Chapter 1 : Introduction To E-Commerce

1.1 Evolution of Commerce

Commerce has evolved over the centuries. Prior to the evolution of money it was a simple
“barter process” where things could be exchanged, say milk for grains. The evolution of money

ElectronicCom
merce

Tele Shopping

Mail Order
Cataloging

Street Vendors

Monetary
Transactions

Barter Process

brought with it, the concept of a “marketplace”. In a marketplace,

Commerce is function of 4 P’s – Product, Price, Place and Promotions. All these four
components play a vital role in a transaction to take place. Different combinations of 4Ps
determine different forms of Commerce. Once the marketplace came into existence, a few
pioneers realised that people would be ready to pay extra if they could deliver products at
customer’s doorsteps. A slight modification on Price and Place led to the convenience of getting
products at their homes. This concept delighted the customers and thus, the concept of “Street
Vendors” was born. When the Postal System came into being the sellers decided to cash in on
the new opportunity and started using mailers giving description of their products. It led to the
concept of “Mail Order Cataloguing”. From here, the evolution of the “Tele shopping” networks
was inevitable with the development of media vehicles. The latest generation of commerce is one
that can be done over the internet. Internet provides a virtual platform where sellers and buyers
can come in contact for sale and purchase of goods and services. They can be thousands of miles
apart, may belong to different parts of the world, might speak different languages, “E-
Commerce” emerged as the boundary-less trade medium in the era of globalization.

1.2 Perspective of E-Commerce

The Internet has created a new economic ecosystem, the e-commerce marketplace, and it has
become the virtual main street of the world, providing a quick and convenient way of exchanging
goods and services both regionally and globally. It has online transactions impacting industries
from travel services to consumer electronics, from books and media distribution to sports &
fitness.

In simplest form, e-commerce just means taking things that your company is already doing in
person, through the mail, or over the telephone, and doing those things in a new place--on the
Internet. Electronic commerce as it is misunderstood is more than just buying and selling
products online, it covers the entire online process of developing, marketing, selling, delivering,
servicing, and paying for products and services purchased

Electronic commerce or e-commerce refers to a wide range of online business activities for
products and services. It also pertains to “any form of business transaction in which the parties
interact electronically rather than by physical exchanges or direct physical contact.”
E-commerce is usually associated with buying and selling over the Internet, or conducting any
transaction involving the transfer of ownership or rights to use goods or services through a
computer-mediated network. Though popular, this definition is not comprehensive enough to
capture recent developments in this new and revolutionary business phenomenon. A more
complete definition is: E-commerce is the use of electronic communications and digital
information processing technology in business transactions to create, transform, and redefine
relationships for value creation between or among organizations, and between organizations and
individuals.

Businesses can do things with e-commerce that used to be expensive and logistically difficult to
do through older channels of commerce. A Web site is naturally a 24-hour-a-day operation,
unlike a traditional 9-to-5 company. It is much easier to keep a Web site up to date with all your
company and product information than it is to do the same thing with print materials. And the
interactivity and completeness of an e-commerce Web site can engage customers more directly,
giving them a feeling of empowerment and control that is difficult to duplicate through other
methods of doing business. Also companies are using e-commerce to reach globally.

Apart from companies’ benefits, customers also prefer e-commerce; many people prefer booking
their travel online rather than talking to a travel agent or buying their theater tickets over the
Internet rather than standing in line at a box office. These people welcome the ability to evaluate
and buy products on their own schedules rather than on someone else's.

In the last decade, many startup e-commerce companies have rapidly stolen market share from
traditional retailers and service providers, pressuring these established traditional players to
deploy their own commerce websites or to alter company strategy in retaliation. This effect is
most pronounced in travel services and consumer electronics. As traditional brick and mortar
firms continue to lose market share to e-commerce players, they will likely see continued
declines in their revenues, operating margins, and profits. It is important to note that most e-
commerce players are at a competitive advantage to retailers. They have lower operating
expenses and better inventory management due to operating in a virtual commerce environment.
Clearly, e-commerce vendors will have the most to gain if they successfully disrupt retail
customer acquisition, disintermediate distributors/resellers, and under-price retail establishments.
As a consequence of e-commerce vendor gains, financial transaction processors and parcel
shipping companies are among ancillary vendors who will gain.

1.3 E-commerce and E-business

While some of us use e-commerce and e-business interchangeably, they are distinct concepts.

In e-commerce, information and communications technology (ICT) is used in inter-business or

inter-organizational transactions (transactions between and among firms/organizations) and in
business-to-consumer transactions (transactions between firms/organizations and individuals).

In e-business, on the other hand, ICT is used to enhance one’s business. It includes any process
that a business organization (either a for-profit, governmental or non-profit entity) conducts over
a computer-mediated network. A more comprehensive definition of e-business is: “The
transformation of an organization’s processes to deliver additional customer value through the
application of technologies, philosophies and computing paradigm of the new economy.”

Three primary processes are enhanced in e-business:

1. Production processes : Include procurement, ordering and replenishment of stocks;

processing of payments; electronic links with suppliers; and production control
processes, among others;

2. Customer-focused processes : Include promotional and marketing efforts, selling

over the Internet, processing of customers’ purchase orders and payments, and
customer support, among others; and

3. Internal management processes: Include employee services, training, internal

information-sharing, video-conferencing, and recruiting. Electronic applications
enhance information flow between production and sales forces to improve sales
force productivity. Workgroup communications and electronic publishing of internal
business information are likewise made more efficient.
1.4 “Online” vs “Traditional” Commerce
Users come to online commerce with some key experiential understandings of the characteristics
of traditional commerce.

1. Identity : Customers can easily authenticate the identity of a merchant simply by

walking into a bricks-and-mortar store. Stores can be members of a community and
neighborhood; they can be part of customers’ daily experience. There is a
concreteness about a physical store that no amount of HTML will ever match.

2. Immediacy. Customers can touch and feel and hold the merchandise. Tactile cues
can drive the decision to buy. A transaction that is face-to-face is usually
unmediated: your communication with the merchant is not in the hands of a third
party or technology (as with ordering by phone).

3. Value. The item at the center of the commerce transaction — the product, service, or
property that is to be sold/bought — has some kind of value. Its price is determined
and validated through the performance of the transaction. The seller agrees to a
selling price, and the buyer agrees to a buying price. The value of an item, especially
the relative value an item has for the buyer, is much easier to appraise if that item is
close at hand.

4. Discourse. Customers can converse with the merchant face-to-face; unmediated

conversation is basic to human communication. People want the feedback available
from non-verbal behavior, which forms a large part of our judgment process.

5. Community. Customers can interact with other customers and gain feedback about
the merchant from other customers, as well as by observing the merchant interacting
with other customers.

6. Privacy. Customers can make purchases anonymously with cash; they usually don’t
have to give their name or address. They don’t usually have to worry about what a
store will do with their personal information, although this is becoming more of an
issue with various recent attempts by lawyers to access private sales and rental
records. Privacy is often a measure of how much of his or her identity a buyer wants
 to invest in a transaction; sometimes, we just want to quietly make our purchase and
leave with it.

Different Kinds of “Traditional” Commerce Models

Not every commerce transaction is identical, and not every transaction is the same type of
transaction. There are different types of commerce transaction offline :

1. Retail store : This is by far the most common commerce experience in American
culture: you walk into a store that is stocked with merchandise for immediate sale —
bookstores, grocery stores, hardware stores — and find what you want, then purchase it.
You leave the store with the product, assuming immediate ownership.

2. Retail special order : When a retail store doesn’t stock the product you want, or is
currently out of stock, you often have the option of special ordering the product. If a
bookstore doesn’t care a small press book title that you want, and the title is in print, you
can usually special order the title from the store; the store locates the product, buys it,
then resells it you. Delayed gratification, but you have the advantage of dealing with a
merchant face-to-face. I would consider rain checks in this same category.

3. Catalogue store : Smaller towns sometimes have catalogue stores, where a large
merchant doesn’t see a local demand to keep a store stocked with merchandise, so they
instead provide a storefront where people can come in and look at catalogues, and order
from a company representative. Sears is a company that operates catalogue stores (or at
least they used to), and Service Merchandise functions as a catalogue store for much of
their “stock”.

4. Phone order from a catalogue : Mail order catalogues, with their operators standing by,
have been around longer than the internet. While you can’t touch and feel the
merchandise prior to ordering, you can at least speak with a live person when placing the
order; I’ve had some excellent shopping experiences with mail order catalog customer
service reps.

While these may be different types of commerce transactions, they are all clearly related. They
share elements like the roles involved (seller and buyer), steps in the transactions (price must be
agreed upon, money must change hands), and underlying concepts (the value of this merchandise
to me, do I know this merchant?). Ultimately, these different transactions differ only slightly on
some few elements, with the bulk of the transaction adhering to the internal models that we have
built for what commerce is like.

An online commerce customer faces mediation in every element and at every stage of the
commerce transaction. Customers can’t see the merchant, only the merchant’s website; they
can’t touch the merchandise, they can only see a representation; they can’t wander a store and
speak with employees, they can only browse HTML pages, read FAQs, and fire off email to
nameless customer service mailboxes; they can’t explore the store’s shelves and product space,
they can only search a digital catalog. A customer at an online commerce site lacks the concrete
cues to comfortably assess the trustworthiness of the site, and so must rely on new kinds of cues.
The problem for the online customer is that the web is new — to a large sector of the online
audience — and online commerce seems like a step into an unknown experience.

A commerce transaction is a communicative transaction; that is, if two parties engage in a

commercial transaction — buying and selling something — then that event is actually based not
solely on the exchange of goods but also on linguistic and social role-playing. Commerce is
governed by social rules (in any culture, a seller follows certain rules of behavior that are
different from the buyer’s rules of behavior), and by linguistic rules (certain words, gestures and
tones have meanings specific to a discussion about buying something).

A commerce transaction has two roles:

seller and

buyer.

Each of these roles has its own agenda, but the logical assumption of a commerce transaction is
that both parties want to cooperate to find a mutually acceptable solution. Each of these roles has
a set of beliefs and expectations about its own purpose and agenda in a transaction, as well as
beliefs and expectations about the other role’s, well, role.

Both buyer and seller roles have “comfort zones” built into the relationship based on their
expectations and experience: perhaps the buyer believes that s/he can trust a car dealer only so
far, or perhaps a merchant will extend credit to people whom s/he knows are from the
neighborhood; these roles allow for some relaxation or flexibility of the rules they use to govern
their participation in the transaction. This flexibility can be exploited by dishonest participants,
but should one of the parties have reason to doubt this search for a mutually acceptable outcome,
the entire commerce transaction becomes more difficult and may fall apart in distrust.

