Chapter 1 - Introduction of ecommerce

According to the editor-in-chief of International Journal of Electronic Commerce, Vladimir Zwass, Electronic commerce is sharing business information, maintaining business relationships and conducting business transactions by means of telecommunications networks. Ecommerce is the use of international networked computers to create and transform business relationships. Applications provide business solutions that improve the quality of goods and services, increase the speed of service delivery, and reduce the cost of business operations. Its a new methodology of doing business in three focal areas: y y y Business-to-business Business-to-consumer Intra-business

It is most commonly associated with buying and selling information, products, and services via the Internet, but it is also used to transfer and share information within organizations through Intranets to improve decision-making and eliminate duplication of effort. The new paradigm of ecommerce is built not just on transactions but on building, sustaining and improving relationships, both existing and potential. E-commerce is a new way of doing business, available to companies of all sizes, to create new relationships and extensions to existing business built on relationships, networks and webs of activities. E-commerce levels the playing field for any organization that chooses to participate, small or large. Zwass defines e-commerce as The sharing of business information, maintaining business relationships, and the conducting business transactions by means of telecommunications networks. He pointed out that e-commerce includes not only buying and selling goods over Internet, but also various business processes within individual organizations that support the goal.

Four different types of information technology are converging to create the discipline of ecommerce: - Electronic messages email and fax - sharing a corporate digital library - Electronic document interchange utilizing EDI and electronic funds transfer - Electronic publishing to promote marketing, advertising, sales, and customer support.

Electronic Commerce: - Automates the conduct of business among enterprises, their customers, suppliers and employees - anytime, anywhere. - Creates interdependencies between your companys value chain and those of your suppliers and customers. Your company can create competitive advantage by optimizing and re-engineering those value chain links to the outside.

With the advent of the Internet, the term e-commerce began to include: y y Electronic trading of physical goods and of intangibles such as information. All the steps involved in trade, such as on-line marketing, ordering payment and support for delivery. y y The electronic provision of services such as after sales support or on-line legal advice. Electronic support for collaboration between companies such as collaborative on-line design and engineering or virtual business consultancy teams.

The wide range of business activities related to e-commerce brought about a range of other new terms and phrases to describe the Internet phenomenon in other business sectors. Some of these focus on purchasing from on-line stores on the Internet. Since transactions go through the Internet and the Web, the terms I-commerce (Internet commerce), icommerce and even Webcommerce have been suggested but are now very rarely used. Other terms that are used for online retail selling include e-tailing, virtual-stores or cyber stores. A collection of these virtual stores is sometimes gathered into a virtual mall or cybermall.

Evolution of E-commerce We will discuss the evolution of the E-commerce through an example (reservation in the airlines). American Airlines' first pioneering effort with reservations was the "request and reply" system used in the 1930s. A reservations agent would telephone the central control point where inventory was maintained to inquire about space available on a flight, and a response would be returned via Teletype. 1940s: Through the mid-1940s reservations were recorded manually with a pencil on different colored index cards, and flights were controlled by half a dozen employees. In some reservations offices, a wall-sized status board was installed to display seat space available on each flight. It has been quickly discovered that the normal manner of reservations and transacting business accompanied by paper orderscould not keep up with the necessary needs. In order to break the paper bottleneck, Edward A. Guilbert , set up a system of ordering via telex, radio-teletype, and telephone. American developed the industry's first electrical/mechanical device for controlling seat inventory in 1946. It was called the Availability Reservisor, and it applied basic computer file technology to the task of tracking American's seats and flights. Even though it couldn't sell the seat or cancel a reservation, the system represented a milestone in adapting electronics to airline reservations. 1950s: By 1952, the airline had added basic computer file technology a random access memory drum and arithmetic capabilities to the Reservisor. With the Magnetronic Reservisor a reservations agent could check seat availability and automatically sell or cancel seats on the electronic drum. As advanced as this was for its time, the airline reservations process was still intensely manual. In 1953, Mr. Smiths and Los Angeles developed a data processing system that would create a complete reservation and make all the data available to any location throughout American's system. It was called a Semi-Automated Business Research Environment better known today as SABRE. American's initial research, development and installation investment in this system was almost $40 million.

