UNIT-4

E-Commerce
ELECTRONIC COMMERCE FRAMEWORK

From the business activity already taking place, it is clear that e-commerce applications will be
built on the existing technology infrastructure—a myriad of computers, communications
networks, and communication software forming the nascent Information Superhighway. Figure
shows a variety of possible e-commerce applications, including both inter organizational and
consumer-oriented examples. None of these uses would be possible without each of the building
blocks in the infrastructure:
 Common business services, for facilitating the buying and selling process
 Messaging and information distribution, as a means of sending and retrieving
information.

Multimedia content and network publishing, for creating a product and a means to communicate
about it

The Information Superhighway—the very foundation—for providing the highway system along
which all e-commerce must travel
The two pillars supporting all e-commerce-—applications and infrastructure— are just as
indispensable:
Public policy, to govern such issues as universal access, privacy, and information pricing

In addition to the development of new vehicles and systems, other key components of
commercial transactions need to be examined. How can businesses assure customers of safe
delivery? How can customers pay for using the I-way? The Common Business Services block of
addresses these supporting issues. Encryption and authentication methods have been developed
to ensure security of the contents while traveling the 1-way and at their destination, and
numerous electronic payment schemes are being developed to handle highly complex
transactions with high reliability.

These logistical issues are difficult to address in long-established transportation systems. That
complexity is compounded in the nascent world of electronic commerce by the unique interplay
among government, academia, and private commercial endeavors as well as by the challenge of
integrating otherwise incompatible transportation systems while maintaining an uninterrupted
flow of traffic. And whereas traditional businesses are governed by the Commercial Code and
detailed case histories, very basic policy and legal questions are materializing in relation to e-
commerce. In the case of vehicular traffic over the interstate highway system, public policy
issues concern pollution, consumer protection from fraud, environmental impact and taxation.

Similarly, in information traffic, public policy issues deal with the cost of accessing information,
regulation to protect consumers from fraud and to protect their right to privacy, and the policing
of global information traffic to detect information pirating or pornography. Again the issues
themselves, let alone the solutions, are just now evolving and will become increasingly
Important as more and more people with variable intent enter the electronic marketplace.

The final pillar on which the e-commerce framework rests is technical standards, without which
the impact of this revolution would be minimized. For instance, returning to our analogy with
traditional transportation systems, railroads would not have flourished had each state established
a separate track standard (meter gauge versus broad gauge, for example) and goods would have
to be constantly moved from one train to another every time the standard changed, as they do
today at the border between Russia and Western Europe. Similar differences in standards exist
today in electronic distribution (110 versus 200 volts) and video distribution (Sony beta VHS),
limiting worldwide use of many products.

Standards are crucial in the world of global c-commerce, to ensure not only seamless and
harmonious integration across the transportation network but access of information on any type
of device the consumer chooses—laser disc, PCs, portable hand-held devices or television + set-
top boxes cable converter boxes)—and on all types of operating systems. For example without
the adoption of video standards, video conferencing will never become widespread. as each
manufacturer will attempt to develop that maximizes their short-term profits rather than working
toward customer goals such as interoperability.

While we have strived to limit our initial discussion o the elements of a framework for electronic
commerce to an understanding of what part they play within this complex network, it is no
accident that we have ended with a convergence of technical, policy, and business concerns. The
concept of “convergence” is essential to the operation of the Information Superhighway and to
the way the business world is gearing up to deal with it. It is only fitting that we preface our
discussion of the one element of our framework we have not yet discussed in detail—e-
commerce applications themselves— with a clarification of the concept of convergence.

ELECTRONIC COMMERCE AND MEDIA CONVERGENCE

The effects of convergence are already being felt. Many companies are pooling their resources
and talents through alliances and mergers with other companies to make the electronic
marketplace a reality Part of their motivation may include reducing their risk in light of the
uncertainty about what form this eventual global marketplace and e-commerce applications will
take.

The term e-commerce has become irrevocably linked with the idea of convergence of industries
centered on information that until today has been isolated—content, storage, networks, business
applications, and consumer devices. Convergence, broadly defined, is the melding of consumer
electronics, television, publishing, telecommunications, and computers for the purpose of
facilitating new forms of information-based commerce. The public can be forgiven for finding
the concept perplexing, since the popular press uses the terms multimedia and cross-media
interchangeably. Multimedia convergence Driving the phenomenon of convergence are some
simple technological advances:

Convergence of content translates a types of information content—books, business documents,

videos, movies, music—into digital information. Once converted into digital form, that
information can easily be processed, searched, sorted, enhanced, converted, compressed,
encrypted. replicated, transmitted, and so on, in ways that are conveniently matched to today’s
information processing systems.

Convergence transmission compresses and stores digitized information so it can travel through
existing phone and cable wiring. New switching techniques and other technological
breakthroughs enable all types of information to travel to the home. Here we see a convergence
of communication equipment that provides the “pipelines” to transmit voice, data, image. and
video—all without rewiring the neighborhood.
Convergence c information access devices have the sophistication to function as both computers
and televisions. Other examples are the ubiquitous telephone, with internal fax machine, modem,
and video monitor, capable of receiving fax, e-mail, and video.
Convergence is also being driven by of certain market conditions including the following:
The widespread availability of increasingly low-cost, high-performance enabling component
technologies, including semiconductors, storage and
THE ANATOMY OF E-COMMERCE APPLICATIONS

Although no one knows what applications of electronic commerce will be successful in the long
run, the potential payback for those who hold the winning numbers is a powerful driving force
behind the development of the infrastructure and the convergence of numerous industries that we
have examined in the previous sections. we showed e-commerce applications situated at the very
top, and this is indeed indicative of how most applications rest on the entire infrastructure and
reach out to consumers. It is important to understand; however, that applications can be found at
all levels of the infrastructure itself. Not only is multimedia content a part of the infrastructure
that will enable consumers to enjoy video on demand, but creation of that content is in itself an
e-commerce application. Similarly, e-mail can be considered both a messaging infrastructure and
a purchasable end product.

In the following subsections we will revisit many parts of the infrastructure we have already
presented, this time in light of the business applications. Once again we have provided a point of
reference, in Fig. 1.2. We will examine electronic commerce applications, multimedia content
and multimedia storage servers as well as the information delivery system, the network service
providers that serve as access points, and the devices that function as interfaces for various e-
commerce applications.

Multimedia Content for E-Commerce Applications

Multimedia content can be considered both fuel and traffic for electronic commerce applications.
The technical definition of multimedia is the use of
Multimedia mimics the natural way people communicate. Its purpose is to combine the
interactivity of a user-friendly interface with multiple forms of content. In the popular press,
multimedia is associated with the hardware convergence taking place in the telecommunications,
computer, and cable industry as the next generation of digital, interactive home entertainment
nears technical completion. From this perspective, multimedia has come to mean the
combination of computers, television, and telephone capabilities in a single device.

Multimedia systems do much more than conventional database systems, which are oriented
toward numeric processing (or number crunching). Business professionals are well aware that
more than 90 percent of the information that firms use for business operations and decision
making lives outside the “traditional” database systems. This external information—in the form
of technical manuals, memos, e-mail, problem reports, sales brochures, and product design—is
crucial for smooth organizational functioning.
Thus many managers charting strategic directions now ask, Which applic ations of multimedia
will have the greatest impact on their particular busin ess operations? That question is being
asked more frequently because computing and networking have advanced to the point where the
distribut ion of multimedia is not only possible but also inexpensive. Although everyo ne agrees
that multimedia represents the next generation of computing, few have a clear idea of what
multimedia is all about, what it can do, and where it is heading. This is understandable since, the
term multimedia covers so many things that it is often difficult to conceptualize. And, adding to
the turm oil, telecommunications, cable/broadcasters, computer software and hardw are
providers each have a different view of what multimedia means. Everyone does agree, however,
that whatever multimedia proves to be, business must be involved in it one way or another.

The traditional, separate business divisions, presented in Table 1.1, no longer hold true in the
world of multimedia. For instance, an electronic book, no longer text only, often includes
photographs, voice, video clips, animation, and a host of other things. In other words, every form
of content is interrelated to other forms.

Access to multimedia content depends on the hardware capabilities of the customer. For a long
time, the capability of the computer hardware was well ahead of the needs of software
applications available to run on it. This gap is narrowing rapidly, however, with resource-
hogging “application software” rich in multimedia content: electronic books, real-time
information, movies, videos, and interactive services such as CD-ROM titles.

