Assignment

Introduction to E-Commerce
Part 01

Introduction
Electronic commerce (e-commerce) improves the efficiency and effectiveness of businesses,
governments, and not-for-profit agencies. The ability to conduct business all over the world 7 days a
week and 24 hours a day is a major advantage of being online. In many cases e-commerce technologies
lower the cost of production and distribution of goods and services. However, going online does not
guarantee success if a sound business model is not followed and if the limitations and strengths of this
evolving technology are not carefully analyzed. In the past few years, the e-commerce world has
experienced many successes and failures. At the same time, the number of goods and services sold
online has increased daily. Puree-businesses, such as eBay, and traditional businesses, such as Dell
Computer, have demonstrated significant savings and increased revenues by using the Web.

What is Electronic Commerce?

To better understand e-commerce one should distinguish between e-commerce and electronic business
(e-business). E-commerce means electronic buying and selling on the Internet. E-business is any
electronic transaction (e.g., information exchange), which subsumes e-commerce. E-business
encompasses all the activities that a firm performs for selling and buying services and products using
computers and communications technologies. E-business includes a host of related activities, such as
online shopping, sales force automation, supply chain management, electronic payment systems, and
order management. E-commerce sites are either pure e-businesses, such as Amazon.com, or they have
an e-commerce presence, such as Wal-Mart Stores. Some e-commerce sites sell products, such as CDs
and computers. Some e-commerce sites sell services, such as computer training and consulting.

The Internet
The backbone of the information superhighway and e-commerce is the Internet. The Internet is a
collection of millions of computers and network systems of all sizes. One can simply refer to the Internet
as the “network of networks.” The information superhighway is also known as the Internet. No one
actually owns or runs the Internet. Each network is locally administered and funded, in some cases, by
volunteers. It is estimated that more than 200 countries are directly or indirectly connected to the
Internet. This number increases daily and makes global e-commerce a reality.

The Internet started in 1969 as a U.S. Defense Department Advanced Research Projects Agency project
called ARPANET. It served from 1969 through 1990 as the basis for early networking research and as a
central backbone network during development of the Internet. Since the Internet’s inception in 1987, the
network has grown rapidly.

ARPANET evolved into the National Science Foundation Network (NSFNET) in 1987. NSFNET is considered
the initial Internet backbone. The term Internet was derived from the term internetworking, which
signified the networking of networks. NSFNET initially connected four supercomputers located at San
Diego, Cornell, Pittsburgh, and Illinois to form the backbone.
World Wide Web
The World Wide Web (WWW or the Web) changed the Internet by introducing a true graphical
environment. Proposed in 1989 by Tim Berners-Lee at CERN, WWW is an Internet service that organizes
information using hypermedia.
Each document can include embedded reference to audio, images, full motion video, or other
documents. The WWW consists of a large portion of the Internet that contains hypermedia documents.
Hypermedia is an extension of hypertext. Hypertext allows a user to follow a desired path by clicking on
highlighted text to follow a particular thread or topic. This involves accessing files, applications, and
computers in a non-sequential fashion.

Hypermedia allows for combinations of text, images, sounds, and full-motion video in the same
document and allows information retrieval with the click of a button. Hypertext is an approach to data
management in which data are stored in a network of nodes connected by links. The nodes are designed
to be accessed through an interactive browsing system. A hypertext document includes document links
and supporting indexes for a particular topic. A hypertext document may include data, voice, and
images. This type of document is called hypermedia. In hypertext documents the physical and logical
layouts are usually different. This is not the case in a paper document. In a paper document the author of
the paper establishes the order and readers are forced to follow the predetermined path.

A hypertext system provides users with non-sequential paths to access information. This means that
information does not have to be accessed sequentially as in a book. A hypertext system allows the user
to make any request that the author or designer of the hypertext provides through links. These links
choices are similar to lists of indexes and can lead the reader on a “custom path.” Any computer that
stores hypermedia documents and makes them available to other computers on the Web is called a
server or a web server. The computers that request these documents are called clients. A client can be a
PC at home or a node in a LAN at a university or an organization. The most exciting feature about the
Internet and the WWW is that these hypermedia documents can be stored anywhere in the world. A user
can as easily jump from a site in the United States as to a site in Paris, France, all in a few milliseconds.