Online commerce is still new enough that participants are still trying to get a handle on how the
rules of commercial interaction apply to this new medium. The burden of smoothing the
transition to online commerce falls to the creators and owners of ecommerce sites, because when
a commercial transaction falters through misunderstanding or distrust, a typical buyer-to-be
won’t spend any effort analyzing the contradictory message cues or violated role-playing
expectations. When a potential customer is frustrated, s/he will exit; the merchant has the
investment in fostering the relationship, and so had better understand the mechanics of the
relationship, starting with the roles.

The Buyer

From The Point-of-View of the Buyer

Buyers expect three important actions from a typical transaction:

they want to make the decision to purchase something,

they want to effect payment for this something, and

they want to assume ownership of what they purchased. Anything that interferes with
these three actions is going to bother the buyer.

The first action, making the decision to buy, has some implicit hurdles. The buyer must find
what they want, evaluate their budget, evaluate their trust of the merchant, etc. The buyer weighs
a lot of factors and faces a basic fact of inertia that it is often easier to not buy than it is to buy;
some merchants make the buying process absurdly difficult with such design decisions as forcing
the user to register and log in before accessing the shopping cart function or requiring a specific
browser for buying from their site. After all, the buyer expects to give their personal information,
if they give it at all, when they pay, not when they’re just shopping. When was the last time that
you had to give your name when you walked into a store?

Buyers don’t want to buy without knowing they have bought. Buyers face some violations of the
decision to buy from “slammers” and the illegal use of credit cards. Making it too easy for a
buyer to purchase from your site — for example through an “express lane” commerce track —
may backfire if the buyer thinks they have been tricked into the purchase.

Buyers also consider themselves as having entered into a tacit contract with the merchant: when
the buyer decides to buy something, s/he does so with an expectation about the availability of the
something. Merchants declare the availability of their products, “available right now for
immediate shipping” or “this will ship out in 5 days”, and the buyer uses that availability in their
process for deciding to buy. If the availability promised by the merchant proves false, the buyer
will re-evaluate their decision to buy, even if they have already entered the ordering process.

The second action, the payment, has some explicit trouble spots. The buyer needs feedback
from the process that payment has been correctly made; the buyer needs to know that the totals
are correct, that their credit card (for the sake of argument, consider this the predominant
payment method) has been correctly charged, that the transaction is secure, and that they are
protected in case something goes wrong with the transaction. If the user receives ambiguous
feedback during this payment phase, they will be frustrated and worried, and will experience
doubt towards every aspect of the transaction. This is such a simple milestone for the buyer, the
payment phase, but online there is little reassuring feedback. In person, the buyer can confirm
with a salesperson, online they have at best error messages and an email address for “customer
service”.

The third action, assuming ownership, is especially full of frustration for the buyer, because
s/he has committed to the purchase — they’ve already paid — and now they are at the mercy of
the merchant for the delivery of their purchase. Up until they receive the order, buyers want to
know the status of the order; providing useful order status information should be a requirement
for any ecommerce site, but few sites display this information in ways that are useful for the
buyer. I would suggest that most buyers want to know what has been paid for, how much has
been paid, when the order (or separate items on the order) will be shipped, and when the order
will be delivered.

If the merchant fails to meet the buyers expectations — whether the expectations are fair or
accurate — the buyer will be dissatisfied. Delayed orders face the possibility of cancellation.

Most users understand that they have responsibilities when they become buyers, and most seem
willing to forgive a great deal of shaky commerce systems and rough shopping experiences to
buy online. The issue here, though, is that users shouldn’t have to endure uncomfortable
experiences to buy online, and it is up to ecommerce merchants smooth out the rough edges of
the user experience.

From The Point-of-View of the Seller

The larger ecommerce web sites tend to treat individual buyers as statistics; individual users are
difficult to deal with when the bottom line is the bottom line. Sales count as indications of trends:
more click-throughs, more page hits, more traffic all mean more revenue. Pleasing the individual
user is usually not a priority. Getting the users to recognize the site’s branding is a priority,
however, because the assumption is that exposure will translate to patronage.

Most commerce sites don’t seem to be designed for any typical user; these sites haven’t built
sample user profiles and then optimized site behavior for the expected behavior of these users.
As online competition matures, though, we should see more sites carefully targeting their niche
audiences.

My guess is that ecommerce sites can’t get a handle on the shear heterogeneity of the web’s
client-server interaction. So many browsers and platform combinations exist that no single
system is going to accommodate every possible user, so ecommerce strategists have been
allowed to think in terms of sectors of users and specific audiences. The truth, though, is that
selective targeting is actually selective exclusion, based not on the audience’s ability to be
purchasers but on the ecommerce site’s ability to scale its infrastructure and technological
support.
The Seller

From The Point-of-View of the Buyer

Online, the basic operative metaphor for ecommerce sites is that of the “store”, based on
experience gained shopping in the real world. Ecommerce ventures can be grouped into sites of
companies that exist primarily on the internet, and those that have real-world “brick-and-mortar”
stores that have opened up sites (channels) on the internet. The attitudes users display towards
these different categories of stores seem inconsistent at best.

From what I’ve read and experienced, I think that any company on the web, whatever their
history separate from the web, is judged according to a set of values and priorities derived from
the web culture. Especially hard hit are companies that have made their stores into destinations
that foster community; for example, there is a huge gap between deciding to shop for a book
online, and deciding to drive over to my local Borders Books and Music store. With all the
emphasis placed on “community” by ecommerce sites, the term destination seems particularly
irreconcilable with the fact of web sites as collections of documents and files; there is no
meaningful there there, and that seems to hurt companies that have established themselves as
destinations for shoppers.

Online shoppers seem to look for some of the following general characteristics when
choosing between ecommerce merchants

1. The perception of the cheapest price.

Numerous studies show that people comparison shop online for the cheapest price What isn’t
clear is if people factor in price inflators like shipping costs or handling fees, how extensive
people are in their research, or how granular people are in their appraisal (for example, do people
rely on a general perception that site X is usually the cheapest place for a particular category
product, or if people always look for item-level comparisons). It is not clear whether buyers
actually choose the lowest price.
2. The perception of fewer hassles.

The different commerce “engines” or applications accommodate user expectations with different
degrees of success. Logically, those sites that provide the easiest user experience for finding
products and purchasing products will be the most appealing to users; anything that frustrates
users becomes not just a hassle but a barrier to deciding to purchase from the site.

3. The perception of trustworthiness.

A user must decide to trust an ecommerce site before making a purchase, and this decision is
based on a perception and judgment of the site’s trustworthiness. While ecommerce sites can
provide explicit cues about their trustworthiness, sites also provide implicit cues that affect the
user’s perception of the site. Sites often say one thing — “trust me” — while simultaneously
giving a message — for example, “I’m unprofessional” — that effectively undoes this first
message.

4. The visibility of the site.

The user’s awareness of a site has an obvious effect on their potential to purchase from the site.
Advertising, public relations, and media play all contribute to increase consumer awareness
about a site, but none of these speaks to the quality or trustworthiness of the site. Brand is
valuable, though, when the brand is recognizable as standing for qualities of the company, but
the translation of real world brands to the web isn’t entirely understood yet.

Some other differences Between Tradition commerce vs. e-commerce

1. Employees vs. No Employees

The most particular difference between is that an e-commerce business doesn’t need to have
employee’s to function as opposed to the traditional business, which needs to hire sales
executive, sales managers, accountants, web designers and other staffs. If you’ve actually owned
a traditional business before, you would realize a lot of headache and problems reside within this
area. The e-commerce models uses more technology as leverage, for example a website to sell
your products or services, an auto-responder to automatically sent out e-mails to targeted markets
and forums to facilitate consumer and staff feedbacks. There are many advantages for a
traditional company to use the technology available to further enhance the profitability of their
respective businesses.

2. Setting Your Own Hours vs Following Business Hours

It is easy to identify that most traditional business operates at business hours because their
employees have families to go home to and colleagues to hang out with after sun-down. Most
offices can only operate within a certain period of time because one can only work so many
productive hours a day. The usage of software, hardware and other technological devices has
enabled a person who’s running an e-commerce business be “productive” 24 hours/ 7 days a
week / 365 days a year unless their hosting server’s go down for unforeseeable circumstances. A
sales letter or a membership site can work for the business at any given time a day and in
different time zones at any time of the day.

3. Low-Cost Start-Up/Maintenance vs High Cost Start-Up/Maintenance

The barriers of entry have allowed many individuals to start their own e-commerce business.
There are e-commerce businesses being run on a shoe-string budget and raking in profits like a
large enterprise. Here are a few examples. The low-cost itself is a deciding factor that many
individuals are learning how to operate this businesses on a home-based basis. The traditional
business which requires location renting/purchasing, staff employment, advertising, inventory,
shipping and handling all sums up the high-cost equation which makes many people negate from
starting a business entirely.

4. Global Market vs Local Market

The introduction of the Internet has leveled they playing field in business so to speak. With the
World Wide Web fast becoming a place where people buy and sell their respective products and
services (ebay.com), it is becoming a heaven for business. Imagine, having access to millions of
prospects, all at your finger-tips. With the advancement of e-commerce technology integrated
with credit card processors, it has become imperative that any business, if it wants to survive, has
to acquire a web presence if they want to continue surviving because, rest assured if you don’t,
your competitors will. Bill Gates once said “There will be only 2 types of business in the future.
Internet Businesses and Those Out Of Business”.

5. Residual Income vs Linear Income

The benefits of e-commerce is there is a system in place which allows you to sell your to your
customer once, and without additional effort, earn a recurring commission/profit from the same
customer over and over again. It’s a locked in mechanism which will help your customers make
their payments easily each and every time their payment is due and allows you to earn a residual
income without any effort. The basis of a traditional business depends on the frequency of new
and old customers buying from them to keep the business running.

In any event, there are many competitors around to always try and succeed in getting your
business away from you and your profits will suffer from it. Apart from that, most businesses are
being run by their owners on a daily basis which makes their income a Linear Income type.
Some people leave their business and come back knowing it grew without them being there
whilst some return, to find their business isn’t there.

The post above doesn’t carry any agenda against traditional businesses but reflects on the
enhancement which e-commerce can actually give to it. It’s become a worldwide phenomenon
that more and more people are coming onto the Internet nowadays and getting more and more
comfortable in buying products and services online.

It is more like a wake-up call to traditional business owners to learn how they can use e-
commerce technologies in today’s fast-paced world in order to stay in contention and thrive in
the business world.