Telecommunications and cable companies, now aware of the importance of content for the future
of e-commerce applications, have begun to acquire

Multimedia Storage Servers and Electronic Commerce Applications

Electronic commerce requires robust servers to store and distribute large amounts of digital
content to consumers. These multimedia storage servers are large information warehouses
capable of handling various content, ranging from books, newspapers. advertisement catalogs,
movies, games, and x-ray images. These servers, deriving their name because they serve
information upon request, must handle large-scale distribution, guarantee security, and complete
reliability.
Digitized content eliminates the bulkiness and mechanical unreliability found in past equipment.
Steady advances in digital memory technology are making mass-storage devices technologically
feasible and increasingly cost- effective. For example, with the 256-megabyte and 1-gigabyte
memory chips now under development, an entire feature-length movie could be stored on four to
ten memory chips. Frequently requested or accessed content will be stored on such relatively
expensive chips; content requested less often will be housed on less expensive media, such as
optical disks and magnetic tape.

Client-Server Architecture in Electronic Commerce

AU c-commerce applications follow the client—server model (see Fig. 1.4). Clients are devices
plus software that request information from servers. The client—server model replaces
traditional mainframe-based models that worked well for a long time. Mainframe computing,
which traditionally meant “dumb” terminals attached to a computer housed in a glass house, is
too costly and slow to cope with new data types like audio and video. In cont rast, the dominant
model of client-server architecture links PCs to a storage (or database) server, where most of the
computing is done on the client. Even existing client—server models based on 1’C servers, while
providing back-end technology for scalable and flexible database management, have to be
reengineered to accommodate new data types.

The client-server model, allows the dient to interact with the server through a request-reply
sequence governed by a paradigm known as mess age passing. The server manages application
tasks, handles storage and security, and provides scalabiity—ability to add more clients as
needed for serving more customers—and client devices (from personal digital assist ants to PCs)
handle the user interface

Internal Processes of Multimedia Servers

The internal processes involved in the storage, retrieval, and management of multimedia data
objects are integral to e-commerce applications. In general terms, a multimedia server is a
hardware and software combination that converts raw data into usable information and then
“dishes out” this information where and when users need it. It captures, processes, manages, and
delivers text, images, audio, and video. Most multimedia servers provide a core set of functions
to display, create, and manipulate multimedia documents; to transmit and receive multimedia
documents over computer networks, and to store and retrieve multimedia documents.

To make interactive multimedia a reality, a server must do the following:

handle thousands of simultaneous users; manage the transactions of these users (e.g., purchases,
specific information requests, customer billing); and deliver information streams to consumers at
affordable costs. The technical challenge is obvious when one realizes that traditional models of
information management do not lend themselves to the new paradigm.

Video Servers and Electronic Commerce

The electronic commerce applications related to digital video will include telecommuting and
video conferencing, geographical information systems that require storage and navigation over
maps, corporate multimedia servers, postproduction studios, and shopping kiosks. Consumer
applications will include video on-demand and a range of interactive services such as shopping,

The need for large-scale video storage has led to a unique business partnership between
technology/transport and media companies in interactive TV trials and has resulted in the
development of new video servers. Video servers for a block diagram of a video server
architecture) are an important link between the content providers (entertainment/media) and
transport providers (telcos/wireless/cable operators). One important difference between video
servers and the current client—server computer systems used extensively for data processing is
that video servers are designed to deliver information to hundreds of consumers simultaneously
via public telecommunications and cable networks. Video servers tackle the “simultaneous
overlapping” supply problem that arises when providing on-demand services to large numbers
of homes.

ELECTRONIC COMMERCE CONSUMER APPLICATIONS

Businesses looking to get involved in the electronic marketplace want fast answers to some very
basic questions. What type of services do consumers really want or are willing to pay for? Do
they want applications that bring about social change, that entertain, that are educational, or that
educate as well as entertain? What amount is the consumer willing to pay for these services?
How should the product be priced so that firms are competitive as well as profitable? We address
these questions in the following sections.
Consumer desires are very hard to predict, pinpoint, or decipher in electronic markets whose
shape, structure, and population are still in the early stages. Needs envisioned include
entertainment on-demand, including 500- channel TV, video on-demand, games on-demand, and
news on-demand; Currently, the application of choice among the cable and telecom providers
who are developing the infrastructure is video on-demand. Why are most companies betting
heavily on this? Let’s look at some statistics from the United States:
Ninety-three million homes have television. That’s 98 percent of households. About two-thirds
of the homes have more than one television, and about the same number are connected to cable.

• Americans spend nearly half their free time watching television. According to Nielsen, the
market research firm, the average television is on about seven hours a day, and the average
American watches television between three to four and a half hours a day. The only other
activities that take up more time than watching television are work and sleep.

• At almost any moment every evening, more than one-third of the population is in front of a
television—not all watching the same channel, of course. This huge TV audience is made up of a
multitude of moving targets, namely, consumers wielding remotes.
• Sight, sound, and motion combine to make television a powerful means of marketing. As
proven by the success of home shopping networks, television can move mountains of
merchandise.

Video on-demand is seen as part of an overall long-term trend from the passive delivery vehicles
of movies, radio, and TV to “consumer-interactive” platforms. How will it work? To see a video,
consumers would pick one from a wide selection and would be billed later. As currently
envisioned, video on- demand is merely a cheaper or more convenient replacement for the corner
video store.

In the future, viewers will decide what they want to see and when they want to participate.
Consumers will be given greater control over scheduling these activities. The changing trends in
consumer choice can be seen in other areas of entertainment besides movies, namely, in the
consumption of sports, TV shows, and educational programs. This movement is evident in the
popularity of CNN, whose 24-hour newscast frees the consumer from having to watch the six or
eleven o’clock news. However, video on-demand is not a

Consumer Applications and Social interaction

In the long run, the c-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.

Television, the most successful technological miracle since the automobile, quickly became so
vital that people, even those who couldn’t even afford shoes, bought sets in the millions. In 1945
almost no one in the US. had a TV; by 1960 about 86 percent of households did. Now contrast
this with the telephone. Bell invented the telephone in 1876 and by 1940, 40 percent of U.S.
households and by 1980 about 95—98 percent of households were connected.
Penetration was slower for the telephone than for TV because of the effort needed to set up the
wiring infrastructure. Nevertheless, both technologies are equally significant in their impact. The
impact of the telephone on business and social communications is without doubt one of the most
significant events of the twentieth century. The same is true of the influence of television on
consumer behavior and entertainment habits.

Delivering Products to Customers

In addition to developing e-commerce applications, packaging and distribution must he

considered. Blockbuster Video, for instance, believing that Its traditional distribution through
stores could become obsolete, is actively exploring electronic media as a distribution channel.
Clearly, Blockbuster knows what consumers want in entertainment: It has the rental and
purchase history on its 40 million members and is adding 300,000 new members each week.
While positioning itself to be the provider of new media, the company is collecting extensive
information about this emerging market. Blockbuster’s research shows that the typical consumer:
(1) spends $12 a month on home video expenditures; (2) wants to go to the video store to select a
video; (3) is on a limited budget; (4) has time to kill; and (5) only periodically expends a large
sum of money on entertainment. If we compare this profile with that presented earlier, of a $200-
a-month home entertainment delivery wherein users needn’t leave their couch, the two
approaches seem quite contradictory.

Clearly, then, extenuating factors such as the attraction of video stores and the ability to browse
are sometimes overlooked. Until user interfaces become sophisticated, the process of scrolling
through dozens of menus to select a video may prove to be as time consuming as, and
substantially more frustrating than, going to the video store. Most current thinking ignores the
actual “excursion” element of choosing a video, for children and adults alike. Cocooning may be
a very valid concept, but it does not mean that people will never want to leave their homes.

Consumer Research and Electronic Commerce

Evaluating customer preference is the main uncertainty facing application designers. What mix
of voice, data, video, entertainment, education, information, geographic coverage, mobility, and
interactivity will consumers demand? How much time and money will they be willing to spend
to use these networks? How much will regional or cultural differences influence application
architectures’ The answers to these questions lie in consumer research.
Many businesses are navigating the electronic marketplace without proper consumer and market
research. This can be disastrous, given that even preliminary research shows some surprising
results. Let’s look at one specific

ELECTRONIC COMMERCE ORGANIZATION APPLICATIONS

Just as consumer appeal is not certain, it is not clear which e-commerce applications corporations will use
internally. Corporations do not buy information and communications technology simply because it is new
or because it is interesting to writers in the press. Companies adopt technology to save money and
improve the bottom line. Managers are asking: How can electronic markets be utilized to further such
organizational goals as better intern al coordination, faster problem solving, and improved decision
making?