Domain Name
Before a user can begin to navigate the Web and use it for personal use or e-commerce, an
understanding of domain name systems (DNS) (also called do main name servers) is essential. Domain
names are unique identifiers of computer or network addresses on the Web. The following are examples
of domain names:

• Yahoo.com
• Microsoft.com
• Un.org
• Whitehouse.gov

They come in two forms: English-like names and numeric or Internet Protocol (IP) addresses. The Internet
Corporation for Assigned Names and Numbers (ICANN) is a nonprofit corporation that assigns and keeps
track of these addresses.
This was previously performed under U.S. Government contract by the Internet Assigned Numbers
Authority (IANA) and other entities. IP addresses are less convenient because numbers are harder to
remember. The English-like names are electronically converted to IP addresses for routing (transferring
information from one network to the other network). Domain names are used in universal resource
locators (URLs) to identify particular web pages.

For example, in the URL http://www.abc-company.com/, the domain name abc-company.com. Every
domain name has a suffix that indicates which top-level domain (TLD) it belongs to. In the above
example, the suffix is .com, for company. Combinations of the letters of the alphabet as well as the
numbers 0 through 9 can be used in domain names. The hyphen is the only other character utilized;
spaces are not allowed. The TLD is the field on the far most right. It denotes the type of organization or
country the address specifies. TLDs are divided into organizational (generic) and geographic (country
code) domains and this system makes it easy to identify.

Organizational Domains (Generic Top-Level Domains)

.com Commercial organizations (e.g., Microsoft)

.edu Education and academic organizations (e.g., California State University)
.int International organizations (e.g., United Nations)
.mil U.S. military organizations (e.g., U.S. Army)
.gov U.S. government organizations (e.g., Internal Revenue Service)
.net Backbone, regional, and commercial networks
.org Other organizations such as research and nonprofit (e.g., The Internet Town Hall)

Some of the Proposed New Domain Names

.arts for entities emphasizing cultural and entertainment activities

.biz for businesses
.firm for businesses or firms
.inc corporations
.info for entities providing information services
.law for the legal profession
.nom for individuals or family names
.news for news-related sites
.rec for entities emphasizing recreation and entertainment activities
.shop for businesses offering goods and commodities
.store for electronic storefronts
.web for entities emphasizing activities related to the World Wide Web
.xxx for adult content

Sample Geographic Domains: Country Code Top-Level Domains

.au Australia
.br Brazil
.ca Canada
.fr France
.de Germany
.hk Hong Kong
.jp Japan
.kr Korea (Republic)
.my Malaysia
.ru Russia
.es Spain
.uk United Kingdom
.us United States
.va Vatican City State
.zw Zimbabwe
A domain name for a company is as easy as a company name. The two left-most fields of the domain
name refer to the computer. This is relevant for large organizations with several levels of subdomains.
Example:

http://www.abc-company.com/management/clerk.htm

A brief explanation from left to right follows:

http (hypertext transfer protocol). Means of access. This is how the majority of web documents are
transferred.

www.abc-company.com This is the address of a web site. It is uniquely defined and differentiated
from any other web sites. WWW (discussed earlier) is an Internet service that organizes information
using hypermedia

management This is a path or directory. A server may be divided into a series of directories for a
better organization.

clerk.htm This is the document itself. The .htm extension indicates that this is an html document. The
authoring language used to create documents on the Web, html defines the structure and layout of a
web document by using a variety of tags and attributes. All hypermedia documents are written in html
format. Servers that do not support long extensions display .htm, while other servers display html.

Defining E-Commerce
E-commerce encompasses all activities that a firm performs for selling and buying products and services
using computers and communications technologies. In broad terms, e-commerce includes a host of
related activities, such as online shopping, sales force automation, supply-chain management, electronic
payment systems, Web advertising, and order management. E-commerce is buying and selling goods
and services over the Internet. Based on this definition, e-commerce is part of e-business.

E-commerce builds on traditional commerce by adding the flexibility offered by computer networks and
the availability of the Internet. By generating and delivering timely and relevant information through
computer networks, e-commerce creates new opportunities for conducting commercial activities online,
and thus it fosters easier cooperation between different groups: branches of a multinational company
sharing information for a major marketing campaign; companies working together to design and build
new products or offer new services, or businesses sharing information to improve customer relations.