1.5 Why E-Commerce is Different

Let’s see the advantages that make E-commerce so revolutionary from anything we’ve seen
before.
 Accessibility and convenience. :

Whereas a traditional shop or other business usually only operates during the daytime, an
Ecommerce website is available 24 hours a day, 7 days a week, 365 days a year, anytime,
anywhere.. This means that customers can buy your goods or services in their own time and
whenever they choose, making online shopping even easier and more attractive. The
possibility to shop anytime, from anywhere is the most obvious and most commonly cited
advantage of e-commerce, and was found to be the most important perceived consumer
benefit of Internet

Global Marketplace: Since the boundaries of e-commerce are not defined by geography or
national borders, consumers will benefit from a wide selection of vendors and products -
including a wider availability of hard-to-find products. The internet is a fundamentally
worldwide medium, and anyone with an internet connection can access any website at any
time. This means that your business is exposed to a truly global marketplace and massive
sales potential. Even if your business is limited to a smaller geographical area, an online
business is still infinitely more accessible than physical business premises.

Reduced operating costs Aside from operating from cheaper premises, Ecommerce
dramatically lowers the traditional overheads associated with most businesses. Generally,
fewer staff are necessary, since an Ecommerce website effectively removes the need for staff
members to supervise and maintain a physical shop and assist customers. Having to maintain
a physical shop also has costs like electricity and heating which are obviated with an online
shop. Reducing your operating costs means you can in turn lower your prices, adding to your
competitive advantage.

Location independence : The physical location of a business can have a massive impact on
its potential and actual sales – a shop in a busy shopping centre will attract vastly more
custom that one on a quiet back street. Unfortunately this means that the prime locations are
a lot more expensive. The premises for an Ecommerce business can be anywhere at all, so
you could use a cost-effective warehouse rather than paying for a large high street location.
You don‟t even need your own premises to start trading online, as specialised order
fulfilment companies will store your goods and dispatch them to your customers.
Easy expansion : If you have an existing business, adding an Ecommerce branch means that
you can easily expand without having to find and set up new sites. You may even find that
the online side of your business grows so much that physical shops are no longer necessary.
A professional Ecommerce web site can handle a huge amount of custom, and expanding a
web site’s capacity is quick and simple. Scaling an online business requires only that your
web site can handle the traffic and that the back office side of the enterprise can fulfill the
orders.

Online delivery. For digital products, the whole commercial cycle, including distribution,
can be conducted via a network, providing instant access to products immediately when a
need arises.

Test and trial online. Digital products can be tested over the Internet prior to making
purchase decisions, reducing uncertainty.

The real-time nature of the medium. The Internet can provide consumers with up-to-the
minute information on prices, availability, etc.

Time savings. Consumers may benefit from the shopping process being faster in the market
space than in the marketplace as a result of the rapidity of the search process and the
transactions.

Possibilities for comparison shopping. By allowing consumers to shop in many places and
conduct quick comparisons of offerings and prices, Internet marketplaces have the ability to
reduce search costs for price and product information.

Access to extensive information. An important consumer benefit is the access to greater

amounts of dynamic information to support queries for consumer decision-making

Privacy and anonymity. The Internet has the potential to offer consumers benefits with
respect to a partial, or even a total privacy and anonymity throughout the purchasing process.
Competitive prices. By embracing e-commerce consumers may benefit from price
reductions as a result of increased competition as more suppliers are able to compete in an
electronically open marketplace as a result of reduced selling prices due to a reduction in
operational/transaction costs and manufacturers internalizing activities traditionally
performed by intermediaries.

Personalization/Customization Consumers can benefit from IT-enabled opportunities for

personalized interactions and one-to-one relationships with companies, which allow for
products, services and Web content to be customized more easily.

The asocial nature of the purchasing process. Since consumers differ in their social
disposition, many customers may find an impersonal purchasing situation desirable for
asocial reasons or simply because they find the verbal contact with a seller time-consuming.
Moreover, the lack of physical sellers creates a sales setting where there is virtually no
pressure to buy.

Universal Standards : Businesses do not have to build proprietary hardware, software, or

networks and customers can also use the universally accepted Internet tools.

From organization point of view the advantages are:

o Low entry barriers

o Enabling companies to gain a global reach to worldwide markets

o Reduction of the cost of doing business

o Fast flow of goods and information

o Increased accuracy of order processing and order fulfillment

o Improved level of customer service

1.6 Categories of E-Commerce
E-commerce is divided into below mentioned major categories to make it easier to differentiate
between the types of transactions that take place.

Electronic Commerce: Classification

Business Consumer

B2B B2C

Cisco, GEIS Mustafa, FabMart

Business
India Mart IndiaTimes.com

C2B C2C
Consumer
PriceLine.com BaaZee.com

Business-to-business (B2B)

Business-to-consumer (B2C)

Consumer-to-consumer (C2C)

Consumer-to-Business (C2B)
Sometimes, We add two additional classifications:

Business-to-employee (B2E)

Government-to-Business (G2B)

M-commerce

Components of a typical successful e-commerce transaction loop

E-commerce does not refer merely to a firm putting up a Web site for the purpose of selling
goods to buyers over the Internet. For e-commerce to be a competitive alternative to traditional
commercial transactions and for a firm to maximize the benefits of e-commerce, a number of
technical as well as enabling issues have to be considered. A typical e-commerce transaction
loop involves the following major players and corresponding requisites:

The Seller should have the following components:

A corporate Web site with e-commerce capabilities (e.g., a secure transaction server);

A corporate intranet so that orders are processed in an efficient manner; and

IT-literate employees to manage the information flows and maintain the e-commerce
system.

Transaction partners include:

Banking institutions that offer transaction clearing services (e.g., processing credit card
payments and electronic fund transfers);

National and international freight companies to enable the movement of physical goods
within, around and out of the country. For business-to-consumer transactions, the system
must offer a means for cost-efficient transport of small packages (such that purchasing
 books over the Internet, for example, is not prohibitively more expensive than buying
from a local store); and

Authentication authority that serves as a trusted third party to ensure the integrity and
security of transactions.

Consumers (in a business-to-consumer transaction) who:

Form a critical mass of the population with access to the Internet and disposable income
enabling widespread use of credit cards; and

Possess a mindset for purchasing goods over the Internet rather than by physically
inspecting items.

Firms/Businesses (in a business-to-business transaction) that together form a critical mass of

companies (especially within supply chains) with Internet access and the capability to place and
take orders over the Internet.

Government, to establish:

A legal framework governing e-commerce transactions (including electronic documents,

signatures, and the like); and

Legal institutions that would enforce the legal framework (i.e., laws and regulations) and
protect consumers and businesses from fraud, among others.

And finally, the Internet, the successful use of which depends on the following:

A robust and reliable Internet infrastructure; and

 A pricing structure that doesn’t penalize consumers for spending time on and buying
goods over the Internet (e.g., a flat monthly charge for both ISP access and local phone
calls).

For e-commerce to grow, the above requisites and factors have to be in place. The least
developed factor is an impediment to the increased uptake of e-commerce as a whole. For
instance, a country with an excellent Internet infrastructure will not have high e-commerce
figures if banks do not offer support and fulfillment services to e-commerce transactions. In
countries that have significant e-commerce figures, a positive feedback loop reinforces each of
these factors

1.7 Business-to-Business (B2B) E-Commerce

Business-to-business (B2B) e-commerce is a subset of e-commerce where all the participants are
organizations. B2B e-commerce is a useful tool for connecting business partners in a virtual
supply chain to cut resupply times and reduce costs. B2B e-commerce is also defined as e-
commerce between companies

It is the selling between companies, wholesale rather than retail. But it means more than that.
Efficient use of capital demands small inventories, which entails anticipating demand, and so
maintaining detailed information flows between all parties involved in today's complex
manufacturing processes. B2B involves widening the circle of suppliers (for safety and
competition), and of centralizing control (for records and discounts).

B2B ecommerce is an important part of any online business. Leaving aside the simple transfer of
funds — covered here — many businesses need some combination of:

Creditworthiness assessment.

guarantee of quality and delivery of goods (escrow services).

safeguards against fraud.

 fast collection of funds, with ability to vary the collection period.

reporting: approval of sale, invoicing, delivery, payment.

procedures to handle disputes.

Information of all types — corporate, technical, identity-building — has to be

interchanged across the scattered divisions of large companies, and new ideas fostered,
assessed and disseminated. Speed is vital, as are improved communication, collaboration,
and customer understanding. All these requirements can be handled by IT, and software
has been developed to meet the challenge — customer relationship management,
enterprise resource planning, online auction, supply chain management, etc. Little of it is
off-the-shelf, but is devised as systems to be extended and built round individual
company requirements.

The B2B market has two primary components: e-frastructure and e-markets.

E-frastructure is the architecture of B2B, primarily consisting of the following:

logistics -transportation, warehousing and distribution (e.g., Procter and Gamble);

application service providers - deployment, hosting and management of packaged

software from a central facility (e.g., Oracle and Linkshare);

outsourcing of functions in the process of e-commerce, such as Web-hosting, security

and customer care solutions

auction solutions software for the operation and maintenance of real-time auctions in the
Internet

content management software for the facilitation of Web site content management and
delivery (e.g., Interwoven and ProcureNet); and Web-based commerce enablers (e.g.,
Commerce One, a browser-based, XMLenabled purchasing automation software).
E-markets are simply defined as Web sites where buyers and sellers interact with each
other and conduct transactions.

The more common B2B examples and best practice models are IBM, Hewlett Packard (HP),
Cisco and Dell. Cisco, for instance, receives over 90% of its product orders over the Internet.
Most B2B applications are in the areas of supplier management (especially purchase order
processing), inventory management (i.e., managing order-ship-bill cycles), distribution
management (especially in the transmission of shipping documents), channel management (i.e.,
information dissemination on changes in operational conditions), and payment management
(e.g., electronic payment systems or EPS)

B2B electronic commerce is also said as wholesale side of the commercial process. The
interrelationships with other businesses needed to build and sell a product make up a network of
business relationships that is called the supply chain. Electronic commerce systems like
electronic data interchange (EDI), and business management processes like supply chain
management seek to reengineer and streamline traditional supply chain processes.

Supply chain management (SCM) is a management concept which integrates the management of
supply chain processes. The goal of SCM is to cut costs, Increase profits, Improve performance
in relationships with customers and suppliers, Develop value-added services that give a company
a competitive edge

Electronic data interchange (EDI) involves the electronic exchange of business transaction
documents over computer networks between trading partners (organizations and their customers
and suppliers). Data representing a variety of business transaction documents are electronically
exchanged between computers using standard document message formats.

Characteristics of EDI include:

1. EDI software is used to convert a company’s own document formats into standardized EDI
formats as specified by various industry and international protocols.
2. Formatted transaction data are transmitted over network links directly between computers,
without paper documents or human intervention.
3. Besides direct network links between the computers of trading partners, third-party services
are widely used.
4. EDI eliminates the printing, mailing, checking, and handling by employees of numerous
multiple-copy forms of business documents.