1970s: In May 1976, American installed its first SABRE unit in a travel agency. By the end of the decade, SABRE had more than 1,000 travel agency customers. Today, more than 300,000 devices in 74 countries on six continents are connected to SABRE. 1980s & 1990s: What began as a system for American Airlines to keep track of seats sold on its flights has evolved into an electronic travel supermarket used by travel professionals, corporations and consumers worldwide to book airline, car and hotel reservations as well as to order theater tickets, bon voyage gifts, flowers and other travel-related goods and services. The introduction of easy SABRE in 1985 allowed personal computer users to tap into SABRE to access air, hotel and car reservations. Through SABRE - the recognized leader in the travel industry - an estimated $45 billion in travel products is booked each year. SABRE has evolved into the world's largest privately owned real-time computer network and has processed a record high 4,176 message per second. In 1995 SABRE helped develop Travelocity allowing ticket purchase and flight information via the Web. Characteristics of Electronic Commerce The tools are electronic but the application is commerce. - Commerce is not accounting or decision support or any other internally focuses function. - Commerce is externally focused on those with whom you do business. - Commerce is doing business, not reporting on it or sending messages about it.

Special characteristics of electronic commerce and Web commerce: - Information exchanged and processed by a communications network and computers, as well as e-commerce software. - Most transactions are processed automatically. - Pulls together a gamut of business support services, such as y y Inter-organizational e-mail, on-line directories Trading support systems for commodities

y y y y

Products, and customized products Custom-built goods and services Ordering and logistic support system supports Management and statistical reporting systems

WHAT ARE THE KEY DRIVERS? It is important to identify the key drivers of e-commerce to allow a comparison between different countries. It is often claimed that e-commerce is more advanced in the USA than in Europe. These key drivers can be measured by a number of criteria that can highlight the stages of advancement of e-commerce in each of the respective countries. The criteria that can determine the level of advancement of e-commerce are summarised in can be categorised as: y Technological factors The degree of advancement of the telecommunications infrastructure which provides access to the new technology for business and consumers. y Political factors including the role of government in creating government legislation, initiatives and funding to support the use and development of e-commerce and information technology. y Social factors incorporating the level and advancement in IT education and training which will enable both potential buyers and the workforce to understand and use the new technology. y Economic factors including the general wealth and commercial health of the nation and the elements that contribute to it.

Since a distinction has been made in this book between e-commerce and e-business for consistency, the key drivers of e-business are also identified. These are mainly at the level of the firm and are influenced by the macro-environment and e-commerce, which include: y Organisational culture attitudes to research and development (R&D); its willingness to innovate and use technology to achieve objectives. y Commercial benefits in terms of cost savings and improved efficiency that impact on the financial performance of the firm.

Skilled and committed workforce that understands, is willing and able to implement new technologies and processes.

Requirements of customers and suppliers in terms of product and service demand and supply.

Competition ensuring the organization stays ahead of or at least keeps up with competitors and industry leaders.

Differences between Electronic Commerce and traditional commerce

The major difference is the way information is exchanged and processed: Traditional commerce: face-to-face, telephone lines , or mail systems manual processing of traditional business transactions individual involved in all stages of business transactions

E-Commerce: using Internet or other network communication technology automated processing of business transactions individual involved in all stages of transactions pulls together all activities of business transactions, marketing and advertising as well as service and customer support

Benefits of e-commerce to organizations

1. International marketplace - What used to be a single physical marketplace located in a geographical area has now become a borderless marketplace including national and international markets. By becoming e-commerce enabled, businesses now have access to people all around the world. In effect all e-commerce businesses have become virtual multinational corporations.

2. Operational cost savings - The cost of creating, processing, distributing, storing and retrieving paper-based information has decreased (see Intel mini-case). 3. Mass customization - E-commerce has revolutionized the way consumers buy goods and services. The pull-type processing allows for products and services to be customized to the customers requirements. In the past when Ford first started making motor cars, customers could have any color so long as it was black. Now customers can configure a car according to their specifications within minutes on-line via the www.ford.com website. 4. Enables reduced inventories and overheads by facilitating pull-type supply chain management this is based on collecting the customer order and then delivering through JIT (just-in-time) manufacturing. This is particularly beneficial for companies in the high technology sector, where stocks of components held could quickly become obsolete within months. For example, companies like Motorola (mobile phones), and Dell (computers) gather customer orders for a product, transmit them electronically to the manufacturing plant where they are manufactured according to the customers specifications (like color and features) and then sent to the customer within a few days. 5. Lower telecommunications cost - The Internet is much cheaper than value added networks (VANs) which were based on leasing telephone lines for the sole use of the organization and its authorized partners. It is also cheaper to send a fax or e-mail via the Internet than direct dialing. 6. Digitization of products and processes - Particularly in the case of software and music/video products, this can be downloaded or e-mailed directly to customers via the Internet in digital or electronic format. 7. No more 24-hour-time constraints - Businesses can be contacted by or contact customers or suppliers at any time.

Benefits of e-commerce to consumers 1. 24/7 access - Enables customers to shop or conduct other transactions 24 hours a day, all year round from almost any location. For example checking balances, making payments, obtaining travel and other information. In one case a pop star set up web cameras in every room in his house, so that he could check the status of his home by logging onto the Internet when he was away from home on tour.