Changing Business Environment

The traditional business environment is changing rapidly as customers and businesses seek the
flexibility to change trading partners, platforms, carriers, and networks at will. Many companies
are looking outside their organization as well as within when shaping their business strategies.
These activities include establishing private electronic connections to customers, suppliers,
distributors, industry groups, and even competitors. to increase the efficiency of business
communications, to help expand market share, and to maintain long-term viability in today’s
business environment. The Information Superhighway will expand this trend to another level all
together: It will allow business to exchange information among constantly changing sets of
customers, suppliers, and research collaborators in government and academia on a global basis. It
will indeed become a powerful business tool that no organization can do without.

This trend has been reinforced in George Salk’s interesting Harvard Business Review (HBR)
article “Time—The Next Source of Competitive Advantage” (July/August 1988) and, more
recently, in the March/April 1992 HBR (Salk, Evans, and Shulman) article, “Competing on
Capabilities: The New Rules of Corporate Strategy.” According to Salk, “competitive strategies
based on flexible manufacturing, rapid response, expanding variety and increasing innovation are
time-based. Inter-networking, whether internally or externally with customers and business
partners, can be a useful tool to facilitate time-based competitive strategies.” internet via a public
network infrastructure provides a firm with the pathways to conduct e-commerce between
trading partners, support collaboration with partners who can supply needed capabilities, and
stay close to the customer.

Pressure influencing business

Electronic Commerce and the Retail Industry

Let’s take a look at the changing conditions in the “new economy” with respect to the retail
industry. Consumers are pushing retailers to the wall, demanding lower prices, better quality, a
large selection of in-season goods. Retailers are scrambling to fill the order They are slashing
hack-office costs, reducing profit margins, reducing cycle times, buying more wisely. And
making huge investments in technology. They art revamping distribution channels to make sure
that warehouse costs are down by reducing their average inventory levels and coordinating the
consumer demand and supply patterns. In the push to reduce prices, more and more retailers are
turning to overseas suppliers, in part because of cheaper labor costs. For example, apparel
retailers in the U.S. buy roughly half their merchandise overseas each year. In 19’3, they
increased the amount of merchandise purchased abroad by about 7 percent while holding the line
on total purchasing.

Retailers are in the immediate line of fire and were first to bear the brunt of cost cutting. They
are putting that pressure on the manufacturing and supplier end of the pipeline. At the same lime,
the quest for efficiencies has led to turmoil and consolidation within the retail industry. The
pressure experienced by retailers and suppliers can be seen in the disappearance of jobs, in
mergers, and in the increase in business failures in the manufacturing sector. During the past ten
years in the United States, 2.5 million apparel manufacture

Marketing and Electronic Commerce

Electronic commerce is forcing companies to rethink the existing ways of doing target marketing
(isolating and focusing on a segment of the population), relationship marketing (building and
sustaining a long-term relations hip with existing and potential customers), and even event
marketing (setting up a virtual booth where interested people come and visit). Consider the case
of conventional direct marketers, who devote some 25 percent of their revenues to such costs as
printing and postage for catalogs. Interactive marketing could help cut such expenses and may
even deliver better results.

Interactive marketing is accomplished in electronic markets via interactive multimedia catalogs

that give the same look and feel as a shopping channel. Users find moving images more
appealing than still images and listening more appealing than reading text on a screen. Those are
two powerful reasons why every text-based and still-picture-based interactive experiment like
videotext has failed in the past. it is also why no computer terminal—based has ever generated
anywhere near the volume of retail merchandise orders that televised shopping channels have
achieved. Maximum public acceptance will require that interactive catalog services have a more
entertaining visual appearance than traditional text-intensive catalogs have had. Ideally, an
interactive shopping program should produce full-motion demonstrations of the selected
products, but such a practical and economical technology has yet to be developed.

Inventory Management and Organizational Applications

With borders opening up and companies facing stiff global competition for the first time in
decades, managers know they need to catch on quickly to better ways of doing international
business. Adaptation would include moving toward computerized, “paperless” operations, to
reduce trading costs and facilitate the adoption of new business processes.
One often business process is inventory management. Solutions for these processes go by
different names. In the manufacturing industry they’re known as just-in-time inventory systems,
in the retail industry as quick response programs, and in the transportation industry as
consignment tracking systems. Inventory reduction is often a target as it averages 2 percent of
sales; and when the cost of inbound warehousing of raw materials or the cost of warehousing
work-in-process inventory is included, the total often reaches 6 percent to 30 percent of sales.
Electronic commerce projects seek to reduce this cost by as much as 90 percent

Just-In-Time Manufacturing

Just-in-time (JIT) is viewed as an integrated management system consisting of a number of

different management practices dependent on the characteritics of specific plants. The JIT
management system, an evolution of the Japanese approach to manufacturing and initially
introduced for the Toyota production system, is based on two principles: elimination of waste
and empowering workers. The first principle refers to the elimination of all waste (time,
materials, labor, and equipment) in the production cycle. The following management practices
are typically associated with JIT systems: focused factor reduced set-up times, group technology,
total productive maintenance, multifunction employees, uniform workloads, ITT purchasing,
kanban, total quality control, and quality circles.

ITT purchasing.considered an integral part of JTT, has received considerable attention in

electronic commerce. It allows a manufacturer to incorporate its suppliers’ efforts toward
eliminating waste in the upstream portion of the manufacturing cycle. JIT purchasing focuses on
the reduction of inventories throughout the logistical systems of the manufacturing firms
involved

Quick Response Retailing

Quick response (QR) is a version of JIT purchasing tailored for retailing.

Mast often, keeping a store filled with merchandise is a task most shoppers never consider—until
the product they want is out of stock. The frustration ‘hat shoppers experience sometimes gives
way to thoughts of “How do retailers buy and stock products anyway?” The process is quite
complex, give n that a single retailer may purchase merchandise from thousands of vend ors in a
global market. The failure to stock merchandise that matches customer demand can be extremely
costly. For example, in the soft goods industry alone, excess inventories, inadequate information,
and related inefficiencies resulted in lost sales of more than $25 billion in 1994 (1BD95J.

To reduce the risk of being out of stock, retailers are implementing QR systems. QR provides for
a flexible response to product ordering and lowers costly inventory levels. QR retailing focuses
on market responsiveness while maintaining low levels of stocks. It creates a closed loop
encompassing the retailer, vendor, and consumer chain, and as consumers make purchases the
vendor automatically orders new deliveries from the retailer through its computer network. The
bar-coded articles are logged by the cash registers at the point of sale, the inventory system of the
store then determines the needed supply, and the system transmits an order message to the
retailer. The availability of accurate information with respect to the current sales enables
sophisticated marketing capable of responding to consumers’ preferences. Figure illustrates the
various steps of the quick response chain.

Supply Chain Management

Until recently, these inventory management strategies were implemented through very expensive
computer systems and private networks. The cost was an insurmountable barrier for many small
businesses, and these new business strategies created many side effects. For instance, because of
the vast investments needed to implement JIT/QR, the manufacturer/retailer tended

Supply chain management (SCM) is also called “extending,” which means integrating the
internal and external partners on the supply and process chains to get raw materials to the
manufacturer and finished products to the consumer. Most companies tail to integrate their
supply chain strategies for a number of reasons, among them a lack of system integration due to
fragmented supply chain responsibilities. But in neglecting integration and the broader concept
of supply chain management, firms might be missing an opportunity to cut costs and boost
customer service. SCM rests on the premise that product excellence alone fails to guarantee
corporate success. In fact, customers expect many services, including the prompt delivery of
products to precise locations with near-perfect administrative and physical quali ty (

Supply chain management includes the following functions:

• Supplier management. The goal is to reduce the number of suppliers and get them to become
partners in business in a win/win relationship. The benefits are seen in reduced purchase order
(P0) processing costs, increased numbers of POs processed by fewer employees, and reduced
order processing cycle times.
• Inventory management. The goal is to shorten the order-ship-bill cycle. When a majority of
partners are electronically linked, information faxed or mailed in the past can now be sent
instantly. Documents can be tracked to ensure they were received, thus improving auditing
capabilities. The inventory management solution should enable the reduction of inventory levels,
improve inventory turns, and eliminate taut-of-stock occurrences.

• Distribution management The goal is to move documents related to shipping (bills of lading,
purchase orders, advanced ship notices, and manifest claims). Paperwork that typically took days
to cycle in the past can now be sent in moments and contain more accurate data, thus allowing
improved resources planning.

Channel management. The goal is to quickly disseminate information about changing operational
conditions to trading partners. In other words, technical, product, and pricing information that
once required repeated telephone calls and countless labor hours to provide can now be posted to
electronic bulletin boards, thus allowing instant access. Thus electronically linking production
with their international distributor and reseller networks eliminates thousands of labor hours per
week in the process.

