INTRODUCTION 351 consumers are placing their orders online, but companies still provide toll-free numbers for those who are hesitant to provide confidential information, such as credit card numbers, online. Airlines were among the first providers to provide a financial incentive to purchase online. Later, they shifted to an additional financial cost if toll-free numbers of support personnel were accessed to make a purchase. Concerns about Internet security have been blown out of proportion. Although online business transactions are not perfectly secure, they are no riskier than ordering via telephone or fax. Computer hackers are similar to everyday criminals who try to find ways to circumvent security systems and procedures, although there are some additional security issues associated with electronic commerce. First, the Internet is an open network without any physical barriers to prevent theft (e.g., hidden cameras, safes, security guards). Second, the same technologies that are being used for commerce can be used to breach security (e.g., computer software used to search for passwords). Several methods can be used to restrict access and improve security in electronic commerce. First, a form of authentication can be required through the use of some combination of account numbers, passwords, and IP (Internet protocol) addresses. Second, a firewall can be used to monitor traffic between an organization's network and the Internet. This barrier can restrict access to certain IP addresses or applications. A third method is to use coding or encryption techniques to transform data to protect their meaning. These security methods can be used individually or together depending on the level of security desired. For instance, firms that are transmitting payment information will be more inclined to use all three levels of defense. This next section covers four topics: the traits of a networked economy, the definition and scope of electronic commerce, the use of electronic marketing, and the beginning of electronic commerce. Authentication Verifying the appropriate access by a user through the use of some combination of account numbers, passwords, and IP (Internet protocol) addresses. Firewall A filter is used to monitor traffic between an organization's network and the Internet. This barrier can restrict access to certain IP addresses, applications or content. INTRODUCTION 349 Traits of a Networked Economy Some people view electronic commerce as a boom-and-bust cycle, but that is really not true. In the mid-1990s, there was a dramatic increase in activity in the broad field of e-commerce. Companies such as eBay, Amazon, and Expc dia provide tangible evidence of the impact that e-commerce has had on th business world. These companies, and hundreds like them, created an ecc nomic boom unlike anything seen before. It began to unravel in 2000, wit the dot-com bust." The impacts are still being felt. Most traditional comp; nies.

1. INTRODUCTION 351
consumers are placing their orders online, but companies still
provide toll-free numbers for those who are hesitant to provide
confidential information, such as credit card numbers, online.
Airlines were among the first providers to provide a financial
incentive to purchase online. Later, they shifted to an additional
financial cost if toll-free numbers of support personnel were
accessed to make a purchase.
Concerns about Internet security have been blown out of
proportion. Although online business transactions are not
perfectly secure, they are no riskier than ordering via telephone
or fax. Computer hackers are similar to everyday criminals who
try to find ways to circumvent security systems and procedures,
although there are some additional security issues associated
with electronic commerce. First, the Internet is an open network
without any physical barriers to prevent theft (e.g., hidden
cameras, safes, security guards). Second, the same technologies
that are being used for commerce can be used to breach security
(e.g., computer software used to search for passwords).
Several methods can be used to restrict access and improve
security in electronic commerce. First, a form of authentication
can be required through the use of some combination of account
numbers, passwords, and IP (Internet protocol) addresses.
Second, a firewall can be used to monitor traffic between an
organization's network and the Internet. This barrier can restrict
access to certain IP addresses or applications. A third method is
to use coding or encryption techniques to transform data to
protect their meaning. These security methods can be used
individually or together depending on the level of security
desired. For instance, firms that are transmitting payment
information will be more inclined to use all three levels of
defense. This next section covers four topics: the traits of a
networked economy, the definition and scope of electronic

2. commerce, the use of electronic marketing, and the beginning of
electronic commerce.
Authentication
Verifying the appropriate access by a user through the use of
some combination of account numbers, passwords, and IP
(Internet protocol) addresses.
Firewall
A filter is used to monitor traffic between an organization's
network and the Internet. This barrier can restrict access to
certain IP addresses, applications or content.
INTRODUCTION 349