Benefits of the business use of EDI include:

1. Reduction in paper, postage, and labour costs

2. Faster flow of transactions
3. Reductions in errors
4. Increases in productivity
5. Support of just-in-time (JIT) inventory policies
6. Reductions in inventory levels

The impact of B2B markets

Transaction costs. There are three cost areas that are significantly reduced through the
conduct of B2B e-commerce

1. First is the reduction of search costs, as buyers need not go through multiple
intermediaries to search for information about suppliers, products and prices as in
a traditional supply chain. In terms of effort, time and money spent, the Internet is
a more efficient information channel than its traditional counterpart. In B2B
markets, buyers and sellers are gathered together into a single online trading
community, reducing search costs even further.

2. Second is the reduction in the costs of processing transactions (e.g. invoices,

purchase orders and payment schemes), as B2B allows for the automation of
transaction processes and therefore, the quick implementation of the same
compared to other channels (such as the telephone and fax). Efficiency in trading
 processes and transactions is also enhanced through the B2B e-market’s ability to
process sales through online auctions.

3. Third, online processing improves inventory management and logistics.

Dis-intermediation. Through B2B e-markets, suppliers are able to interact and transact
directly with buyers, thereby eliminating intermediaries and distributors. However, new
forms of intermediaries are emerging. For instance, e-markets themselves can be
considered as intermediaries because they come between suppliers and customers in the
supply chain.

Transparency in pricing. Among the more evident benefits of e-markets is the increase
in price transparency. The gathering of a large number of buyers and sellers in a single
e- market reveals market price information and transaction processing to participants.
The Internet allows for the publication of information on a single purchase or transaction,
making the information readily accessible and available to all members of the e-market.
Increased price transparency has the effect of pulling down price differentials in the
market. In this context, buyers are provided much more time to compare prices and make
better buying decisions. Moreover, B2B e-markets expand borders for dynamic and
negotiated pricing wherein multiple buyers and sellers collectively participate in price-
setting and two-way auctions. In such environments, prices can be set through automatic
matching of bids and offers. In the e-marketplace, the requirements of both buyers and
sellers are thus aggregated to reach competitive prices, which are lower than those
resulting from individual actions.

Economies of scale and network effects. The rapid growth of B2B e-markets creates
traditional supply-side cost-based economies of scale. Furthermore, the bringing together
of a significant number of buyers and sellers provides the demand-side economies of
scale or network effects. Each additional incremental participant in the e-market creates
value for all participants in the demand side. More participants form a critical mass,
which is key in attracting more users to an e-market.
Benefits for the B2B company:

Cost reduction – cost of sales and promotion may be reduced and lower prices passed
onto customers.

Capability – may be able to increase penetration in countries that do not have a

significant share. May help reduce the amount of goods stored. Composites could be sold
to 800 customers via e-commerce system – can potentially increase number of smaller
customers.

Communication – system can improve communications with customers and distributors

through updates of product and technical information.

Control – the web site can be used to monitor interest in product from customers.

Customer service – customers can use e-commerce system to track delivery and manage
inventory better through reducing time for ordering.

Competitive advantage –will be dependent on the use of e-commerce by competitors –

may gain customers over two European competitors and necessary to compete in the US
market.

1.8 Business-to-Consumer (B2C) E-Commerce

Business-to-consumer (B2C) e-commerce is a form of e-commerce in which customers deal
directly with an organization and avoid intermediaries. It involves customers gathering
information; purchasing physical goods (i.e., tangibles such as books or consumer products) or
information goods (or goods of electronic material or digitized content, such as software, or e-
books); and, for information goods, receiving products over an electronic network. Consumers
find that many goods and services are sometimes cheaper when purchased via the Web—for
example, stocks, books, newspapers, airline tickets, and hotel rooms. They also enjoy the
convenience of shopping from their homes, and can easily find detailed information about
products and services before buying them. They can also compare prices, features, and value.
It is the second largest and the earliest form of e-commerce. Its origins can be traced to online
retailing (or e-tailing). Thus, the more common B2C business models are the online retailing
companies such as Amazon.com. The more common applications of this type of e-commerce are
in the areas of purchasing products and information, and personal finance management, which
pertain to the management of personal investments and finances with the use of online banking
tools.

In this form of electronic commerce, businesses must develop attractive electronic marketplaces
to attract and sell products and services to customers. Businesses need to find ways to keep
customers coming back to their stores. The key to this goal is to optimize factors such as:

1. Performance and service efficiency

2. Personalization
3. Socialization
4. Look and feel of the site
5. Offering incentives to purchase
6. Security and Reliability

As nearly all online stores will require the same functions: catalogues, order baskets, payment
processing, content management and member management, it makes sense for those components
to be created once and shared by all stores, with each store effectively ‘renting’ its own copy of
the applications.

The one area where it's important for online stores to differentiate is their look and feel, and
naturally retailers feel very strongly about their business branding. So the ability to create a
unique ‘skin’ for each site is an important part of a template-based e-store offering.

Using the latest internet application technology, individual sites can be created within minutes of
the retailer selecting a template and supplying graphics such as logos. Typically, retailers will
pay only a modest monthly rental charge – and retailers require no specialist hardware or
software, other than internet access.
Anyone who wants to sell products and services over the internet, or who wants customers to be
able to research their purchases on the internet, should consider an online store.

These days, a web site should be a standard part of the promotional and advertising mix for every
business, along with other tools such as Yellow Pages, newspaper advertising and signage.

Many analysts state that C2B and C2C e-commerce will thrive in the near future.

Advantages of B2C e-commerce

B2C e-commerce has the following advantages:

B2C e-commerce reduces transactions costs (particularly search costs) by increasing

consumer access to information and allowing consumers to find the most competitive
price for a product or service.

B2C e-commerce also reduces market entry barriers since the cost of putting up and
maintaining a Web site is much cheaper than installing a “brick-and-mortar” structure for
a firm.

In the case of information goods, B2C e-commerce is even more attractive because it
saves firms from factoring in the additional cost of a physical distribution network.

Moreover, for countries with a growing and robust Internet population, delivering
information goods becomes increasingly feasible.

Shopping can be faster and more convenient.

Offerings and prices can change instantaneously.

Call centers can be integrated with the website.

Broadband telecommunications will enhance the buying experience.

Benefits for the B2C company:

Cost reduction – as mentioned in the preceding text.

Capability – opportunity for mail order e-commerce – should be relatively easy since
based on existing trading model. May be potential for overseas market.

Communication – to customers.

Control – again, monitoring of interest in products.

Customer service – enquiries about products can be detailed on the web site – more room
than in print catalogue. Opening times and special offers can be promoted. This may
reduce the number of phone enquiries.

Competitive advantage – since the majority of its competitors have, or are developing, an
ecommerce system, the introduction of a new system is essential for long-term
competitive advantage.

Challenges faced by B2C e-commerce

The two main challenges faced by B2C e-commerce are building traffic and sustaining customer
loyalty. Due to the winner-take-all nature of the B2C structure, many smaller firms find it
difficult to enter a market and remain competitive. In addition, online shoppers are very price-
sensitive and are easily lured away, so acquiring and keeping new customers is difficult.

1.9 Consumer-to-Consumer (C2C) E-Commerce

The introduction of the new economy has helped to create a very individualistic and independent
society. Consumers are no longer totally reliant on corporations and are increasingly looking to
conduct their own business transactions. Consumer-to-consumer (C2C) e-commerce is a subset
of e-commerce that involves consumers selling directly to other consumers. This type of e-
commerce is characterized by the growth of electronic marketplaces and online auctions,
particularly in vertical industries where firms/businesses can bid for what they want from among
multiple suppliers. It perhaps has the greatest potential for developing new markets. C2C sites
such as eBay and Napster indicate that this market is quite large. These sites produce millions of
dollars in sales every day.

When e-Commerce was first introduced, it redefined the traditional structure of business by
giving small firms and individuals the same opportunity as multi-national corporations. As a
result, many individuals established online organizations that encouraged and assisted commerce
between consumers.

The most famous and successful example of a Consumer-to-Consumer application is EBay.

Ebay.com is an online auctioning site that facilitates the trade of privately owned items between .
The website claims that through EBay, anyone can trade practically anything. The company
began in September 1995 when Pierre Omidyar decided to establish the first online marketplace.
Since that time, the company has continued to grow both in size and popularity. Ebay is now
considered one of the most successful C2C eBusinesses ever.

C2C of e-commerce comes in at least three forms:

1. auctions facilitated at a portal, such as eBay, which allows online real-time bidding on
items being sold in the Web;

2. peer-to-peer systems, such as the Napster model (a protocol for sharing files between
users used by chat forums similar to IRC) and other file exchange and later money
exchange models; and

3. classified ads at portal sites ; an interactive, online marketplace where buyers and sellers
can negotiate
1.10 B2E - Business to Employee
B2E (Business to Employee) E-Commerce generally refers to the requisitioning of supplies by
employees for use in their jobs, but this really has grown to encompass much more. For example,
B2E makes it very easy for an employee to requisition a new toner cartridge and printer paper -
the order is entirely electronic, and supervisors are asked to approved the requisition in the event
that the total order exceeds preset limits for that particular employee. However, B2E has grown
into technologies that allow the employee to access their employee records to update address
information, shift investments in the 401K plan, or maintain their internal resume. Many
companies have found that B2E technologies have dramatically reduced the administrative
burdens with the human resources department. Admittedly, maintaining employee information
has little to do with commerce, but this term has grown to encapsulate this activity into the B2E
definition.

1.11 Government-to-Consumer (G2C)

G2C includes information dissemination to the public, basic citizen services such as license
renewals, ordering of birth/death/marriage certificates and filing of income taxes, as well as
citizen assistance for such basic services as education, health care, hospital information, libraries,
and the like.

1.12 Government-to-Business (G2B)

G2B is similar to B2B except Governments operate under own set of rules that may have to
adhered by other businesses. G2B transactions include various services exchanged between
government and the business community, including dissemination of policies, memos, rules and
regulations. Business services offered include obtaining current business information,
downloading application forms, renewing licenses, registering businesses, obtaining permits, and
payment of taxes. The services offered through G2B transactions also assist in business
development, specifically the development of small and medium enterprises. Simplifying
application procedures that would facilitate the approval process for SME requests would
encourage business development. On a higher level, G2B services include e-procurement, an
online government supplier exchange for the purchase of goods and services by government.
Typically, e-procurement Web sites allow qualified and registered users to look for buyers or
sellers of goods and services. Depending on the approach, buyers or sellers may specify prices or
invite bids. e-Procurement makes the bidding process transparent and enables smaller businesses
to bid for big government procurement projects. The system also helps government generate
bigger savings, as costs from middlemen are shaved off and purchasing agents’ overhead is
reduced.