• Financial management. The goal is to enable global companies to manage their money in
various foreign exchange accounts. Companies must work with financial institutions to boost
their ability to deal on a global basis. They need to assess their risk and exposure in global
financial markets and deal with global information as opposed to local market information.
• Saks force productivity. The goal is to improve the communication and flow of information
among the sales, customer, and production functions. Linking the sales force with regional and
corporate offices establishes greater access to market intelligence and competitor information
that can be funneled into better customer service and service quality. Companies need to collect
market intelligence quickly and analyze it more thoroughly. They also need to help their
customers (relationship management) introduce their products to market faster, giving them a
competitive edge.

In sum, the supply chain management process increasingly depends on electronic markets
because of global sourcing of products and services to reduce costs, short product life cycles, and
increasingly flexible manufacturing systems resulting in an variety of customizable products.

Work Group Collaboration Applications

For work group applications, c-commerce represents the holy grail of connectivity: a ubiquitous
internetwork that enables easy and inexpensive connection of various organizational segments to
improve communications and

Video conferencing is now the best-established application, and is expected to grow in the
coming years. Video conferencing allows distant business colleagues to communicate without
the expense, time, and inconvenience of traveling. Already in hospitals and health clinics, video
conferencing allows surgeons to examine computerized video x-rays and CAT scans of distant
patients whose doctors need a second opinion. Because video conferencing still requires
significant investments in equipment arid often entails the use of dedicated facilities with special
communications lines, its applicability and appeal to small businesses have been limited.
Video conferencing is beginning to penetrate the desktop PC market, although technical
limitations will limit that growth. What is needed are faster chips for processing video—namety,
compressing and decompressing. In the past, high video conferencing start-up costs—at least
S25,000—have kept it a product for large corporations. This could change dramatically with the
introduction of cheaper video conferencing for less than $500. A small camera mounted on the
top of the computer monitor and two add-on boards can transform a PC into a video-phone. Also,
as the price of point-to-point or point-to-multipoint video conferencing drops, video
conferencing is expected to continue its penetration into the corporate marketplace
 UNIT-5

E-Business Model

Electronic commerce applications require a reliable network infrastructure to move the

information and execute a transaction in a distributed environment. These applications rely upon
two key component technologies i.e., the publishing technology necessary for the creation of
digital content and distribution technology to universally move the digital contents and
transactions information. Thus, in the framework network infrastructure forms the very
foundation while publication and distribution technologies are the two pillars that support the
creation of distributed electronic commerce applications. In addition to technological
infrastructure and applications, for electronic commerce to flourish, it is essential to have a
business service infrastructure. The business service infrastructure comprises of directory
services; location and search services; and a trust mechanism for private, secure, reliable, and
non-repudiable transactions, along with an online financial settlement mechanism.
The multi-layered architecture of electronic commerce, comprising of essential blocks has been
shown in Fig. 3.1. The framework describes various building blocks, enabled by technology, for
creating new markets and market opportunities. The building elements of electronic commerce
architecture are described as follows:

Network Infrastructure

The early experiments for establishing communication among geographically dispersed

computers, funded by the Defense Advance Research Project Agency (DARPA), evolved into
ARPANET. It was the first packet switched network that interconnected several Universities and
research organization. The establishment of ARPANET lead to several other experimental Wide
Area Networks (WANs) such as BITNET, CSNET, Space Physics Analysis Network (SPAN),
and High Energy Physics Network (HEPNET) to name a few. In the mean time, the broadcast
based networking technology, introduced originally by Xerox PARC, also evolved into Local
Area Networks, interconnecting offices and campuses. Each one of these networks transported
messages among interconnected computers, but used proprietary protocol for the purpose. The
International Standards Organizations (ISO) seven layer Opens System Interconnect (OSI) model
attempted to standardize various networks. The adoption of TCP/IP as a network communication
protocol by the Defense Department of the US Government provided the much needed
interconnectivity among heterogeneous networks.

Today, the network infrastructure, known as internet, consists of heterogeneous transport

systems. These different transport networks interconnect using common network protocol
standards called TCP/IP. TCP/IP is concerned with the issue of providing a reliable data
transmission mechanism for applications. All the computers connected/ accessible on the internet
share a common name and address space. The standard prevalent addressing scheme uses 32-bit
numbers called IP addresses, to uniquely identify the machine. The Internet Assigned Numbers
Authority (lANA) is responsible for putting in place schemes for managing common shared
address space. The current 32-bit address scheme has already become inadequate due to the
growth in number of machines connected on the Internet, a 48-bit address space, IPV6, has been
created to meet the growing demand. The common name space is implemented using the
Domain Name System (DNS), and ensures that each machine on the internet has a unique name.

The name here refers to the combination of the host and domain name. TCP/IP, named after its
two primary protocols, viz., Transmission Control Protocol (TCP) and Internet Protocol (IF), has
emerged as a de facto standard of connectivity. In TCP/IP networks, it is the internet protocol
layer that holds the architecture together by delivering the IP packets from end to end in a
connectionless format. Irrespective of the underlying transmission media and framing formats
utilized by various heterogeneous networks, the IP layer receives packets from the upper layers
and injects them into underlying networks. The packets from underlying networks are received
and delivered by the IP layer to the upper layers at the destination site. The IP layers behave
much like a postal services where each packet is delivered independent of all other packets, thus
in the process it may deliver packets out of the sequence in which they were sent.
The transmission control protocol (TCP) provides a connection- oriented reliable delivery
mechanism. It insures that a byte-stream, emanating at one machine destined for the other
machine, is delivered without any errors, duplication and in the original sequence. TCP layer at
the originating machine divides the incoming byte-stream from applications into multiple IP
packets and adds sequence numbers to them and then utilizes the connectionless and unreliable
LP service for delivery through underlying heterogeneous network. The receiving TCP process
at the destination machine combines the packets together and orders them by the original
sequence number assigned to them prior to delivery. The transport layer in addition to TCP also
supports a User Datagram Protocol (UDP). UDP is an unreliable connectionless protocol. It is
often used in applications, such as video and audio streaming, where prompt and constant
delivery of data is more important than the in sequence

Information Distribution Technology

Information distribution and messaging technologies provide a transparent mechanism for

transferring information content over a network infrastructure layer. It is accomplished through
software systems that implement File Transfer Protocol (VIP), Hypertext Transfer Protocol
(HTTP), and Simple Message Transfer Protocol (SMTP) for exchanging multimedia contents
consisting of text, graphics, video, and audio data. For electronic commerce, challenges exist in
providing a secure, reliable, and portable mechanism that can inter-operate over a variety of
devices such as personal computers, workstations, palmtops, set-top boxes, and wireless
communicators.

The messaging service offered by SMTP servers have been implemented by the various software
programs that ensure a message composed and dispatched for a specified destination address is
delivered reliably. Some of the commonly used and available implementations of the SMTP
services are Sendmail and Qmail programs. Similarly, various implementations of Ff1’ protocols
have also existed for quite some time and have been in use for reliably transferring files from one
computer to another over the network.
Electronic Commerce

Tim Berners-Lee at the Particle Physics Laboratory (CERN), in France, proposed the Hypertext
Transfer Protocol (Hill’) in 1989. The protocol permitted the transparent delivery of hyper-linked
documents, residing on remote computers, consisting of multimedia information. A prototype
server system that used the Hypertext Transfer Protocol (HTI1’) was implemented to
demonstrate the capabilities of such a system. The protocol and the software source code were
made publicly available. The programmers at the National Center of Supercomputer
Applications (NCSA) developed the first client program, Mosaic, that offered graphical user
interface for interacting and browsing the multimedia content delivered by Hill’ servers. It is the
development of Hill’ information distribution protocol and later Mosaic, a GUI client, that
provided the impetus for using the internet for electronic commerce rather than electronic
communication and file transfers. Netscape, Microsoft and Apache are the major H TI]’ servers
that dominate the internet world. All these products provide generic as well as proprietary ways
of interfacing the Hill’ server with corporate databases and information repositories. Corporate
information lies in heterogeneous systems, ranging from file systems, relational database
management systems and object database management systems. The capability of Hill’ to deliver
static as well as dynamic information content including multimedia information in an easy and
transparent manner makes it amenable to create information sources that can be delivered and
rendered on a distributed geographic area over a wide variety of client machines.