2. More choices - Customers not only have a whole range of products that they can choose from and customize, but also an international selection of suppliers. 3. Price comparisons - Customers can shop around the world and conduct comparisons either directly by visiting different sites, or by visiting a single site where prices are aggregated from a number of providers and compared (for example

www.moneyextra.co.uk for financial products and services). 4. Improved delivery processes - This can range from the immediate delivery of digitized or electronic goods such as software or audio-visual files by downloading via the Internet, to the on-line tracking of the progress of packages being delivered by mail or courier. 5. An environment of competition where substantial discounts can be found or value added, as different retailers vie for customers. It also allows many individual customers to aggregate their orders together into a single order presented to wholesalers or manufacturers and obtain a more competitive price (aggregate buying), for example www.letsbuyit.com.

Benefits of e-commerce to society

1. Enables more flexible working practices - This enhances the quality of life for a whole host of people in society, enabling them to work from home. Not only is this more convenient and provides happier and less stressful working environments, it also

potentially reduces environmental pollution as fewer people have to travel to work regularly.

2. Connects people - Enables people in developing countries and rural areas to enjoy and access products, services, information and other people which otherwise would not be so easily available to them. 3. Facilitates delivery of public services - For example, health services available over the Internet (on-line consultation with doctors or nurses), filing taxes over the Internet through the Inland Revenue website.

Limitations of e-commerce to organizations

1. Lack of sufficient system security, reliability, standards and communication protocols - There are numerous reports of websites and databases being hacked into, and security holes in software. For example, Microsoft has over the years issued many security notices and patches for their software. Several banking and other business websites, including Barclays Bank, Powergen and even the Consumers Association in the UK, have experienced breaches in security where a technical oversight or a fault in its systems led to confidential client information becoming available to all.

2. Rapidly evolving and changing technology - so there is always a feeling of trying to catch up and not be left behind. 3. Under pressure to innovate and develop business models - to exploit the new opportunities which sometimes leads to strategies detrimental to the organization. The ease with which business models can be copied and emulated over the Internet increases that pressure and curtails longer-term competitive advantage. 4. Facing increased competition from both national and international competitors often leads to price wars and subsequent unsustainable losses for the organization.

5. Problems with compatibility of older and newer technology - There are problems where older business systems cannot communicate with web based and Internet infrastructures, leading to some organizations running almost two independent systems where data cannot be shared. This often leads to having to invest in new systems or an infrastructure, which bridges the different systems. In both cases this is both financially costly as well as disruptive to the efficient running of organizations.

Limitations of e-commerce to consumers 1. Computing equipment is needed for individuals to participate in the new digital economy, which means an initial capital cost to customers.

2. A basic technical knowledge is required of both computing equipment and navigation of the Internet and the World Wide Web. 3. Cost of access to the Internet, whether dial-up or broadband tariffs. 4. Cost of computing equipment - Not just the initial cost of buying equipment but making sure that the technology is updated regularly to be compatible with the changing requirement of the Internet, websites and applications. 5. Lack of security and privacy of personal data - There is no real control of data that is collected over the Web or Internet. Data protection laws are not universal and so websites hosted in different countries may or may not have laws which protect privacy of personal data. 6. Physical contact and relationships are replaced by electronic processes - Customers are unable to touch and feel goods being sold on-line or gauge voices and reactions of human beings. A lack of trust because they are interacting with faceless computers.

Limitations of e-commerce to society 1. Breakdown in human interaction - As people become more used to interacting electronically there could be an erosion of personal and social skills which might eventually be detrimental to the world we live in where people are more comfortable interacting with a screen than face to face.

2. Social division - There is a potential danger that there will be an increase in the social divide between technical haves and have-nots so people who do not have technical skills become unable to secure better-paid jobs and could form an underclass with potentially dangerous implications for social stability. 3. Reliance on telecommunications infrastructure, power and IT skills - which in developing countries nullifies the benefits when power, advanced telecommunications infrastructures and IT skills are unavailable or scarce or underdeveloped. 4. Wasted resources - As new technology dates quickly how you do dispose of all the old computers, keyboards, monitors, speakers and other hardware or software? 5. Facilitates Just-In-Time manufacturing - This could potentially cripple an economy in times of crisis as stocks are kept to a minimum and delivery patterns are based on pre-set levels of stock which last for days rather than weeks. 6. Difficulty in policing the Internet, which means that numerous crimes can be perpetrated and often go undetected - There is also an unpleasant rise in the availability and access of obscene material and ease with which pedophiles and others can entrap children by masquerading in chat rooms.