1.13 Government-to- Government (G2G)

G2G services take place at two levels: at the local or domestic level and at the international
level. G2G services are transactions between the central/national and local governments, and
between department-level and attached agencies and bureaus. At the same time, G2G services
are transactions between governments, and can be used as an instrument of international relations
and diplomacy.

Benefits for a Not-for-Profit organization, example Government departments:

Cost reduction – in procurement and reduced headcount needed to handle consumer and
business enquiries

Capability – information services that are currently provided by staff contact or through
paper documents and leaflets can be delivered by e-mail and web.

Communication – to businesses and consumers using government services

Control – monitoring levels of services required

Customer service – similar to commercial companies

 Competitive advantage – not-for-profit companies may compete against each other for
funding or with commercial organizations, so this is still relevant – they can demonstrate
that they are spending their money more effectively.

Summary and examples of transaction alternatives between businesses, consumers and

governmental organizations

1.14 M-Commerce

M-commerce (mobile commerce) is the buying and selling of goods and services through
wireless technology-i.e., handheld devices such as cellular telephones and personal digital
assistants (PDAs). Japan is seen as a global leader in m-commerce.

As content delivery over wireless devices becomes faster, more secure, and scalable, some
believe that m-commerce will surpass wireline e-commerce as the method of choice for digital
commerce transactions. This may well be true for the Asia-Pacific where there are more mobile
phone users than there are Internet users.

Industries affected by m-commerce include:

Financial services, including mobile banking (when customers use their handheld devices
to access their accounts and pay their bills), as well as brokerage services (in which stock
quotes can be displayed and trading conducted from the same handheld device);

Telecommunications, in which service changes, bill payment and account reviews can all
be conducted from the same handheld device;

Service/retail, as consumers are given the ability to place and pay for orders on-the-fly;
and

Information services, which include the delivery of entertainment, financial news, sports
figures and traffic updates to a single mobile device.

1.15 Electronic Commerce Applications

Retail and Wholesale (e-tailing)

There are numerous examples of e-commerce in retail and wholesale. Electronic retailing,
sometimes called e-tailing, is the direct sale from business to consumer through electronic
storefronts, which are typically designed around the familiar electronic catalog and shopping cart
model. Cybermalls support e-tailing by providing many products and services at one Internet
location. As the name suggests, e-Tailing is the web version of Retailing. In other words these
are online shops where a customer can choose from a variety of items like Apparel, Accessories,
Mobiles/Cell Phones, Cameras, Computers, Books, Magazines, Music CDs and DVDs,
Electronic Goods, Shoes, Furniture, Health Equipments, Flowers, Jewelry, etc.
The two popular models that exist in the eTailing marketplace are Online Retailers and Online
Auctions. The Website of an Online Retailer is used as a storefront to sell physical goods that are
then delivered by a third party. The Online Auctions, on the other hand, serves as a platform
where a seller can offer to sell its products to interested buyers and provides the enabling
infrastructure for electronic transactions. In the past, auctions were limited to only high valued
items such as paintings, antiques and collectibles or for commodities in the wholesale market
places. However, now it is possible to auction even low valued items like old books, music
cassettes, CDs, etc. Thus, both formats of eTailing differ in the procedure for conducting an
electronic transaction. These differences can be highlighted in form of the following process
flow:

Education & Learning

IDC defines e-Learning as the concept of delivering training over the Internet to the desktop.
Internet empowers professionals with flexible training, customized learning, work schedules.
CD-ROM offered Computer Based Training (CBT) which is transportable, cost efficient,
"anytime anywhere" training. Internet and WWW provided the capabilities of basic mentoring
through email, delivery of content in text with simple graphics, and low-quality Web-casts. Due
to growth Internet technologies and bandwidth, today training is characterized by Java/IP
network applications, rich streaming media, high bandwidth access, and live, virtual classrooms
over the Web with real-time monitoring. It is capable of providing content in multiple formats as
an integrated suite that is focused on the learner as opposed to force-fitting old CD-ROM
technology into a Web format.

Technology has evolved to the extent that the course developers can pay more emphasis on
providing students a better experience than they might have had even with a traditional
instructor-led class in a brick-and-mortar environment. The focus in such an e-learning
environment is on engaging them and keeping the learners engrossed in the information being
conveyed. The key behind good e-Learning and bad e-Learning solution lies in the degree to
which learners are engaged. A good e-Learning solution is a full sensory type of approach to
technology and education consisting of animations, the multiple voices, the humor, the games,
the interaction, the hands-on labs, the simulations, the demos. The on line instructor can interact
and explain concepts and clear doubts to anyone attending a course, no matter where the students
are located as long as they are sitting in connected classrooms.

Online Travel Industry

In the last few years, the Indian skies started getting covered with low cost or the ‘no frills’
airlines. The travelers got their biggest surprise when Air Deccan, India’s first low cost airline,
introduced trips to major cities of India at fares comparable to the Indian Railways. In no time,
there were others joining the league. The competition among the Airlines led to of great offers
and deals to the customers. As a result, dreams of thousands of Indians belonging to SEC A and
SEC B came true; they could now fly from Delhi to Mumbai with Re 1 and Rs 500 tickets. The
travel industry was riding on a high wave. Along with the travelers, the tour operators too
thought of cashing in the opportunity offered by low airlines. A number of online travel
aggregators and tour operators, operating on lines of brick-and-mortar business models swarmed
the Online Travel Industry, offering customized choices to its users comprising of choice for
place to visit, ticket bookings, stay etc. The sites even take one through virtual tours to the places
selected by the user. The online ticket reservation website of Indian Railways is also
experiencing a very high inflow of travelers, booking tickets online.

Manufacturing

Many manufacturers are moving their supply chain operations onto the Internet. Here they can
form an electronic exchange to join with competitors and suppliers using computers and Web
sites to buy and sell goods, trade market information, and run back-office operations. This
approach has greatly speeded the movement of raw materials and finished products among all
members of the business community, thus reducing the amount of inventory that must be
maintained. It has also led to a much more competitive marketplace.
Online Classifieds

B2C Online Classifieds is a customer driven market. It enables Internet Users to place their
offerings, including, CVs for jobs, profile for matrimony, ads to buy/ sell property and
automobiles on websites. Though the Online Classifieds market targets niche segments, for
example, the working population can place their CVs on job portals, those greater than 18 years
are eligible to avail of services of a matrimonial website, etc., this segment still manages to
attract the maximum attention owing to the fact that it targets the young population, that
contributes maximum to the pie of Internet users. However, there is another potential segment
comprising of middle aged and senior citizens, who might be interested in availing matrimony
services (for their children) and buying/ selling property. Since this segment is not comfortable
in accessing the internet, they still rely on service of middlemen like marriage consultants and
property dealers. Having realized this, players in the Online Classifieds Market are opening
physical counters. The physical counters assist the not-so- Internet-savvy population by applying
search as per the parameters specified by the customer.

Marketing

In the area of marketing, e-commerce has enabled firms to gather much more information about
customer behavior and preferences. Internet advertisers use the data they gather to identify
specific portions of their markets and target them with tailored advertising messages. This
practice is known as market segmentation. In addition, technology-enabled relationship
management allows a business to obtain detailed information about a customer and then
customize its entire relationship with that customer.

The traditional marketing faces following major challenges:

Higher Costs: Costs to produce brochures and product data sheets, shipping and mailing.
The support for consumer queries requires more human resources.
Hit Ratio: The direct mail even in the targeted market place suffers from extremely low
response rates.
 Time Intensive: A preparation of an advertisement or a marketing brochure may require
several rounds of revisions leading to delays in dealing with ad agencies and printers.
Also, the prepared advertisement may sometimes have to wait for a long period due to
suitable slot availability in the media.

The Internet advertising offers following advantages:

Cost Savings: The catalogues, brochures, product specifications prepared in the electronic form
and delivered through the Internet offer huge savings in copy editing, printing, packaging and
shipping costs and updating them as and when required. Also, it cuts the time to put the
information on customers hand the up to date information is available to customers worldwide
continuously through the reach of Internet.

Lower Barrier to Entry: The size of business, location of business and the brick and mortar
infrastructure does not matter when you are present on Internet. Electronic commerce universe is
a great leveler. It offers equal opportunity to one and all by lowering the barriers to access the
marketplace.

Supply Chain Management

The supply chain management deals with three issues:

Coordinating all the order processing activities that originate at the customer such as
process of order generation, order acceptance, entry into order processing system,
prioritization, production and material forecast;

Material related activities such as scheduling, production, distribution, fulfillment and

delivery; Financial activities such as invoicing, billing, fund transfer and accounting.
The electronic commerce technologies assist in:

Linking and managing digitized products, product information, processes and

intercommunication among organizations.

The primary goal of streamlining the product delivery from manufacturer to the
customer can be better served with digital communication, sharing of information/
databases and coordination across number of organization in the 'chain'.

Through the use JAVA and XML, members of a supply chain can pool together
heterogeneous resources and skills for sharing and exchange of information to deliver
the outcome as one "virtual" organization.

Investment and Finance (Online Banking)

The world of finance and investment has been revolutionized by the Internet through online
stock trading and online banking. The brokerage business adapted to the Internet faster than any
other arm of finance. The attraction of online trading enables investors to do quick, thorough
research and then buy shares in any company in a few seconds and at a fraction of the cost of a
full-commission firm has brought many investors to the Web. Online banking has increasingly
becoming more and more popular. E-banking or Online banking includes familiar and relatively
mature electronically-based products in developing markets, such as telephone banking, credit
cards, ATMs, and direct deposit. It also includes electronic bill payments and products mostly in
the developing stage, including stored-value cards (e.g., smart cards/smart money) and Internet
based stored value products. It allows customers to check balances of their savings, checking,
and loan accounts; transfer money among accounts; and pay their bills from the comfort of their
homes. These customers enjoy the convenience of not writing checks by hand, and save money
on envelopes and stamps. Vendors can eliminate paper altogether by using electronic bill
presentment to post statements online and alert customers through e-mail.
Electronic Trading

The electronic trading is a mechanism that utilizes the power of electronics and communication
media such as Internet to bring together geographically dispersed buyers and sellers on a virtual
common trading platform. The virtual platform offers aggregated information to all the
participants in a fair manner. The platform facilitates the access to aggregate information, order
booking and fulfillment. In the context of stock markets, the e-trading means buying and selling
equity online through electronic means. Examples: ICICIdirect, E-trade, Fidelilty etc.