Networked Multimedia Content Publishing Technology

The information distribution protocol, HTTP, delivers the documents written in the Hypertext
Markup Language (HTML), to the client program. The language offers an easy way for
integrating multimedia content, residing in a variety of computers connected on the internet.
HTML makes it possible to integrate the multimedia content in a document form and the
integrated content then can be published using the HTTP servers. Clients can make requests, for
the published information residing on Hull’ servers. Clients submit requests to servers using the
Hypertext Transfer Protocol. The servers respond to requests by locating and delivering the
HTML document or error message, as the case may be, to the client. The client programs, also
known as browsers, parse and render the delivered HTML documents on the screen of the client
machine. As stated earlier, each machine connected on the internet has a unique name and
address, commonly referred to as the IP address and domain name respectively. All published
documents on the Internet can be uniquely identified and located by a Uniform Resource Locator
(URL) address. The URL address effectively serves as a unique name of the published
document, worldwide.
Architectural framework for electronic commerce

URL is made up of three parts: the protocol name, machine name, and the name of document on
the machine. The machine name part of URL identifies the machine and protocol name
determines the distribution server that will serve the document and the rules and format in which
the document will be served. The document name of the URL points to a specific document on
the machine. Thus, a URL is capable of addressing as well as locating documents in the entire
universe of internet.

The HTML is tag-based language and provides a rich set of tags that are used for designing the
page layout, embedding multimedia objects, hyperlinking documents residing on the same as
well as other internet connected machines. A simple HTML document can be developed in any
standard text editor. In addition there are a variety of HTML editors that make the job of
developing HTML documents easier, besides ,the developer need not recollect all the tags while
developing an HTML document. In addition to HTML, the Extensible Markup Language (XML)
has also emerged as a language for developing pages for the web. HTML is more concerned
about how a page is formafted and displayed, while XML describes the actual content of a page.
Security and Encryption

Distributed interactive applications that can showcase the information sources can be created
using information distribution and publication technology. Electronic commerce applications
require that the information sources to be made available online to geographically dispersed
clients and facilitation of the transactional environment. For electronic commerce to be viable,
the two important issues need to be addressed: protection of the source of information that is
being made available online, and protection of the transaction that travels over the network.
Participating businesses in electronic commerce have to publish the information and make it
widely available in a network connected world. Wide connectivity and ready access to
information also opens up sites to unwanted intruders. The first issue is addressed by deploying
strong site security measures that constantly monitor the site for authenticated and authorized
activities, virus detection and elimination systems, and intrusion detection systems and firewalls.
The second issue of securing the transaction, carried out over the network, requires addressing
several security and confidentiality related issues. The confidentiality or privacy of the
transaction data can be addressed by using various encryption techniques. The shared key as well
as the public/private key pair based encryption techniques can be used for the purpose. In
addition to the confidentiality of the transaction issue, the other important issues include the
ability of business entities involved in transaction to authenticate each other, the ability to ensure
that the messages exchanged between them have not been tampered with and finally the
assurance that neither of the parties will repudiate the transaction they entered in.

It simplifies the task of describing and delivering structured data from any application, thus,
providing users with the ability to share and search the data in XML documents, in much the
same way as we share and search data from databases and files.

The issue of protecting the information available on the electronic commerce site; privacy;
secrecy and tamper-proofing of information flowing on the wire and non-repudiation of
transactions executed are all essential for building confidence among trading parties to take the
plunge in executing electronic commerce transactions. Encryption technologies based on shared
key mechanisms such as Data Encryption Standard (DES) or public-private keys such as RSA
algorithms have been utilized for addressing the issues of authentication, authorization, privacy
and non-repudiation. Security and encryption technologies available today have been deployed to
develop a public key infrastructure in the form of certification authorities, to serve the purpose of
authentication and non-repudiation. Digital certificates issued by the certification authority are
used as authentication and identification mechanisms. The validity or trust in digital certificates
depends upon the credentials and legal standing of the certification authority.
Security requires various toolkits, firewalls and encryption products. Certification authorities,
based on the legal framework of the country, have emerged as the required role players in
building confidence for the growth of electronic commerce.
Payment Services

Online payment is fundamental to the acceptance of electronic commerce as a viable alternative

to traditional commerce. It is a mechanism that facilitates an online financial exchange between
concerned parties. In the case of large and established businesses deploying Electronic Data
Interchange (ED!) for transactions, banks have been supporting the electronic payment
mechanism through the Electronic Fund Transfer (EFT) channel. In the expanded scenario of
electronic commerce, with geographically dispersed retail buyers and suppliers unknown to each
other, mechanisms based upon a limited number of well-known participants do not have the
flexibility to scale-up to emerging electronic markets. Several scalable and flexible electronic
payment mechanisms ash, cheques and credit cards have emerged, essentially imitating
traditional payment mechanisms. Electronic payment mechanisms

In the electronic commerce environment, when a buyer, after having selected some items to buy
from a site, arrives at the checkout counter of a web site, the merchant web site should be in
position to offer multiple payment options that are convenient, safe, reliable, and widely
accepted. The electronic payment mechanisms evolved can be classified in to three major
categories — pre-paid, instant-paid, and post-paid. The instant- paid mechanism requires
equivalence to Government/Central Bank backed cash transactions. None of the electronic
payment systems that have been developed so far offer the equivalence to or carry a
Government/Central Bank guarantee like cash. Debit cards come closest to instant-paid
electronic payment systems. The various electronic/digital cash mechanisms that have been in
vogue are in fact prepaid payment systems. In these systems the physical currency is used for
acquiring digital cash that in turn can be spent in an electronic payment environment. Post-paid
mechanisms are equivalent to credit card and cheque based transactions
Ecash,, Digicash, NetBill, Micromint, Netfare and Mondex are some examples of payment
systems that fall in the pre-paid category. The FSTC electronic cheque, Netcheck, and Cybercash
systems are some examples of post-paid electronic payment systems. Traditional credit card
majors have come up with Secure Electronic Transaction (SET) protocol. The protocol provides
a secure mechanism for using standard credit cards, over the network, for electronic payment
purposes. Despite the development of secure transaction mechanisms for credit cards, for reasons
of anonymity, privacy, and in the case of small purchases electronic cash payment mechanisms
will remain essential.

Business Service Infrastructure

Business service infrastructure includes directories and catalogues. These are essential for
identifying and locating businesses that meet customer requirements. The directories and
catalogs are akin to Business Directories and Yellow Pages used by customers to identify and
locate businesses that are likely to provide the service or fulfill product demand in traditional
commerce. Search engines and directory service providers like Altavista, Google, Yahoo!
Infospace, Lycos, and Infoseek identified and capitalized on the need by providing the service.
Many specialized directory services are required to locate and index businesses in the global
mass and mini market space. The need for infrastructure directory
Search engines compile their databases by employing “robots’, often called spiders, to crawl
through the web space. The crawling is done by picking a page and then visiting all the links
referred to in that page and in the process identifying and perusing the pages. Once the spiders
get to a web site, they typically index words on the publicly available pages at that site. Spiders
may miss web sites that are not linked to other pages. Thus, web page owners may submit their
URI.s to search engines for crawling and eventual inclusion in their databases. When the search
is done on the web using a search engine, it is actually asking the engine to scan its index for
matching the key words and phrases typed by the user. The search engine maintains a database
that contains correspondence between text terms and document URLs. It is important to
remember that when a search is performed using a search engine, the entire web is not searched,
but only the portion of it that has been indexed by the search engine.
Search engines return the relevant URIs for the keywords or search terms entered by users. With
millions of web pages on the internet, a simple search for any term or phrase may result in
thousands of URLS. In general, a user is not likely to visit more than the first few pages of the
returned results. Thus, it is important for web site designers that their URL should be ranked
amongst the top few for the relevant terms and keywords. The ranking methodology
differentiates search engines.

Search engines provide access to publicly available pages on the web and probably are the best
means for locating information on the web based on an unstructured expression of concepts. On
the down side, the sheer number of words indexed by the search engines increases the likelihood
that they will return hundreds and thousands of irrelevant responses to simple search requests.