3. Traits of a Networked Economy
Some people view electronic commerce as a boom-and-bust
cycle, but that is really not true. In the mid-1990s, there was a
dramatic increase in activity in the broad field of e-commerce.
Companies such as eBay, Amazon, and Expc dia provide
tangible evidence of the impact that e-commerce has had on th
business world. These companies, and hundreds like them,
created an ecc nomic boom unlike anything seen before. It
began to unravel in 2000, wit the dot-com bust." The impacts
are still being felt. Most traditional comp; nies, including those
in the hospitality and tourism industry, were forced t
Encryption
Transmitted data are scrambled to prevent unauthorized access
by
350 CHAPTER IO ELECTRONIC COMMERCE
change their business practices and business models. Online
reservations for hotels, airlines, and restaurants, online check-in
for airlines and hotels, and other forms of electronic exchanges
are now quite common. In the airline industry, these
transactions are ubiquitous.
Those who follow the evolution of electronic commerce agree
that a networked economy, based on firms that have an Internet
presence and conduct business online (at least in part), has
several important traits:2
· It creates value largely or exclusively through the gathering,
synthesizing, and distribution of information. Firms that engage
in e-commerce activities can collect significant data about their

4. customers. They can more easily determine consumers' likes,
dislikes, and responses to various marketing stimuli. The wealth
of data, which is readily analyzed, allows marketing managers
to make better-informed decisions.
· It formulates strategy in ways that result in a convergence of
management of the business and management of various
technologies. The management of technology is viewed not as a
separate function, but as a core business competency. The
development of e-commerce applications is viewed not as a
parallel activity, but as part of the core set of activities within
the firm.
· It allows firms to compete in real time, not in cycle time or in
asynchronous time. Historically, businesses made changes on an
intermittent basis, as a result of data about, for instance,
financial performance or guest response. With the increasing
use of technology, this lag time can be nearly eliminated. For
example, an airline can post price changes to an e-commerce
Web site and then monitor site transactions to determine within
a very short time whether the price change has resulted in the
desired change in buyer behavior.
· It operates in business environments in which there are low
barriers to entry and extremely low variable costs. This trait is
applicable to pure electronic commerce companies, but less so
to companies in the hospitality and tourism industry. Hospitality
and tourism firms have higher capital costs for buildings,
fixtures, and equipment than do firms that are pure electronic
commerce companies.
· It organizes resources around the demand side of the business
(i.e., the level of demand from potential buyers of the products
and services). Demand from potential customers is constantly
monitored to determine changes in demand. These firms then
attempt to influence demand by changing marketing variables
such as price and availability.
INTRODUCTION 349
·

5. · It examines relationships with customers in "screen-to-face"
interfaces in which technology is used to manage and customize
customers' experiences. In order to increase relationship-
building interactions and reduce labor costs at the same time,
technology is used to "push" customized information to the
consumer. This can take many forms, including e-mail and web
site information that is customized to match the interests and
past behavior of individual consumers.
· It uses technology-mediated methods to measure and track
customer behavior and interaction patterns. These data are then
used to customize future interaction with individual customers
and customer groups with similar buyer behavior.
Definition and Scope of Electronic Commerce
The use of digital technology has dramatically shifted the
business paradigm, both domestically and internationally.
Digital technology has created entire new industries, shifted
others, and forced managers and leaders of firms to look at their
customers, markets, and competitors in entirely new ways. The
size and scope of e-commerce has changed dramatically in the
past ten years. Numerous industry publications and research
organizations report on these trends. Among the most notable
are www.emarketer.com, www.cnet.com, and www.
forester.com. Table 10.1 provides several facts and figures that
characterize the development of the Internet within the
hospitality and tourism industry.
Electronic commerce can be characterized by several
attributes.3 First and foremost, e-commerce is about exchanges:
· Exchange of digitized information. The foundation of e-
commerce includes exchange of digitized information. These
exchanges can involve information or communications, or they
can be related to the purchase of goods or services in a digital
format. The exchanges occur between organizations or
individuals.
· Technology-enabled transactions. E-commerce is about

6. technology-enabled transactions. Use of Web browsers is the
most common form of e-commerce, but there are others. When
banks use ATM machines or companies use phone or personal
digital assistant (PDA) interfaces to create exchanges, these are
part of e-commerce as well. Years ago, companies managed
these exchanges through human interaction, but technology is
used more frequently today. The result is normally better
response to customer needs and a reduction in the cost of the
exchange. Perhaps the best