Auctions

The Auctions are a market mechanism for trading the items at a market-negotiated price based
upon the demand and supply. The Internet has added a new dimension by creating an online
mechanism for implementing the Auction process. The auction mechanisms implemented using
the electronic commerce technologies allows people connected through the Internet to bid online.
The Electronic auctions potentially encourage greater participation as any Internet users with
access to site hosting an auction can bid.

The biggest Web site in online auctions is, of course, eBay. eBay is hugely successful, yet there
have been complaints from some eBay customers. The most frequent of these are regarding
increases in fees and problems with unscrupulous buyers. As a result, eBay is constantly trying
to expand and improve its services. Hundreds of other online auction sites also exist.

Paid Content Subscription

After a faltering start at the end of the nineties, the content subscription market is now building
on a very solid foundation. Content providers have realized the power of Internet for
dissemination of the ‘right’ content. There is no dearth of data available freely over the Internet,
but the value being added to that data makes it saleable even on the internet. Having realized the
potential of selling information online, today, Internet is swarmed with the paid-content
providers and other fee-based service providers, selling information across verticals. The most
popular verticals with paid-content are: sports, games, research and reports, shopping guides,
exclusive videos, financial information, adult content and audio books. It also comprises of
brick-and-mortar models of magazines and newspapers.

Digital Downloads

The definition used in study for ‘Digital Downloads’ is content downloaded to mobile phones
and Internet, with the prerequisite of using a website for the downloading. Thus, we have taken
into consideration the WEB and WAP based mobile downloads and have excluded SMS based
mobile downloads. Given the rate at which mobile subscribers are increasing, the telecoms in
addition to various content aggregators, including portals and mobile content publishers are
providing facility to download ring tones, wallpapers, picture messages, logos, games, music/
videos, etc to mobile phones.

With the mobile phones bridging the digital divide in smaller towns and villages the digital
downloads market has significant opportunities in India. Wireless operators, music and film
companies, cartoon artists, game makers and musicians are all aggressively entering this market.
To download content from the Internet, the users need to have a GPRS or WAP enabled mobile
handset and the SIM card that is WAP or GPRS enabled. Once the same is ensured, users can
download the content to their mobile phones directly. Another way to download mobile content
is to log on to the content provider’s website via PC, select the content to be downloaded and
provide the mobile number to which a download is to be made. Similarly, several content
aggregators allow Internet users to download wallpapers, games, music/ videos, etc to their PC.

Electronic Searching

Internet and electronic commerce technologies have put the information few key strokes away
from people connected to Internet. Web browser can be used for accessing the functionality
offered by telephone directories by interfacing the directory database with the Web (HTTP)
server. The complete functionality offered by telephone directory service provider can be offered
through a single web interface without any human intervention all the time from all the locations.
Example, Whowhere.com, yp.intel.com

World Wide Web is a vast sea of information. Contains personal pages, business pages, and
general information on many topics and subjects. Locating relevant information in an ocean of
over 1.3 billion pages can be a Herculean task. Many companies have built information retrieval
systems that assist in searchin the information based on keywords and text. Eaxample, Yahoo
(http://www.yahoo.com), Altavista (http://www.altavista.com), Google
(http://www.google.com), Khoj (http://www.khoj.com), and India123
(http://www.india123.com)

1.16 Barriers of E-Commerce

Quality evaluation. On the Internet, it is more or less impossible to make sure, beyond
doubt, that (tangible) products have the desired features (e.g. design, material, color, fit),
giving rise to a quality evaluation barrier to e-commerce.

Security risks. It has been seen that transaction security (such as the credit card number
being picked up by third-party hackers) is mostly a perceptual problem in e-commerce

Lack of trust in virtual sellers. The fear of fraud and risk of loss has commonly been cited
as a significant barrier to B2C e-commerce, with empirical research findings supporting this
assumption

Delivery times. In tangible product categories, any home-shopping method involves delivery
times which means that the Internet is at a disadvantage to physical stores as it fails to meet
the customers’ need for instant gratification. Consumers may thus be reluctant to wait for the
delivery of ordered goods for days/weeks if the same product can be collected immediately in
physical outlets.

Lack of personal service. While e-commerce offers great opportunities for one-to-one
marketing, it significantly reduces, or even puts an end to the personal service (human-to-
human contact) characterizing traditional commerce
 Lack of enjoyment in shopping. Many consumers find the shopping experience - looking,
feeling, comparing - in retail stores relaxing and enjoyable. As the feeling of amusement and
relaxation is unlikely to be as marked in electronic settings, e-shopping can hardly be seen as
a substitute for the leisure experience associated with conventional shopping.

Cannot bargain/Negotiate. The leverage of bargain/Negotiate is not possible.

Hard to find what you are looking for. Some times the difficulty to locate
stores/products/information on the Web emerges from limitations of the user, search engines
used, or poor site usability.

Time-consuming nature. As noted, e-commerce may offer consumers savings in time. In

practice, however, using the Internet for commercial purposes may prove to be too time
consuming for many users. There are multiple reasons for this

o difficulties locating Web sites/products/services

o registration procedures required to access services; and

o making price comparisons

Cost of use. Cost of acquiring a computer, and Internet access fees.

Limited Internet/ computer experience. Reluctance/difficulties operating computers and/or

browsing the Web.

Poor connection speed. Due to low bandwidth connections, using the Internet may be time
consuming, and thus frustrating.

1.17 Threats to Electronic Commerce

Ensuring the identity of interacting parties is very important. Shoppers are concerned with
the authenticity of web sites, and e-businesses are concerned about the authenticity of their
customers. For this, organizations use identification technologies to confirm the identity of a
user requesting access to information or assets.
 Intellectual property issues or threat. Intellectual property refers to music, books, inventions,
paintings, and other special items protected by patents, copyrights, or trademarks. Every
year, businesses lose lot of money because of infringement of copyrights, trademarks, and
patents.

There are many types of online fraud schemes out there. Like “Phishing”, it is the practice of
sending bogus messages from a legitimate institution to pry personal information from
customers by convincing them to go to a “spoofed” Web site. Another popular problem is
click fraud, which occurs when additional clicks are generated beyond those that come from
legitimate users.

Privacy issue is another very important threat to online enterprises. Many Web sites conduct
online profiling which is beneficial for both the marketer and the customers however, it
threatens the customer’s anonymity on the Internet.

Lack of access to Internet and other communication devices is another obstruction in the
growth of e-commerce.

Investment required for corporation to establish and operate a B2B or B2C Web site is huge
and ROI determination takes times and often becomes difficult.

Every country has there own legal rules and regulation, hence companies engaging in e-
commerce must keep them in mind and customize there e-business to avoid violating these
rules.

Despite having a legal basis to pay sales tax, it is really a difficult task to collect sales taxes
on Internet purchases.

1.18 Potential Pitfalls

While starting out in, or expanding into Ecommerce is a relatively easy step to take, there are a
number of potential problems that can cause an online business to fail or make Ecommerce a bad
idea.
 Suitability

While having a web site is almost a requirement in modern business, selling through an
Ecommerce website is not suitable for every business. Obviously if your business is primarily
concerned with providing a service, it is unlikely that you will be able to provide this service
purely over the internet. If you products are generally customised, for example tailoring, then
selling via a website may be difficult, as it will be complicated to allow every possible option or
combination through an online shop, and relying on customers to measure themselves or assess
their own needs could cause problems. Many kinds of product are simply not suitable for deliver
by post or courier. Large or high value items or those which require signatures on delivery can
make it hard to get reliably get the product to the customer. Perishable items necessarily have a
shelf life so are not ideal for being posted or sitting in a sorting office awaiting collection. Some
items may have legal restrictions on who can purchase them, and verifying this online can be
tricky.

Investment

Although the cost of setting up an Ecommerce website is much smaller than that of a physical
shop, a substantial investment in terms of both time and money is still required, particularly if
additional infrastructure is required. It is a bad idea to dive into Ecommerce half heartedly as an
online shop needs to be professionally built in order to be functional, efficient, secure and
ultimately profitable. For example, high quality photographs of your products are essential as a
poor image can make a good product look cheap or unexciting. If you have a large inventory,
professional photography will be a significant cost.

Maintenance

While an Ecommerce web site removes many of the traditional overhead costs, it will require
maintenance. Product catalogues must be kept up to date with stock levels and the latest prices,
and orders must be monitored and fulfilled. Nonetheless, it is unlikely that these factors will
cause you a significant problem, especially if you already have an established business.
 The personal touch

For all the advantages of Ecommerce web sites, there is still something to be said for bricks and
mortar shops. Being able to see an item in person and touch it helps customers make purchasing
decisions, and professional sales assistants can help customers choose the right items, suggest
further purchases and answer any queries. Although providing a high level of customer service
through an Ecommerce web site can be difficult, there are a number of solutions. You will still
be able to answer customers queries over the telephone, and some Ecommerce sites have an
instant messaging feature, allowing customers to type questions and receive answers through the
site.

1.19 The Future of E-Commerce

E-Commerce is the future of shopping. The Internet economy will continue to grow robustly;
Internet users would buy more product and buy more frequently online ; both new and
established companies will reap profits online.

Safer Online Payment Systems: As the Internet becomes a safer place to transact, the
amount spent by the Internet Users online is bound to increase. Those apprehensive of
divulging their credit card and bank details would be active online shoppers. The Internet
users are expected to buy high-end products like automobile, property, home durables
online.

Customization of content and offerings: As the internet users mature, the demand for
customization will increase. The content would adopt the regional flavors. More niches
will be formed, seeking for offerings made for them and content that meets their
requirements.

More number of shoppers from Non-Metros: Currently, major spread of users coming
from Metros. The contribution from the Non-Metros is expected to increase. This change
would be bought by higher penetration of Internet in the small towns and limited reach of
physical distribution channels of the established sellers to these towns. These factors
 coupled with higher disposable income would compel the Internet users in these towns to
buy online.

Expanding User Base: Going at the current rate of growth in the Internet users
transacting online, the user base for E-Commerce is expected to rise expand
exponentially. A large portion of the Internet population is under the age of 35 years and
is increasingly moving northwards as far as the purchasing power is concerned. The
uncanny nature of this segment “to use now and pay later” is going to play an important
part in the future growth of e commerce market. Be it picking new stocks or new clothes,
finding a job or a bride, the web way of doing things will gain precedence.

