment systems available now on the Net,ICVERIFY, from ICVERIFY Inc. is the most popular.ICVERIFY processes and authorises credit card transactionsonline.
Duty Free on the NetLast month, the World trade Organization came to a decisionto keep global electronic commerce duty free, and agreed toevolve a programme to deal with its development on theInternet. The new agreement, involving trade ministers of 132countries, bars governments from collecting any tariffs onsuch transactions for atleast a year. It ofcourse has incurredwrath from non-governmental organizations since such anexercise would benefit corporates of developed countries;governments, by the way, would lose the option of a revenueearning source.The Global Internet Project(GIP) presentedthe European Union (EU) with its recommendations on e-commerce last month. EU wants to develop a global chartercovering technical standards, illegal content, licenses,encryption and data privacy on the Internet and otherElectronic networks.
Major components of E-COMShopping Cart (commerce server) An application which helps the shopper to browse through the product list and place an order. Application should be capable of maintaining the state information about the shopper purchase details and his ID.It should also be able to maintain the product list. (Usually this is implemented with the help of components(COM OBJECTS)). The components interact with the database for transaction processing.ASP provides support for this.(Cookies too can be used for this).
Major components of E-COMPayment module(Payment server)Shoppers can make payments through creditcards. Credit card No. is sent to the serverwhich can be stored in the database whichcan be verified against a bank manuallylater.Another method is to use payment serverswhich allows on-line verification of creditcard numbers with the bank. It alsoprovides mechanisms for checksum
Major components of E-COM Security issues(security server) Payments to the server is enabled with the help of a number of security mechanisms Browser-to-Web server data encryption and integrity with SSL 3.0 Browser to database password authentication by use of encrypted digests (Kerberose,Identix,Cybersafe) Protection for corporate databases with protocol-enabled firewalls proxying and authenticating user connection requests (Oracle has supplied sql*net proxy to all firewall vendors). Web Application Server to Browser authentication by use of digital signatures. Security Server provides a Certificate Authority (CA) function, including generation of public key/private key pairs and issuance of industry-standard X.509 certificates.
Players in E-CommerceNetscape is not the only player to move towardsfacilitating its customers in e-commerce. IBM Corpis also gearing itself up to provide ‘e-business’solutions. Other players such as Hewlett-Packard Co.and Compaq-Tandem have launched servers(hardware/software) that will cater to electroniccommerce. Cognos Inc., a leader in businessintelligence tools, has developed Data merchant thatallows corporates to access business intelligence datafrom anywhere around the globe, anytime they wantit.Finally, Microsoft and Sun Microsystems are alsonot far behind, as both their technologies - ActiveXand Java - are capable of providing solutions fordevelopers with security strategies to base theirproducts on.
Players in E-Commerce Software companies that have made a mark for themselves in providing E.Commerce solutions out of the box are: – OpenMarket (LiveCommerce, Transact, ShopSite) – Sterling Commerce – iCat (Commerce Publisher, E.Commerce Suite) – Microsoft (Commerce Server) – Netscape (
Is E-Business all about the Internet?No, the basic foundation for e-business canbe laid without the Internet. It’s all aboutconnecting your offices, suppliers, retailersand streamlining your processes. It’s aboutletting your left hand know what your righthand is doing and extending it to yourcustomers. That’s it. Later when you feelyou’re ready or interested in reachingmillions of customers, the Internet may beyour answer.
But is it for me? Of course, Today you can buy garments, music, magazines, movie tickets and even vegetables on the net. Many companies keep their branch offices and employees informed of the latest developments whether internal or external through an intranet or even simple E-mail. No matter what the nature and size of your business, companies like IBM, Oracle etc.have ready solutions which will make it more cost effective.
Is it safe?Nobody would want to get into somethingthat wasn’t secure. So when you are readyfor e-business you’ll find that manyorganisations have developed solutions likeReal Time Intrusion Detection and AntiVirus software. These along with personalcodes and passwords make sure that anytransaction that takes place or anyinformation that is shared is seen only bythe people it’s meant for.
Will I have to change my existing setup? Certainly not! There’s only no problem even if you are using different hardware and software systems to do your work today. There are companies that will help them all work together, using cross-platform technologies like Java to build smoothly integrated, open e-business solutions that work with both IBM and non-IBM technology. Of course, it would be easier for you if your system is scalable. Because then you can add to it as your business grows.
What the Future HoldsRicardo H. Dujua, general manager of EDINetPhilippines, speaking at the Supermarket Show 97 lastyear predicted that soon more and more shoppers will usethe Internet as the medium of Business. The Electronicsystem will eliminate the need to set up physical stores,warehouses and carry inventory.It is also probable that not only will the greater adoptionof e-commerce change the way retailers conduct business,it may also bring pressure to bear on them to be moreresponsive to customers needs.The World is becoming increasingly networked, changingour methods of working and lifestyles. Once the hypes arecleared and the mist lifts, usage would be fun, businesseasy.
In Future While E-Commerce may not completely replace other forms of Commerce, it is likely to be the dominant mode of the commercial transactions in the future. Colleges and Schools including Business Schools should reflect this trend in the curriculum to train the future generation of Managers.
Consumer Applications and SocialInteraction In the long run, the e-commerce application winners will be those that can change the way consumers think and the way they do business. One example might be applications oriented toward social interaction. Lessons from history indicate that the most successful technologies are those that make their mark socially. The TV and the Telephone are examples.
In Sum In sum, the most successful marketplaces are expected to be those that cater to consumers loneliness, boredom, education and career. For instance, look at the success of on-line chats and home shopping channels. But debates rage over whether interactive TV or on-line computer services will become pivotal medium for solving consumer loneliness.
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