Examples of Companies Using E-Commerce

Amazon.com provides access to several millionbooks electronically. It also sells music CDs, electronics,
software, toys, video games, prescription drugs, and much more.

Drugstore.com refills and sells new drugs and vitamins and other health products online.

Apple Computer sells computers online (apple.com).

Dell Computer and Gateway sells computers through their web sites and allow customers to
configure their systems on the Web and then purchase them.

Peapod sells groceries over the Web.

Virtual Vineyards sells expensive wines from small vineyards over the Web.

Categories of E-Commerce
The several categories of e-commerce in use today are classified based on the nature of the transactions,
including business-to-consumer (B2C), business-to business (B2B), consumer-to-consumer (C2C),
consumer-to-business (C2B), and non-business and government, and organizational (intrabusiness). In
the following paragraphs we define these categories.

Business to Consumer
In B2C e-commerce, businesses sell directly to consumers. Amazon.com, barnesandnoble.com, and
Onsale.com are three good examples of this category. Amazon.com and its business partners sell a
diverse group of products and services to their customers, including books, videos, DVDs, prescription
drugs, online auctions, and much more. In addition to pure B2C e-commerce players such as
Amazon.com, other traditional businesses have entered the virtual marketplace by establishing
comprehensive web sites and virtual storefronts.

Wal-Mart Stores, the Gap, and Staples are examples of companies that are very active in B2C e-
commerce. In these cases, e-commerce supplements the traditional commerce by offering products and
services through electronic channels. Some experts believe that, in the long term, these types of
businesses should be more successful than pure e-commerce businesses.

Some of the advantages of these e-commerce sites and companies include availability of physical space
(customers can physically visit the store), availability of returns (customers can return a purchased item
to the physical store), and availability of customer service in these physical stores.
Business to Business
B2B involves electronic transactions among and between businesses. In recent years the Internet has
significantly increased B2B transactions and has made B2B the fastest growing segment within the e-
commerce environment. The reliance of all businesses upon other companies for supplies, utilities, and
services has enhanced the popularity of B2B e-commerce. An example of B2B is an auto exchange
formed by Ford, Daimler Chrysler, and General Motors called covisint (http://www.covisint.com). This
system offers services in areas of procurement, supply-chain management, and collaborative product
development. Partners achieve build-to-order capability through connectivity among the key lines of
business and throughout an individual company’s supply chain.

Companies using systems such as covisint report millions of dollars in savings by increasing the speed,
reducing errors, and eliminating many manual activities. Wal-Mart Stores are another major player in B2B
e-commerce. Wal-Mart’s major suppliers (e.g., Proctor & Gamble, Johnson and Johnson, and others) sell to
Wal-Mart Stores electronically; all the paperwork is handled electronically. These suppliers can access
online the inventory status in each store and replenish needed products in a timely manner.

Consumer to Consumer
The C2C category involves business transactions among individuals using the Internet and web
technologies. Using C2C, consumers sell directly to other consumers. For example, through classified ads
or by advertising, individuals sell services or products on the Web or through auction sites such as
ubid.com. eBay.com is a good example of a C2C e-commerce company. Using this web site, consumers
are able to sell a wide variety of products to each other. Consumers are also able to advertise their
products and services in organizational intranets and sell them to other employees.

Consumer to Business
Consumer-to-business (C2B) e-commerce involves individuals selling to businesses. This may include a
service or product that a consumer is willing to sell. In other cases an individual may seek sellers of a
product and service. Companies such as priceline.com, travelbid.com, and mobshop.com for travel
arrangements are examples of C2B. Individuals offer certain prices for specific products and services.
Non-business and Government
The e-commerce applications in government and many non-business organizations are on the rise.
Several government agencies in the United States have been using e-commerce applications for several
years, including the Department of Defense, Internal Revenue Service, and the Department of Treasury.
Universities are using e-commerce applications extensively for delivering their educational products and
services on a global scale. Not-for-profit, political, and social organizations also use e-commerce
applications for various activities, such as fundraising and political forums. These organizations also use
e-commerce for purchasing (to reduce cost and improve speed) and for customer service.