1.20 E-Commerce in Africa

Africa is now ready for e-commerce and there are many excellent African IT companies who
provide hardware and software. The leading African countries in e-commerce are South Africa,
Egypt, Ethiopia, Nigeria, Morocco, Tunisia, Kenya and Senegal. Many others African countries
have started initiatives to develop e-commerce services. The problem with e-commerce in
Africa is the lack of online payments. There is urgent need to create a common African e-
payment system especially adapted to Africa market. This new African e-payment system can be
an alternative to debit and credit card payment systems for e-commerce. One need to customize
e-commerce to fit the way of life of people living in Africa. Today there is a growing African e-
commerce industry. In Addis Ababa, the Ethiopian capital, a Pan-African Alliance on e-
Commerce has been launched. Senegal, Cameroon, Cote d’Ivoire, (Ivory Coast), Gabon,
Democratic Republic of the Congo, Morocco, Ghana, Libya, Kenya and Togo were listed as the
10 countries that have signed with the alliance.
SELECTED AFRICAN E-COMMERCE SITES

Botswana
BOTSWANACRAFT: Unique Basketry and Bushman Crafts from Botswana,
http://www.botswanacraft.bw/

Comesa
COMESA e-commerce, http://www.comesaec.org/

Egypt
Aldokkan Gift Shop: handmade gifts, crafts and souvenirs, http://www.aldokkan.com/

cars.com.eg :: The First Egyptian Cars Site, http://www.cars.com.eg/

Shop online securely, for flowers, flower arrangements, wedding arrangements, plants, perfumes,
chocolates, helium balloons, teddy bears, and much more! Delivery Covering All Egypt,
http://www.bostany.com/

Bedouin and Pharaonic jewelry from Egypt, http://www.haramlik.com/

Egypt Flowers Net, http://www.egyptflowers.net/

Egyptian cotton blank t-shirts made in Egypt made from the famous Egyptian cotton,
http://www.t-shirtegypt.com/

Ethiopia
Ethio Gift, http://www.ethiogift.com/

Ethio Merkato, http://www.ethiomerkato.com/

Ethiopian Airlines, http://www.flyethiopian.com/

Genuine Leather Craft, http://www.genuineleathercraft.com/

Kenya
AFRIGOODS, http://www.afrigoods.org/

Kenya Creations: Hand Made Ladies Handbags, African Art, Authentic Kenyan Designs,
http://www.kenya-creations.com/

Naushad Trading Company: African Handicrafts, Woodcarving, Antiques, Gifts,

http://www.ntclimited.com/

Safari park Hotel - Nairobi, Kenya, http://www.safaripark-hotel.com/

Sportsmens Safaris - For all sports tours, safaris, adventure holidays in Kenya and Tanzania,
http://www.sportsmens-safaris.com/

Madagascar
Madagascar Minerals, http://www.madminer.com/

Morocco
w w w. M e d i n a S h o p . c o m: Genuine handcrafted products from Morocco,
http://www.medinashop.com/

Maroc Telecommerce, http://www.maroctelecommerce.com/

Namibia
COOL MEDIA - retailer of Videos, Music, Games, DVD 's and other home entertainment in
Namibia / South Africa, http://www.coolmedia.com.na/

Namibia Travel Online, http://www.natron.net/

Nigeria
African Online Shop - African books, music, clothing, fabric and fashion,
http://www.over2u.com/
South Africa
Home Adventure & events Safaris 4X4 Fishing Outdoors African Arts & gifts Enquire Tell-a-
friend, http://www.africatravelmart.com/

CMPOnline and AACA Music: ONLINE STORE FOR PROFESSIONAL FITNESS MUSIC
AND EXERCISE VIDEOS/DVD'S, http://www.aaca.co.za/

Auction Pages: South African Auction portal, http://www.auctionpages.co.za/

Businesscard Online, http://www.businesscard.co.za/

Just Flowers for Johannesburg, South Africa, http://www.justflowers.co.za/

Tanzania

African Adventures, http://www.africanadventures.com/

Tunisia

Republic of Tunisia. Ministry of Trade. Republique Tunisienne. Ministère du commerce,

http://www.infocommerce.gov.tn/

RAKEN Style: Carpets & tapestries, Iron & Glass, Copper, Leather, Wood, Ceramics & pottery,
Jewelry, http://www.raken.com/

Socopa, http://www.socopa.com.tn/

Gallerie tunisienne de commerce électronique, http://www.ecom.tn/

Cepex, http://www.cepex.nat.tn/

Magasin des timbres- poste tunisiens, http://www.e-stamps.poste.tn/

Tunisie TradeNet, http://www.tradenet.com.tn/

stelfair tunisia - The virtual fair of Tunisian products and services, http://www.stelfair.com.tn/
End Chapter Quiz

Q1. What type of commerce is enabled by technology

a. Path-to-profitability

b. E-commerce

c. EBuy

d. Internet

Q2. E-commerce allows buying and selling between

a. Businesses and consumers.

b. Consumers and consumers.

c. Businesses and businesses.

d. All of the above.

Q3. Which of the following is a limitation of E-Commerce?

a. Ability to operate 24 hours a day.

b. Integration of distributor and supplier IT systems.

c. Special network and hardware requirements.

d. Increased market area

Q4. What type of commerce occurs when a business sells its products over the Internet to
other businesses?

a. B2B

b. B2C

c. C2B

d. Enterprise commerce

Q5. Company ABC has several divisions that have created private resources that can be
accessed using Internet protocols. The company is now going to link these resources
together. What type of network is being described?

a. Internet

b. Extranet

c. Intranet

d. None of the above

Q6. What is term used when the government employs technology to deal with citizens,
businesses, and other government agencies?

a. G2BC

b. Web

c. E-government

d. None of the above

Q7. __________________ is a form of marketing where organisations pay people who
generate customers for you.

a. Internet marketing

b. Direct marketing

c. Business marketing

d. Affiliate marketing

Q8. Which of the following is a pure electronic commerce corporation?

a. Mike's business sells products out of his store in Chicago.

b. Tom's business sells products out of his store in Chicago and online.

c. Jane's business sells products out of her website.

d. Ann's business sells products out of her website and mail order catalog.
 Chapter 6 : Mobile Commerce

6.1 Introduction
The term e-commerce denotes business processes on the Internet. The general definition of e-
commerce does not say anything about the kind of device that the end user use to gain access to
the internet. The underline technology could be wired as well as wireless. The term m-commerce
is all about wireless e-commerce, that is, where mobile devices are used to do business on the
internet, either in the B2B or B2C market. M-commerce is actually a subset of e-commerce

One of the basic examples of m-commerce has to do with receiving sales promotions via the
hand held device. The most common application would involve the service provider sending text
messages to the subscriber that promote new product offerings, free trials on additional services,
or other types of promotional campaigns. The subscriber is not charged a fee for the text
message, and often can respond with a return text message without incurring any type of fee.
Several major cellular services off subscribers to opt into this type of m-commerce, or be
excluded from receiving the messages.

Offers that are received through the use of m-commerce may be accepted and paid for using the
hand held device. For example, if a customer chooses to respond to an offer, there are usually
several payment options available. The most common option is adding a charge to the monthly
invoice for services rendered. However, many companies that engage in m-commerce also offer
the option of paying for the item by the use of a credit card that is linked to the SIM card on the
hand held device.

In comparison to e-commerce, m-commerce offers both advantages and disadvantages. The

following list summarises the advantages of m-commerce:
6.2 Advantage of M-Commerce
Ubiquity: The use of wireless device enables the user to receive information and conduct
transactions anywhere, at anytime.
Accessibility: Mobile device enables the user to be contacted at virtually anytime and
place. The user also has the choice to limit their accessibility to particular persons or
times.
Convenience: The portability of the wireless device and its functions from storing data to
access to information or persons.
Localization: The emergence of location-specific based applications will enable the user
to receive relevant information on which to act.
Instant Connectivity (2.5G): Instant connectivity or "always on" is becoming more
prevalent will the emergence of 2.5 G networks, GPRS or EDGE. Users of 2.5 G services
will benefit from easier and faster access to the Internet.
Personalization: The combination of localization and personalization will create a new
channel/business opportunity for reaching and attracting customers. Personalization will
take the form of customized information, meeting the users’ preferences, followed by
payment mechanisms that allow for personal information to be stored, eliminating the
need to enter credit card information for each transaction.
Time Sensitivity – Access to real-time information such as a stock quote that can be
acted upon immediately or a sale at a local boutique.
Security – depending on the specific end user device, the device offers a certain level of
inherent security.

6.3 Disadvantages of m-commerce

small screens of most devices still limit types of file and data transfer (i.e. streaming
videos, etc.)

standards guiding applications and technology development and connection(s)

WAP and SMS limited to small number of characters and text.

 use of graphics is limited

less functionality for mobile Internet over mobile phones and existing generation of
handhelds than for mobile computers (laptops and next generation handhelds)

user interface is often difficult to learn how to use

limited bandwidth

limited roll out of higher bandwidth mobile networks and devices (i.e. 3g networks and
wireless broadband networks are predominantly located in cities) cost of establishing
mobile and wireless broadband infrastructure

technology constraints of mobile devices (memory, processing power, display

capabilities, input methods)

security of data moved across some mobile and wireless networks

businesses investment in hardware and infrastructure is seen as riskier as rapid evolution

of mobile and wireless technologies continues.

6.4 Wireless Technologies

Just as the TCP/IP and the general purpose Web browsers are being the current principal drivers
of Internet growth and this in turn makes disparate devices to connect themselves and
communicate and interoperate. Similar protocols, technologies and software will play a very
important role in heterogeneous wireless devices to interoperate without any complexity. In the
recent past, a common communications technology and uniform interface standard for presenting
and delivering several distinct wireless services on wireless devices - Wireless Application
Protocol (WAP) have emerged. The WAP specifications include a micro-browser, scripting
language just like JavaScript, access functions and layered communication specifications for
sessions, transport and security. These specifications enable interface-independent and
interoperable applications. Many of the wireless device manufacturers, service and infrastructure
providers have started to adopt the WAP standard.
The transmission rate of Current access technologies (2G), such as TDMA, CDMA and GSM, is
dramatically slower ( between 10 and 20 Kbps) than the dial-up rates of desktop PCs connected
to the Internet. 2G technology has steadily improved, with increased bandwidth, packer routing
and the introduction of multimedia. The present state of mobile wireless communications is often
referred to as 2.5G. It is believed that by the year 2003, 3G wireless technology will be available
for use. This, in addition to higher bandwidth rates, can take the transmission speed up to 2
Mbps. 3G is expected to facilitate: enhanced multimedia (voice, data, video, and remote control)
transmission, usability on all popular modes (cellular telephone, e-mail, paging, fax, video-
conferencing and Web browsing), routing flexibility (repeater, satellite, LAN) and operation at
approximately 2 GHz transmit and receive frequencies.

6.5 M-Commerce Applications

The general m-commerce applications are categorized as transaction management, digital
content delivery and telemetry services. The applications can be further subdivided into passive
and active m-commerce applications. Active application relates with the applications in which
the user has to take the initiative on his wireless device. In contrast, the passive applications
themselves get activated towards accomplishing the assigned jobs or facilitate the users to carry
forward.