Public Policy and Legal Infrastructure

The digital economy riding on the internet has a global reach. Companies use the world wide
web for brand building, promoting sales of products, offering merchandise for sale, conducting
auctions, or for providing product information are operating in a global environment. The access
to network infrastructure and legal framework, for the protection of transactions conducted over
the network, play important role in the viability and the growth of electronic commerce. Even
today, a vast majority of countries in the world have a heavily regulated telecommunication
environment, in many of the cases the government is the only provider of telecommunication
access. These regulations, with the arrival of the internet, have inhibited the growth of the
network infrastructure in many countries. The telecommunication infrastructure designed for the
voice data can carry data traffic only to a limited extent. Moreover, the cost of local access itself
may be prohibitively high for data connections. Universal access at an affordable cost is
important for the growth of the digital economy and electronic market. The Organization of
Economic Cooperation and Development (OECD) have been putting together several initiatives
and policy guidelines to address communication infrastructure development throughout the
world.
Prior to 1994, the Indian telecommunication was also a government monopoly operated under
the aegis of the Department of Telecommunications. With the National Telecom Policy of 1994,
and the revised New Telecom Policy of 1999, followed by the Convergence Bill 2000, the Indian
telecommunications market has opened up with multiple options of connectivity. Even in the
local telephone access six private sector operators namely, Bharati Telenet, Tata Teleservices,
Hughes Ispat Telecom, Shyam Telecom, Reliance, and Himachal Futuristic Communication Ltd.
(HFCL) have begun the operations. The National Telecom Policy of’ 99 also opened up the
national long distance calling market with effect from January 2001. Liberalized policies also
have opened up the International Long Distance calling market for competition, with effect from
April 2002. As a result, the Reliance Infocom and Bharati Telesonic has already started long
distance services and the prices have been dropping due to the newly opened up competition.
The Indian government also laid out a liberal licensing policy for internet service providers in
January 1998. Within 9 months of the policy announcement more than 175 licenses were
granted. Countrywide, there are nearly 30 ISP operators today as compared to January 1998
when VSNL was the only ISP operator. The list of ISPs with over 100,000 subscribers includes
VSNL, Satyam Infoway, Caltiger, Mantra Online, Dishnet DSL, and BSNL.
To provide a legal framework for electronic commerce transactions, the General Assembly of the
United Nations adopted a Model Law on Electronic Commerce in 1997. The Model Law
resolution recommended that all the member states should favorably consider the Model Law,
while enacting their own laws — to promote uniformity in laws — that are applicable to
alternatives of the paper based method of communication and in the storage of business
transaction information.

The Information Technology Act 2000, based on the Model Law, forms the legal framework of
electronic commerce in India. The IT Act 2000 holds the office of the Controller of Certification
Authorities (CCA) responsible for issuing licenses to and for regulating the certification
authorities in India. The office of the CCA operates the root-level certification authority and
maintains a directory of all the certificates as well. User certificates are issued by CCA licensed
certification authorities. Thus, through the office of the CCA, the IT Act 2000 puts in place the
public key infrastructure (PKI) that can address important issues, emanating in electronic
commerce, such as authentication, integrity, privacy and non-repudiation. The IT Act 2000
amends several existing Acts such as the Indian Penal Code; the Indian Evidence Act, 1872; the
Bankers’ Book Evidence Act, 1891, and the Reserve Bank of India Act, 1934 to offer legal
recognition to business transactions carried out over the network using electronic technology. In
other words, in addition to the paper based method of recording communications and information
regarding business transactions, electronic based filing and recording of business transactions are
also deemed legal and have the same degree of protection as the paper based methods. In broad
terms, the Act defines the authentication and legal protection of the electronic records.

In order to authenticate people, a massive public key infrastructure, operated by a legal

establishment approved by a certification authority is required. With an estimated 250 million
people online globally (40 million of them from India in 2002) and an expected increase to scale
the billion mark in few years, servicing the online authentication, ensuring non-repudiation of
contracts, purchase orders, and agreement repositories offers a substantial business opportunity.
The certification authority, based on public key infrastructure, for this purpose has already• been
adopted in the e-commerce laws of many countries including India. The legal policies and
framework provide it with the support necessary to enforce the digitally signed contract and
ensure non-repudiation by either party, by providing the parties with a legal recourse. The
Internet based electronic commerce pervades national boundaries and legal jurisdiction, thus the
enactment of national laws alone in isolation is not sufficient. Instead, global frameworks that
can inter operate with transnational certification authorities is a requirement.

Application service and transaction models

B2C Transaction

B2C is a consumer oriented E-Commerce where the emphasis is on selling products and scrvtas
to the end users. There are a variety of items that may be sold on the Internet books, tufting,
electronics, health and beauty and many more. Depending on the level of digitization of the
products, processes and payments the E-commerce used may be pure or partial.

Categories of B2C E-commerce

The B2C E-commerce, depending on the marketing strategies adopted, may be categorized into
the following business models:

1. Direct and Indirect Marketing. Direct marketing means that the manufacturers advertise and
distribute their own products to customers via their Internet based electronic store without
intervention of any intermediaries, whereas indirect marketing means that the products are
advertised and distributed through third party intermediates such as e-malls.

Manufactures may be able to carry out direct marketing on the Internet only if their sales
economically justifies the cost of direct marketing such as maintaining an independent server and
the network infrastructure required. For the smaller companies, the indirect marketing through
third-party c-malls is a better option.

Dell Computer Corporation, the largest manufacturer and marketer of business PCs in the world,
belongs to the category of direct marketing. Dell sells all the items it produces on the Internet :
desktops, work stations, notebooks, network servers, storage devices and software.

There are many factors contributing to the small consumers as well as corporate buyers with
suppliers and customers, fast delivery and high reliability and reputation. AU these factors mean
cost. For any business the justification of E-commerce would be realized only when the benefit
of E-commerce is bigger than its implementation cost.

2. Full Cyber Marketing and Partial Cyber Marketing. Full or pure cyber marketing means that
companies sell their products and services only through the Internet. Amazon.com is an example
of this category. Partial cyber marketing means that companies sell not only through the Internet
but also through traditional physical stores.

3. Proactive and Reactive Strategies. A proactive strategy to cyber marketing is that the company
has digitized and networked its internal activities such as inventory and operations management
to capitalize on the benefit of cyber marketing. In contrast1 a reactive strategy is that where the
internal management style and activities are left unchanged to the traditional ways.
Most pure cyber marketing companies adopt the proactive strategy whereas most partial cyber
marketing companies adopt the reactive strategy.

4. Electronic Intermediaries. Just as the traditional businesses take support of intermediaries in

the form of resellers or dealers, the electronic markets also employ intermediaries.

5. Comparison Shopping Agents. Customers while shopping online may want to compare the
products from different c-stores/manufacturers in terms of price, feat uses, guarantee,
functionality and much more. Comparison shopping agents, such as Compare. net, which are
also c-brokers search for the products that meet the customer requirements and display the
comparisons. This capability of comparing the products on hundreds of web sites in seconds puts
pressures on web retailers to beat their competitors’ prices. Many businesses feel that
comparison shopping may set off a vicious pricing war in cyberspace and force them to cut down
their profit margins to the bare minimum.

E-commerce aids comparison shopping in a number of ways. One way could be that the
comparison agent sends the prices along with vendor names for all vendors for the product in
question. For example, as agent Bargain Finder (bf.callar.ac.com) belongs to this category. Some
other agents may give a tabular comparison on features, prices, discounts etc. This gives a more
effective multiple criteria comparison.

6. E-Commerce Based One-to-One and Relationship Marketing. Relationship marketing is

concerned with building and sustaining long term relationship with existing and potential
customers, characterized by purposeful co-operation and mutual dependence. Target or one-to-
one marketing is a type of relationship marketing where the focus is on individual customer or an
isolated segment of customer population. To be a genuine one-to-one marketer, a company must
be able and willing to change its behavior towards an individual customer based on the
knowledge of the company about the customer. One-to-one marketing is based on the fact that no
two customers are the same and different customers need to be treated differently.

Business-to-Consumer (B2C) Electronic Commerce

Customer Loyalty

Customers loyalty is the degree to which a customer with stay with a specific vendor or
Customer loyalty contributes greatly to the profitability of the company in a number of
• Loyal customers will buy more from the companies and the sales will grow.
• The cost of acquiring a new customer is much more than retaining the older ones.
• Customers loyal to a company are generally kept away from competition, strengthening the
position of the companies in the market.
• Companies become less sensitive price competition as the customers are not too sensitive to
minor price differences.
• Loyal customers to the company’s site.
However, during the past decade customer loyalty in general has been decreasing. E-commerce
has further accelerated this trend because the customer’s ability to shop, compare and switch has
become easy, fast and inexpensive through Internet aids as search engines, mall directors and
intelligent agents For the success of E-commerce based one-to-one marketing, the need is to
increase customer loyalty which can be achieved through customization to meet the customer
needs and by increasing the customer satisfaction.