Organizational (Intrabusiness)
Organizational or intrabusiness e-commerce involves all the e-commerce related activities that take
place within the organization. The organization Intranets provides the high platform for these activities.
These activities may include exchange of goods, services, or information among the employees of an
organization. This may include selling organization products and services to the employees, conducting
training programs, offering human resources services, and much more. Although they are not direct
selling and buying, some of these activities provide support for a successful e-commerce program in
human resources management, finance, and marketing.

Advantages and Disadvantages of E-Commerce

Similar to traditional businesses, e-commerce presents many advantages and disadvantages. In the e-
commerce world, doing business around the globe 7 days a week, 24 hours a day is a reality. Customers
in any part of the world with an Internet connection can log onto the e-commerce site and order a
product or service. Holidays, weekends, after hours, and differences in time zones do not pose any
problem.

Using various tools such as cookies, e-mail, and the company web site, the e-commerce site is able to
gain additional knowledge about potential customers. This knowledge could be effectively used to better
market products and services. For example, the e-business would know the customer preferences,
shopping habits, gender, age group, and so forth.

In the e-commerce environment, customer involvement could be significantly improved. For example,
the customer can provide an online review of a book that he or she has recently purchased from the e-
commerce site. Or the customer may participate in various open forums, chat groups, and discussions.
An e-commerce site, by using tools such as an online help desk, company websites, and e-mail is able to
improve customer service. Many of the customers’ questions and concerns are answered using these
tools with minimum cost. Printing forms online, downloading software patches, and reviewing frequently
asked questions (FAQs) are other examples of customer service.

A B2B e-commerce site can improve its relationships with suppliers. E-commerce technologies enable
these businesses to exchange relevant information on a timely basis with minimum cost. Using B2B e-
commerce assists businesses in managing a comprehensive inventory management system. An e-
commerce site can improve its relationships with the financial community through the timely transfer of
business transactions and a better understanding of the business partner’s financial status.

Increased flexibility and ease of shopping is a significant advantage of e-commerce. The customer does
not need to leave his or her home or office and commute to purchase an item. The customer does not
need to look for parking in a shopping mall during holidays, nor risk losing the supervision of his or her
small children (for even a short period) or elderly relatives. Shopping tasks can be done from the privacy
of the home with a few clicks of mouse!

E-commerce presence could increase its potential customers. Customers from remote locations and
those outside of the business’s geographical boundaries can purchase products and services from the e-
commerce site. In many cases an e-commerce site should be able to increase return on capital and
investment since no inventory is needed. An effective e-commerce program is able to operate with no
inventory or with minimum inventory. In some cases an e-commerce site serves as middleman, taking
orders from customers, routing orders to suppliers, and making a profit. In other cases an e-commerce
site is able to maintain minimal inventory and fill customers’ orders through a JIT inventory system. By
having no or minimal inventory, the e-commerce site could avoid devaluation in inventory due to the
release of a new product, change in fashion, season, and so forth.

In many cases an e-commerce site by using various web technologies is able to offer personalized
service to its customers and at the same time customize a product or service to suit a particular
customer. By collecting relevant information on different customers, a particular product or service could
be tailor-made to customer taste and preference. In some cases, the customer may pick and choose, as
in sites that allow the customer to create his or her own CD, travel plan, PC, automobile, and so forth.

Many of the disadvantages of e-commerce are related to technology and business practices. These
disadvantages should be resolved in the near future. Possible capacity and bandwidth problems could be
a serious; however, several projects are underway to resolve this issue in the near future.

Security issues are major concern for many consumers. Security issues and measures are expected to
improve in coming years, through the use of media other than credit cards on the Web, such as e-Wallet,
e-cash, and other payment systems, acceptance of digital signatures, more widespread application and
acceptance of encryption technology, and greater awareness and understanding of customers’ concerns.

The accessibility of customers issue will certainly become more manageable, as the number of Internet
users increases daily. Also, the reduction in cost of PCs, handheld, and other Internet appliances should
further increase Internet applications and result in further accessibility of e-commerce. Similar to other
technologies, acceptance of e-commerce by the majority of people will take time. However, the growth of
the Internet and of online shopping points to further acceptance of e-commerce applications in the near
future. When the technology is fully accepted, a company’s e-business strategies and goals will also
become better understood.
 End of part 01
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