Active Applications

M-commerce transactions point to online shopping Web sites tailored to mobile phones and
PDAs which are being equipped with the capabilities of browsing, selection, purchase, payment
and delivery. These sites also include all the necessary shopping features, such as online
catalogs, shopping carts, and back office functions as currently available for desktop computers.
Leading online booksellers already started the commercial activities for wireless devices.
Another important m-commerce transaction is to initiate and pay for purchases and services in
real time. The highest volume of m-commerce transactions using wireless devices in the days to
come is bound to occur on the side of micro-transactions. When individuals reach for their e-
cash-equipped mobile phones or PDAs instead of coins to settle micro transactions, such as
subway fees, widespread use of digital cash will become a reality.

The second important one is regarding digital content delivery. Wireless devices can retrieve
status information, such as weather, transit schedules, flash news, sports scores, ticket
availability and market prices, instantly from the providers of information and directory services.
Digital products, such as MP3 music, software, high-resolution images and full-motion
advertising messages, can be easily downloaded to and used in wireless devices when the 3G
transmission technology becomes usable. The proposed arrival of better display screen and
higher bandwidth will surely trigger the development of innovative video applications. This will
help wireless users to access, retrieve, store and display high-resolution video content for a time
of entertainment, product demonstration and e-learning.

The last major application of m-commerce is telemetry services, which include the monitoring of
space flights, meteorological data transmission, video-conference, the Global Positioning System
(Global Positioning System), wildlife tracking, camera control robotics, and oceanography. Thus
in the near future, wireless phones and appliances can be used by people to contact and
communicate with various devices from their homes, offices or any where at any time. For
example, delivery drivers will ping intelligent dispensing machines or users can transmit
messages to activate remote recording devices or service systems.

Passive Applications

This type of applications seems manifold and exciting. Instead of using dedicated cash cards for
automatic collection of toll charges, digital cash can be used by integrating cash cards with
mobile devices. Mobile users can easily pay and record payment of toll, mass-transit, fast-food,
and other other transactions

Nowadays mobile users can send and receive short text messages up to 160 characters that show
up on the user's display screen. As digital convergence becomes more commonplace, all kinds of
mail, such as e-mail, fax documents and digitized voice mail, can be received passively. Thus it
is felt that in near future there will be many novel services for mobile users for a fixed fee.
Further on, users may be tempted for some services free of cost for viewing audio or video
advertisement delivered to their wireless devices. Any kind of security breach, illegal intrusion,
unusual event or unacceptable condition will trigger automatic notification to users irrespective
of location. Airline companies are testing this technology to alert frequent air passengers
regarding seat availability and upgradation, to notify the changes made in the timings etc.
through wireless devices.

Passive m-commerce telemetry is the foundation of still another form of interactive marketing.
Stores will be able to market their products and services by constantly transmitting promotional
and inducing messages and doling out something towards getting the attention of both passers-by
and remote mobile users.

The general m-commerce applications are:

1. Mobile ticketing

Tickets can be sent to mobile phones using a variety of technologies. Users are then able to use
their tickets immediately by presenting their phones at the venue.

Tickets can be booked and cancelled on the mobile with the help of simple application
downloads or by accessing WAP portals of various Travel agents or direct service providers.
Mobile ticketing for airports, ballparks, and train stations, for example, will not only streamline
unexpected metropolitan traffic surges, but also help users remotely secure parking spots (even
while in their vehicles) and greatly facilitate mass surveillance at transport hubs.

2. Mobile vouchers, coupons and loyalty cards

Mobile ticketing technology can also be used for the distribution of vouchers, coupons and
loyalty cards. The voucher, coupon, or loyalty card is represented by a virtual token that is sent
to the mobile phone. Presenting a mobile phone with one of these tokens at the point of
sale allows the customer to receive the same benefits as another customer who has a loyalty card
or other paper coupon/voucher. Mobile delivery enables:

economy of scale
 quicker and easier delivery

effective target marketing

privacy-friendly data mining on consumer behaviour

environment-friendly and resources-saving efficacy

3. Content purchase and delivery

Currently, mobile content purchase and delivery mainly consists of the sale of ring-tones,
wallpapers, and games for mobile phones. The convergence of mobile phones, mp3 players and
video players into a single device will result in an increase in the purchase and delivery of full-
length music tracks and video. Download speeds, if increased to 4G levels, will make it possible
to buy a movie on a mobile device in a couple of seconds, while on the go.

4. Location-based services

Unlike a home PC, the location of the mobile phone user is an important piece of information
used during mobile commerce transactions. Knowing the location of the user allows for location
based services such as:

local maps

local offers

local weather

people tracking and monitoring

5. Information services

A wide variety of information services can be delivered to mobile phone users in much the same
way as it is delivered to PCs. These services include:

news services

stock data
 sports results

financial records

traffic data and information

Particularly, more customized traffic information, based on users' travel patterns, will be
multicast on a differentiated basis, instead of broadcasting the same news and data to all Users.
This type of multicasting will be suited for more bandwidth-intensive mobile equipment.

6. Mobile Banking

Banks and other financial institutions are exploring the use of mobile commerce to allow their
customers to not only access account information, but also make transactions, e.g. purchasing
stocks, remitting money, via mobile phones and other mobile equipment. This service is often
referred to as Mobile Banking or M-Banking. More negative issues like ID theft, phishing and
pharming are lurking when it comes to mobile banking, particularly done on the mobile web. Net
security technology free from redundancy and paradigm shifts away from mobile web-based
banking will be an optimal solution to mobile banking in the near future.

7. Mobile brokerage

Stock market services offered via mobile devices have also become more popular and are known
as Mobile Brokerage. They allow the subscriber to react to market developments in a timely
fashion and irrespective of their physical location.

8. Auctions

Over the past three years Mobile reverse action solutions have grown in popularity. Unlike
traditional auctions, the reverse auction (or low-bid auction) bills the consumer's phone each
time they place a bid. Many mobile PSMS commerce solutions rely on a one-time purchase or
one-time subscription; however, reverse auctions are high return applications as they allow the
consumer to transact over a long period of time.
9. Mobile purchase

Mobile purchase allows customers to shop online at any time in any location. Customers can
browse and order products while using a cheap, secure payment method. Instead of using paper
catalogues, retailers can send customers a list of products that the customer would be interested
in, directly to their mobile device or consumers can visit a mobile version of a retailer’s
ecommerce site. Additionally, retailers will also be able to track customers at all times and notify
them of discounts at local stores that the customer would be interested in.

10. Mobile marketing and advertising

Mobile marketing is an emerging concept, but the speed with which it's growing its roots is
remarkable. Mobile marketing is highly responsive sort of marketing campaign, especially from
brands’ experience point of view. And almost all brands are getting higher campaign response
rates. Corporations are now using m-commerce to expand everything from services to marketing
and advertisement. Although there are currently very few regulations on the use and abuses of
mobile commerce, this will change in the next few years. With the increased use of m-commerce
comes increased security. Cell phone companies are now spending more money to protect their
customers and their information from online intrusions and hackers.

6.6 Payment Methods

The main payment methods used to enable mobile commerce are:

premium-rate calling numbers,

charging to the mobile telephone user's bill or

Deducting from their calling credit.

Registration of a credit card that is linked to a Sim Card.

Categorisation of M-Payment Systems

Most e-payment systems are not suitable for use in a mobile context that is, using a mobile
device and communicating over a mobile telecommunication network. This is due to the special
characteristics of mobile devices and mobile telecommunications. In the following, we
categorise m-payment systems according to the whereabouts of the customer’s money:

1. Software electronic coins – electronic money stored on the mobile in file format.

2. Hardware electronic coins – electronic money stored on the mobile device on a smart
card.

3. Background account – electronic money stored in a remote account at a trusted third

party.

Software Electronic Coins

In this case, monetary value is stored on the mobile device and the customer has full control of
his/her money wherever he/she goes and whatever he/she does. An electronic coin is represented
as a file containing, among other information, a value, a serial number, a validity period and the
signature of the issuing bank. Since software electronic coins are easy to copy, the validity of an
electronic coin depends on its uniqueness in terms of its serial number. The customer transfers
electronic coins to the merchant, who forwards them to the issuing bank for the “double spending
test.”

Hardware Electronic Coins

In this case, monetary value is stored on a secure hardware token, typically a smart card, in the
mobile device. The presentation of electronic money is not important, as long as it is stored
securely on the smart card. Electronic money could be represented as a simple numeric counter.
In order to get to the money, the customer’s smart card and the merchant’s payment server
authenticate each other and a secure channel is set up between them. Then, electronic money can
be transferred from one to the other. This approach is quite attractive because smart cards
provide an additional level of mobility. That means the payment smart card can also be used in
POS transactions. E.g., Geldkarte, Mondex and Barclay card.

Background Account

Here, the money is stored remotely on an account at a trusted third party. Depending on the
specific payment system, the account could be a credit card account, a bank account, or an
account held at the network operator. For example, in some cases this data is sent in the clear
(e.g. a credit card authorisation) not providing any security against eavesdropping and in some
cases this information is encrypted and digitally signed, providing anonymity to the customer
(e.g. SET – Secure Electronic Transactions).

6.7 Key Issues of M-Commerce

The success of M-Commerce depends on:

Evolution: Technology and Business models are constantly evolving which will demand
flexibility and patience on part of all players.

Customer loyalty: Who will ‘own’ the customer? Partnerships among players from
various industries will be necessary for most, if not all, m-commerce initiatives, and, in
turn, will alter the nature of any one company to own their own customers.

Cross-sector knowledge gulf, where the different parties will need to learn about the
functions and limitations of the services provided by the other players, for example,
operators will need to know about content and applications.

Moving up the value chain: To respond to market opportunities some companies have
develop subsidiaries in order to react more rapidly to market challenges. For example,
Sonera has developed Sonera Zed, to provide portal and application management services
such as location based mobile yellow pages as well Smart Trust, to develop secure
solution for m-commerce transactions. And Citicorp has established e-Citi to develop a
wireless access gateway strategy for financial service providers.
End Chapter Quiz

Q1. WAP stands for ______________________.

Q2. Which of the following is a major characteristic of m-commerce?

a. Reachability

b. Ubiquity

c. Convenience

d. Localization

Q3. Which of the following is not a limitation of m-commerce?

a. Personalization

b. Bandwidth

c. Health hazard

d. graphics

Q4. Which of the following is not an advantage of m-commerce?

a. Ubiquity

b. Bandwidth

c. Localization

d. Personalization

Q5. Name three M-Commerce Applications: _____,______,________.