Trust In E-commerce
For the success of one-to-one E-commerce marketing, trust between the involved parties is
foremost. Both the parties, the buyer and the seller, take risk. The seller makes itself vulnerable
to the buyer’s behavior and changes the way it performs according to the buyers needs. The
buyer and the seller do not meet face to face. The buyers can see the picture of the product and
not the product itself. The buyer is forced to have trust in the promises of quality and delivery
made by the seller. To deal with these issues it is necessary to have a high degree of trust
between the buyers and the E-commerce due to the versatile cultures and business environment
A necessary level of trust between the buyers and sellers and in E-commerce can be established
by the following factors:

 the degree of initial success that each party experienced with E-commerce and with each
other.
 well defined roles and procedures for all parties involved.
 realistic outcomes towards expectations from E-commerce
 E-commerce security mechanisms for information protection and in c-payment systems.

On the other hand, trust can be decreased by

• any user’s uncertainty regarding E-commerce technology
• lack of initial face-to-face interactions
• lack of enthusiasm among the parties involved.

Consumer Oriented E-Commerce Applications

The global consumer marketplace is spreading at a fast rate, but with its own problems.
Consumer applications such as on-line stores and electronic shopping malls are emerging fast but
access is still cumbersome in many cases and the basic issues need to be resolved. Many of the
systems are not consumers friendly or well integrated. For example, it may be feasible to browse
the site of e-store via the web, lit there may be no directories? catalogs to search for the address
of the store. Such lack of integration forces the consumer to spend time searching for stores and
on-line information. There is no standardization of electronic payment methods on the web and
the security of on-line payment still remains a major issue.

Some fundamental business issues must be addressed before consumer-oriented c-commerce can
become widespread. These are:

 Establishment of standard business processes buying and selling and services in

electronic markets.
 Standardizations of protocols for order-taking, on-line payments and service
 Deployment of privacy and security methods for secure transactions.

Consumer-Oriented E-Commerce Services

Let us examine some of these services in detail.

Personal Finance and Home Banking
Personal finance services include services as direct deposit of pay-bill, on-line bill payments,
and home banking.
Home banking services include:
• account statement reporting
• round-the-clock banking with automated teller machines (ATMs)

The Online Purchasing Process

In an attempt to predict, improve or influence the consumer buying decisions (what the consumer
buys, when the consumer buys, whether or not the consumer buys a particular product etc.) it
becomes necessary for the marketers to understand the purc hasing process and the various steps
involved. Any purchase decision by a consumer may involve a set of activities, which may not
be the same for all purchase decisions. However a general purchase process model has been
proposed to help the companies design strategies for on-line marketing, advertising and selling.
This process model consists of almost all of the online activities that a consumer may perform
during a purchase. However in practice, some of these activities may be performed off-line in
some cases where digitization is not feasible.

The purchase process model consists of seven activities that can be grouped into three phases
prepurchase phase, purchase consummation and post purchase interaction.
E-Commerce Prepurchase Preparation

The Prepurchase preparation phase includes the search forthe product(s) in question in a larger
information space based on some customer coterie and attributes The search based on attribute
comparison brings out a smaller set of products. From this one or more products may finally be
selected for purchase. This selection is based on the prices, discounts, delivery terms etc.
The Consumer Information Search Process

The Prepurchase preparation or the search for the right product often involves some purchase
deliberation on part of the customer. This may be defined as the elapsed time between the
customer : first thought of buying the product and the actual purchase itself The extent of
prepuirhase deliberation may vary depending on the customer (impulsive, patient or analytical),
the product and the purchase situation.

It is during this prepurchase deliberation period that customers look for information on variables
that are important in the purchase decision. It is for the companies and marketers to tap the
prospective customers during the deliberation period by designing and creating suitable online
shopping envimnments For this they need to focus on questions as
• How much time are buyers spending on their purchasing decisions with respect to various
products?
• What are the factors that affect the customer decision time?
• What is the right shopping environment that keeps customers happy and wanting to return?
• What are the processes/trends that consumers mostly rely on for information search?
• Whether the consumer shopping-with a utilitarian or a hedonic aim.
Thus an exploration of the consumer information search process may help companies to design
online strategies to attract customers and push them to buy.
The Product Selection and Negotiation Process
The next step after consumer information search is the product selection based on various
attributes. Here the intermediaries called information brokers play a vital role. Information
brokers are needed for three reasons : comparison shopping, reduced search costs and
integration.
Comparison shopping agents provide a comparative analysis of the product from various
sources/vendors in terms of price, delivery terms and product attributes, thus helping the
customers in selecting the best buy. Some comparison agents may focus on product attributes
based on customer choices/criteria while for others the lower price may be sole aim.
Intermediatries or information brokers also perform the function of service integration. For
example, an intermediary may integrate the functions of providing information on products to
customers, negotiating the terms with the manufacrure accepting the orders and payments and
also the deliveiy of the product.

Purchase Consummation

Once the products to be purchased have beer iL4ntified, a is carried out between the buyer and
the seller. The transaction consists of an exchange of information between the buyer and the
seller for the negotiation of terms, confirmation of order, payment and delivery of
product/services.
A single transaction model, as shown, may not be sufficient to meet the needs of every
transaction that takes place. However, the basic flow remains the same:
1.The buyer contacts the seller with a 7rquest to buy. This may be through the web sift of the
vendor
2.Vendor quotes the price, if customer requests.
3.Buyer and seller may enter into negotiations on the price and other terms.
4. Once the terms have been decided, the buyer authorizes payment to the vendor. This may be
through encrypted credit card number, or online smart card payment, or electronic cash.
5.The vendor contacts the appropriate payment institution for the verification of the payment
authorization.
6.The payment institution approves the payment and gives the vendor a green signal to carry Out
the delivery.
7.The vendor informs the buyer the details of delivery in case of physical delivery or delivers the
product electronically for the digital products.
8.Buyer sends vendor receipt of information or product. In turn the vendor tells the payment
institution to complete the transaction.
9.The payment institution bills the buyer periodically.
Based on the above model, the companies or marketers design strategies for the best online
services to the customers/buyers. This may be achieved through

Post Purchase Interaction

Post purchase interaction between the buyer and seller mainly consists of customer service
issues. These may involve issues as product installation/use, information on related products,
product enhancements, service requests etc. To deal with the post purchase interaction phase, the
companies marketers need to set up online helpdesks for quick service to the customers
Customer Service In E-Commerce Transactions
While going through a purchasing process customer may need help at various stages:
Prepurchase, During purchase or post purchase.

Customer service consists of activities designed to meet the level of customer satisfaction.
Customer service is must to give the customer a feeling that a product/service has met his
expectations. Whereas traditionally, it was considered the customer’s responsibility to direct a
query or complaint to the right place and receive the appropriate information, E-commerce has
automated customer service so that better and improved customer service can be delivered. Also
customer service becomes more critical in E-commerce since the vendors! sellers and customers
do not meet face to face.

According to McKeown and Watson, customer service should be provided during the following
stages:
1. Prepurchasc. Assisting the customer in selecting the product through multimedia catalogs,
presentations. etc. This may include providing product characteristics as features, capabilities,
prices etc., answering customer queries, providing search and comparison capabilities etc. E-
commerce applications help to provide all these electronically.
2. During Purchase. Helping the customer to acquire a product or a service. This may be
achieved through online negotiations, online order entry, online payments and online delivery in
the case of digitized products.
3. Post Purchase. Supporting and servicing the customers in an ongoing manner. This includes
answering customer inquires online, lodging customer complaints online, setting up online
helpdesks, frequently asked questions and answers, continuous fiow of information on product
upgrades, discount schemes to existing customers et

Market Research for E-Commerce Activities

Market research is aimed at finding on consumer purchasing behavior in order

to establish marketing plans and design strategies for the product promotion,
manufacture, pricing, distribution/sale and after sales service.

A typical consumer market research process may involve four steps:

1. Identifying the Research Objective. This includes identifying .*y the research is being out.
There could be many reasons behind the research such as why a brand is selling less than the
other, what is the buying capacity of a particular segment of population, what are the buying
trends in a particular age group and many more.
2. Data Collection Plan. The next stage is the data collection methodology. Various
methodologies exist such as a sample survey which may be through questionnaires, interviews
telephone, group surveys etc In any survey the sample may be picked up randomly or may
3. Data Collection and Analysis. Data is actually collected and on various criteria.
4. Data Integration and Results. Data collected from the various sources is integrated and
conclusions These are the formulation of plans and strategies.
Any business—online or off line requires a market research on consumer purchasing. The
business has to identify an appropriate customer group for specific products and services. Thus it
becomes important to first understand the grouping of customers in various ways. This grouping
is culkdma,*et segmentation.

Internet Based Market Research

The Internet is and cost tool conducting market with to consumer: The internet-based market
research is more and cheaper than the conventional methods using the telephone or personalized
surveys. Online surveys make available larger edaphically segments c(population as compared to
c law Thus on the web a research may be able to attract several hundred respondents in a much
cheaper way.

The Internet-based market research is often done in an manner The communication may be a
one-to-one communication with specific customers usually be e-mail, or may on a larger group
through chat room. To cover the masses, research surveys are placed on web sites in the form of
Sometimes the users may be forced into answering such questionnaires before they can play a
game or avail discount schemes. In other cases, the participants may have the flexibility of
responding any time at their own convenience.

Online market research through c-mails and questionnaires faces some issues as customers not
responding at all, customers responding only selectively to certain questions, customers
providing wrong information etc.

Another method commonly used for online market research is through the use of cookie files
attached to the user’s browser. This makes it possible to observe and record the customers online
behavior.

B2B Transaction Model

Business-to-Business (B2B) E-commerce implies that both the sellers and the buyers air
business. B2B Ecommerce covers a broad range of applications that enable a business to form
electronic relationships with its distributors, resellers, suppliers and competitors. B2B
Ecommerce is being used in a variety of items as electronics, computers, utilities, shipping and
warehousing, motor vehicles, office products, petrochemicals, food, agriculture and many many
more. Some of the popular B2B applications where the relationships between partners have been
affected are the supply chain management (SCM), Electronic Marketing. Procurement
Management, Just-in- Time (JIT) delivery, electronic data interchange (EDI) and many more.
The Internet provides an economical B2B E-commerce platform by linking companies through
computer networks. B2B E-commerce contributes to lower price costs, reduced inventory,
enhanced efficiency and lower sales and marketing costs.
Categories of B2B E-commerce

One categorization of B2B E-commerce can be on the basis of who controls the marketplace the
supplier, the customer or the intermediary. The other classification can be on the basis of the
parties involved: virtual corporation international network and online auctions.

The Supplier-Oriented B2B E-commerce. A supplier-oriented B2B marketplace is that where the
electronic stores are manufacturer driven The supplier’s electronic store or server maintains the
product catalogs order and t7unsactzon information and customer data base A customer may
access the supplier se7wrfor information on payment or for any other purpose. The supplier
provided market place may be used both by individual and business customers i.e. for both B2C
and B2B E-commerce. The supplier may also contact the customer for product promotion,
delivery schedules, billing etc. Such a model is shown in the figure below:

Supplier-oriented B2B Electronic Marketplace Architecture

A classic example of a supplier-oriented B2B marketplace is that of Cuco connection Online

(CCO) which operates Cisco’s electronic marketplace. Cisco’s website has evolved over several,
beginning with technical support for customers and developing into one of the world’s largest
Internet-based E-commerce sites. The various services that Cisco’s website provides to its
customers are:

1. Customer. Cisco’s website is accessed nearly I million times a month by individual and
organizational customers to receive technical assistance check order status or to download
software. Nearly 70 percent of all customer ice inquiries and 90 percent of software updates are
delivered online.

2. Online Ordering. Cisco mainly deals in product to order, and there are very few off-the-shelf
products. Cisco accepts online orders from its customers and after processing it sends it
immediately to the procurement department i.e. Cisco has

3. Tracking Order Status. Cisco gives its customers tools on its website to track the status of their
order. Also Cisco records the shipping date, the method of and the current location of each
product. Also the company’s freight regularly update Cisco‘s database electronically with the
status of each using EDI. This keeps the customer well informed on the status of their order As
soon as an order is shipped, Cisco notifies the customer by fax or e-mail.
From the above we can see that some of the benefits that supplier-oriented marketplaces
can achieve through the use of E-commerce are:

• Reduced operating costs

• Enhanced technical support and customer service
• Reduced technical support staff cost
• Reduced distribution cost for digital products
• Greater customer loyalty.

The Buyer-Oriented B2B E-commerce

The supplier-oriented E-commerce demands that the customers search various e-mail sites to
find and compare information on suppliers and products. However, this can be very costly for
companies who purchase thousands of items on the Internet. The option ft)r such big buyers is to
open their own electronic market on their server and invite potential suppliers to send
information on the requested services The information requested may be product information,
prices or the terms of transaction. From the information sent by various suppliers, the buyers
may go in for the best deal. Such an electronic marketplace hosted by the buyer is categorized as
a buyer-oriented B2B marketplace.
The Intermediary-Oriented B2B E-commerce

An intermediary-oriented B2B E-commerce is that where an electronic intermediary is

established. The business buyers and sellers meet on the intermediary’s site. The concept is
similar to intermediary based c-malls in the B2B E-commerce. The intermediary marketplace
must maintain the relevant information on the buyers and sellers and update it regularly.
In most cases, the intermediaries are concerned with full order fulfillment, starting from
providing information to order taking and processing and finally the payments.
Online B2B Auctions

Online B2B auctions are growing very rapidly on the Internet. Auctions have the benefits that
new sales channels are opened and excess or obsolete products n be disposed off easily and
quickly. B2B auctions can be categorized into three major types:

1. Independent Auctions. A company may use a third-party auctioneer to create the site and sell
its goods. This is an in Examples are www.fairmarket.com, www auctiongatc.com and www
interchange.

2. Commodity Auctions. Many buyers and sellers come together to a third-party web site for the
auction of the same product. This is also an intermediary-oriented auction. Examples are The
Dutch Plower Market, www.fastparts.com and www metalsite net.
3. Private Auctions. Many companies auction their products themselves on their own sites,
without taking the help of intermediaries. Such auctions may be open or by invitation only. For
examp1e the site wwwauctionblock.com is Micro’s auction Site for selling obsolete computer
equipment to its regular business customers only Also related to electronic auctions and bids is
electronic bartering which is the
of goods and services without the involvement of money There are intermediaries that arrange
jbr bartering, for example www. The intermediaries try to match partners for the bartering, these
could be two, three or even more. Bartering may be done for office space or idle resources,
banner ads etc.

Intra-organizational Electronic Commerce

The growth of the internet has eased the free flow of information across geographical boundaries
and across platforms. To tap this potential of the Internet as an information channel, intranets
were born. After e-mail, intranets are the hottest communications technology adopted by
corporations as a measure to improve efficiency

Intranets are corporate networks that utilize internet technology but limit the access of the
Internal members of an organization. Typically, they are built by securing the network from the
global internet, through a firewall that limits access to internal/authorized members only. Any
Internal computer network that supports Internet applications qualifies to be called an intranet.
The main element of the intranet is TCP/IP connectivity and a Hypertext Transfer Protocol
(HTML) server, commonly known as web server. Thus using a standard web browser,
employees can tap into corporate legacy data, share applications, and publications.
Even in a single company there exists a diversity of both computer hardware and software, and
individuals that use them. The challenge for information systems planners and departments is in
developing access solutions that will reach the “lowest common denominator”, but still get the
job done. All too often, systems designed do not fulfill the information requirements of the
company, as a result of budgetary problems, poor planning, or a lack of understanding of user’s
needs. The internet, with the web as its offshoot, has provided users equipped with a browser the
means to communicate with everyone on the web, irrespective of what platform they have. The
intranets are deployed to incorporate these advantages of the web into the information systems of
the organization.

Platform Independent and Portable Access

The intranet provides an organization with the ability to reach a large number of internal users
through a portable, useful platform. Regardless of the type of use envisioned—from ordering
trivial things, to performing of company records, to assisting in legal reporting requirements to
enhance worker morale—a well-designed intranet system can mesh the best of the web with the
best a company has to offer.

As stated earlier, the fundamental building blocks of the intranet are the H1TP server (web
server) and HTML based web browser, referred to as web technology. Web technology offers
several advantages. It offers a platform-neutral environment. A user can browse a page designed
on a Macintosh, Windows, or a Unix platform with the same ease and interface. It shields
members from the diversity of access interfaces, arising due to heterogeneous hardware and
software environment of organizations. Irrespective of the location of the data, web servers can
make it available to the members of an intranet through the browser, thus, providing a bridge
between the different arms of the organization without incurring huge costs of setting up a
dedicated Wide Area Network (WAN). Also, due to this increased ease in access and availability
of the information, a single designated source for each class of information—data as well as
software tools—can maintain up-to-date copy.

Thus, everyone in the organization gets current and consistent information. The application and
data interfaces through Common Gateway Interface (CGI) or it’s alternatives to put the
development of practical distributed applications within the reach of average developers,
shielding them from the unfathomable complexities of Remote Procedure Calls (RPCs),
Application Programming Interfaces (APIs), and middleware. The connectionless, page at a
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